With the European Central Bank (ECB) now developing the prototype for its Central Bank Digital Currency (CBDC) otherwise known as the Digital Euro, more details are now surfacing based on its potential operational dynamics.
Speaking recently at the “Towards a legislative framework enabling a digital euro” conference hosted by the European Commission (EC), Fabio Panetta, a board member of the ECB said the bank may impose some restrictive limits on transactions for the retail individual users.
While Panetta acknowledged that the ECB has not made any final decision on what the limit will be, he said €3,000 is a good example of a limit the bank can impose on the Digital Euro as a store of value. He went on to say that the total number of transactions that can be done by individuals may also be capped at 1,000 per month.
“If we give access to a means of payment, which is relatively limited, there are no transaction costs because you only need to have a smartphone,” Panetta said, “There will be risks that people could use this possibility to move, for example, their deposits of other banks or their money out of financial intermediates.”
The ECB board member also highlighted on an important subject regarding the Digital Euro and how it will co-exist with fiat. According to him, both versions of the Euro will complement each other to make for a robust financial ecosystem within the bloc.
“Digital euro would be an additional option for retail payment — not a challenge to the function of the financial system,” he said confirming that the new money is not designed to replace cash, a position that echoes similar words from ECB President Christine Lagarde.
Other Central Banks have maintained this position, noting that their CBDC will not displace cash nor make them obsolete. This argument brings a lot of doubt considering the wide embrace of people to the digital economy and the financial evolution which has largely relegated cash in some countries.
USD coin issuer and digital financial technology firm Circle is now set to expand its Euro Coin and cross-chain transfer protocol to the Solana ecosystem in the first half of 2023.
The Euro Coin is a euro-backed stablecoin issued by Circle in June. In contrast with its counterpart USDC coin, which is pegged to dollars, the Euro Coin is pegged to the Euro. Currently, the Euro coin is live on the Ethereum blockchain, and by Q1 2023, it will also be live on the Solana blockchain.
According to Sheraz Shere, Head of Payments at Solana Labs, the launch of the Euro coin on Solana creates new use cases for instant FX, layout optionality for traders with a new base currency, as well as allow the lending and borrowing of Euro Coin on a blockchain. The Euro coin will be available alongside USDC as a payment currency in Solana Pay.
Exchanges such as FTX will add support deposits, withdrawals, and trading of Euro Coin when it goes live on Solana. Additionally, Solana-based DeFi (Decentralized finance) protocols such as Raydium and Solena have also shown interest in supporting the stablecoin when it launches, according to Circle.
Furthermore, aside from the Euro Coin, another project Circle will be launching on the Solana blockchain is its cross-chain transfer protocol which was initially announced in September. The protocol would go live at the beginning of 2023 on Ethereum and Avalanche, then expand to Solana in the first half of 2023.
Cross-chain transfer protocol allows the native transfer of USDC across different blockchains instead of using wrapped tokens. Interoperability platform Wormhole plans to support the Cross-chain transfer protocol implementation once it’s live on the Solana blockchain.
Speaking of Circle, the firm recently revealed it has set up a new reserve fund dubbed the Circle Reserve Funds with BlackRock to help manage its stablecoin’s reserves.
CME Group, the US leading and most diverse derivatives marketplace, announced on Thursday that it will launch Bitcoin Euro and Ether Euro futures on August 29. The move is part of CME’s efforts to expand its cryptocurrency derivatives offering services.
The financial derivatives exchange termed the launch as important as enabling Bitcoin users to trade Euro-dominated Bitcoin (BTC) and Ether (ETH) futures contracts on the regulated exchange.
Tim McCourt, Global Head of Equity and FX Products, CME Group, talked about the development: “Ongoing uncertainty in cryptocurrency markets, along with the robust growth and deep liquidity of our existing Bitcoin and Ether futures, is creating an increased demand for risk management solutions by institutional investors outside the U.S. Our Bitcoin Euro and Ether Euro futures contracts will provide clients with more precise tools to trade and hedge exposure to the two largest cryptocurrencies by market cap.”
CME will unveil Euro-denominated Bitcoin and Ether futures to help meet the rising demand for regulated and expanding, non-USD crypto derivatives.
According to CME, offerings of Euro-denominated Bitcoin and Ether futures contracts could accelerate increasing demand for crypto products from institutional investors.
