The linked mining ecosystems have been fighting for their very existence for the last year, and their efforts are starting to pay off as Bitcoin (BTC) begins to show signs of a modest bull run. Mining incentives and transaction fees contributed to an income boost for the Bitcoin mining community that was almost fifty percent higher during the first month of 2023.
Since October 2020, Bitcoin mining income fell below $14 million for the first time on December 28, 2022, when it reached $13.6 million. Because of this, in addition to increasing energy costs caused by geopolitical tensions, mining businesses were put under a significant amount of financial strain, which ultimately led to some of them going out of business.
As indicated in the following graph, the cryptocurrency mining business had a revenue increase of fifty percent measured in terms of United States dollars. This gain occurred as Bitcoin remained in an advantageous position for a sustained recovery.
Within a month’s time, earnings from bitcoin mining almost doubled from its starting point of $15.3 million on January 1 to approximately $23 million.
The hash rate is continually breaking new records as more miners join the effort to provide power to and ensure the safety of the decentralised Bitcoin network. At the time this article was written, the Bitcoin hash rate was somewhere in the neighbourhood of 300 exahashes per second.
However, in an effort to find a solution to the problem, efforts are being made to source greener energy to power Bitcoin mining operations. A mining business in Malawi, which is a landlocked nation in southern Africa, has only lately begun tapping into a supply of stranded energy there.
Erik Hersman, co-founder and CEO of Gridless, made the following statement in reference to the initiative’s overall impact: “The power developer had built these powerhouses a few years ago, but they weren’t able to expand to more families because they’re barely profitable and couldn’t afford to buy more metres to connect more families. Now, because of this initiative, they are able to expand to more families.” Because of our agreement, they were able to instantly purchase 200 more metres, which enabled them to connect more households.
In addition, the Bitcoin mining operation has a minimal impact on the surrounding ecosystem since it is entirely powered by hydroelectricity derived from rivers.
Cryptocurrency exchange FTX has listed perpetual futures linked to the US dollar spot index, and it is expanding its business scope to the field of foreign exchange derivatives trading.
FTX’s new perpetual contracts will be based on the so-called FTX Dollar Spot Index, which is designed to track the movements of four major currencies, including the Euro, Yen, Canadian dollar, and British Pound against the U.S. dollar.
The FTX USD Spot Index (FTXDXY) is calculated as follows: 35.7*EURUSD^-0.6*JPYUSD^-0.2*CADUSD^-0.1*GBPUSD^-0.1
On the other hand, the foreign exchange market volatility has increased significantly recently. Driven by the tightening of monetary policy and the rapid interest rate hike in the United States, the US dollar is currently at its highest level since 2022, especially after the Federal Reserve raised interest rates several times.
The US dollar index broke through 111 level, refreshed a new high since 2002 and is currently hovering around the all-time high of 111.76.
Non-US currencies generally fell. As the dominant currency in global trade and finance, the fluctuation of the US dollar will broadly impact the global economy.
Given that Bitcoin (BTC) is still seen as a risk asset against inflation, many traders believe that a weaker dollar is needed for Bitcoin to rise.
Conversely, the pound fluctuated amid the chaotic rollout of Prime Minister Liz Truss’ economic plan.
The British government, on September 23, unveiled its most radical tax cuts since 1972 before making a U-turn by ditching its plan. The administration attempted to reduce taxes on workers’ wages and businesses to boost the economy as it heads into recession, which triggered investors to dumped sterling and government bonds.
Crypto-basher economist Nouriel Roubini is developing a tokenised asset designed to counter the volatility of the U.S. dollar due to inflation, climate change, and more.
According to Bloomberg’s report, Roubini is developing a tokenised U.S. dollar backed by a physical asset in partnership with the Dubai-based firm Atlas Capital Team he co-founded.
Rubini says：
“We recognized that America’s dollar reserve currency could be at risk and are working to create a new instrument that’s effectively a more resilient dollar,”
The launch token will be issued later this year. Unlike traditional cryptocurrencies, which are usually not backed by any asset, the token is backed by U.S. real estate, primarily in the form of a REIT.
A real estate investment trust, also known as a real estate trust, real estate trust; is an investment vehicle similar to a closed-end mutual fund, but the investment object is real estate. Mainly through the securitisation of real estate and the fundraising of many investors, ordinary investors without huge capital can participate in the real estate market with a lower threshold and obtain the profits brought by real estate market transactions, rents and appreciation.
