• Bitcoin daily high so far at USD 6,470
  • Coronavirus and global economic crisis could be the double whammy to help prove Bitcoin’s worth as a hedging asset
  • IMF points out positives and negatives of CBDCs

 

Bitcoin is showing some of its familiar Sunday bull strength so far, with a push above USD 6,000 some 20 hours ago proceeding to record a daily high so far of USD 6,470 (CoinDesk), with some spikes creeping higher.

With all the talk of Bitcoin being a hedge against global economic uncertainty now up in the air, several more analysts and strategists are now saying that the double impact of coronavirus induced slowdown, as well as the global financial crisis, could come together to make for an impactful Bitcoin halving event come this May.

According to Lead Digital Strategist at Fundstrat David Grider and Platinum Account Manager at eToro Simon Peters, the unyielding fundamentals of Bitcoin are going to affect its future in the long term.

These discussions take place over the last two weeks where the world’s most popular digital currency has been experienced record levels of volatility, as the market reacts to a global pandemic and economic crisis unfolding.

Blockchain analytics firm Chainalysis said that professional traders and investors had been the ones responsible for recent big moves in price, while only moving just 5% of the total supply of Bitcoin. This is where Grider disagrees, saying that this group of traditional market participants and institutional players aren’t alone in having that kind of impact on the market, saying:

“I think that probably you’ve seen an onboarding in 2016/2017 of a traditional, probably institutional, fund class to some degree but not very large, right. But still prior to that this was a very small market and I think that it’s still probably mostly dominated by early larger crypto whales, right.”

And with the strange correlations of March in Bitcoin and stock markets, Peters said that the fortnight’s losses for Bitcoin was indeed an outcome of positions being liquidated by professional traders, but that this weak hand selling would eventually give way to Bitcoin as a hedging asset. He explained:

“We’ve seen this conversion of assets into cash, regardless of which market it is, but there will come a point where, due to this increasing amount that’s been pumped into the system, the cash is going to lose its value. Then as the virus no doubt stems down and the number of new cases that are being reported tails off, the question to investors then is, ‘what do I do with all this cash that I have?’ And then they may look into other assets that can hedge against that, essentially, with crypto possibly being one of them.”

Meanwhile, the International Monetary Fund (IMF) has weighed in on central bank digital currencies (CBDC) and their probable positives and negatives. Speaking at the London School of Economics, IMF Deputy Managing Director Tao Zhang said the CBDCs brought a lot of potential efficiencies as well as lowering costs, which was particularly important to the objective of addressing the world’s unbanked population. He said:

“In some countries, the cost of managing cash can be very high on account of geography, and access to the payments system may not be available to the unbanked, rural, or poorer population…. CBDC may provide a public digital means of payment without requiring individuals to hold a bank account.

Zhang did also point towards promised stability and how CBDCs could help strengthen monetary policy, fighting against other digital asset as a domestic currency backed by a government that was trusted. This would solve some issues of having to adopt privately issued currencies such as stablecoins that were a challenge to regulate and could risk financial stability and monetary policy transmission.

On the other hand, he warned that these national currencies could also incur additional risks and expenses and would require banks to be fully active along many steps of the payments value chain. This posed reputational risks as it would mean, among others, customer interfacing and managing front-end wallets.

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