Over the last month, Bitcoin’s price (BTC) has correlated tightly with stocks. Here’s what could be causing it.
The last week saw hundreds of billions of dollars wiped from the cryptocurrency industry’s overall market cap. Bitcoin’s price is down 8.8% over the last 7 days. Ethereum’s price (ETH) is down 15.4%. Binance Coin BNB) is down a further 17.9% over the same period. And pity the Dogecoin holder (DOGE) who bought last Saturday for a 20% loss by today.
In fact, all of the top ten cryptocurrencies by market cap, other than Solana (SOL), are in the red for the week.
Why Is Bitcoin’s Price Falling With Good News?
The market route has tempted a central bank governor to issue another one of those Bitcoin obituaries. But cryptocurrency traders could be forgiven for thinking this week was going to be really rad for Bitcoin’s price at exchange.
In El Salvador, an entire sovereign government just embraced Bitcoin as an official currency. The total Bitcoin network’s hash power has come roaring back from the expulsion of miners from China. The hash rate has nearly doubled since its late-June lows.
Plus, there’s been a wave of big money pouring capital into Bitcoin. As Institutional Investor noted on Aug 26 that these massive investments (sometimes in $30 million blocks of bitcoin) are indeed coming from institutional investors:
“This came from Coinbase, a prominent cryptocurrency platform with a service that essentially acts as a prime broker for institutions. Its first-quarter report revealed that of the $335 billion in trades the company did in Q1 2021, $215 billion came from institutional investors.”
But that could be exactly why Bitcoin’s price has plummeted over the last week, despite all these positive signs for the blockchain’s business fundamentals. Institutional investors also went risk off this week in equities, with major stock indexes all down for the week too.
Are Institutions Bringing BTC into Correlation with Stocks?
This is what the industry’s stakeholders are bargaining for when they cheer on the institutional adoption of Bitcoin. Along with all their capitalization comes their capitulations, and Bitcoin becomes an increasingly correlated asset roiled like high-tech stocks by broader market movements. It just has more dramatic crests and troughs along the way.
When we chart Bitcoin’s price over the past month against the S&P 500 Index’s gains and losses, we see a strong correlation. Of course, BTC has a more dramatic and volatile curve, but there’s an unmistakable correlation all month at a glance. When we add in the Dow Jones Industrial Average, NASDAQ Composite, and UK100 or FTSE 100 Index, the correlation is further validated. The major stock indexes and Bitcoin’s price are moving in concert.
Blue: BTCUSD | Orange: S&P 500 Index | Indigo: NASDAQ Composite | Teal: Dow Jones Industrial Average | Gold: FTSE 100 1-month chart | Source: TradingView
The S&P 500 was down 1.63% for the last five days. The Dow was down 2.24%. The NASDAQ fell 1.29%. And the FTSE 100 was down 1.53%.
Institutional investors are pragmatic, cautious, and seek to maximize returns and mitigate losses. They don’t share the ideological convictions of Bitcoin hodlers or their wilder expectations for Bitcoin’s price. As they continue pouring into crypto, traders will have to constantly reevaluate and price in their froth and selling hands.
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A popular crypto trader is eyeing three altcoins that could mimic Solana’s recent historic rise.
Solana (SOL) has climbed to the sixth-ranked cryptocurrency, according to CoinGecko. Currently trading at $175, the smart contract platform is up more than 600% from its July low of $23.47.
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Crypto trader and market analyst Michaël van de Poppe is keeping close tabs on decentralized blockchain platforms Tezos (XTZ), Polkadot (DOT), and Cosmos (ATOM) after SOL’s breakout to a new all-time high.
He tells his 123,000 YouTube subscribers ATOM looks ready to run based on its underlying market structure.
“If I would have to choose a coin that’s going to follow Solana and it has to be a layer-one solution, it’d either be Tezos, Polkadot, or it’s going to be Cosmos, and given the structure, it looks amazing.”
Van de Poppe says that ATOM is trading within a two-year accumulation period against Bitcoin and that he’s looking for a retest of the 0.00051 BTC level ($22.88) after the token began trading in an uptrend against BTC in August.
