Bitcoin rises again

It’s a good week for Bitcoin and altcoins. Finally, there has been a reversal of fortunes and the bears have retreated, at least for the moment. What sparked the about turn of the bearish trend that has dominated the market since the beginning of the year?

The world’s largest cryptocurrency by market capitalization is up 15% over the past week, although it has been outshone a little by Ethereum (up 16%) and Solana (up 25%) over the same period of time. This is not bad news for Bitcoin, as the rise in the altcoin sector shows that an appetite for risk has returned.

According to Coindesk, “the recent rally in bitcoin can be explained by new token accumulation, which is unique to the crypto market.” This refers to the purchase of more than 27,000 BTC worth roughly $1.3 billion by the Luna Foundation Guard (LFG). It promised that it would add BTC as an additional layer of security for UST, which is Terra’s decentralized dollar-pegged stablecoin.

Lucas Otumuro, head of research at IntoTheBlock, a crypto data company, told Coindesk that he believes there “appears to be a synergy between Bitcoin and the Terra ecosystem.” He went on to say, “UST benefits from having additional backing and bitcoin benefits not just from the buying pressure, but also from having a stable medium of exchange backed by BTC.”

But there is more to Bitcoin’s rebound than the purchase by LFG. The recent price bounce appears to be driven by demand in the spot market, which typically occurs around market turning points. There has been a rise in spot BTC volume versus futures volume, and an uptick in bitcoin trading volume across major exchanges. What we need to watch out for is a sudden capitulation to a sell-off. At this moment, an increase in buy volume versus sell volume could determine if the price rally has staying power. Thankfully, according to data from CryptoQuant there is a slight increase in the buy/sell volume ratio over the past week, which indicates bullish sentiment among Bitcoin traders.

We may see some corrections as the week progresses and Bitcoin aims to get past $48,000, but for now we are happy enough to enjoy Bitcoin’s fightback.

Consumers want banks to offer crypto

The crypto market saw a sudden uplift on 15th March, following a few days of sideways trading. According to Ron Shevlin at Forbes, Biden’s recent executive order regarding the responsible development of digital assets helped lift the price of Bitcoin, Ethereum, and other cryptocurrencies.

Ari Redford, Head of Legal and Government Affairs at TRM Labs, offered Shevlin a neat opinion about its effects: “The executive order is really a call for coordination—playing quarterback to ensure that regulators are working together to feed into a clear and consistent framework for crypto regulation rather than engage in disparate work streams.”

This is important for traditional banks, and it should encourage them to engage with cryptocurrencies. They would be foolish not to do that, since many Americans are demanding to be able to purchase crypto directly from their bank, rather than use a crypto exchange.

For example, a very recent survey by Cornerstone Advisors conducted in February 2022 found that “one in five American adults hold some form of cryptocurrency.” The generations that favour crypto are Millennials and GenZ, with Gen X trailing a bit behoind, and the Boomers solidly rejecting the idea of crypto.

Twenty-five percent of Gen Zers already own crypto and 29% plan to buy it within 12 months. Thirty percent of Millennials already own it and 27% will buy it this year. Furthermore, among the Gen Zers and Millennials with crypto, 40% bought or sold it five or more times in 2021.

With regard to banks, the survey revealed that around 50% of Americans that already own crypto would “definitely use a bank to invest in crypto if they could, with another 42% indicating that might do so.”

But banks don’t seem to be getting this message. Shevlin writes: “According to Cornerstone Advisors’ What’s Going On in Banking 2022 study, just 1% of US banks provided cryptocurrency investing or trading services before this year.” What is more, only 1 in 10 American banks plan to offer a crypto service in 2022. It seems that although regulators are trying to make it easier for the banks to become involved, bankers are still tied to their old views.

One senior bank exec told Cornerstone:

“Why are there more cryptocurrencies than US banks and credit unions combined? When is the consolidation and fallout going to occur?”

While another said: “Cryptocurrencies aren’t stable enough to be a legit payment mechanism as the value could fluctuate during the transaction. Instead of pushing crypto ATMs and ways to create your own currencies, it would be great to see more focus on how to solve issues like unaffordable housing and the student loan.”

It seems he’s missing the point, and indeed, the demand. Although nt all of them are so blinkered. One banker actually sounded positive, commenting, “We need to accept that cryptocurrency is here and start planning TODAY on how to approach this and not wait until it’s too late and we’re reacting versus planning.”

We know that banks are risk averse, and have consistently issued warnings about the risks they see with crypto, but it would seem that based on the consumer view, the biggest risk to the banks is not getting involved with cryptocurrencies at all.

