Last Week Today: Bitcoin and Cryptocurrency Weekly Digest July 17-24

  • Day 2 of Libra hearing – House Financial Serices Committee unanimously against Libra launch
  • Research explores potential catalyst for unprecedented Bitcoin demand
  • No, India has NOT banned Bitcoin just yet. Supreme court further delays hearing
  • Will BitMEX get rekt? CFTC probes whether exchange is illegally servicing American traders

“Unstoppable force” Bitcoin shines through like a beacon of hope at grim Libra hearing

We covered day 1 of the two-day Libra hearing at the Senate Banking Committee in last week’s digest and besides lack of trust in Facebook, the refrain for the day, ad nauseam, was money laundering and financing of terrorist activities. It was pretty prosaic scare-mongering without too much substance. Calibra’s CEO David Marcus being largely unforthcoming certainly didn’t help matters.

On day 2 of the hearing in front of the House Financial Services Committee (FSC), it wasn’t just Marcus who testified but also a panel of blockchain experts, presumably to better inform the committee to pose more pertinent questions.

* FSC Chairwoman Maxine Waters set the tone for the day’s proceedings by highlighting the systemic risk posed by government currencies backed Libra tokens and recommending that Facebook walk back on Libra plans, “Facebook’s plan to back Libra with government currencies and securities by holding them in the so-called Libra reserve to be governed by Facebook and its partners would shift government assets on such a massive scale without proper oversight, threatening to concentrate government influence in the hands of few elites.”

* North Carolina Congressman and FSC ranking member Patrick McHenry eloquently stressed the importance of embracing innovation, while stopping short of endorsing Facebook’s inclination and competency to lead innovation, “Whether Facebook is involved or not, digital currencies are here and blockchain is real. The world that the author of Bitcoin’s whitepaper Satoshi Nakamoto envisioned and others are building is an unstoppable force. Governments cannot stop this innovation.”

* McHenry also asked a very fundamental question which could have important implications on how Libra is regulated, “What is a Libra? Is it a security, a commodity..?” To which Marcus responded by characterizing Libra as a payment tool similar to Venmo and PayPal, “Libra would be a reserve-backed digital currency. We don’t believe it is a security but based on current US laws, it could be a commodity but we see it as a payment tool.”

* Asked whether the decision to domicile the project in Switzerland was to evade US regulations, Marcus said, “The decision to locate in Switzerland was not an attempt to evade regulation or responsibility in the US. We thought a global, digitally native currency used by people around the world would benefit from being headquartered in an international place that is the home to many international organizations.”

* Georgia Congressman David Scott perceptively highlighted the contradiction of Facebook’s express mission statement to bank the unbanked and unequivocal regulatory compliance, pointing out that the reason most people are unbanked is because they do not have government identification that is required to open a bank account and registering for Facebook’s Calibra wallet would require fulfilling the same criteria.

* On the subject of censorship, Wisconsin Congressman Sean Duffy asked Marcus who could use Calibra and Libra, to which Marcus responded, “Anyone that can open an account, goes through KYC, in countries where we can operate.” Duffy then held up a $20 bill to illustrate his point, “This $20 bill doesn’t discriminate on anything you can be a murderer say horrible things, you can say great things. This $20 bill can be used by every single person that possesses it. With regard to your network, can Milos Yianopolous and Louis Farrakhan use Libra?”

* Rep. Alexandria Ocasio-Cortez brought up the important issue of antitrust, “Facebook is a publishing platform, an advertising network, a surveillance corporation, a content distributor and now it wants to establish a currency and act through its wallet as at minimum a payment processor. Why should these activities be consolidated under one corporation?”

* Facebook’s recent $5 billion FTC fine for breach of privacy was brought up by Rep. Madelaine Dean, “Could you be specific as to the wrong-doing that generated a $5 billion fine? It’s tough to trust when the collection, storage and misuse of the information of your customers generated a $5 billion fine.”