As for where ATOM is headed next, Van de Poppe is paying attention to two key price levels.
“Nice retest off the ($17.47) level, regained everything that it lost in the crash a few days ago, and I think that we’re going to continue moving and we’re going to break the highs through which the next target zone I am looking at for Cosmos is $47.50 and $72.”
At the time of writing, ATOM is trading at $26.98, according to CoinGecko.
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Bitcoin, and cryptocurrencies in general, has been a controversial topic for a long time. There are many words for what cryptocurrencies pretend to be but are not: decentralized, safe, fair, valuable, stable, a currency, honest, a solution, the future.
Much like many other central bankers, Sweden’s Central Bank governor is very skeptical about Bitcoin trading.
The Sveriges Riksbank Governor’s Take On Bitcoin
According to a Bloomberg article, the governor of Sveriges Riksbank, the central bank of Sweden, questioned the staying power of currencies without government backing. He compared buying and selling Bitcoins to trading stamps.
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Speaking at a banking conference in Stockholm, Sveriges Riksbank governor Stefan Ingves argued, “Private money usually collapses sooner or later,”. Further remarking, he said, “And sure, you can get rich by trading in bitcoin, but it’s comparable to trading in stamps.”
Earlier this year, Ingves said that Bitcoin and other cryptocurrencies are unlikely to escape regulatory oversight as their popularity grows.
Related Reading | Sweden to Bring Forward Launch of State-Backed Digital Currency e-Krona
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Despite his opinion of Bitcoin’s deficiencies as a currency, Ingves has taken its reputation among investors seriously. Highlighting consumer interests and money laundering as being of particular concern, the central banker conceded this June that the cryptocurrency had gotten “big enough” to merit close attention from regulators, central bankers, and lawmakers across the globe.
Cryptocurrencies And Central Bank Governors
Ingves’s remarks are in line with what other central bankers have said about crypto. Some central bankers have compared it to the tulip bubble of the 17th century, which ended in collapse.
Related Reading | Bitcoin Outlives Tulip, Dotcom, and Every Notorious Market Bubble
In February, Ireland’s central bank governor Gabriel Makhlouf said bitcoin investors should be ready to lose all their money. “Personally, I wouldn’t put my money into it, but clearly, some people think it’s a good bet,” Makhlouf said. “Three hundred years ago, people put money into tulips because they thought it was an investment.”
Related Reading | Bank of England Governor Still Isn’t a Fan of Bitcoin
Similarly, Bank of England governor Andrew Bailey said cryptocurrencies have no intrinsic value and may crash to zero. “I’m sorry, I’m going to say this very bluntly again: buy them only if you’re prepared to lose all your money,” Bailey said. “I would only emphasize what I’ve said quite a few times in recent years. I’m afraid they have no intrinsic value,”
BTC trading above $45K | Source: BTCUSD on TradingView.com
Around the world, central banks in countries such as China, Ghana, South Korea, Japan, and Switzerland have started researching, experimenting with, and testing the launch of Central Bank Digital Currencies. The Federal Reserve has also said it is researching the pros and cons of creating a CBDC for the United States.
Meanwhile, El Salvador made history this week by adopting Bitcoin as legal tender.
Featured image from Financial Times, Chart from TradingView.com
In the last 24-hours, Terra (LUNA), a blockchain protocol focused on building a global payments system powered by the UST stablecoin, rallied to a new all-time high at $45.
LUNA/USDT 1-day chart. Source: TradingView
Data from Cointelegraph Markets Pro and TradingView shows that since bottoming at a low of $5.61 on July 20, the price of LUNA has ripped 720% higher to a record high at $45 on Sept. 10.
The swift rally also lifted the total value locked (TVL) on the Terra protocol to a new all-time high at $7.83 billion on Sept. 5, making Terra the fourth-ranked blockchain platform by TVL according to Defi Llama.
Total value locked on Terra. Source: Defi Llama
Related:Altcoin Roundup: Layer-one protocols chip away at Ethereum’s dominance.
