Bitcoin bailout
Fears revolved around a raid of domestic banks and personal savings accounts— an idea that the Cypriot government rejected —however, with savings accounts on the line and the expectation of further instability down the line undoubtedly has people more than a little spooked. In these sorts of troubled times money is often siphoned out of banks and put into other currencies or stuffed under mattresses and Bitcoin is one such alternate currency. The highest rankings for those apps in the UK are lower — , and 48 — and they were all records set months or even years ago. Duly noted is that iOS devices make up a very tiny market share in Spain and a rise in the number of Bitcoin apps being bought for them is a poor metric to really say much of anything.
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Content:
- IMF Presses El Salvador to Withdraw Bitcoin’s Legal Tender Status
- China Makes Cryptocurrency Illegal
- Switzerland Blocks $103M Bailout Sought by Zug Crypto Firms
- Bitcoin: Origins And Cultural Significance
- From the Front Page
- Germany's Lufthansa in talks to buy 40% stake in Italy's ITA Airways - sources
- Bitcoin prices surge post-Cyprus bailout
- The Retired Investor: Crypto Crashes (Again)
- Thai Crypto Scene Still Reeling From Top Exchange Bailout
IMF Presses El Salvador to Withdraw Bitcoin’s Legal Tender Status
But months later bitcoin has suddenly halved after a rapid correction in US equities triggered by concerns about central banks lifting interest rates off their zero lower bound. With untapped cash piles and a lot of time on their hands, many consumers started experimenting by buying cryptocurrencies.
This inflicted nontrivial losses on the droves of investors who rushed into the crypto craze over the last 12 to 18 months — including levered retail households and sophisticated institutional investors such as pension and sovereign wealth funds.
Even nations such as El Salvador have suffered: It installed bitcoin as legal tender but has since had to answer questions around its creditworthiness and ability to service its debts as crypto plummets in value. The history of financial crises teaches us several lessons that call into question the prospective durability of both crypto and decentralised finance.
Second, scalable and trusted mediums of exchange normally require regulation and government guarantees sovereign backing and need to be intermediated by the government-backed banking system. Third, non-bank entities outside the banking system frequently fail during large shocks and recessions when they cannot rely on central bank liquidity and government guarantees to bail them out, as banks can.
Finally, financial markets and the financial system are highly networked scale economies that, just like the internet, strongly favour a very small number of winners monopolists and oligopolists in each vertical eg, Amazon, Microsoft, Google, Facebook etc. This leaves many losers consider the graveyard of failed internet start-ups from the s and s.
This is true globally of banking systems, with typically a handful of concentrated oligopolists dominating in each country, which tend to scoop up failed non-bank rivals during big crises. Several extreme policy responses to the pandemic have nonetheless precipitated enormous interest in, and demand for, crypto. The first involved central banks slashing their interest rates to zero per cent. Banks followed suit with the interest rates on their cash deposits.
This immediately undermined the value of conventional government-guaranteed and bank-backed cash as a store of wealth. Since investors earned next to nothing on cash, the opportunity cost of switching into new alternatives like crypto appeared to be modest, especially given the positive price action. Demand for crypto was further powered by several other policy dynamics. Alongside zero interest rates, governments have run some of the largest fiscal deficits in history, dropping unprecedented amounts of cash into the hands of households and companies.
Notwithstanding initial concerns that the pandemic would result in depression and possibly deflation, the public policy response left households with record savings rates. Concurrently, communities were placed in lockdown, making it very hard to go out and spend this money.
With untapped cash piles and a lot of time on their hands, many consumers started experimenting with investing in the stock market, lubricated by the recent advent of zero commission brokerages eg, Robinhood , and allocating money to cryptocurrencies. The extraordinary performance of both asset classes over and left these new inductees to stocks and crypto with a very positive initial experience.
Another tailwind for crypto has been fears that the unprecedented public policy stimulus, including record money printing by central banks, would result in a fierce inflation cycle that would undermine the value of conventional currency and cash.
These fears are certainly playing out right now with strong inflation and wage growth in both the US and most other developed economies. Crypto has generally been sold to investors on the basis of several core value propositions. First, it is a viable store of wealth outside centralised governments. Second, it will be a powerful inflation hedge in a world awash with money printing. And third, it can serve as a tractable medium of exchange. Decentralised finance has been pitched on the basis that it offers an alternative to the centralised banking system, much like non-bank securitisers have in the past.
