First Mover: Forget Facebook’s Stablecoin. Now It’s $700B Bitcoin in the Crosshairs

Bitcoin (BTC) was higher, down to $ 40,000 after rising 9.9% on Wednesday, its biggest calendar day gain in a month.

Such a strong rebound after a sharp sell-off earlier in the week has quickly revived the trading spirit. “This bubble doesn’t seem to be bursting,” said Don Guo, CEO of Broctagon Fintech Group, which helps smaller cryptocurrency exchanges to tap larger pools of liquidity available on major exchanges.

In traditional markets, US Treasury bond yields rose along with stocks after CNN reported that President-elect Joe Biden would come up with a new coronavirus relief proposal on Thursday and that his advisors told allies in Congress they should expect a price of around 2 trillion US dollars. Gold fell 0.2% to $ 1,841 an ounce.

Market moves

Before the coronavirus hit last year, there was a big talk between financial industry executives, lawmakers and regulators on how to regulate the Libra, Facebook’s proposed digital currency.

“With Facebook’s very large network with more than a billion people, a stablecoin could very quickly have systemic effects,” Powell said in a webcast discussion in Zurich in September 2019 with the Chairman of the Swiss National Bank, Thomas Jordan. “The scale would have to meet the highest regulatory standards and expectations.”

Fast forward and the token sponsored by Facebook (since upgrading and renaming) has not yet started. Instead, it is now Bitcoin, the original and largest cryptocurrency, that is suddenly attracting the attention of overseers.

Bitcoin is a “highly speculative asset”, said the President of the European Central Bank, Christine Lagarde, on Wednesday at a Reuters event. According to the intelligence service, she and a number of regulators from around the world called for the implementation of global rules for cryptocurrencies.

“There has to be regulation,” said Lagarde. “This must be applied and agreed.”

Bitcoin prices doubled in 2019, quadrupled last year, and another 32% gain in the first two weeks of 2021 have quickly given the cryptocurrency a market value of $ 709 billion.

Everyone knows that Bitcoin’s price is volatile, which was less of a concern a few years ago when it was just one of those cryptocurrencies with no value. A small extrapolation shows why the topic is becoming more difficult to ignore.

Another quadrupling in price (hypothetically, of course) would push Bitcoin’s market cap to nearly $ 3 trillion. That’s roughly the same amount of new money that the Federal Reserve printed last year and pumped into traditional financial markets last year to keep them from stalling.

In other words, a large number. So-called leveraged loans, which banks make junk-grade companies available and then sell to investors for trading on Wall Street, have grown so rapidly over the past decade that the Federal Reserve warned of the growing risks in early 2019. The total amount of these junk loans currently stands at around $ 1.7 trillion.

The inverted Bitcoin price chart shows how the Dollar and the Euro have fallen in relation to Bitcoin.

Source: TradingView / CoinDesk

As the coronavirus makes paper bills less attractive, central banks around the world have accelerated efforts to develop, or at least research, digital versions of their own currencies. China is already in legal proceedings. Earlier this week, the Fed’s New York office, which runs the US Federal Reserve’s money market operations, announced that it had hired recruiting firm Heidrick & Struggles to recruit an opening director for a proposed New York innovation center that will be “in deep insights.” in critical trends in financial technology. ”

A major dilemma for regulators is that the Bitcoin blockchain was designed as an autonomous peer-to-peer electronic payment system with distributed ledger technology – in theory outside the control of any person, company, or government. So the Fed cannot simply ask Bitcoin to resign, as it essentially did with Facebook.

According to a report released Wednesday by analysts with Macquarie, the major Australian investment bank, “private cryptocurrencies” like Bitcoin are rapidly penetrating electronic commerce and a digital dollar or euro is unlikely to hit the market until 2022 at the earliest Market could come.

“We believe private crypto use cases could come to fruition if traders get too used to private crypto usage before a central bank digital currency alternative is introduced as a stable, legitimate alternative,” wrote Macquarie analysts. “US regulators have some influence on how cryptos work and how their ecosystems develop. This becomes less meaningful as the network effect of cryptos increases, the utility and acceptance increase, and fiat may lose demand for trading. “

Acting US currency auditor Brian Brooks, former General Counsel of the Coinbase cryptocurrency exchange, used the last days of President Donald Trump’s four-year term in office to explain the benefits of cryptocurrencies.

“Crypto is about freedom,” Brooks said in a livestream event hosted by blockchain analytics firm Elliptic, as reported by CoinDesk’s Nikhilesh De. In a Financial Times statement, Brooks wrote about the potential opportunity for “self-driving banks” built on decentralized financial networks.

“Their higher efficiencies would free up significant amounts of capital that are now lost to operating costs or slowed down by decisions that depend on human gray matter,” argued Brooks. He plans to step down from the regulatory role on Thursday.