A new funding initiative boosts LUNA price
A scroll through the project’s Twitter feed shows that the surge in price followed the announcement of ‘Project Dawn’, a new funding initiative for the Terra ecosystem meant to help improve critical infrastructure and accelerate the growth of the ecosystem.
1/ TFL is announcing Project Dawn, a new funding initiative for critical infrastructure improvements and core technologies to supplement the accelerating growth of the Terra ecosystem.
Details: https://t.co/Viv9VkAApT
— Do Kwon (@stablekwon) September 9, 2021
According to Terra co-founder Do Kwon, Project Dawn has allocated $150 million to “build a core Cosmos contributor organization, invest in the ecosystem’s node infrastructure, and diversify the validator and oracle infrastructure.”
Another source of excitement for the Terra community is the upcoming launch of its Colombus-5 mainnet upgrade on Sept. 29, which is “Terra’s most significant mainnet upgrade” according to the project.
1/ The Columbus-5 mainnet deployment will be delayed ~3 weeks until a new block height of 4,724,000, roughly equivalent to the following times:
9/29 at 20:30 PST
9/30 at 03:30 UTC
9/30 at 12:30 KST
— Terra (UST) Powered by LUNA (@terra_money) September 1, 2021
On top of developments to the main protocol, LUNA price has also benefited from the expansion of the Terra ecosystem which has seen new DeFi protocols like AlphaDeFi launch and begin to attract liquidity.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
An Ethereum competitor is launching a $300 million fund to support decentralized finance (DeFi) innovation on its network.
Blockchain company Algorand Foundation is putting 150 million ALGO, worth $309 million at time of writing, into the Viridis DeFi Program in an effort to fuel the growth of development on its platform.
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Sean Lee, chief executive officer of the Algorand Foundation, says the fund will help accelerate the adoption of DeFi across the project’s ecosystem.
“Creating the right infrastructure, application ecosystem, and liquidity will be key to ensuring that DeFi on Algorand is regarded as the world’s most energy-efficient, scalable and low-cost DeFi ecosystem.”
The first 100 million ALGO will be devoted to providing support and liquidity incentives to the Algorand DeFi ecosystem. The other 50 million ALGO will be earmarked for the development of DeFi infrastructure and applications (DApps).
ALGO has been surging in price this week as most of the cryptocurrency market suffers through a correction. The 18th-ranked asset by market cap is trading at $2.06 at time of writing and is up 68.4% in the past seven days, according to CoinGecko.
Popular crypto trader and analyst Lark Davis says the existence of these ecosystem funds is a bullish development for the sector overall.
“Most of the big chains have announced multi-hundred million dollar funds to bootstrap ecosystems over the last few weeks. No one is bullish enough!”
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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
Coming every Saturday,Hodler’s Digestwill help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more — a week on Cointelegraph in one link.
Top Stories This Week
Ukraine passes legislation to recognize and regulate crypto
The Ukrainian parliament adopted the draft law “On Virtual Assets” Wednesday, which legally recognizes crypto in the country for the first time.
Anastasia Bratko of the Ministry of Digital Transformation said the law allows companies to launch digital asset markets in Ukraine and enables banks to “open accounts for crypto companies.”
Earlier this week, Panama also introduced a bill that aims to recognize Bitcoin (BTC) as analternative payment optionand enable the freedom to use crypto assets.
Russia also got in on the action, with Anatoly Aksakov — the chairman of the Russian State Duma Committee on Financial Market — claiming that lawmakers are now weighing up the idea ofrecognizing the crypto mining industryas a form of entrepreneurship under local business laws.
101 Bored Apes NFT auction at Sotheby’s closes at more than $24M
Yuga Labs, the creators of the immensely popular NFT project Bored Ape Yacht Club, auctioned off a collection of 101 tokenized apes for $24 million this week.
The auction closed on Sept. 10 and was hosted by Sotheby’s, which estimated that the collection would fetch between $12 million and $18 million. Given that the winning bid was $24 million, each Bored Ape in the collection was valued at an average price of roughly $241,000, or 71.24 Ether (ETH), at the time of publication. The figure tallies in well above the floor price on OpenSea’s secondary market of 34 ETH ($115,000 at time of writing).