The products will provide crypto derivative alternatives because the euro, the official currency of 19 out of 27 EU member countries, is the second-most-desired currency in global currency reserves.
CME designed the Bitcoin Euro and Ether Euro futures contracts to match their U.S. dollar-denominated counterparts.
The derivative exchange stated that it will size Bitcoin Euro and Ether Euro futures at five Bitcoins and 50 Ethers per contract. Such new contracts will be cash-settled, based on the CME CF Bitcoin-Euro Reference Rate and CME CF Ether-Euro Reference Rate, which serve as once-a-day reference rates of the euro-denominated price of Bitcoin and Ether.
Rising Infrastructure for The Crypto Investor
CME’s Bitcoin Euro and Ether Euro futures are the latest investment products to be launched tied to a cryptocurrency.
In March, CME launched Bitcoin and Ether options on the micro futures contracts of the two largest cryptocurrencies by market capitalization: Bitcoin (BTCUSD) and Ether (ETHUSD).
Last year, the exchange witnessed interest in crypto assets from retail investors, especially Millennials and Gen Zs, reaching new heights.
That was the part of the reason that led CME, in March this year, to launch micro futures to offer more affordable options for investors seeking to gain exposure to Bitcoin and Ether derivative products.
And so far, the company has continued to expand its suite of cryptocurrency derivatives offerings further.
In October last year, the ProShares Bitcoin Strategy ETF (BITO), the first ETF linked to Bitcoin, started trading, providing investors with the opportunity to gain exposure to Bitcoin returns in a convenient, liquid and transparent manner.
Shortly afterwards, several similar Bitcoin ETFs unveiled their trading services which track the future price of the coin.
The internet is filled with Bitcoin (BTC) price forecasts. For example, some analysts believe that the flagship crypto will hit $1 million per coin in the next 10 years, while others think BTC price will eventually drop to zero.
Without dwelling on predictions that are five or more years ahead of us, let us focus on what Bitcoin could do, say, in the next six months?
Again, the forecasts vary drastically. For instance, Antoni Trenchev, the founder of Nexo Finance, sees Bitcoin price hitting $100,000 by mid-2022.
On the other end of the spectrum is Sussex University professor Carol Alexander, who thinks Bitcoin price could drop to as low as $10,000, thereby wiping out all the gains it had made in 2021.
Bitcoin has been trending almost in the middle of these two extremely far predictions and at press time the cost to purchase one BTC is close to $36,500 at Coinbase.
BTC/USD weekly price chart. Source: TradingView
Bitcoin’s circulation will increase on an average of 6.25 BTC per 10 minutes until the next halving in early 2024. This means miners will produce about 900 BTC every day. As a result, by the end of June 2022, there will be a total of 162,900 BTC created into the year.
This would push the total Bitcoin supply in circulation to about 19.078 million BTC. If BTC price is $100,000 by then, its total market capitalization would be nearly $2 trillion, up 128.50% from the year’s opening valuation near $875 billion.
Conversely, a drop to $10,000 would push the Bitcoin market capitalization of the total circulated tokens down to over $190 billion, down $685 billion, or about 78%, from this year’s open.
So the biggest question that comes to mind after looking at these mind-boggling predictions is whether it is even possible for Bitcoin to move violently towards either of the targets mentioned above. In my opinion, the answer is a BIG YES, mainly because BTC price has been notoriously volatile in the past.
Bitcoin quarterly returns. Source: Coinglass
One question to consider is whether or not investors are ready to inject almost a trillion dollars into the Bitcoin market across the next six months? Trenchev believes they may because of the “cheap money” factor.
Sovereign currency devaluation remains a catalyst
Investors will have noticed that the U.S. dollar’s valuation has been recovering lately.
A popular economic indicator, dubbed as the “U.S. dollar index,” measures the greenback’s strength against a weighted basket of six foreign currencies — the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP), Canadian Dollar (CAD), Swedish Krona (SEK), and Swiss Franc (CHF) — surged over 7% to 96.22 last year.
U.S. dollar index weekly price chart. Source: TradingView
It’s also worth noticing that the dollar’s valuation has surged only against fiat currencies, but against commodities, the greenback has been losing battle after battle.