Yet, there are some reasonable questions one can ask on the integrity of each of these ideas. And in contrast to precious metals, bitcoin has no other practical utility eg, jewellery, medicine, electronics, central bank reserves etc. Yes, you can make money lending against crypto, but that is just another credit investment with the associated default, loss and liquidity risks.
The next concern with crypto is it is not a stable store of wealth. Bitcoin is almost six times more volatile than US equities and 18 times more volatile than the US dollar. Also compare this to the change in the value of risk-free bank deposits, or cash investments, which have zero volatility since they are held at par ie, not marked to market. For as long as bitcoin has been soaring in value given zero cash interest rates and huge fiscal injections of money into household balance sheets, the upside volatility was tolerable.
But the downside risk has recently come home to roost. Depending on the timing, investors could face losses of per cent over the past year. To compound these concerns, bitcoin, and other correlated cryptocurrencies, appear to be trading not as inflation hedges, but rather as simple equity risk proxies.
In the last year, the correlation between bitcoin and US equities has jumped to north of 50 per cent. In big risk-off moves, such as the savage recent US equity market correction, the correlation appears to be almost perfect. Since the equity losses have been triggered by fears of higher interest rates to quell inflation, bitcoin has been behaving as an inflation risk amplifier rather than a mitigant.
When positive interest rates finally reappear on risk-free cash deposits, this will significantly increase the opportunity cost of switching into crypto, undermining its demand. This demand will have also been materially dented by investor experience with the recent downside risk.
Many investors believe that one possible solution to the crypto risk problem is diversification. They accordingly hold a range of other cryptocurrencies. Yet bitcoin and other digital currencies are proving to be highly correlated with both equities and themselves.
The correlation between bitcoin and ethereum has averaged around per cent. Put differently, loading up on crypto appears to be just another form of equity-related risk. For all the hope and promise of crypto acting as a viable medium of exchange, we have yet to see its widespread take-up. We rely almost exclusively on electronic cash protected by the government-guaranteed banking and payment system, and the associated credit card oligopoly.
Pioneering countries like El Salvador that adopted bitcoin as legal tender have run into financial problems as a direct consequence, which will likely deter others. China banned crypto in and Russia is proposing to follow suit.
In total, more than 42 countries have explicitly or implicitly banned digital currencies. There are doubtless many important technology innovations, such as blockchain, that have been developed as part of the crypto ecosystem. These innovations may endure and become immensely valuable over time. Yet, the cryptocurrency craze appears to share some commonalities with the great tulip bulb bubble in the s.
Finally, for those who are hoping to rely on the central bank put option to bail out equities and hence crypto, this time is different. Since late , we have argued that the advent of high inflation means that this put option is temporarily dead. Skip to navigation Skip to content Skip to footer Help using this website - Accessibility statement. Close menu Search Search. Wealth Personal Finance Cryptocurrencies Print article. Jan 28, — Save Log in or Subscribe to save article.
AP This inflicted nontrivial losses on the droves of investors who rushed into the crypto craze over the last 12 to 18 months — including levered retail households and sophisticated institutional investors such as pension and sovereign wealth funds. He is a portfolio manager with Coolabah Capital, which invests in fixed-income securities including those discussed in his column. Connect with Christopher on Twitter. License article. Follow the topics, people and companies that matter to you.
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China Makes Cryptocurrency Illegal
Cryptocurrency speculation is all the rage. Aside from the famous bitcoin which has fallen in value by about a third over the last few weeks , and continues to gyrate wildly , there are thousands of other coins being bought and sold around the world, and new ones launching every day. Probably the most interesting is ethereum, which aside from being a traditional coin is also becoming a sort of platform for organizing all manner of business or other activities. There are a lot of interesting technology and ideas in the cryptocurrency space. But there is far too little attention being paid to the downsides. Crypto is a godsend to money launderers and other financial scam artists, chews up ungodly amounts of electricity, and raises the risk of shattering financial crises. Crypto needs regulation to be safe.