In some rare nonfungible-based FUD, however, reports surfaced earlier this week that the NFL had barred all teams and members fromcrypto-related sponsorships, advertisements and NFT sales. The league appears to be putting a pause on crypto hype until it establishes a strategy “for sports digital trading cards and art.”
Insiders sold MicroStrategy stock after Bitcoin’s bull run
While MicroStrategy continues to snap up and hodl outrageous amounts of Bitcoin under the guidance of CEO Michael Saylor, strategists have posited that top executives at the firm might not be so fond of the current business model.
Recent filings with the SEC revealed that the company’s top-level execs, such as chief financial officer Phong Le and chief technology officer Timothy Lang, both sold off stock in August of this year by exercising around 30% of the options they received as compensation. Saylor himself has not sold any shares since 2012.
Matt Maley, the chief market strategist of Miller Tabak + Co. has argued that the decisions may reflect concerns about the long-term viability of Saylor’s “hodl modl” and his laser-eyed commitment to tying the company’s fate so closely to the price of BTC increasing over time.
“Senior executives do not sell stock if they think it’s going higher. It’s just a bad sign no matter how you slice it,” Maley said.
El Salvador purchases first 200 BTC, President Bukele confirms
El Salvador President Nayib Bukele revealed Monday that the government had snapped up 200 BTC in preparation for theBitcoin Law going liveon Tuesday. The law recognizes digital gold as legal tender.
While the BTC price crashed following the major news event, Bukele was unfazed as the government “bought the dip” bypurchasing another 150 BTCduring the depths of the mass sell-off that saw the price dip below $43,000.
Regarding the Bitcoin Law, Javier Argueta, the legal counsel to the Presidential House of El Salvador, reportedlyclarified the obligations of businessesa day before it went into effect. Argueta stated that businesses are mandated to hold a crypto wallet and accept BTC from customers — but they are also able to choose whether they will receive BTC or USD once the transaction is settled.
Journalist Aaron van Wirdum tweeted about his adventure to aSalvadoran McDonald’son Tuesday to see if he could make a purchase with BTC and, to his surprise, he was able to load up on the breakfast menu using the newly recognized legal tender.
Sell or hodl? How to prepare for the end of the bull run, Part 1 and Part 2
Cointelegraph’s Andrew Fenton questioned some of the smartest brains in crypto on how to prepare for the end of the bull run and got their takes on the possibility of using on-chain metrics to predict the market crash.
In the two-part series, there are contrasting sets of views regarding the possibility of predicting when crypto winter hits, with Bobby Lee — the brother of Litecoin’s founder Charlie — swearing by the “halving price cycle” school of thought.
Meanwhile, Quantum Economics’ Mati Greenspan and Wolf of All Streets’ Scott Melker believe it’s best to play it safe and take profits on the way up while maintaining a portfolio that doesn’t require you to predict events in advance.
Winners and Losers
At the end of the week, Bitcoin is at$45,529, Ether at$3,305and XRP at$1.07. The total market cap is at$2.05 trillion,accordingto CoinMarketCap.
Among the biggest 100 cryptocurrencies, the top three altcoin gainers of the week are Quant(QNT)at 88.16%, Fantom(FTM)at 69.43% and Algorand(ALGO)at 59.54%.
The top three altcoin losers of the week are Telcoin(TEL)at -24.70%, Revain(REV)at -24.16% and Uniswap(UNI)at -24.38%.
For more info on crypto prices, make sure to readCointelegraph’s market analysis.
Most Memorable Quotations
“So why should we regulate purely speculative digital tokens? And if we do regulate these tokens, will this lead people to think that they are bona fide investments? That is, will the involvement of the FCA give them a ’halo effect’ that raises unrealistic expectations of consumer protection?”
Charles Randell, chair of the United Kingdom Financial Conduct Authority
“Cryptocurrencies should be paid for through normal payment channels. If they are not, it should be deemed mined, and capital gains tax must be levied. That is like voluntary disclosure.”