Therefore, REITs are less affected by short-term US Treasuries, gold and climate change.
Roubini, who has publicly denounced Bitcoin, Ethereum and blockchain technology for years, sees the product as an opportunity to provide value to people who have no access to the dollar and whose national currencies are devalued.
Shiba Inu (SHIB) looks poised to undergo sharp price corrections after rallying nearly 75% in almost two weeks.
SHIB price rallied to mid-January highs
On Monday, the meme-token climbed to $0.00002961, its best level since Jan. 18, amid renewed buying interests across the cryptocurrency market. Before the retracement, SHIB’s price had crashed by almost 80% from its record high of $0.00008870.
Nonetheless, the wild price recovery also came closer to triggering two classic sell signals. First, SHIB’s daily relative strength index (RSI), a technical indicator that fluctuates in the range between 0 and 100 to signal whether an asset is overbought (RSI>70) or oversold (RSI<30), showed nearly-overbought conditions after rising to 60.
Last, SHIB’s daily relative volatility index (RVI), which measures the standard deviation of low and high prices, dropped below 50, a sell signal. In a “perfect” scenario, traders close their long positions after the RVI drops below 40. At press time, it came out to be near 48.
More cues for a possible SHIB price correction came from three other technical indicators. First, the Shiba Inu token’s current upside momentum showed signs of weakening near its 50-day exponential moving average (50-day EMA; the red wave in the chart below), at around $0.00002761.
Second, the SHIB price’s ongoing uptrend accompanied lower volumes, i.e., they came out to be nowhere closer to the volumes witnessed during the token’s October 2021 price rally. That showed scant liquidity in the Shiba Inu market, making it harder for traders to execute buy and sell orders at desired levels.
As a result, a lower liquid market tends to witness wilder price swings in either direction.
SHIB/USD daily price chart. Source: TradingView
Third and last, SHIB price neared a key pullback level of $0.00003358 that coincided with the 0.618 Fib line of the Fibonacci retracement graph drawn from the $0.00000507-swing low to the $0.00007971-swing high. In conjugation with alarmin RSI and RVI reading, the $0.00003358-level posed as an ideal derisk zone for traders looking to secure interim profits.
Short the SHIB rally?
Norok, an independent market analyst, wrote that the latest SHIB price rally has brought out “excellent short opportunities.” He cited a fractal from November 2021 that showed SHIB undergoing a fake recovery rally of nearly 42% in two days but followed it with a 70% downside move later.
“Each rally, far from being the fresh breath of hopium owners desire, has provided excellent short opportunities for months,” Norok explained, adding:
“This one is a clear pullback to test and hold Resistance and a good opportunity to add to the short where profit was taken at the start of January.”
The statements appeared as bearish positions lost millions of dollars during the recent SHIB price recovery. For instance, data from Coinglass showed over $10 billion worth of liquidations for traders of Shiba Inu-backed investment products, out of which around 75% were short entries.
Nonetheless, Binance’s 1000SHIB futures product, which holds 1,000 Shiba Inu tokens per contract, looked slightly skewed toward bears, with its long/short ratio coming out to be 0.93 on a 24-hour adjusted timeframe.
In detail, the Long/Short Ratio represents the amount of net long positions opened against the net short positions opened. A reading above 1 indicates that most open market positions are skewed long. Conversely, a reading below 1 indicates that the market bias is currently skewed toward shorts.
1000SHIB Long/Short Ratio. Source: Coinglass
Meanwhile, the long/short ratio of SHIB futures on FTX also was near 0.97, suggesting the market’s bearish outlook on a 24-hour adjusted timeframe.
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.
Bitcoin (BTC) is in a fighting mood this week as the weekly close buoys bulls’ cause and wipes out several weeks of downside — can it continue higher?
After challenging $42,000 over the weekend, there was a cautious sense of optimism as higher levels remained in play. Sunday saw a fresh push, with overnight progress attacking $43,000 before fresh consolidation.
With Monday’s Wall Street open primed to deliver more of the turbulence in big tech stocks seen late last week, the environment for crypto traders is an interesting one in February.
With its notable positive correlation, Bitcoin is thus sensitive to moves up and down — but equities refuse to move unanimously in the same direction.
Looking for guidance, hodlers will still remember January’s lows, and these are also fresh in the mind of analysts who have not discounted the possibility of returning to $30,000.