For instance, a recent U.S. Bureau of Labor Statistics report indicates that consumers paid 7% higher for everyday items in December 2021 than they did 12 months ago. In other words, the inflation in the world’s largest economy has risen to the levels never seen before 1982.
This shows the dollar is nothing but the best weak boxer in a ring competing with the six weakest boxers. Sure, the greenback has been winning rounds against them all, but it has also been running away from the real competition.
Speaking of competition, let’s compare its value against a scarcer asset, gold.
Fiat currencies versus Gold since 1900. Source: VOIMA
The image above also shows that almost all the fiat currencies have lost their sheen against gold. The big elephant in the room is inflation, which benefiting investors that have been hoarding the precious metal — or any hard money equivalent — against the current bearish trend in currencies like the dollar.
Currently, there is about $40 trillion circulating across markets, which includes all the physical money and the money deposited in savings and checking accounts. Meanwhile, investments, derivatives and cryptocurrencies are above $1.3 quadrillion.
So yes, there are enough greenbacks available in the market to pump the Bitcoin market by another trillion dollars, such that its cost per unit rises to $100,000 in the next six months.
Why hasn’t BTC hit $100,000 already?
Before even entertaining that argument, it is wiser to look at Bitcoin’s market cap performance over the years.
BTC/USD six-month market cap chart featuring $100B+ in rallies. Source: TradingView
In the six-month timeframe chart above, one can see that there has not been a single instance wherein the Bitcoin market capitalization had risen by over $1 trillion. Similarly, there also has not been a single case where Bitcoin’s market valuation dropped by more than $190 billion in six months, as required in the event of a BTC price drop to $10,000.
Despite not rising or falling drastically, the Bitcoin market — as per historical data — attracts more capital in that it spits out, indicating why its price per unit has rallied by more than 14,250% to date since January 2014.
Now, returning to the “why-it-has-not-happened” argument, there seems to be only one answer: uncertainty. And uncertainty has many branches, ranging from regulatory troubles to fears that the Bitcoin market may need a correction after rallying for almost two years in a row.
The Fed’s “taper tantrum” is impacting investor confidence
The most commonly discussed reason for Bitcoin’s recent drop from $69,000 to $34,000 is the U.S. Federal Reserve’s decision to end its $120 billion a month asset purchasing program sooner than anticipated. This is expected to be followed by at least three interest rates hikes from their current near-zero levels.
These loose monetary policies ended up injecting about $6.5 trillion since the coronavirus-induced global market crash in March 2020. As a result of the excess liquidity, the dollar’s value dropped while riskier assets, including Bitcoin, became ballistically bullish.
According to Crossborder Captial founder Micheal Howell, the excess funds in the market ‘had to go somewhere.’
M2 money supply weekly chart. Source: TradingView
As the Fed unwinds its quantitative easing policy to tame inflation, it effectively removes the excess dollars from the market. And as the markets — hypothetically — run out of cash, they raise it by selling their most profitable investments, be it stock, real estate, Rolex watches or crypto.
Therefore, the next six months could turn out to be a seesaw between those who need cash and those who don’t. Inflation led by the dollar devaluation could keep many investors from selling their assets, including Bitcoin. But with the Fed switching off its liquidity plug, crypto markets could face difficulties in attracting new money.
This leaves Bitcoin with investors and firms that have excess cash in their treasuries and have been looking to deploy them into easily liquefiable assets.
So far, Bitcoin has attracted big names like Tesla, Square, MicroStrategy, and others. So naturally, it would take at least a popular Wall Street firm’s willingness to add Bitcoin to its treasury to enable BTC’s push toward $100,000.
Waiting on the retail boom
Meanwhile, as inflation creeps into people’s everyday lives, their likelihood of adopting hard assets to protect their savings could also mean a boon for the Bitcoin market. For instance, BTC’s climb to $69,000 last year coincided with an unprecedented spike in retail interest, per a Grayscale Investment report.
Related: Retail is pushing the Bitcoin price up, says Ledger CEO
The U.S. firm surveyed 1,000 investors and found that 59% were interested in investing in Bitcoin. Meanwhile, 55% said they had purchased the assets between December 2020 and December 2021.
Bitcoin addresses with a non-zero BTC balance. Source: Glassnode
Whether boom or bust, here’s what needs to happen
If, Bitcoin were to reach $100,000 by the end of June 2022, here’s what would need to happen.