Rama Subramaniam Gandhi, former deputy governor of the Reserve Bank of India
“Merchants stand to benefit considerably from the cryptocurrency model, as card network fees are entirely removed from the equation and the customer/payer bears the transaction costs.”
Afterpay
“In the coming years, many more nation-states will use crypto as part of their monetary policy, either as reserves in their central banks or using cryptocurrency rails for central bank settlements, […] or potentially just simply taking a cryptocurrency — as El Salvador has done — and make it the national currency.”
Charles Hoskinson, founder of Cardano
“Crypto is not just Bitcoin being bought as a hedge against bad monetary fiscal policy. But maybe, more importantly, it’s Web 3.0. It’s the internet of value transfer.”
Mike Novogratz, CEO of Galaxy Digital
“Everyone has to wait and see what the SEC will issue as regulation. Looks like Coinbase wants to take the SEC to court like XRP and prove they went beyond their charter.”
Alex Mashinsky, CEO and co-founder of Celsius Network
“Although it’s in reverse, because gold went from being money to being an asset class in the ‘70s, and Bitcoin is kind of going from being an asset class to also being a currency or being money.”
Jurrien Timmer, director at Fidelity Investments
“The SEC has repeatedly asked our industry to ‘talk to us, come in.’ We did that here. But today all we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued.”
Paul Grewal, chief legal officer of Coinbase
Prediction of the Week
Solana rally mimicking Ethereum? Why a $500 SOL price target could be ‘conservative’
Early this week, the overall crypto market suffered significant downward price action led by its market leader Bitcoin. BTC fell by roughly $10,000 from its pricing above $50,000.
The altcoin market followed BTC’s downward price action for the most part, although Solana (SOL) seemingly carved out its own path. The asset ended up largely bullish during the week, rallying in price after the market dump, while Bitcoin and other assets looked to stabilize. SOL notched a personal best in price this week, hitting an all-time high of around $217.
SOL’s underlying blockchain operates similarly to Ethereum in that it’s a blockchain for building solutions. Solana has seen increasing utility in the NFT and DeFi niches, which represent two of crypto’s biggest trends.
Mercuryo chief operating officer and co-founder Greg Waisman expressed that a $500 price target for SOL by the end of 2021 is not out of the question.“Solana’s growth runs appear to be mimicking that of Ethereum (ETH) and Binance Coin (BNB), and the $500 projection may turn out to be a conservative one for the coin,” Waisman told Cointelegraph.
FUD of the Week
SEC threatens to sue Coinbase over crypto yield program it considers a security
Coinbase CEO Brian Armstrong caused a stir this week after he tweeted a 21-post thread about the SEC’s recent “sketchy behaviour.”
On Tuesday, Armstrong claimed that the enforcement body had threatened to sue Coinbase if it launched its USD Coin-based (USDC) lending program that the SEC asserted was a security.
According to Armstrong, the crypto exchange approached the SEC in good faith to provide a brief of the project. However, the enforcer’s response was quite aggressive and provided zero explanation as to why it defined the lending program as a security.
“They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why,” he said.
Thai SEC intends to revoke operating license of Huobi crypto exchange
In some non-U.S. related FUD for a change, it was reported on Tuesday that Thailand’s Securities and Exchange Commission, or SEC, had temporarily suspended the services of the local branch of the Houbi crypto exchange. The Thai SEC also recommended revoking its operating license with the Ministry of Finance.
Huobi, branded as DSDack in Thailand, was slapped with suspension after itsoperational and management structure was deemed to be non-compliant with local regulations. The SEC asserted that it first informed the crypto exchange about the compliance breach back in February, and it was given until the end of August to get its act together.
However, after failing to remedy the issues, the SEC swooped in and gave the firm three months to return all assets to its clients.
Bitcoin price plunges below $43K in minutes in crypto market rout
Bitcoin plunged this week as the price dropped from around $52,300 on Tuesday to below $43,000 the following day — marking one of the most volatile days of the year.
The timing coincided with the day that El Salvador made BTC legal tender, which caused some pundits to connect the dots and assert that whales had colluded to blow the fish out of the water amid a news event that should have been a bullish signal.