With something of a week of reckoning for its latest gains ahead, Cointelegraph takes a look at the Bitcoin market and five forces at play that could help shape where BTC price action heads next.
Bitcoin dodges a major breakdown
The weekend was no match for Bitcoin’s newfound bullishness despite its typically lower volume providing fertile ground for both “fakeouts” and “fakedowns.”
$40,000 held as support, and analysts were keen to see $41,000 established as a longer-term basis going forward.
“Here’s how I see things. As long as $BTC holds 39k (as prev stated) then yearly open up next,” trader and analyst Pentoshi summarized Sunday.
“Imo 80% of alts will lag, 20% will lead/follow.”
The yearly open for 2022 stands at around $46,200, a price level that’s getting closer after BTC/USD broke through its weekend resistance zone to hit local highs of $43,070 on Bitstamp.
Fellow analyst and trader Credible Crypto believes that the latest action could provide proof that Bitcoin is beginning its fifth in a series of impulse moves stretching back several years.
My thoughts on $BTC dominance at this time. Long story short- $BTC outperforms during initial stages of our final 5th wave impulse, alts steal the show after that as $BTC tops, dominance makes a new all time low before this is all over. pic.twitter.com/mjklIIN444
— Credible Crypto (@CredibleCrypto) February 2, 2022
Should that be the case, it is likely that altcoins will initially lose the limelight to BTC, he added, as with classic bull run performance.
“If my thesis is correct and $BTC is indeed starting it’s final 5th wave here, expect $BTC to steal the show, pump aggressively, alts to take an initial hit, but then rally/catch up just like we saw during the last two impulses (3-14k and 12-65k),” he explained.
Looking to the downside, whales may hold the answer. Data from on-chain monitoring resource Whalemap shows that the area around $38,000 remains a significant zone of interest for whales, who last week began adding to their positions there.
Closest on-chain supports in case #BTC retraces pic.twitter.com/gcC00DbOg7
— whalemap (@whale_map) February 6, 2022
BTC/USD at $43,000 is meanwhile the highest since Jan. 17, the largest cryptocurrency erasing more than two weeks of losses in days.
Inflation stays “real” before January CPI readout
Stocks formed the springboard for Bitcoin’s exit from the $30,000-$40,000 corridor last week, but “up only” is hardly what characterizes major assets.
Among big tech, the story was one of Amazon’s gains and Meta’s losses, providing a curious dichotomy that Bitcoin ultimately used to its advantage.
Could the same trend continue this week? Stocks are not alone, as oil continues its own gains and the inflationary narrative rises with it.
“Inflation is going kick the Fed’s _ss. Inflation is REAL,” veteran trader Peter Brandt said Monday, eyeing U.S. bonds.
“This due to the flood of liquidity added in past two years. $$$ abounds. The Fed is way behind the curve in raising rates. The 10-Yr Note is headed to 2.35% in the near-term and 3.0% over the next couple of years.”
He added that inflation remains extremely modest compared with episodes during the last century, but that there could be a long way still to climb.
Pentoshi meanwhile forecast an oil price of more than $100 incoming.
“Oil looks like it’s going to barrel over $100 at this rate. 20% increase in the first 5 weeks of the year, 13% in January. If you loved inflation before, you’ll love it when Oil is over $100. Consumer goods numbers go up,” he tweeted.
Monday’s Wall Street open could thus provide either a validation of Bitcoin’s gains or throw the party into jeopardy once more. At the time of writing, futures are pointing downhill after the S&P 500’s best week of 2022.
Data meanwhile shows that Bitcoin’s Nasdaq correlation is slowly ebbing.
Bitcoin’s 1D correlation to the Nasdaq is starting to fall from historically high levels pic.twitter.com/S4Sfa8nYrX
— Will Clemente (@WClementeIII) February 7, 2022
Thursday will see the release of January’s consumer price index (CPI) data, which could provide further headwinds for inflation should the figures fall outside est
Will the dollar keep diving?
There’s something afoot with the U.S. dollar — even as stocks motor through early-year weakness.
In early February, a winning streak spanning the entirety of 2021 abruptly turned sour for USD bulls, and the past week has seen straight downside for the U.S. dollar currency index (DXY).
After passing 97 for the first time in over a year, DXY met with firm resistance and is now back below 95.6. Bar a brief dip in mid-January, this represents its lowest level since mid-November — just as BTC/USD was making its current $69,000 all-time highs.
