News Updates August 21, 2022

1. Crypto Markets About to Close Worst Week Since June’s Crash (Market Watch)

The cryptocurrency market has not seen such a negative trading week since the mid-June crash.

Bitcoin’s situation took another turn for the worse in the past 24 hours as the asset slipped to $20,750.

Most altcoins are in a similar position this week, making it the worst performing trading one since the massive crash in mid-June.

 *Bitcoin Down 15% Weekly*

A lot can change in the cryptocurrency markets within a week. Bitcoin, for instance, was riding high last weekend when it jumped above $25,000 on two separate occasions to mark new multi-month peaks.

While the bulls expected to remain in control and perhaps keep pushing the asset north, the landscape changed rather immediately, and BTC plummeted by over $1,000 in hours.

But that was just the start. Bitcoin attempted a brief recovery but was stopped at $24,400 and dumped by another grand in the following hours. More pain came a few days later when BTC slumped to $21,500 (on August 19).

Yesterday saw another price dump that drove the asset to $20,800 – a three-week low. BTC tried to recover some ground but dipped to that level in the following hours as well.

As of now, it stands around $21,000. This means that it’s roughly 15% down on the week, and its market cap is close to breaking below $400 billion.

As it typically happens when there’s extreme volatility with bitcoin, the alternative coins tend to go a step further.

Ethereum was among the best performers until last weekend. Perhaps fueled by hype regarding the upcoming Merge, ETH had skyrocketed to over $2,050, which became a 74-day high.

Now, though, the second-largest crypto struggles at $1,550 following several consecutive daily price drops. This means that ETH has lost $500 in a week.

On a daily scale, Ripple, Cardano, Solana, Dogecoin, Polkadot, Shiba Inu, Avalanche, and Tron are also in the red from the larger-cap alts.

The lower- and mid-cap altcoins are in similar positions. As such, the overall crypto market cap is down by another $30 billion in a day and is close to breaking below the coveted $1 trillion mark. Just for reference, the metric stood at $1.2 trillion a week ago.

2. CBDC Could Combat Market Dominance From BigTech: ECB

The ECB is considering how a CBDC could ensure that central banks retain monetary sovereignty worldwide, without being outcompeted by private cryptocurrencies. 

The European Central Bank unveiled a discussion paper this week on the pros, cons, and economics of implementing central bank digital currency (CBDC). It suggested that CBDCs could help stave off dominance from BigTech firms in the payments market due to “network externalities” surrounding the use of a medium of exchange. 

Ultimately, the paper posits that CBDC may be “the only solution to guarantee a smooth continuation of the current monetary system.”

 *The Threat of Digital Platforms*

The discussion paper begins by noting the growing interest in CBDCs, which are now being explored by central banks worldwide. They’ve so far been launched in two countries: the Bahamas (Sand Dollar) and in Nigeria (eNaira).

The report contextualizes their growth, and potential for adoption, within the larger phenomenon of a rapidly digitizing world and economy. This has led to digital platforms becoming dominant business models, and a growing role for data and software. However, it also contributed to an anti-competitive environment that is centralizing digital market power with a handful of tech giants.

This tendency towards centralization is caused by “network externalities” – meaning that users are attracted to these platforms precisely because others are using them. 

Regarding crypto, the ECB fears that dominant platforms issuing digital currencies (ex. Diem) could use network externalities to become dominant issuers of private money. This could hypothetically challenge a domestic economy’s monetary sovereignty – its supremacy over the economy’s currency that acts as a store of value, medium of exchange, and unit of account. 

As a remedy, the report proposes CBDCs as a tool that can ensure the continued practical use of public money in the economy. It could reduce the cost of payments, resolve frictions in financial intermediation, and improve the central bank’s ability to serve as a lender of last resort. 

By protecting monetary sovereignty, a CBDC would help retain the central bank’s control over monetary policy. If prices in the economy are denominated in a different currency, then any expansionist policy will merely create a bout of inflation without any increase in economic output. 