Trader and analyst Scott Melker, known as “The Wolf of All Streets,” blamed large-volume traders, as he stated, “leave it to whales to dump Bitcoin on the day that El Salvador makes it legal tender.”
“Real volume on the selling as well,” he added.
Best Cointelegraph Features
Project Giant: Nigeria’s CBDC set for pilot rollout on Independence Day
Nigeria’s central bank digital currency will go into pilot testing on Oct. 1 with a tiered AML/KYC regime for the eNaira.
Sell or hodl? How to prepare for the end of the bull run, Part 2
“People should be taking profit on the way up just as you should be dollar-cost averaging into an asset on the way down.”
Shanghai Man: China declares victory over crypto — Is this the end of the crackdown?
The People’s Bank of China released a report announcing actions to stop digital asset fraud have been completed. Will NFTs and GameFi be able to flourish in the regulatory wake?
A top executive at Grayscale says emerging nations are gradually being drawn toward Bitcoin (BTC).
In a Yahoo! Finance interview, chief executive officer Michael Sonnenshein of the crypto investment company says certain regions of the world will embrace Bitcoin (BTC) whether their governments take action or not.
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“When we think about where adoption rates are taking place, they are highest in the emerging markets, in places like Africa, Southeast Asia [and] parts of South America.
But certainly, we’re seeing a gravitation towards Bitcoin regardless of government action in some of these countries because a lot of these citizens either don’t have access to financial services… or perhaps their local currencies have been debased or have been eroded in some way because there hasn’t been enough government control over their local currency.”
Sonnenshein says Grayscale predicted that an emerging market would one day support BTC and other emerging economies could soon follow in El Salvador’s footsteps.
“Being a country like El Salvador and actually making Bitcoin a legal tender, I mean that’s an incredible milestone for this community.
We’ve long believed that the emerging markets would be an important place where we’d see Bitcoin adoption, and I think we’re going to see a knock-off effect of other countries also considering this.”
Grayscale manages the Grayscale Bitcoin Investment Trust (GBTC), which launched in 2013 and was the first securities fund to be exclusively invested in Bitcoin.
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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
Featured Image: Shutterstock/Dmitriy Rybin/Vladimir Sazonov
Decentralized lending protocol Pledge has secured $3 million in investments for its cross-chain ecosystem focused on long-term financing, highlighting the continued innovation in the DeFi sector.
The investment round was led by DHVC, a Palo Alto-based venture capital firm, with additional participation from U.C. Berkeley professor Gary LaBlanc and Stanford University community members Ray Wong and Torsten Wendl. The raise will aid Pledge in its mission to become a premier crypto-asset lending platform that eventually paves the way for tokenized real-world financial assets.
Pledge was created by a group of blockchain-focused researchers at Stanford University, including professor David Tse, Nicole Chang, Ray Wong and Torsten Wendl. Aforementioned professor Gary LaBlanc also contributed to the protocol.
Utilizing Binance Smart Chain, Pledge aims to facilitate long-term financing for crypto holders, something the researchers say has yet to be addressed in the industry. The protocol achieves this goal by allowing users to diversify their portfolios with non-crypto assets without being exposed to interest-rate volatility.
The protocol is powered by Pledge Tokens, or PLGR, which have a total supply of 3 billion. No market data is currently available for PLGR.
DeFi lending markets have exploded in popularity this year, attracting an influx of new users on the promise of higher yields and increased access to new markets. While Aave dominates the DeFi lending market, several protocols have launched over the past year, each one providing its own value proposition.
Related:DeFi attracts 2.91M Ethereum addresses, according to ConsenSys
Currently, just under $44 billion in total value has been locked into DeFi lending markets, according to industry data. That accounts for just over half of the total DeFi market.
DeFi’s growth has attracted unwanted attention from regulators who are growing more concerned about investor protections and whether certain assets fall under federal security laws. As Cointelegraph recently reported, the United States Securities and Exchange Commission has warned cryptocurrency exchange Coinbase that its proposed yield program violates securities laws.