Analyzing the current setup, trader, investor and entrepreneur Bob Loukas was sceptical.
“Very interesting moves in $USD. Maybe a trap?” he mused last week.
“One thing is for sure, Price Action is always WAY ahead of what we think (macro/events) should be driving price.”
Bitcoin is traditionally inversely correlated to the DXY, and any sharp return to upside could undermine price strength easily.
U.S. dollar currency index (DXY) 1-day candle chart. Source: TradingView
“Not going to lie, but the DXY is starting to look like it wants to correct heavier,” Cointelegraph contributor Michaël van de Poppe likewise forecast.
He noted that the European Central Bank (ECB) holding off on interest rate rises pressured the dollar further.
“Long term -> would be a good signal for Bitcoin and risk-on assets if the DXY is showing more weakness,” he argued.
Short-term holders start return to profit
Those looking for signs that a longer-term Bitcoin price bottom genuinely being in need not hunt through much on-chain data this week.
As noted by on-chain and cycle analytics account Root, the portion of the BTC supply controlled by short-term hodlers is beginning to tick upwards after falling to levels which coincide with macro price lows.
“Likely the macro bottom is in,” Root commented Monday.
The spent output profit ratio (SOPR) for short-term holders meanwhile saw its first meanwhile bounce above the 1 mark since Christmas this weekend.
Values climbing through 1 from below show that short-term holders on average are beginning to sell at a profit rather than a loss.
On the topic of profitability, almost 25% of the BTC supply remains underwater, meanwhile, compared with 16.7% of the supply purchased between $30,000 and $41,500.
“Bitcoin is a bit top heavy here, but NumberGoUp is medicine for that,” Twitter account TXMC trades commented on the data from on-chain analytics firm Glassnode.
Sentiment eyes first exit from “fear” since all-time highs
The longer higher Bitcoin prices linger, the more profound impact they have on even the most entrenched mindset.
Related: Top 5 cryptocurrencies to watch this week: BTC, ETH, NEAR, MANA, LEO
The Crypto Fear & Greed Index, which spent most of last month in its “extreme fear” zone, is now on the cusp of breaking out of “fear” altogether.
Such a move would mark the Index’s first shift to “neutral” territory since the November record highs, and thus something of a reset of sentiment over the past two-and-a-half months.
For comparison, just a week ago, the Index stood at 20/100, while current levels are 45/100 — more than double on its normalized scale.
History has shown that the key to sustainable sentiment, in which traders do not “pile in” to buy or sell after specific price action, lies in measured BTC price action. “Slow and steady” gains are what traders tend to look for in order to become confident of a longer-term trend.
Crypto Fear & Greed Index. Source: Alternative.me
On the topic of January’s Index lows, however, analyst Philip Swift offered a note of caution.
“Charting Fear & Greed score against bitcoin price shows that the score can be very low at points that are not price bottoms,” he
Crypto Fear & Greed Index annotated chart. Source: Philip Swift/ Twitter
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.
Signs of a steady Bitcoin (BTC) price recovery emerged earlier this week as investors shifted away from the U.S. dollar on weaker-than-expected economic data.
In detail, Bitcoin’s drop last week to below $33,000 met with a healthy buying sentiment that pushed its per token rate to as high as $39,300 on Feb. 1. As of Thursday, BTC’s price dipped below $37,000 but was still up 13% from its local bottom.
Meanwhile, the U.S. dollar index (DXY), which measures the greenback’s strength against a basket of top foreign currencies, rose to 97.441 last Friday, logging its best level since July 2020. However, the index corrected by nearly 1.50% to over 96.00 by Feb. 3.
DXY vs. BTC/USD daily price chart. Source: TradingView
Some market analysts saw the dollar’s renewed weakness as a sign of waning rate hike fears.
For instance, Lyn Alden, the founder of Lyn Alden Investment Strategy, tweeted that the Fed “reached a fever height last week in terms of making more and more aggressive tightening scenarios,” noting that the central bank may turn dovish as “economic deceleration/weak PMI data takes center stage.”
U.S. factory activity, employment drops
Alden cited the U.S. manufacturing growth, which, according to data released on Tuesday, dropped for the third month in a row in Jan. 2022. Notably, the Institute for Supply Management’s gauge of factory activity reached 57.60, its worst level since Nov. 2020, compared to 58.80 a month earlier.
