Hi there. Analysts report grim near-term forecasts for Bitcoin as the U.S. Department of Labor reports subdued inflation in 2020. Here is the story:
Top shelf
Institutional products
A new, physically secured Bitcoin Exchange Traded Product (ETP) is available on the SIX exchange in Switzerland. Developed by the ETC Group, this is the 34th Bitcoin ETP on SIX. Meanwhile, the Gemini Trust company, owned by Winklevoss, is backing the latest application filed in Canada for a Bitcoin Exchange Traded Fund (ETF). Arxnovum Investments’ Bitcoin ETF could potentially be traded on the Chicago Mercantile Exchange if approved. For a long time, US regulators have been skeptical of these “high-risk” investment vehicles, many of which have indicated that they harm institutional interests (see Blockwork’s new editorial page, by the way).
Stop Bitcoin ‘funny business’ …
The President of the European Central Bank (ECB), Christine Lagarde, called for Bitcoin to be regulated at an international level during a Reuters event. The “highly speculative asset” has led to “reprehensible activity,” including money laundering, and any loopholes need to be addressed, according to a report by Reuters. Meanwhile, Brian Brooks, acting head of the top US banking regulator, is said to have retired while Wall Street crypto-knowledgeable veterinarian and the Commodity Futures Trading Commission Gary Gensler has reportedly been named chairman of the Securities and Markets Exchange Commission.
Dark projections?
Analysts see Bitcoin’s near-term price outlook bleak, with several pointing to increased inflows into exchanges and the cooling of institutional demand. Around 57,000 BTC went public on Tuesday, the biggest change since the March 12, 2020 stock market crash. A Goldman Sachs manager said institutional investors are “the key” to curbing Bitcoin’s volatility. Neither Bitcoin’s 20% decline on Monday nor its volatility stopped “whales” from buying the dip.
Fast bites
- DREAM DELAYED? Marker takes a close look at Bitcoin, arguing that it will never be used to buy a coffee or a pizza. (Medium)
- CEX, LIES & VIDEOTAPE: Binance strikes back on competing exchanges OKEx and Huobi after allegedly “fake” video emerged claiming Binance played a role in Bitcoin’s latest router. (CoinDesk)
- DIRECT OFFER: The Bitcoin Miner Marathon is trying to raise $ 250 million for a stock offering. (CoinDesk)
- GONE DARK: German authorities have arrested an Australian man believed to be connected to the world’s largest darknet marketplace, DarkMarket. (CoinDesk)
- GOV-BACKED: A provincial government in Pakistan is mining Bitcoin. (Decrypt)
- BILLION INVESTOR: Howard Marks’ son owns “a significant amount” of Bitcoin. (The block)
- TEA LEAVES: Traders look to Bitcoin for clues to the soaring stock market (CNBC).
Market information
Old season?
Bitcoin and ether prices are at 87% and 78%, respectively, of their all-time highs, despite the fact that the majority of altcoins (cryptocurrencies with smaller market capitalizations) are on the decline. While some altcoins have soared during the recent market boom, retail investors have largely ignored these cheaper and riskier cryptos. However, Messari noted that tokens embedded in the decentralized finance (DeFi) market – such as Maker (MKR), Compound (COMP), Aave (AAVE), and Uniswap (UNI) – are seeing robust growth.
On the game
Inflation projections
Much of Bitcoin’s growth in 2020 was driven by institutional investors who turned to the hard-core deflationary asset as an inflation hedge. The hedge fund legend Paul Tudor Jones, Michael Saylor from MicroStrategy and Scott Minerd, Chief Investment Officer of Guggenheim Partners, spoke about the prospect of Bitcoin as “digital gold”, among other things.
Tax incentives and loose monetary policy in response to the coronavirus pandemic pushed inflation forecasts higher. Indeed, US Treasury bond rates have risen in the past few days and exceeded 1% last week as additional government spending was requested – such as President-elect Joe Biden’s plan to invest “trillion dollars” through a stimulus package.
However, the line of sight to inflation is far from clear. The U.S. Department of Labor reported today that a key measure of inflation, consumer price index (CPI), rose only 1.4% in 2020, the smallest annual increase since 2015. As a benchmark, 2019 CPI rose 2, 3%, while the 10-year average is estimated at 1.7%.
This is well below the Federal Reserve’s 2% inflation target. Last year, Fed Chairman Jerome Powell signaled that he would reverse course and allow the economy to get hot for periods of time – over 2% – as the economy missed that target for the past decade. Some investors and analysts are skeptical of an impending change. For one, Oxford Economics’ Kathy Bostjancic is quoted in Barron’s doubts about the prospect of a rate hike before 2024.
Bloomberg urged readers to prepare for the big US inflation rate of 2021. Economists Carl Riccadonna and Yelena Shulyatyeva quoted: “2021 will be a year plagued by numerous unjustified fears of inflation. Consumer inflation will remain weak over the medium term – until the economy fully absorbs the doldrums caused by the pandemic. “
Still, St. Louis Federal Reserve President James Bullard said on Wednesday that inflation is likely to rise. Speaking at a Reuters conference, Bullard said the “money supply has exploded”, budget deficits are “off the charts” and a hot economy could either be here or “just around the corner”, according to a Reuters report.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, told CoinDesk via email that he was forecasting “a significant increase to 2.5% plus in the second quarter”. “The key question of what happens when the economy fully reopens remains unanswered for now.”
What does this mean for Bitcoin and the rest of the crypto market table?
Well, unlike highly liquid and tradable assets like US Treasuries, which reflect every tiny change in inflation forecasts, Bitcoin often does its own thing.
Correlated to stocks and other traditional assets, Bitcoin has largely followed the herd in price fluctuations, despite the fact that anything is possible in a bull market with the highest volatility in three years. Bitcoin lost 20% on Monday just to recover. And while analysts have dire short-term prospects, many believe that money is still on the verge.
“The youngest institutional investors have long horizons and will absorb short-term price shocks,” Jehan Chu, managing partner of Kenetic Capital in Hong Kong, told CoinDesk’s Omkar Godbole. “Expect temporary volatility and then a bounce back to the $ 40,000 level, followed by $ 50,000 if the bitcoin percent land grab continues.”
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