Facebook’s project to launch Diem – a global dollarized cryptocurrency project – ultimately failed after repeated bouts of regulatory and political pushback. Nations like France and Germany confirmed early on that they’d block the project for its potential to undermine traditional finance institutions.

Since its collapse, Diem’s former project head David Marcus has transitioned towards working on Bitcoin. Those faithful to the primary cryptocurrency, like Jack Dorsey, believe it alone can challenge the global supremacy of the dollar. 

Central bankers aren’t so concerned about this particular asset, however. Former Federal Reserve Chairman Ben Bernanke claimed in May that Bitcoin had already failed as an alternative money. Later that month, Sweden’s Central bank clarified its view that Bitcoin and Ethereum do not classify as currencies, mostly due to their volatility.

3. Jack Dorsey’s Block Cash App Comes Under Probe, Here’s Why

The Consumer Financial Protection Bureau (CFPB) is taking Jack Dorsey’s Block Inc. to a federal court. The CFPB has alleged that Block has failed to comply with its investigative demands relating to its Cash app payment tools.

Cash App is a popular platform for users to transact their stocks and Bitcoin. Last Thursday, August 18, the CFPB filed a petition with the US District Court for the Northern District of California and demanded a civil investigative demand.

The CFPB alleges that Block Inc. has to provide all documents and data that they requested back in August 2020 and August 2021. The investigation relates to Cash App’s handling of complaints and disputes.

4. Bitcoin Reached Potential Bottom, Says Legendary Trader Peter Brandt

According to an analysis shared by a veteran trader Peter Brandt, Bitcoin has finally reached the pattern's target it has been forming since the middle of July. The price performance does not ‌mean that the market should become extremely bullish, and it also does not mean that BTC won't drop even lower, says the trader.

Back in July, after a massive 25% plunge, Bitcoin entered a rising wedge, which ‌often acts as a cooldown pattern during amplitude trends. With assets entering consolidation channels or ascending and descending wedges, traders and investors take their time to accumulate or redistribute their funds prior to a volatile move.

As the consolidation period comes to conclusion, the market is seeing a rapid spike in the trading volume and volatility, which causes a swing up or a plunge down. In our case, the market decided to push BTC lower, causing it to drop to the July level. According to Brandt, the target of the pattern has been reached, which means Bitcoin is now moving without looking back at the formation that was present on the market for the last few weeks.

5. Top Talent from Traditional Finance Is Shifting to Crypto.

Despite BTC sell-off and a significant drop in total value locked (TVL), talent is migrating from traditional finance to the crypto space. Among the most notable names that are Katia Babbar and William McGhee.

 
 Babbar is the former managing director as well as head of electronic FX trading at Lloys Bank (London). McGhee was the senior quantitative researcher at Citadel Europe. He was also the global head of quantitative analytics and global head of machine learning for electronic trading at NatWest Markets.

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Both executives launched a risk management system for cryptocurrencies and decentralized finance (DeFi) called Immersive Finance.

Andrei Serjantov, an executive from BNP Paribas for the past 16 years left the group to join Nym (crypto startup) as its chief financial officer (CFO). Serjantov was the head of electronic credit trading and head of flow credit quantitative research at BNP Paribas.

6. ICE-founded Bakkt CEO affirms ‘crypto isn’t going away’ despite heightened volatility

The 2022 cryptocurrency market meltdown has partly cast doubt on the sector’s sustainability, with investors incurring losses. Notably, the crash has recorded casualties, with several businesses running into bankruptcy. 

However, CEO of digital assets management firm Bakkt Gavin Michael, while speaking during an interview with Yahoo Finance on August 19, suggested that the crypto market is here to stay. 

The executive noted there is still interest from retail and institutional investors, stating that most entities are now conversant with how the sector operates, especially with the volatility aspect. 

According to Michael, following the recent dips, interest in the market is driven by the possibility of embarking on a rally in 2023.