U.S. manufacturing growth data. Source: ISM, Bloomberg
Additionally, the ADP Research Institute data released Wednesday also showed cracks in the ongoing U.S. economic recovery, revealing that employment across the regional companies fell by 301,000 in December 2021, the highest since the early days of the Covid-19 pandemic.
The lower-than-anticipated data came a week after the Federal Reserve Chairman Jerome Powell’s press conference. He raised speculations about raising interest rates three times in 2022 to tame the rising U.S. inflation.
Powell’s hawkish turn pushed the price of Bitcoin down as the U.S. dollar strengthened.
Currently, U.S. rate futures hint at four to five rate hikes in 2022. James Bullard, president of the Fed’s St. Louis branch, further stoked the “tightening” fears, stating earlier this week that five rises were “not too bad a bet.”
Nonetheless, his hawkish comments coincided with a recovery rally in the Bitcoin market as the dollar pared gains, prompting Alden and other analysts to say that the market may have overreacted to Powell’s tightening outlook.
Fed officials now cautiously hawkish
One of the primary catalysts behind the Fed’s rate hike plans was a steady recovery in the U.S. jobs market. But with lesser-than-expected ADP readings, the central bank could backtrack on its tightening plans.
“They have moved from nearly all talk and little action to 100% hot air,” noted Preston Pysh, the founder of the Pylon Holding Company.
Related: US crypto executive order looms — 5 things to watch in Bitcoin this week
Some Fed officials have also noted that the central bank might not go ahead with rate hikes as aggressively as anticipated.
For instance, Kansas City Fed President Esther George said “unexpected adjustments” would not be in anybody’s interest. Similarly, San Francisco Fed chief Mary Daly also cautioned against tightening too quickly.
Fed @ max hawkishness. Dovish from here. Implications for the dollar.
— Teddy Vallee (@TeddyVallee) January 28, 2022
Currently, the CME’s Fed Watch Tool predicts a 94.40% possibility of a 25 bps rate hike in March 2022. But whether there would be back-to-back increases for the rest of 2022 remains unclear.
“They will hike, but not as much as the forward curve implies,” wrote Teddy Vallee, the founder of Parvelle Global, a New York-based hedge fund, adding:
“Digital asset space pricing in worst case.”
As a result, the very narrative that pushed the Bitcoin price to new multi-month lows last week appears to be showing cracks.
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.
It is not too late for Bitcoin (BTC) to reclaim its bullish bias as it halfway paints an indecisive ‘Doji’ candle on the weekly chart.
In detail, Bitcoin’s price correction this week to below $33,000 had it form a lower wick, suggesting that bulls bought the dip. A sharp retracement ensued and took BTC price to as high as $38,960 on Jan. 27. However, the bulls failed to hold the said week-to-date top for too long, resulting in another wick, but also pointing to the upside.
BTC price has since corrected to near its weekly opening rate of $36,200. In doing so, it has formed a transitional candlestick, called “Doji,” that reflects indecision between bears and bulls. If found at the bottom of trends, Doji candlesticks could signal the reversal of price direction.
The $30K support sticks
Bitcoin has been trending lower since it established its record high at $69,000 in Nov. 2021. In doing so, the cryptocurrency wiped more than 50% of its profits, even dropping below its 50-week exponential moving average (50-day EMA; the red wave), a support key support level.
But Bitcoin’s strongest interim support comes in at $30,000, a level that has been capping the cryptocurrency’s downside attempts since Jan. 2021. Notably, in May-July 2021, the level was instrumental in attracting accumulators that helped the BTC price climb to its record high.
“If the support around $30K holds, it’s possible we will see a strong upward trend resuming,” noted Crypto Batman, a pseudonymous market analyst.
BTC/USD weekly price chart. Source: TradingView
Additionally, a Doji formation ahead of the BTC price hitting $30,000-support shows a weaker bearish sentiment near the level.
Bearish outlook
On the flip side, Bitcoin’s bullish outlook may fizzle out if its price drops decisively below $30,000.
In detail, Bitcoin’s weekly relative strength index is currently near 38, and still heading toward its oversold territory below ’30.’ It shows that the BTC price still has room to continue its decline in the coming sessions, at least until it tests $30,000.
