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CNN Business
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It’s been a cold, hard crypto winter. But signs of a thaw, spurred by global currency chaos, are beginning to emerge.
What’s up: Bitcoin surged to its highest level in more than a week on Tuesday, gaining more than 5% as the British pound and other currencies hit against the ultra-strong dollar. The gains gave crypto bulls hope that bitcoin was becoming a safe haven, or one that acts as a hedge when stocks fall.
Then, around midday, the dollar grew in strength and bitcoin plummeted again, wiping out all recent gains. Bitcoin fell around another 1% on Wednesday after the Bank of England attempted to shore up Britain’s debt.
When the dollar is strong, “there is no safe haven,” eToro crypto consultant Glen Goodman warned on CoinDesk TV on Tuesday.
A little background: Bitcoin struggles for direction: The digital currency has fluctuated between $18,000 and $25,000 since mid-June after a massive crash wiped nearly $2 trillion from the crypto market. It is currently down 60% year to date.
The coin soared through the Covid era on the wings of near-zero interest rates, stimulus 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 interest rates to fight inflation, and the dollar strengthened significantly, seducing investors as the ultimate safe haven. At the same time, the economy began to sour and the new investors who still saw bitcoin as a risky asset went out in droves. The crash caused a wave of bankruptcies among young companies such as crypto trading platforms Voyager and Celsius.
“In the current macro climate, when you have inflation and a big selloff and big crypto projects that failed, people are going to pull back,” Tyler Winklevoss, co-founder of crypto exchange platform Gemini, said in an interview. earlier this month. “Bitcoin is still new, so it’s still seen by many as a risky asset. And when people take risk off the table, bitcoin will suffer. But all assets suffer, bitcoin is not in this alone.”
The silver lining: But even as bitcoin prices fall, investors see signs of a bottom.
Ben Gagnon, head of mining at Bitfarms sees anything below $20,000 as the price at which fair-weather institutional investors pull back from the currency for good, which will help stabilize bitcoin’s current volatility and send it higher.
As of Wednesday morning, bitcoin was below $19,000.
“I would be very surprised if we finished the year that low,” Gagnon said. “I think Bitcoin is going to start recovering now that it’s kind of shaken out of a lot of the excess.”
“This is an interesting time,” said Chris Kline, COO and co-founder of Bitcoin IRA, a digital asset technology platform. “For the past eight months, bitcoin has been performing like a technology stock because there have been so many institutional investors in it.” As the money flows out, he said, things could change.
That’s a big TBD, but bitcoin advocates remain cautiously optimistic.
Crypto advocates aren’t too happy with the Federal Reserve, and that sentiment seems to go both ways.
Fed Chair Jerome Powell called for more regulation of digital assets on Tuesday morning at a Bank of France conference on the digitization of finance.
While crypto bulls are likely to argue the decline in markets and other assets has caused digital currencies to fall in value, Powell said he was worried about the opposite. The final plunge in bitcoin prices, he said, could spread and cause greater financial turmoil. Digital currencies need to be regulated and have checks in place just like other market assets, he said.
“There is a real need for more appropriate regulation,” he said, especially as crypto “expands and begins to touch more retail customers.”
Other central bankers were not as nuanced as Powell. “I don’t see any redemption value” in cryptocurrencies, said Ravi Menon of the Monetary Authority of Singapore. “Their time of reckoning has come.”
The Federal Reserve does not regulate cryptocurrency in the United States, but monitors 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 is not coming anytime soon, Powell said. “We see this as a process of at least a couple of years, where we work and build public confidence in our analysis and in our final conclusions, which we certainly haven’t come to yet.”
Representatives Maxine Waters and Patrick McHenry have tried to negotiate one bill which will regulate the companies behind stablecoins – digital assets linked to the dollar and used as an alternative to the high volatility of cryptocurrencies such as 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 called for on Tuesday.
But the box keeps getting kicked down the road. That’s because Congress has been “stymied on how to craft the bill,” Politico reports. They are having trouble wrapping their heads around how to regulate crypto.
“I don’t think anyone would recommend that someone who is ignorant or unfamiliar with the industry be in a position to legislate and regulate,” said Ben Gagnon, who engages with politicians to advocate for his crypto mining company, Bitfarms.
“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 plans for crypto regulation, but critics argued they lacked real teeth. The Blockchain Association, one of the largest digital asset industry groups, said the Biden administration’s report lacked “substantial recommendations.”
Executive director Kristin Smith said in a statement that the report focused too much on criticism of the industry and was light on politics. She called the reports “a missed opportunity to cement American crypto leadership.”
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