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First Mover: Forget Facebook’s Stablecoin. Now It’s $700B Bitcoin in the

Bitcoin (BTC) was higher, pushing back toward $40,000 after a 9.9% surge on Wednesday, the biggest calendar-day gain in a month.  

Such a powerful recovery after a steep sell-off earlier in the week has quickly reinvigorated trader spirits. “This bubble doesn’t look set to burst,” said Don Guo, CEO of Broctagon Fintech Group, which helps smaller cryptocurrency exchanges tap into bigger pools of liquidity available from large exchanges. 

In traditional markets, U.S. government bond yields rose along with stocks after CNN reported that President-elect Joe Biden will unveil on Thursday a new coronavirus relief proposal, and that his advisers have told allies in Congress to expect a price tag around $2 trillion. Gold weakened 0.2% to $1,841 an ounce. 

Market moves

Before the coronavirus hit last year, a big conversation among financial-industry executives, lawmakers and regulators was just how to regulate libra, the proposed digital currency from Facebook. 

“With Facebook’s very large network of more than a billion people, a stablecoin could have systemic implications very quickly,” Powell said in a September 2019 webcast discussion in Zurich with Swiss National Bank Chairman Thomas Jordan. “Libra would have to be held to the highest regulatory standards and expectations.” 

Fast forward and the Facebook-sponsored token (since retooled and rebranded) still hasn’t launched. Instead, it’s now bitcoin, the original and largest cryptocurrency, suddenly attracting the overseers’ notice. 

Bitcoin is a “highly speculative asset,” European Central Bank President Christine Lagarde said Wednesday at a Reuters event. According to the news service, she joined a number of regulators from across the world in calling for implementing global rules for cryptocurrencies.

“There has to be regulation,” Lagarde said. “This has to be applied and agreed upon.”

A doubling in prices for bitcoin in 2019, a quadrupling last year and another 32% gain just in the first two weeks of 2021 have quickly given the cryptocurrency a $709 billion market value.

Everybody knows bitcoin’s price is volatile, which was less of a concern a couple years ago when it was just one of those “no value” cryptocurrencies. A little extrapolation shows why the topic is getting harder to ignore. 

Another quadrupling in price (hypothetically speaking of course) would push bitcoin’s market capitalization to nearly $3 trillion. That’s roughly the same amount of new money the Federal Reserve printed last year and then pumped into traditional financial markets last year to keep them from faltering. 

A big number, in other words. So-called leveraged loans, which banks provide to junk-grade companies and then sell to investors for trading on Wall Street, grew so fast over the past decade that the Federal Reserve warned in early 2019 of the growing risks. The total outstanding amount of these junk loans currently stands at about $1.7 trillion.   

Inverted-scale bitcoin price chart shows how the dollar and euro have plunged in bitcoin terms.
Source: TradingView/CoinDesk

With the coronavirus dimming the appeal of paper bills, central banks around the globe have accelerated efforts to develop or at least study digital versions of their own currencies. China’s is already in trials. Earlier this week the Fed’s New York branch, which handles the U.S. central bank’s money-market operations, announced it had retained the recruiting firm Heidrick & Struggles to recruit an inaugural director for a planned New York Innovation Center, which will “develop in-depth insights into critical trends in financial technology.” 

A big dilemma regulators face is the Bitcoin blockchain was designed as an autonomous, peer-to-peer electronic payment system using distributed-ledger technology – theoretically beyond the control of any person, business or government. So the Fed can’t just order bitcoin to stand down, as it essentially did to Facebook.  

But according to a report published Wednesday by analysts with Macquarie, the big Australian investment bank, “private cryptocurrencies” like bitcoin are fast making inroads into electronic commerce, and it looks unlikely a digital dollar or digital euro could launch until 2022 at the earliest. 

“We think the use cases for private crypto could come to fruition if commerce becomes too accustomed to private crypto use prior to a central bank digital currency alternative launching as a stable, legitimate alternative,” the Macquarie analysts wrote. “U.S. regulatory officials wield quite a bit of power over how cryptos function and how their ecosystems develop. This becomes less meaningful as the network effect of cryptos grows, utility and acceptance broaden, and fiat…

Read More: First Mover: Forget Facebook’s Stablecoin. Now It’s $700B Bitcoin in the

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