BTC/USD weekly price chart. Source: TradingView
Meanwhile, a close below $30,000 puts Bitcoin at the risk of falling towards its 200-week exponential moving average (200-week EMA; the blue wave in the chart above) near $25,000. That is primarily due to the wave’s history of ending bearish cycles in 2018 and 2019, which followed by sharp retracements to new record highs.
Fundamentals support a downside scenario
This week, Bitcoin wobbled between extreme highs and lows due to the suspense around the Federal Reserve’s rate hike plans for 2022 to combat inflation. On Wednesday, the cryptocurrency’s gains fizzled out after the U.S. central bank confirmed that it would raise interest rates in mid-March.
Jerome Powell’s press conference after the statement further revealed the Fed’s likelihood to increase rates after every policy meeting for the rest of the year. The Fed chairman admitted that the inflation outlook had worsened since their policy meeting in December, underscoring that the ongoing supply chain issues may not get resolved by the end of 2022.
Reading the Powell transcript now. I think this was a good question from @colbyLsmith and a helpful answer from Powell in terms of understanding the FOMC’s thinking. pic.twitter.com/KDizwQf4Jr
— Joe Weisenthal (@TheStalwart) January 26, 2022
Bitcoin see-sawed in the hours leading up to the Fed’s statement and during Powell’s conference Wednesday afternoon. It briefly jumped to almost $39,000 after the central bank released its policy decision but started falling after Powell started speaking to journalists later in the afternoon.
Independent market analyst CryotoBirb played down the fears surrounding the Fed’s tightening policy, stating that the central bank would not take “a destructive approach towards financial markets.”
Related: Is the bottom in? Data shows Bitcoin derivatives entering the ‘capitulation’ zone
The chartist noted that a Fed-led stock market collapse would look bad on the politicians, which may leave the central bank with the option to only bring “short-term bearish implications” to the risky markets, followed by strong medium-term increases.
“It is also worth adding into the larger context that Bitcoin has freshly taken advantage over the equities, and while the stocks tumbled down, Bitcoin took off to the upside,” he added.
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.
During Jerome Powell’s Jan. 11 United States Senate confirmation hearings, Sen. Patrick Toomey posed a question to the incumbent-and-future Federal Reserve chief: “If Congress were to authorize and the Fed were to pursue a central bank digital dollar, is there anything about that that ought to preclude a well-regulated privately-issued stablecoin from co-existing with a central bank digital dollar?”
“No. Not at all,” the central banker answered — a response that surely brought some relief to the crypto community. At least the Fed wasn’t seeking to ban stablecoins. That bullet had apparently been dodged.
But, Toomey raised a significant and abiding question: Can stablecoins and a Federal Reserve digital dollar really coexist? If individual Americans were to have retail accounts with the Federal Reserve — as Toomey posited in what may have been an exaggerated scenario — “and the Fed becomes the retail banker to America,” why does one even need stablecoins? Or traditional retail banks for that matter?
Indeed, in a discussion paper released on Jan 20, the Fed cited various potential risks associated with a digital dollar, including that a CBDC could effectively replace commercial bank money. That paper was aimed at eliciting public comment, while elsewhere the Fed has indicated no interest in rushing out a digital currency despite the efforts of other countries like China.
Not all assumed the two could co-exist. “A widely and easily accessible digital dollar would undercut the case for privately issued stablecoins,” Eswar Prasad, professor of economics at Cornell University and author of the book, The Future of Money, told Cointelegraph, though “stablecoins issued by major corporations could still have traction, particularly within those corporations’ own commercial or financial ecosystems.”
Others envisioned separate and distinct use cases for stablecoin and central bank digital currencies, or CBDCs, a group that would include a future U.S. digital dollar. “There are definitely some distinct use cases for each,” Darrell Duffie, Adams distinguished professor of management and professor of finance at Stanford University’s Graduate School of Business, told Cointelegraph. “For example, the Fed is unlikely to give CBDC accounts to a wide spectrum of foreign consumers,” and dollar-pegged stablecoins could be very useful for making cross-border payments and settlements — fulfilling a real business need, he suggested.
Distinct purposes?
Would there, indeed, be distinct uses for a digital dollar and privately issued stablecoins — or are stablecoins likely to be superseded by CBDCs all around the world eventually?