The M2 money supply remains at an all-time high.
The planned interest rate hikes fail to keep inflation below the Fed’s 2% target.
The number of non-zero Bitcoin wallets continues to rise to new record highs.
More companies add BTC to their treasuries.
Meanwhile, Bitcoin could crash to $10,000 if:
Long-term investors decide to dump Bitcoin to raise cash.
Regulatory issues and a sharp correction in equities prices weighs on crypto pricing.
Some unforeseen market manipulation or black swan event tanks BTC price like the March 2020 flash crash.
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 regained its bullish bias after reclaiming $50,000 ahead of the yearly close, even its safe-haven rival, the U.S dollar, signaled continued upside strength in the coming sessions.
At the time of writing, Bitcoin has hit a new all-time high (ATH) against the Euro ($EUR) at €54,603.15. At the same time, BTC only needs a 2% move up to break a new ATH against the U.S. dollar.
Image Source
Bitcoin typically tends to perform very well in Q4, and so far this year it has been sticking to that trend. On October 1, the price of BTC was around €41,000. Since then, it has done nothing but rocket upwards with more highs expected to be seen in what many Bitcoiners are calling “Uptober.”
Bitcoin has been hitting new highs not only against the Euro, but against other fiat currencies such as the Australian dollar, Japanese yen, South Korean won, and Turkish lira. The U.S. dollar is expected to follow suit very shortly in joining the club of making new all time highs against Bitcoin soon.
The energy around Bitcoin has been electric so far this quarter especially with the $BITO Bitcoin Futures ETF being live traded on the New York Stock Exchange today, Bitcoin nearing an all time high in USD, and many other exciting things.
With all the recent events happening in Bitcoin lately — El Salvador adopting bitcoin as legal tender, ETF approvals, BTC balances on exchanges at lows not seen since 2018, and institutional and retail investors buying as much bitcoin as they can — it begs the question of how high we’ll go this bull run.
It can not be underestimated where we are in Bitcoin’s history. Bitcoin has not died like many who saw it crash in 2018 thought it would. Instead, it has bounced back and presented itself front and center on the world stage as a world class currency. Those who use the euro as their vehicle for saving wealth may want to reconsider and think about adopting bitcoin instead, because as it stands, the euro is rapidly losing value against the new measuring stick of value — bitcoin.
Too much is happening in the realm of crypto policy and regulation to leave the biggest developments of each week without a roundup and at least some conceptual reflection. Starting today, we are getting back to decoding crypto law and everything around it that is worth decoding.
Who’s next to follow El Salvador?
Eyeballs galore will be pinned to the great Salvadoran experiment from now on. People with PhDs in economics and applied statistics within central banks and research institutes will chase every accessible data point that could be remotely helpful in making sense of the effects of Bitcoin’s adoption as legal tender.
Obviously, not many nation states are poised to follow suit in the foreseeable future, but there are plenty lessons to be learned for states on every step of the global financial food chain.
While the way various jurisdictions process the precedent of El Salvador heavily depends on where they stand in the incumbent monetary order, it has surely spurred virtually everyone’s thinking on crypto regulation and CBDC deployment, and legalizing cryptocurrency payments.
Regulators behaving sketchy
Much of Coinbase’s chagrin seems to boil down to the fact that the SEC’s scrutiny fell on them rather than competitors who’d had similar lending products operating for months. There is case to be made, however, that for the industry it could be a good thing if the precedent-setting clash on the matter of crypto lending programs takes place between the SEC and Coinbase.
Diem struggles, digital euro doing fine
Facebook reportedly continues the lobbying effort to advance its longstanding plan of launching a private stablecoin, Diem. The effort, however, faces powerful opposition among officials in Treasury and Congress.
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Global cryptocurrency exchange Binance continues restricting support for some of its trading services amid an ongoing regulatory crackdown.
Binance officially announced Monday that the exchange would delist margin trading pairs for three fiat currencies, including the Euro (EUR), the Australian dollar (AUD) and the British pound sterling (GBP).
According to the announcement, Binance will suspend mentioned fiat trading pairs on Aug. 10 and then switch to automatic settlement and cancel all related pending orders. The isolated margin trading pairs will be entirely delisted from the exchange by Aug. 12.
