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It’s been a cold, hard crypto winter. But signs of a thaw, spurred on by the global currency chaos, are beginning to appear.
What is happening: Bitcoin rose to its highest level in more than a week on Tuesday, gaining more than 5% as the British pound and other currencies took a beating against the ultra-strong dollar. The gains gave crypto bulls hope that bitcoin would become a safe haven, or one that acts as a hedge when stocks fall.
Then, around noon, the dollar grew in strength and bitcoin collapsed again, wiping out all of its recent gains. Bitcoin fell another 1% on Wednesday after the Bank of England attempted to bolster UK debt.
When the dollar is strong, “there are no safe havens,” eToro crypto consultant Glen Goodman warned on CoinDesk TV on Tuesday.
Some background: Bitcoin struggles for direction: The digital currency has fluctuated between $18,000 and $25,000 since mid-June after a massive crash wiped out nearly $2 trillion from the crypto market. It is currently 60% lower than ever.
The coin rocketed through the Covid era on the wings of near-zero interest rates, stimulus money and a large influx of investors from large-scale institutions, reaching an all-time high of nearly $70,000 in November.
Then central banks started raising rates to fight inflation, and the dollar strengthened significantly, tempting investors into the ultimate safe haven. At the same time, the economy started to sour and those new investors who still viewed bitcoin as a risky asset departed en masse. The crash caused a wave of bankruptcies among young companies such as crypto trading platforms, Voyager and Celsius.
“In the current macro environment, when you have inflation and a huge sell-off and big crypto projects that have failed, people will back off,” Tyler Winklevoss, co-founder of crypto exchange platform Gemini, told me in an interview earlier this month. “Bitcoin is still new, so it is still seen by many as a risky asset. And if people take the risk off the table, bitcoin will suffer. But all assets suffer, bitcoin is not alone in this.”
The silver lining: But even as bitcoin prices fall, investors are seeing signs of a bottom.
Ben Gagnon, chief mining officer at Bitfarms, sees anything below $20,000 as the price at which institutional investors pull out of the currency for good in good weather, which will help stabilize bitcoin’s current volatility and send it on an upward path.
As of Wednesday morning, bitcoin was below $19,000.
“I’d be surprised if we end the year that low,” said Gagnon. “I think Bitcoin is going to recover now that it has been shaken out of a lot of the excess a little bit.”
“This is an interesting time,” said Chris Kline, COO and co-founder of Bitcoin IRA, a digital asset technology platform. “Over the past eight months, bitcoin has behaved like a technology stock because there have been so many institutional investors in it.” If that money flows out, he said, things can change.
It’s a big TBD, but bitcoin proponents remain cautiously optimistic.
Crypto pros aren’t too happy with the Federal Reserve, and that sentiment seems to be going both ways.
Fed Chair Jerome Powell urged greater regulation of digital assets at a Bank of France conference on the digitization of finance Tuesday morning.
While crypto bulls are likely to argue that the decline in markets and other assets has caused digital currencies to decline in value, Powell said he was concerned about the opposite. The recent dive in bitcoin prices, he said, could spread and spark wider financial turmoil. Digital currencies need to be regulated and have controls, just like other market assets, he said.
“There is a real need for more appropriate regulation,” he said, especially as crypto “expands and starts to hit more retail customers.”
Other central bankers were not as nuanced as Powell. “I see no redeeming value” in cryptocurrencies, said Ravi Menon of the Singapore Monetary Authority. “Their time for reckoning has come.”
The Federal Reserve does not regulate cryptocurrency in the United States, but it does oversee cryptocurrencies held by banks. The central bank is also considering the launch of a central bank digital currency, which is essentially a digital version of the dollar.
That currency isn’t coming anytime soon, Powell said. “We see this as a process of at least a few years, where we do work and build public confidence in our analysis and in our final conclusions, which, as I said, we certainly haven’t reached yet.”
Representatives Maxine Waters and Patrick McHenry have attempted to negotiate a account that would regulate the companies behind stablecoins – digital assets pegged to the dollar and used as an alternative to the high volatility of cryptocurrencies like bitcoin.
The bill would subject them to Federal Reserve oversight and reserve requirements to protect customers in the event of insolvency — exactly the kind of regulation Fed Chair Powell urged on Tuesday.
But the can keeps getting kicked across the road. That’s because Congress “refuses on how to draft the bill,” Politico reports. They are struggling to figure out how to regulate crypto.
“I don’t think anyone would advise that someone who is ignorant or unfamiliar with the industry is in a position to legislate and regulate,” said Ben Gagnon, who associates with politicians to advocate for his crypto. – mining company, Bitfarms, me.
“There have been some federal government initiatives by agencies to study bitcoin, but that process is largely non-existent,” he said.
The White House recently released its own crypto regulation plans, but critics argued they lacked actual teeth. The Blockchain Association, one of the largest groups in the digital asset industry, said the Biden Administrations report lacked “substantial recommendations.”
Executive Director Kristin Smith said in a statement that the report was too focused on criticism of the industry and light on policy. She called the reports “a missed opportunity to strengthen US crypto leadership”.
Cintas (CTAS) and Paychex (PAYX) report earnings for the bell.
US current home sales will be released at 10 a.m. ET.