“Stablecoins are different from most CBDCs in their construct and purpose,” Matt Higginson, a McKinsey partner who leads the consulting firm’s global blockchain and digital assets initiatives, told Cointelegraph. CBDCs are usually intent on improving financial inclusion, reducing the cost of cash and, to some degree, tracking financial transactions (for Anti-Money Laundering purposes, for example). Stablecoins, by comparison, are dollar-pegged tokenized cash aimed at improving the speed and efficiency of payments. “Their premises are really quite different, so there is no reason they shouldn’t co-exist,” said Higginson.
A digital dollar isn’t really about technology or efficiency, Jonas Gross, chairman of the Digital Euro Association, told Cointelegraph. As with CBDCs generally, it “could be more efficient or stable for handling a high throughput of retail transactions, where DLT is not needed, or where people prefer the safety, soundness and interoperability of a central-bank backed currency.”
Stablecoins, in comparison, “focus on the technological aspects, allow efficient payments due to removing intermediaries and novel innovative business models,” Gross said. The two could find different constituencies and could presumably co-exist.
Some countries, too, might prefer to dollarize their economies with a USD stablecoin, Duffie added. “And, some might get dollarized against the wishes of their central banks.” Not all CBDCs need to be blockchain-based or based on digital ledger technology, either, as Duffie noted, further explaining:
“Suppose a CBDC is not based on DLT, and we want to take advantage of smart contracting or other DLT applications, whether wholesale or retail. Stablecoins could serve a useful role there.”
Even Prasad didn’t rule out the possibility of coexistence: “Stablecoins and central bank digital currencies could be seen as complementary payment mechanisms, even if they might step on each other’s toes in that function.”
A change of heart?
At his confirmation hearing, Powell appeared to be more kindly disposed toward cryptocurrencies than in July 2021 when he told lawmakers: “You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies, if you had a digital U.S. currency,” using that as an argument in favor of a Fed digital dollar. What might have prompted this sea change, assuming that’s what it was?
“U.S. institutions, such as the Fed and regulators, seem to have understood that stablecoins can provide tremendous support for the U.S. dollar,” opined Gross. Why? “The largest stablecoins are all backed by the U.S. dollar,” and if they were to strengthen their position as a means of payment in the crypto space, “this means that the U.S. dollar gains in importance.”
Prasad had another take as the Fed chair’s softer stance on stablecoins might be the result of “him having taken comfort from actions under consideration by Congress and various regulatory agencies to bring such private cryptocurrencies under tighter regulatory oversight.”
Subverting monetary policy?
Crypto critics have even suggested that popular stablecoins might eventually undercut traditional monetary policy operations. Are they right? “If denominated in U.S. dollars, with stability, I don’t see a case that a stablecoins would undermine monetary policy transmissions,” said Duffie, adding: “Actually, I would draw the opposite conclusion.”
Prasad differed: “Stablecoins that undermine the medium-of-exchange function of central bank money could add to already substantial uncertainties in the transmission of monetary policy to economic activity and inflation.”
Higginson, for his part, viewed the notion that stablecoins could affect monetary policies as misguided. “Stablecoins are almost fully reserved,” which means a real dollar is set in reserve for almost every tokenized stablecoin dollar, he said, further telling Cointelegraph:
“The obvious conclusion to that is that it doesn’t change monetary policy at all because you are not changing the supply of dollars in the economy.”
“Retail banker for America?”
Lastly, Sen. Toomey raised a scenario during the confirmation hearings whereby “individual Americans [would] have retail accounts with the Fed, and the Fed becomes the retail banker for America.” Both he and Powell agreed that this role would be well beyond the “history, expertise, experience or capabilities” of the U.S. Federal Reserve. Still, is such a role unthinkable?
“Historically, central banks have stayed away from having direct retail relationships,” Higginson told Cointelegraph. “That’s why our commercial banking system exists.” Central banks rarely issue currency directly to consumers, for instance.
Related: Early birds: U.S. legislators invested in crypto and their digital asset politics
Moreover, the properties of stablecoins are different from those of most current or projected CBDCs “in that, stablecoins are being launched with this smart contract functionality that makes them programmable,” continued Higginson. This opens possibilities for their use that go beyond what we think about in terms of a traditional central bank digital currency.
Nevertheless, the idea of “retail banker to America” may not be so easily put to rest. A recent EY report, for example, summoned up the same circumstance — indeed, describing a CBDC that took consumer deposits as “an existential threat” to financial services firms, including retail banks. Wrote EY:
“If customers can keep their money with a central bank, they have no need for a retail bank, and firms will see their interest rate margins contract precipitously.”