Switzerland Blocks $103M Bailout Sought by Zug Crypto Firms
Chairman of Roger Holdings and prolific American investor Jim Rogers warns that the trillion-dollar bailout will lead to an economic meltdown. Another legendary Wall Street investor, George Ball predicts Bitcoin will be the safe haven of choice. Jim Rogers said that the recent COVID emergency stimulus programs and central bank bailouts will lead to the worst economic meltdown of his lifetime. Rogers' warning came in a recent interview, where he discussed the efforts of global central banks to stimulate their respective economies through the creation of trillions of dollars in currency. Despite the stock market now going back up and appearing healthy, Rogers predicts the bailout will ultimately end very badly in the long-term. Rogers sees the US markets as a bubble that will pop when the US elections are no longer a priority. They do not care about you and me and our kids. They care about November and getting re-elected. While Jim Rogers has admitted in the past that he wished he had invested in Bitcoin in its earlier days, he said during the interview the he is putting his money in gold, silver and has bet on many of the industries that took a beating during the covid-pandemic—transportation, tourism and logistics.
Bitcoin: Origins And Cultural Significance
A pandemic has struck in the form of Covid, grinding the global economy to a halt. Politicians are desperately scrambling to enact legislation to protect their constituents as corporate chief executives jockey for the position of being the first constituent in line for their bailout. Unprecedented payments are being made by governments to their citizens to help meet their short-term obligations, and financial markets have utterly collapsed to the tune of extreme volatility, that in crypto, we call Monday. All the while, millions of people are suffering from a dangerous and deadly disease that has united the global community in a way we may have never seen before, working together and practicing social distancing to combat an invisible, common threat.
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Germany's Lufthansa in talks to buy 40% stake in Italy's ITA Airways - sources
Cryptocurrencies like bitcoin have few fans in Washington. At a July congressional hearing, Senator Elizabeth Warren warned that cryptocurrency "puts the [financial] system at the whims of some shadowy, faceless group of super-coders. Thus far, Bitcoin's supporters remain undeterred. The term "Bitcoin" with a capital "B" is used here and throughout to refer to the system of cryptography and technology that produces the currency "bitcoin" with a lowercase "b" and verifies bitcoin transactions. To younger Americans, digital money is as intuitive as digital media and digital friendships. But Millennials with smartphones are not the only people interested in bitcoin; a growing number of investors are also flocking to the currency's banner. In , after considering various asset classes like stocks, bonds, gold, and foreign currencies, celebrated hedge-fund manager Paul Tudor Jones asked, "[w]hat will be the winner in ten years' time?
Bitcoin prices surge post-Cyprus bailout
We use cookies and other tracking technologies to improve your browsing experience on our site, show personalized content and targeted ads, analyze site traffic, and understand where our audiences come from. To learn more or opt-out, read our Cookie Policy. The virtual currency has its 'too big to fail' moment, and moves on.
The Retired Investor: Crypto Crashes (Again)
Catch up on stories from the past week and beyond at the Slashdot story archive. I'm guessing he's ignoring the environmental costs, the transaction fees and the fact that it doesn't work as a currency because it can only do about 5 transactions per second in the entire world. Texas power grid is hardly the most important concern, but to be clear it has not "demonstrated the ability to lose power for weeks at a time". The Texas grid lost power for days ONE time, and not in metropolitan areas. Furthermore, it was not the grid but the politics that caused it.
Thai Crypto Scene Still Reeling From Top Exchange Bailout
The news left crypto traders dazed and confused and fearing a wider crackdown from the military dominated government. September 2 was a dark day for the crypto industry in the Asian nation as its most popular exchange told clients they had a month to clear out their accounts. The panic that ensued caused the price of Bitcoin to trade at ten percent lower than the rest of the world on the exchange as Thai traders dumped digital assets. Two weeks later and the situation is still no clearer. The company has yet to come forward with any real reasoning for the move and attempts to reach management have been unsuccessful according to the Bangkok Post. Bitcoin Co. The firm was a pioneer in the industry at the time and one of the first to become officially authorized by the Finance Ministry.
While investors focus on the losses that are piling up in the stock market, the cryptocurrency space has suffered far more. The bears say it has further to go, but that may depend on what happens to stocks. It has suffered a 50 percent decline since its record high in November
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