Related:SEC vs. Coinbase: Alex Mashinsky says Celsius will have to ‘wait and see’ on fallout
Rick Rieder, the managing director of BlackRock, Inc., said in an interview on CNBC’s “Squawk Box” Thursday that he could see the Bitcoin price (BTC) “go up significantly.” That’s a welcome word for bitcoin traders this week, with the price back down to the $45K handle.
That doesn’t by any means make Mr. Rieder, the CIO for the world’s largest asset management company (with $9 trillion in assets under management), an all-out Bitcoin bull.
He cautioned that the bitcoin price is very volatile and questioned the alternative asset thesis that bitcoin makes a good hedge.
Why The BlackRock CIO Is Long BTC
During the Squawk Box segment, Rieder said:
“First of all I’ll say on crypto— people describe it as a hedge or alternative. I’m not sure it’s a really great hedge. I mean the correlation to equities, the correlation to risk assets. I’m not sure it’s a great hedge.”
Adding:
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“By the way— so when an asset moves ten to fifteen percent a day, it’s really hard to hedge big organic asset pools with that as a hedge.”
But Rieder’s still bullish Bitcoin and told viewers why he keeps a moderate long Bitcoin position in his portfolio:
“Listen, I’ve said… part of why I own a small piece of bitcoin is I do think there are more people that are going to enter that fray over time. We have a very moderate position in our portfolio. I like assets quite frankly that are volatile, that have upside convexity, and I could see bitcoin like it’s done. I could see it go up significantly.”
Rick Rieder, Source: CNBC
Rieder also clarified that he doesn’t believe Bitcoin is a “core asset” like fixed income (bonds) or equities (stocks). He just thinks the digital currency is still early along in its market adoption curve, appreciates the upside ahead for the Bitcoin price, and considers the volatility a plus for his purposes.
Last month, BlackRock invested $383 million USD in two bitcoin mining firms through its mutual funds and exchange-traded funds to support bitcoin exposure for its clients.
Give how the price of bitcoin has risen, Rieder probably wishes BlackRock had made that move last November when he predicted that bitcoin will largely replace gold.
Rough Week For Bitcoin’s Price
It’s been a rough week for bitcoin traders, with the 5-day Bitcoin price down over 11%, briefly dipping below $45,000 on liquid exchange markets Friday.
As it turned out, “Bitcoin Day” this week, the day the cryptocurrency was adopted as legal tender in El Salvador, saw the steepest bitcoin price capitulation since the rout after the all-time high levels in May. The coin’s worst day in four months saw some $330 billion USD wiped from its total market cap in under 24 hours.
Featured image courtesy of CNBC
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In recent months, the Central American country of El Salvador has made news headlines around the world following their announcement to make bitcoin legal tender, becoming the first country to do so. This has been met with a mixed reaction from financial institutions, such as the World Bank and the International Monetary Fund, due to the historically volatile nature of the cryptocurrency. However, El Salvador remains optimistic that they will soon become the new leading haven for Bitcoin.
In addition to the implementation of the legislation making bitcoin legal tender, El Salvador has also announced that they will be mining for bitcoin in an environmentally friendly manner. By taking advantage of the untapped geothermal energy produced from the country’s volcanoes, El Salvador is seeking to benefit from an economic boost through bitcoin mining. This article will focus on the introduction of bitcoin as legal tender, as well as the environmentally friendly mining process, and how they both have potential to benefit El Salvador.
The Bitcoin Law
On June 8, 2021, El Salvador became pioneers in the world of Bitcoin by passing their “Ley Bitcoin” (Bitcoin Law) through congress, resulting in bitcoin becoming legal tender in the Central American country as of September 7, 2021. Further to this, the government continues to promote the cryptocurrency by giving $30 worth of bitcoin to citizens who sign up for their national digital wallet known as Chivo. Foreigners who invest three bitcoin in the country will also be granted residency in an attempt to further promote El Salvador as a cryptocurrency-friendly destination.
Inevitably however, despite dispelling the fear from the potentially harmful environmental impact bitcoin mining may have, the promotion of bitcoin through the Bitcoin Law has led to skeptics calling out the passing of this law as a gamble, with many believing that the country will now become a haven to money laundering and other types of financial crime. This was cited by the World Bank who rejected a request from El Salvador to help with the implementation of bitcoin as legal tender in June 2021.