Binance Margin to Delist $AUD, $EUR & $GBP Pairshttps://t.co/gyBP8XzITI
— Binance (@binance) July 26, 2021
The latest trading restriction comes in line with Binance’s aggressive efforts to curb trading risks alongside its recent decision to significantly limit leverage trading, reducing maximum leverage positions from 125x to 20x on Binance Futures.
“Margin trading carries a substantial risk and the possibility of both significant profits and losses. Past gains are not indicative of future returns. All of your margin balance may be liquidated in the event of extreme price movement,” the announcement notes.
Related: Binance Futures to limit leverage to 20x for existing users
The news comes amid Binance facing increased scrutiny from global regulators and financial institutions recently. The exchange has been served multiple warnings from authorities in the United States, the United Kingdom, Italy, and other countries. A number of British financial institutions like Barclays and NatWest bank have also started blocking payments to Binance since late June.
The European Central Bank, or ECB, joins the growing club of crypto-friendly financial institutions as it announces the decision “to launch a project to prepare for possibly issuing a digital euro.” The ECB’s official tweet noted:
“We will look at how a digital euro could be designed and distributed to everyone in the euro area.”
According to a press release on July 14, the ECB’s governing council has launched the investigation phase of a digital euro project. This phase is planned to last for two years, during which time Eurogroup will design a digital currency focused on “users’ preferences and technical advice by merchants and intermediaries.”
Sharing more insights, the ECB’s official statement also highlighted their success in identifying the various ways to protect it’s user’s privacy, in tune with the nation’s GDPR requirements. They added:
“It has also shown that the energy needs of the infrastructure would be negligible compared with the energy consumption and environmental footprint of crypto-assets, such as bitcoin (
BTC).”
One of ECB’s executive board members, Fabio Panetta, clarified that the success of the digital euro will be heavily dependent on the value it adds for “people, merchants and financial intermediaries in the euro area.”
Related: UAE to experiment and launch an in-house digital currency
On a similar timeline, the United Arab Emirates also announced an interest in launching a digital version of the nation’s fiat. In the three-year plan spanning from 2023-2026, the Central Bank of the UAE intends to be among the top 10 financial leaders across the globe.
In what seems increasingly common in 2021, banking giants around the world are announcing their interest in experimenting with various types of crypto assets. Recently, Vietnam’s prime minister Phạm Minh Chính asked the State Bank of Vietnam to begin trialing its own digital currency.
While the crypto ecosystem faces enormous mainstream resistance, governments are now cautious about missing out on the underlying innovation. As more and more leaders continue to share their interest in trying out digital currencies, Bitcoin is set to redefine the “B” in banking.
The Spanish Socialist Workers’ Party (PSOE), the governing political body in Spain, is backing a new national digital currency initiative.
PSOE, Spain’s oldest active party and the leading force in the Congress of Deputies, has introduced a non-law proposition to launch a national digital currency in response to the ongoing decline in cash usage, local news agency El Economista reported Monday.
The party noted that the proposition comes in response to the European Central Bank’s experiments with a digital euro. Carlos Conesa, general director of the financial innovation division at the Spanish Central Bank, recently said that “the decision to launch a project on the digital euro is very close.”
According to the proposal, a national digital currency would enable higher liquidity “In the event that a monetary expansion is necessary, it allows a more direct mechanism, by injecting liquidity directly into current accounts and thus transferring it immediately and without intermediaries to economic activity.”
The party went on to say that a Spanish digital currency “would end the ‘privilege’ of banks over money,” noting that the project would be achieved “without the nationalization of the banking system or the nationalization of credit.”
“At present, it is perfectly feasible that each individual can have his own account with his digital money directly at the central bank. A privilege, for the moment, restricted to banks,” the proposal reportedly reads.
Related:Digital euro could take four years, says ECB president Christine Lagarde
According to El Economista, the PSOE initially proposed creating a national digital currency in mid-June. The party urged the government to establish a dedicated group to evaluate digital currency’s effect on the greater financial stability of the Spanish economy and the euro area as a whole.
While the European Central Bank takes its time to deliberate on the digital euro, some observers have begun to doubt the hypothetical currency’s efficacy. Pablo Urbiola, an executive at BBVA, argued on Monday that it is not yet exactly clear what kind of customer demand the digital euro is supposed to meet.