* The quote of the day came from Coinshares’ Meltem Demirors’ prepared testimony, which deftly delineated the fundamental differences between Bitcoin and Libra, “Bitcoin is three things – it’s a technology, a network and a cryptocurrency. Bitcoin’s network is not regulated, is permissionless and decentralized. Like the Internet, Bitcoin could be considered a public good. However the companies providing services on top of the Bitcoin network are centralized and regulated. We’re now seeing countless imitators, which borrow some features of but are decidedly not cryptocurrencies. Libra is not a cryptocurrency. It cannot and should not be compared to Bitcoin.”

The hearing was severely hampered by Marcus’s taciturn disposition, obviously under instructions not to commit too strongly on any future plans on regulatory compliance or developmental roadmap. However, the hearing served to spotlight the brilliance of Bitcoin and it seems now that US lawmakers are getting their head around to the idea that Bitcoin is inevitable, whether they like it or not.

Congress doesn’t trust or believe in Libra. What about the public? Market intelligence platform CivicScience carried out a survey of 1799 US adults, which was published on Monday, and found that only 5% of responders had any interest in Libra.

In another curious development, Despite Facebook’s claims that their 27 partners had fully committed to the project, Visa CEO, Alfred Kelly played down their involvement on Wednesday, stating that the agreement with Facebook was non-binding, “So we have signed a nonbinding letter of intent to join Libra. We’re one of – I think it is 27 companies that have expressed that interest. So, no one has yet officially joined.”

Retail demand for Bitcoin sees exponential growth in hyperinflationary economies

Compared to late 2017 levels, retail interest in Bitcoin in leading economies has been rather modest despite a fourfold price appreciation this year. That is not to say there isn’t a great deal of retail interest, it’s just not coming from more stable economies.

Research findings of Digital Assets Data, a Fintech data provider, have revealed that although Bitcoin remains a speculative asset in relatively stable economies, retail demand for Bitcoin in hyperinflationary economies keeps soaring to new highs as the currency is being used as a legitimate store of value in these countries, a mantle traditionally held by gold.

This was happening in 2018 even as Bitcoin’s price kept tumbling, according to Mike Alfred, co-founder of Digital Assets Data, “We found that in developing countries and places where monetary policy and banks are less stable, bitcoin trading volume continued to rise even as the bitcoin price was falling.”

Although leading economies like the US, UK and the EU manage their economies better, that’s not saying much. As evidenced a decade ago, continually stimulating economic ‘growth’ by cutting lending rates comes at the ultimate price of a recession.

In the US, the current federal funds rate – interest banks charge each other to lend money – is 2.25-2.5%. Under pressure from the US president, the Federal Reserve is expected to further lower this rate. This negatively impacts savings and leads to systemic overlending.

Another key factor which portends imminent recession is the yield curve inversion – which hasn’t occurred since 2007 and is considered a bad omen for the economy. Yield curve plots yields on government bonds from shortest maturity to highest. In a healthy market environment, long-term bonds have higher yields than short-term bonds.

When this inverts and short-term bonds have higher yield, it indicates that people are uncertain that growth is here to stay. Yield curve inversion is a major reason for pessimism from economists despite the Dow average scaling unprecedented highs this month.

It stands to reason that in the event of a recession, as widely expected, we may come to see Bitcoin’s ascendency to SoV status in larger economies.

Indian government panel recommends ban on Bitcoin because it’s a ‘private’ cryptocurrency

It’s the year 2019 and the Bitcoin network has been around for ten years. The economic affairs secretary of the sixth largest economy, Subhash Chandra Garg, in the world has proposed a ban on Bitcoin because he thinks it’s a private cryptocurrency. Someone needs to go back to the ISI in Delhi to get up to speed on current economic affairs.

Garg leads the panel which was given a remit by the Indian government to recommend a regulatory framework for cryptocurrencies so it’s hardly surprising that the panel has recommended that the Indian government ban Bitcoin.