Still, nothing is for sure. “The Presidents’ Working Group Report on Stablecoins tells us that the path to the introduction of useful and compliant stablecoins is far from clear,” said Duffie, concluding: “Legislation may be needed, and that’s not an easy or predictable matter.”
Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA), wants to supervise stablecoin issuance and reserves management.
HKMA published a discussion paper on Jan. 12 regarding cryptocurrencies and stablecoins, in which it provided its views on how the industry should be regulated in Hong Kong.
In the 34-page long consultation document, the HKMA paid special attention to “payment-related stablecoins,” pointing out that the market capitalization of all stablecoins hit $150 billion in December, accounting for 5% of the entire crypto market. The regulator added that all existing stablecoins are “mostly asset-linked and predominantly pegged” to the United States dollar, including stablecoins like Tether (USDT) and USD Coin (USDC).
“The rapid development of crypto-assets, particularly stablecoins, is a topic of keen attention in the international regulatory community as it presents possible risks regarding monetary and financial stability,” HKMA said.
In order to effectively handle associated risks, HKMA laid out eight major policy directions, proposing to become a single regulator to supervise entities involved in both regulating and running operations like issuing stablecoins and managing their reserves. The authority also wants to regulate stablecoin transactions’ validation processes, private key storage management and executing transactions.
“We encourage current or prospective players in the stablecoins ecosystem to respond to this paper and submit relevant views to us, so that we could take the feedback into account when formulating the regulatory framework,” HKMA wrote. The regulator expects to finalize its next steps as soon as possible and introduce new regulations by 2023 or 2024.
HKMA is not the only financial regulator concerned about stablecoin risks and planning steps to regulate the growing industry. In November 2021, the U.S. President’s Working Group on Financial Markets issued a report on possible “stablecoin runs” and “payment system risks.” The U.S. Treasury subsequently hinted at new stablecoin-focused laws in December.
The value of bitcoin is currently being measured in dollar terms and this is understandable given that fiat is still the most dominant form of currency. While those in the crypto space believe this will not continue for much longer, it is still important to price the digital asset in fiat currency to show its value to investors.
However, millionaire investor Anthony Pompliano has countered against this accepted form of valuing bitcoin. He addressed the way the digital asset is valued as well as the dreaded volatility on a recent episode of CNBC’s Squawk Box.
Don’t Value Bitcoin In Dollars
Presently, one bitcoin is trading for around $51K. This apparent value is derived from the dollar, which confers a fiat value upon an asset that was created to replace it. Pompliano says that this should not be so. Instead, bitcoin should be priced in bitcoin. This way, “one Bitcoin still equals one Bitcoin,” says the investor.
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Bitcoin’s value, when gauged in bitcoin, does not really change. The deflationary asset was designed in a way that it appreciates in value over time rather than depreciate, as is the case with the dollar.
However, Pompliano notes that people ignore or overlook this part because they are so used to using dollars in their everyday lives. Bitcoin was never really meant to be priced in dollars as the issues that already plague the fiat currency could then translate onto the asset, for example, its volatility.
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“The dollar itself is hyper volatile as well,” said Pompliano. “We just don’t think of that because all of the goods and services around us are priced in dollars.”
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Volatility Is Good When It Favors You
Speaking to host Joe Kernen, Pompliano revealed his thoughts around the volatility that is one of the hallmarks of bitcoin. Said volatility has been one of the most mentioned reasons when prominent figures and governments have advised investors to steer clear of the digital asset, explaining that they are prone to losses due to the widely fluctuating nature of the prices.
Related Reading | Why Bitcoin Will Never Surpass The Market Cap Of Gold
Pompliano however does not see bitcoin’s volatility to be a bad thing. He explained that volatility is mainly a matter of how it affects an investor. An example of this is when a digital asset’s price swings upwards and the investor realizes gains from this move. In this scenario, they would accept volatility as being a good thing. But if the opposite happens, then it would be regarded as a bad thing.
“Volatility is not good or bad, right? Basically, volatility is only bad when it goes against you, so if you long an asset and it goes down you don’t like volatility, if you long an asset and it goes up, you do like volatility.”
The millionaire also pointed out that another issue was that bitcoin’s volatility was also being mentioned in dollars. Given the latter’s also volatile and depreciating nature, Pompliano said that it was a flawed way of measuring volatility.
Featured image from CoinDesk, chart from TradingView.com
