Hello. Analysts are reporting bleak near-term projections for bitcoin as the U.S. Department of Labor reports moderate inflation in 2020. Here’s the story:
A new physically backed Bitcoin exchange traded product (ETP) has hit the SIX exchange in Switzerland. Developed by ETC Group, this is the 34th bitcoin ETP on SIX. Meanwhile, Winklevoss-owned Gemini Trust company is supporting the latest bitcoin exchange-traded fund (ETF) application filed in Canada. Arxnovum Investments’ bitcoin ETF could potentially trade on the Chicago Mercantile Exchange, if approved. US regulators have long been skeptical of these “high-risk” investment vehicles, which many see as embarrassing institutional interest (by the way, check out Blockwork’s new editorial site).
Stop Bitcoin’s “fun business” …
European Central Bank (ECB) President Christine Lagarde called for the regulation of bitcoin internationally, during a Reuters event. This “highly speculative asset” has led to “certain reprehensible activities”, including money laundering, and any loopholes must be closed, according to a Reuters report. Meanwhile, preferred crypto regulator Brian Brooks, the acting head of America’s leading banking regulatory agency, reportedly ended his tenure this week, while Wall Street and Commodity Futures Trading Commission vet Gary Gensler would be appointed chairman of the Securities and Exchange Commission.
Analysts are gloomy about the near-term price outlook for bitcoin, with several pointing to increased flows to the exchanges and a cooling of institutional demand. Some 57,000 BTC went public on Tuesday, the biggest single-day change since the markets crashed on March 12, 2020. A Goldman Sachs executive said institutional investors were “key” to curbing bitcoin’s volatility. Neither bitcoin’s 20% drop on Monday, nor its volatility, prevented “whales” from buying the trough.
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Bitcoin and Ether prices are around 87% and 78% of their all-time highs, respectively, although the majority of altcoins (smaller-cap cryptocurrencies) are languishing. While some altcoins have risen during the recent surge in the market, retail investors have largely ignored these cheaper, riskier cryptos. That said, Messari has found that tokens embedded in the decentralized finance (DeFi) market – like manufacturer (MKR), compound (COMP), aave (AAVE), and uniswap (UNI) – are seeing a boom. robust growth.
Much of bitcoin’s growth in 2020 has been driven by institutional investors who have turned to fixed-cap deflationary assets as a hedge against inflation. Hedge fund legend Paul Tudor Jones, MicroStrategy’s Michael Saylor and Guggenheim Partners chief investment officer Scott Minerd, among others, have all referred to the prospect of Bitcoin as “digital gold”.
The fiscal stimulus and easing of monetary policy in response to the coronavirus pandemic have pushed up inflation projections. Indeed, U.S. Treasuries rates have risen in recent days, topping 1% last week, due to calls for additional government spending – like President-elect Joe Biden’s plan to inject “trillions of dollars.” dollars ”as part of an economic stimulus program.
But the line of sight on inflation is anything but clear. The US Department of Labor today reported that a key measure of inflation, the Consumer Price Index (CPI), rose only 1.4% in 2020, the smallest annual gain since 2015. For reference, the 2019 CPI increased by 2.3%, while the 10-year average is estimated at 1.7%.
That’s well below the Federal Reserve’s 2% inflation target. Last year, Fed Chairman Jerome Powell announced he would reverse course and allow the economy to run hot – above 2% – for periods of time, acknowledging that the economy has missed that target over the past decade. Some investors and analysts are skeptical of any upcoming changes. Kathy Bostjancic of Oxford Economics, for her part, is cited in Barron’s doubt about the prospect of a rate hike before 2024.
Bloomberg urged readers to “Prepare for the great American inflation mirage of 2021,” with economists Carl Riccadonna and Yelena Shulyatyeva saying, “2021 will be a year plagued by many unwarranted inflationary fears. Consumer inflation will remain low over the medium term – until the economy fully absorbs the slowdown resulting from the pandemic. “
Still, St. Louis Federal Reserve Chairman James Bullard said on Wednesday inflation was likely to rise. Speaking at a Reuters conference, Bullard said that “the money supply has’ exploded”, budget deficits are “out of the ordinary” and a booming economy may already be here or “just around the corner. “street”, according to a Reuters report.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, told CoinDesk by email that he was projecting “a sharp increase to 2.5% more in the second quarter.” However, “the key question of what happens when the economy fully reopens remains unanswered at this point.”
So what does this mean for Bitcoin and the rest of the crypto market table?
Well, unlike highly liquid, marketable assets like US Treasuries which reflect a tiny change in inflation projections, bitcoin often does its own thing.
Correlated with stocks and other traditional assets, bitcoin has largely followed the herd in price movements, although in a bull market, with the highest volatility in three years, anything is possible. On Monday, bitcoin lost 20% to rebound. And while analysts have grim prospects for the near term, many are convinced there is still money on the sidelines.
“Recent institutional investors have long horizons and will absorb short-term price shocks,” while retail investors would buy at discounted prices for fear of missing out on something, said Jehan Chu, managing partner of Kenetic Capital, based at Hong Kong, to CoinDesk’s Omkar Godbole. “Expect temporary volatility, then a return to the $ 40,000 level, followed by $ 50,000 as the bitcoin percentage land grab continues.”
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