Charlie Morris, CEO of cryptocurrency fund manager ByteTree, wrote in his weekly newsletter on Wednesday that Bitcoin “may be ready to challenge the financial system”.

“It’s an open source project that has attracted some of the best minds in the world,” wrote Morris. “This leads to continuous improvement, which means that there are endless applications ahead of us. The massive development effort, unlike other cryptos, was focused on Bitcoin as it dominates the ecosystem and is exposed to the performance laws behind the network effect. “

Bloomberg News reported Wednesday, citing a report by publicly traded hedge fund Man Group, that Bitcoin differs from other investment bubbles like tulips, railroads and dot-com stocks in that it has “weathered three lows of over 80%” in less than 10 years .

One thing that could worry regulators and bankers alike is the growing belief among both crypto industry executives and some large investors that the digital asset growth cycle is still at an early stage.

“How long will it take to convert the entire old financial system to a digital Internet in Web 3.0 based on distributed ledger technology?” Mati Greenspan, founder of forex and cryptocurrency research firm Quantum Economics, wrote on Wednesday. “My feeling is that we are still early.”

Read more: Bitcoin in the race for adoption before central banks adopt digital currencies: Australia’s Macquarie

Bitcoin clock

Bitcoin daily trading volume chart with a price chart overlaid showing how low the volume was during the last Bitcoin rally over the past two days.

Source: Skew.

Bitcoin surged above $ 38,000 early Thursday, erasing a significant portion of Monday’s drop from $ 40,000 to $ 30,305.

However, the rapid recovery was seen due to low trading volume, as noted by crypto derivatives research firm Skew. A low volume jump is often short-lived.

However, the options market is betting on a sustained rally and assigns a 20% chance that the cryptocurrency will rise above $ 50,000 by January 29th (monthly expiration).

The 20% probability looks impressive considering that the monthly expiration is only two weeks away and the cryptocurrency is currently down 31% from $ 50,000.

The bullish sentiment is quite strong, which is reflected in increased demand for higher strike call options.

“In the last 24 hours, the call option of USD 52,000 registered a purchase volume of 2,059 contracts. In the meantime, the call has a value of 36,000 US dollars and a purchase volume of 1,211 contracts, ”said the Swiss-based data analysis platform Laevitas to CoinDesk

Read More: Bitcoin Jumps As An Options Market Seeing A 20% Chance Of $ 50,000 By The Month End

What is hot?

Deribit Exchange increases the maximum strike price for Bitcoin options to USD 400,000 (CoinDesk)

Anchorage becomes the first state-chartered crypto bank in the US (CoinDesk)

Winklevoss twins are open to making Gemini their cryptocurrency exchange public (Bloomberg)

Grayscale Begins Dissolution of XRP Trust Citing Ripple SEC (CoinDesk) lawsuit (Editor’s note: Grayscale is a unit of the Digital Currency Group owned by CoinDesk.)

Crypto buyers face “possible restrictions” for eToro this weekend (CoinDesk)

IHS Markit Likely To Join Cryptocurrency Index Game, Executive Says (CoinDesk)

Aragon faces a wave of resignations and it’s not clear why (The Defiant)

The decentralized exchange aggregator 1inch, founded in 2019, has a trading volume of USD 10 billion (CryptoSlate).

Arca, Digital Asset Investment Firm, Raises $ 10M in Series A Funding (press release via Cision)

Cryptocurrency trading platform CrossTower launches capital market desk for institutional customers (CoinDesk)

US SEC Commissioner Hester “Crypto Mom” ​​Peirce says regulators under President-elect Joe Biden (Decrypt) can take a “fresh look” at crypto regulation.

These DeFi tokens are seeing double-digit gains as Bitcoin’s growth tapers off (CoinDesk).

In Colombia’s race for an important regional crypto market (CoinDesk)

Trading Hall of Fame: The Bitcoin option bet that made a profit of $ 58.2 million with just $ 638,000 (CoinDesk).


The latest on economics and traditional finance

U.S. Senate Democrats Plan Swift Action To Increase Coronavirus Aid Payments To $ 2,000 (NYT)

The newly appointed director of the US National Economic Council, Brian Deese, says the focus will be on domestic investment in the tech sector, not tariffs on China (Nikkei Asia Review).

The U.S. budget deficit hit a record $ 573 billion in the fiscal first quarter (October through December), up 61% year over year as spending on coronavirus aid and unemployment benefits (Bloomberg) increases.

The Australian financial watchdog, who raised suspicions of money laundering, jointly checked the funds sent by the Vatican between 2014 and 2020, which were well below those originally claimed (Reuters).

The US Federal Reserve’s balance sheet is expected to reach USD 8.8 billion by the end of 2021, with no tapering of asset purchases by 2022, predict economists at Bank of America.

Expected pace of US Treasury bond purchases by the Federal Reserve as estimated by Bank of America economists.

Source: Bank of America

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