- Federal Reserve resorts to QE amid lending crisis, reigniting interest in Bitcoin
- UNICEF establishes cryptocurrency fund to accept Bitcoin, Ether donations
- PayPal pulls out of Libra. Several other founding members follow suit
- Tether faces $1.4 trillion class-action lawsuit for market manipulation
Fed Expands Balance Sheet Ahead Of Bitcoin Halving
The Trump administration struck a tentative trade deal with China on Friday which would involve China buying agricultural products from the US and better access for US financial services companies to the Chinese market in exchange for the US walking back its planned tariffs on Chinese products.
Lack of market reaction to the news may have come as a shock to those who ascribed Bitcoin’s ascent this year to the trade war, which began 15 months ago. Even if the trade war had played its part, we’ve learned that there are greater forces of more significant, permanent preponderance beyond those wrangles.
On Tuesday, Chairman of the Federal Reserve Jerome Powell announced plans to expand the balance sheet through various overnight funding operations and starting next week, by purchasing short-term Treasury bills involving maturities ranging from five to 52 weeks, totalling a whopping $60 billion in the first month. Powell noted that these operations could continue up to Q2 2020.
The move is effectively what’s referred to as quantitative easing, increasing the supply of money by swapping out bonds with new cash printed out of thin air, and it comes on the back of aggressive rate cuts which have proven to be inadequate in stimulating the economy.
Despite Powell trying to sell these palliative measures as “not QE”, there is no disguising its effects on the taxpayers’ dollar, “This is not QE. In no sense is this QE. As we indicated in our March statement on balance sheet normalization, at some point, we will begin increasing our securities holdings to maintain an appropriate level of reserves. That time is now upon us.”
Why is the Fed doing this? The central bank has been under significant pressure from the Trump administration for a while, copping frequent flak for “quantitative tightening” and slowing economic growth. But what has spurred them into such drastic measures now is market reaction to the inverted yield curve, something we discussed last month in the digest, which triggered recessive tendencies to grip the overnight lending market.
Immediately following the announcement of these inflationary policies, Bitcoin began rallying sharply on Wednesday in what seemed initially very much like a retail rally, but later in the day institutional money got involved as Bakkt saw a record 224 contracts traded on its platform. Since retailers are the ones who ultimately bear the brunt of easing measures, regardless of immediate institutional demand, we should expect retail demand for Bitcoin to surge over the next seven months leading up to the mining reward halving.
It has been theorized by many Austrian economists, including yours truly, that all that separates Bitcoin from asserting itself as a viable hedge against inflationary fiat-correlated assets is a global economic crisis similar to the one a decade ago which inspired the creation of the cryptocurrency.
With the UK on the brink of a Brexit bungle, China and the US resorting to devaluing their currencies in response to early signs of a debilitating recession and even the putative fastest growing economy, India facing an 8% fiscal deficit, half of the world’s population is already teetering perilously on the cusp of a crisis. We may not have to wait much longer to test the theory after all.
UNICEF’s Cryptocurrency Funded Open-source Projects For Children
We often talk about the change cryptocurrency can bring about from either an economic or commercial perspective. But the greatest potential of transparent, censorship-resistant money transacted peer-to-peer through the Internet lies in its ability to address educational poverty, a hitherto intractable bane of emerging countries.
UNICEF, the United Nations Children’s Fund, has recognized this potential by instituting a cryptocurrency fund, the UNICEF Cryptocurrency Fund, which will be able to receive, hold and disburse donations in Bitcoin and ether, becoming the first UN agency to embrace cryptocurrency.
Donations made towards the UNICEF Cryptocurrency Fund will be used to fund the development of open source technology which are beneficial to children and young people around the world. Contributions will be held and distributed to grantees in the same cryptocurrency they are donated.
Ethereum foundation has made the first contribution of 100 ether towards the fund, which will be distributed to three grantees of the UNICEF Innovation Fund, a project which aims to connect schools across the world to the Internet.
UNICEF Executive Director Henrietta Fore noted that this was part of the agency’s broader efforts to explore blockchain avenues to solve global challenges, “This is a new and exciting venture for UNICEF. If digital economies and currencies have the potential to shape the lives of coming generations, it is important that we explore the opportunities they offer. That’s why the creation of our Cryptocurrency Fund is a significant and welcome step forward in humanitarian and development work.”
Education remains inaccessible for millions of children around the world. More than 72 million children of primary education age are not in school and 759 million adults are illiterate and do not have the awareness necessary to improve both their living conditions and those of their children.
Many emerging countries do not appropriate the financial resources necessary to create schools, provide schooling materials, nor recruit and train teachers. Funds pledged by the international community are frequently misappropriated or largely insufficient to allow countries to establish an education system for all.
UNICEF’s efforts to provide funding through cryptocurrency for internet access to schools around the world is an important step in addressing this educational poverty. Internet makes it possible to take education to children in every part of the world, including areas with significant sociocultural barriers to institutional education, while cryptocurrency and blockchain makes it possible to readily fund these projects and ensure their impact potential is fully realised.
Libra Founding Partners Unfriend Facebook
Not long after Facebook announced the Libra cryptocurrency project, it quickly became clear that, although reasons were varied, nobody liked the idea.