Crypto’s positive reaction to Biden’s executive order

Although there has been a slight pullback in the crypto market since yesterday, and watching it daily is like some version of the game Snakes and Ladders/Chutes and Ladders, there has been a positive response to the Biden administrations executive order. The order “will require U.S. federal agencies to create a regulatory framework for digital assets, as well as explore a future digital dollar,” Cointelegraph reports.

For example, Coinbase surged up 10.5% at market close, and Microstrategy posted a 6.4% gain. Exchange traded funds (ETFs) also experienced a renewed positive view of crypto, with ProShares Bitcoin Strategy ETF gaining 10% and Valkyrie Bitcoin Strategy ETF closing up 10.3%.

Mining companies had some of the biggest gains following the executive order. Riot Blockchain Inc. shares shot up 11.2% and Marathon Digital Holdings Inc. were up by 13.5%.

Tom Miitchelhill comments that while the crypto market is used to volatility, “these are unusually volatile moves on traditional markets.” However, before everyone gets to excited, let’s remember that Coinbase “is still down nearly 48% from its direct listing price in April last year.” And Bitcoin, although it initially racked up a 9% price increase when details of the executive order were leaked, it then retraced its steps sometime after.

Why so much positivity about the US order? Mitchelhill says, “the executive order was considered by most investors to be if not a net positive for the crypto industry, at least a lot less bad than had been feared.”

One reason is that President Biden has positioned the rise of digital assets as, “an opportunity to reinforce American leadership in the global financial system and at the technological frontier.” And whilst nobody knows exactly what sort of regulatory measures may be expected, the general view is that the US government is being ‘constructive’. It also potentially means “that the executive order will potentially work to expand the adoption of virtual currencies within the U.S. financial system.”

US Treasury Secretary, Janet Yellen, commenting on it, said: “President Biden’s historic executive order calls for a coordinated and comprehensive approach to digital asset policy. This approach will support responsible innovation that could result in substantial benefits for the nation, consumers and businesses.”

There are of course divisions in the crypto community over it, but it will be interesting to see how this plays out and who it benefits in the long term.

Crypto isn’t an escape route from sanctions

“Why doesn’t Russia just use Ripple if it can’t use SWIFT?” a young person asked me the other day. He is not alone in thinking that cryptocurrencies are a ‘workaround’ for Russia as it faces heavy economic sanctions. Indeed, with decentralization being a core value of crypto, it does seem that it should be a solution, but of course the reality is actually much, much different.

The reality is that crypto exchanges have far too much to lose if they allowed huge movements of crypto into the Russian Federation. Nobody wants to penalise the ordinary Russian person with crypto, and we have seen many of them protest about the Kremlin’s actions. Still, the authorities are on the look out for any infringements.

FinCEN sends a message to exchanges

For example, the United States Financial Crimes Enforcement Network, or FinCEN, a bureau of the Treasury Department, has warned financial institutions to consider crypto as a possible means Russia may attempt to use to evade sanctions. They have sent out a warning to US-based financial institutions “with visibility into cryptocurrency” (eg Coinbase) to report any activity that could be considered a potential way for Russia to evade sanctions.

Biden to sign crypto executive order

President Biden is about to sign an executive order on cryptocurrencies this week, outlining his administration’s view of the sector, and it is thought this has been brought forward as a result of the invasion of Ukraine. The Ukrainian minister of digital transformation, Mykhailo Fedorov has directly appealed to crypto exchanges on social media, urging them to block addresses of Russian users. Cointelegraph reports “many exchanges including Binance and Kraken have said that they will not unilaterally act to block ALL users in Russia from accessing their coins unless there were a legal requirement for them to do so.”

But the exchanges are taking action – because they must!

A view from the crypto exchanges

Changpeng Zhao, CEO of Binance, have taken to Twitter, to explain that since banks follow the sanctions rules, then so do cryptocurrency exchanges.

Brad Garlinghouse, CEO of Ripple, also slammed the allegations that Russia may use cryptocurrencies to get around economic sanctions. And he explains why it is wrong to think exchanges might be able to wriggle around the law. As he points out, worldwide crypto trading platforms rely on a variety of banking partners. These banks and crypto trading platforms would risk losing their licenses if a blocked country or individual breaks through all necessary security measures to conduct transactions on these platforms. That is why there are very stringent KYC and AML policies in place.

And Brian Armstrong of Coinbase has also weighed into the debate, saying that cryptocurrencies are not a way to evade sanctions, because “every United States firm must comply with the law; it makes no difference whether they engage in dollars, crypto gold, real estate, or any other type of non-financial asset.”

Ultimately, the reason Ripple or other cryptocurrencies won’t really help Russia is this; blockchains work on an open ledger, so any illegal transaction would be even more traceable than cash, gold or other assets.