There have been reports all week that India had already banned or is on the brink of banning Bitcoin after Tim Draper criticized Indian government for banning Bitcoin.

An official Bitcoin ban hasn’t happened just yet. It requires the proposed bill to be introduced by the Finance Ministry before both legislative assemblies, which may not happen until December’s parliamentary session, and pass by a two-third majority in both houses. Let’s hope that not all lawmakers in India are as ignorant as Garg.

While endorsing distributed ledger technologies as a necessary innovation in delivering financial services, the panel’s proposal demonizes private cryptocurrencies, including Bitcoin, and urges the RBI to work towards issuing a digital rupee. The panel’s recommendations can be read in full here.

Last year, Indian government introduced legislation prohibiting banking institutions from providing financial services to cryptocurrency exchanges. There are five petitions appealing this banking restriction and the proposed draft bill to ban cryptocurrencies, which are due for hearing in India’s Supreme Court. The case was supposed to be heard this week but has been tentatively postponed to August 2.

Wrath of Roubini – CFTC opens overdue investigation of margin trading platform BitMEX

BitMEX CEO Arthur Hayes thought it would be a cool plug to have a debate with Keynesian economist and Bitcoin critic, Nouriel Roubini, at the Asia Blockchain Summit earlier this month in Taiwan. It seems he got a lot more than he bargained for out of the encounter.

Incensed at BitMEX for releasing heavily edited footage of the debate, Roubini has since been on a crusade against the exchange. On July 16, Roubini published an essay titled “The Great Crypto Heist”, in which he criticized the compliance policies of BitMEX and called on authorities to intervene.

Three days later, on July 19th, it was reported that CFTC was opening an investigation against BitMEX to find whether it had breached US laws by allowing US customers to trade on its platform.

There have been frequent rumours about all manner of malpractices by BitMEX. BitMEX even openly trades against its own users with its so-called trading desk. Most traders have tended to normalize them as par for the course in unregulated markets.

Although HDR Global Trading Limited, the parent company which operates BitMEX is registered in Seychelles, there are fears among traders now that a CFTC probe could lead to further inquest against other allegations against the exchange.

Blockchain data analytics firm, TokenAnalyst revealed on Wednesday that traders have duly withdrawn $175 million worth of Bitcoin from BitMEX between Friday and Tuesday.

Trading Insights

Despite sinking as low as 9049 during the week, Bitcoin closed last week strongly in green by rallying towards the end of the week to close at 10600, thought to have been spurred by Bakkt launching the platform’s testing phase on July 22.

There are a few things to look for in the daily chart. A falling wedge pattern is beginning to take shape, which would be confirmed by a strong daily close above 10378 with attendant increase in volume.

Daily RSI is holding firm above the perceived bull cycle low of 40, but it’s something to keep an eye on. A breakdown below this level has historically indicated a shift in market sentiment. Looking at the stochastic oscillator on daily, %K is shaping up to converge and crossover bullishly at the lower band.

In the monthly chart, there are two things to note. First, it illustrates the importance of RSI holding above 40 as an indicator of bull market. Bitcoin’s monthly RSI has never dipped below the level.

Secondly, July seems likely to be the first close in red in 6 months, after 5 green closes. The last time this occurred was September 2017, which propelled Bitcoin to its all-time high within 3 months.

Leading altcoins posted modest gains against Bitcoin this week, with Ethereum clawing back slightly to 0.022 and Ripple’s XRP up to 3200 sats. Bitcoin’s dominance is at 64.5%, down 4% from last week.

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Lamps Toujours
Lamps is a British economist and Bitcoin evangelist with an elusive ken for all things blockchain. A writer by avocation, Lamps' suasive opinions and analyses evince a quenchless passion to promote the integration of blockchain as the new economic and commercial infrastructure on a global scale.

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