Last week was a pivotal moment for crypto investors as fears of a looming bear market continue to grow. Sunday saw the lowest bitcoin trading volume in close to three years, and overall cryptocurrency fund inflows dropped ~60% last week alone.
So what has seemingly turned the tide on crypto fortunes? An article from BNN Bloomberg reports that:
“Banks, credit card companies and digital payments processors are nervously watching the push to create an electronic alternative to the paper bills Americans carry in their wallets, or what some call a digital dollar and others call a Fedcoin.
As soon as July, officials at the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology, which have been developing prototypes for a digital dollar platform, plan to unveil their research, said James Cunha, who leads the project for the Boston Fed.”
The planned Fed rollout of the digital dollar seems to be worrying market participants for multiple reasons:
- the banking system, because it may threaten their middleman role;
- crypto enthusiasts, who see the digital dollar as replacing Bitcoin as a means of exchange; and
- An overarching fear that Bitcoin and potentially other cryptos will be subject to intense scrutiny and regulation
Just this week, Fed chairman Powell had this to say about cryptocurrencies:
“They’re highly volatile and therefore not really useful stores of value and they’re not backed by anything.”
Evidently, the digital dollar the Fed hopes to introduce in the near future would be a competitor to already existing cryptocurrencies, so a statement like this from the Fed chairman may come as no surprise.
What we cannot forget is that only last month, a host of big-name players entered/re-entered the cryptocurrency market (we wrote about this here); and just last week, as detailed in this article from the Business Insider,
“Anthony Scaramucci’s SkyBridge Capital has teamed up with investment firm First Trust Advisors to apply for regulatory approval for a bitcoin exchange-traded fund.”
The article goes on to say that,
“According to the March 19 filing, the objective of the First Trust SkyBridge Bitcoin ETF is to buy and sell bitcoin in a manner that the total value of the cryptocurrency is as close to 100% of the net assets “as is reasonably practicable to achieve.”
Bitcoin Still Appealing to Speculative Investors
Despite the Fed’s inroads into a digital dollar (and whatever concerns it might cause the banks), the market’s appetite for blockchain/crypto doesn’t appear to be letting up. Sure, last week’s slow down might signal an impending correction for Bitcoin and related crypto stocks. However, the entry of noteworthy institutional investors and a growing number of issuers vying for approval in the US and elsewhere lead us to believe cryptocurrencies remain an effective hedge against the debasement of fiat currency. They also may provide an alternative to equities for speculators.