Nevertheless, there is still a wide scope of possibilities for the Bitcoin Law to help alleviate the poverty in El Salvador and have an overall beneficial impact on the Salvadoran economy. Temporarily excluding the benefit of geothermal energy powering the mining for bitcoin in El Salvador, which will be mentioned later in this article, the main ways in which the new legislation has potential to benefit El Salvador is by attracting new foreign investment and the removal of dependency on USD.
Beginning with the former, before the passing of the bill, the President of El Salvador, Nayib Bukele, stated that bitcoin has a market cap of $680 billion dollars, and if 1% of that amount would be invested in El Salvador, it would increase the country’s GDP by 25%. This shows that, if El Salvador successfully becomes the Bitcoin Capital on a global scale, the economic benefits would greatly improve the financial situation in the country. This attraction of investment has already begun, with several companies such as Athena Bitcoin, Strike and Paxful showing an interest in setting up operations in the country.
Further to this, it is arguable that the passing of the Bitcoin Law will reduce the dependency on USD. At the moment, there are eight nations outside of the United States who use USD as their official currency. This was originally introduced to reduce currency risk, however, this negatively results in these countries effectively outsourcing their monetary policy to the United States Federal Reserve. By introducing bitcoin as legal tender along with USD, it allows for a decreased dependency on USD, which currently reduces GDP and passes it to the United States.
Geothermal Energy Mining
In recent years, the mining of cryptocurrencies has come under intense criticism for the detrimental impact its operations have on the environment. Looking specifically into bitcoin, Bitcoin’s public ledger runs on a decentralized network called the blockchain, which is updated around the world through a network of computers operated by miners.
The mining process for the Bitcoin network results in large energy consumption due to the amount of energy required from the mining rigs when verifying transactions by solving complex mathematical problems. This growing concern of how the environment suffering from bitcoin mining has led to countries receiving negative criticism, which resulted in the Chinese government famously implementing a mining ban for cryptocurrencies in China in an effort to realize carbon neutrality.
While this has led to miners selling their equipment or moving overseas to continue their practice elsewhere, a country which has come to receive praise in recent times for their eco-friendly bitcoin mining is El Salvador. In June 2021, President Bukele stated that he would use a state-owned geothermal electric company to use geothermal energy from the country’s volcanoes when mining for cryptocurrency. This renewable energy source offers a clean alternative to the usually harmful mining of cryptocurrency found elsewhere.
So how will this benefit El Salvador? While there is a declining poverty rate, as the smallest country in Central America, El Salvador is recognized by the World Bank as a relatively poor nation. However, mining bitcoin could potentially be the way for the country to realize economic growth. Bitcoin miners receive bitcoin payments as a reward for their work in verifying the transactions. By mining with clean and cheap geothermal energy, El Salvador has the potential to become a global hub for mining, which will undoubtedly have a positive impact on the country’s economy.
In conclusion, there is no denying that the implementation of this legislation possesses various risks, which may prove to be problematic to the country of El Salvador as well as its citizens. The volatile nature of the cryptocurrency may result in negative economic impact, placing the country in a worse financial position than it currently is. Furthermore, its potential to be used for various types of financial crime may tarnish both El Salvador and Bitcoin, making it synonymous with illicit behavior similar to the events of Silk Road, which provided exposure to the public of how cryptocurrency can be used as a vehicle for crime.
However, this argument was dismissed by Bukele who took to Twitter to reject the notion by stating that the majority of the world’s money laundering is still conducted using cash. Therefore, if the risk of financial crime is ever present regardless of the currency, why not implement bitcoin when it has the potential to benefit the nation? Through the increase of investors, the reduced dependency on USD and the potential growth of El Salvador as an international mining hub through the use of geothermal energy. Regardless, September 7, 2021, will be a historic day, which many will view with keen interest to see whether the legislation will have the positive impact Bukele believes it is capable of or whether the skeptics of the law will be proven right.
This is a guest post by Seth Galia. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