Bankers were worried the project would morph into a global shadow banking system which may eventually grow to prise away their vice grip on economies. Regulators have evinced serious reservations about entrusting Facebook with people’s money given their track record with our data. The cryptocurrency community, largely better informed as to what constitutes a cryptocurrency, just hates it for being a blatant wolf in sheep’s clothing.
Despite the unanimous, unequivocal negative reception, Libra was not to be deterred. Co-creator of Libra and Calibra CEO David Marcus assured us that it wasn’t a Facebook project, but a collective effort of 28 founding members known as the Libra association. Unfortunately, all that did was shift everyone’s focus towards these other companies dumb enough to tag along with Facebook and get tarred with the same brush.
Last week, PayPal issued a statement that it had decided “to forgo further participation in the Libra Association,” without citing any specific reason as to why. Financial Times then reported that one primary concern for PayPal was the lack of attention from Facebook executives to the considerable backlash against Libra.
Then on Wednesday, US senators Brian Schatz and Sherrod Brown, who urged Marcus to ditch the Libra project during the Senate hearing in July, sent out letters to the CEOs of Libra founding partners Visa, Mastercard, and Stripe, warning them of enormous risks inherent in the Libra project, including facilitating criminal and terrorist financing and destabilizing the global financial system.
The letter went on to caution the companies that they would face increased scrutiny from financial regulators in their legacy financial activities aside from Libra if they were to continue their association with the Facebook project.
Duly, all three companies, along with EBay, announced on Friday that they were dropping out of the project. The only payments company still backing the project is Dutch fintech firm PayU, while few high-profile backers remain. Marcus took to Twitter over the weekend to assure that Facebook remained undeterred in its quest to launch Libra despite dwindling support.
These pull-outs come just days before a scheduled Libra Association Council meeting between founding members on October 14. Facebook co-founder Mark Zuckerberg is set to testify before the House Financial Services Committee 9 days later on October 23 in a hearing which will largely focus on Libra matters.
A Long Overdue Lawsuit To End Bitfinex/Tether Long Con
As most keen observers of these markets will tell you, the worst kept secret in Bitcoin and cryptocurrency markets at large is the influence of Tether, a fiat-pegged centralized stablecoin, on currency prices.
Last Monday, Roche Freedman, the US law firm which successfully represented the Kleiman estate against Craig Wright, filed a class-action lawsuit against Tether and Bitfinex, demanding a $1.4 trillion in damages for colluding to manipulate the cryptocurrency market with unprecedented effectiveness. The lawsuit is said to be based on a study published in June 2018 by finance professors at the University of Texas.
Founded in 2014 by the same company which operates Bitfinex, Tether wasn’t always a glutton for notoriety. Until 2017, it was sparsely used. But leading up to the late 2017 bull market, Tether reserves grew from $10 million to $2.8 billion seemingly overnight. Although this raised a lot of eyebrows, in a delirious swoon over soaring Bitcoin prices, many within the cryptocurrency community turned a blind eye to Tether’s quantum leap into prominence.
Until the paradise papers leak revealed evidence identifying Bitfinex’s Giancarlo Devasini and Philip Potter as having established Tether, the two companies maintained that they were separate entities who simply used the same bank. In May this year, Tether’s general counsel Stuart Hoegner revealed in an affidavit submitted to the New York Supreme Court that the stablecoin was only about 74 percent backed by fiat equivalents.
These revelations from the past are used to adduce allegations made by the plaintiffs in the latest lawsuit. The scorching complaint alleges that “Together, Bitfinex and Tether manipulated a market that, by design, is supposed to be decentralized,” and that the two companies colluded “to manipulate the market on an unprecedented scale to profit from boom-and-bust cycles they created.”
Tether apologists, some of whom are well respected within the community, often defend the stablecoin for having created liquidity for a new class of markets which haven’t been readily accessible through banks and legacy financial services. But a centrally issued faux fiat anchoring the markets flies in the face of the very credo of cryptocurrencies and makes of mockery of a decade of dogged revolution. If we really need stablecoins, let’s at least decentralize their issuance and supply.
For the first time in five weeks, BTC/USD closed last week’s trading in green at $8283, which represented a 5.5% gain from previous week’s close. Despite the green close, it was really a week of positive consolidation.
A strong rally on Wednesday was foiled by the 200 DMA, a level which is never easy to climb over soon after breaking down from. Lack of selling pressure below 8200 last week means another test of this resistance level could soon materialize.
The daily chart shows how hard it proved during the week, which evinced bullish tendencies, to register a close above 200DMA. Bullish daily MACD crossover failed to lead to further divergence as daily stoch confirms the market’s short-term indecision.
The weekly chart also points towards consolidation, which is also confirmed by relenting bearish MACD divergence, and possible attempt to break upward rather than a further leg down to test .618 Fibonacci retracement. This is further supported by a leading span Ichimoku crossover despite a bearish conversion line crossover of the base line.
Further, last week’s session closed in a promising bullish engulfing pattern which would be validated by another close this week in green. For traders of a bullish disposition, a stop around 8190 is recommended.
ETH/BTC pair continued to consolidate around 0.022, struggling momentarily to break above the level which could see the pair testing levels close to 0.027, while XRP/BTC was the top performer among leading altcoins, posting an impressive 12% gain for the week. As a result, Bitcoin’s market dominance slipped a sliver under two-thirds of the total market cap to 66.3%.