The spectacular rise of bitcoin: First ETFs and Powell's change in narrative as drivers of the cryptocurrency market

23.06.2023 11:14|Analyst Team, Conotoxia Ltd.

The bitcoin exchange rate was thrown into violent turmoil, falling by more than 5% following the SEC's lawsuits against the exchanges Binance.US and Coinbase. Unsurprisingly, however, there has been a spectacular turnaround since then. The value of bitcoin rose by more than 20% in a week, reaching new local peaks. What could have influenced this rather sudden jump? We can look for the answer in two key events: the launch of the first ETF for bitcoin and the remarkable change in the narrative on the cryptocurrency market during Fed chief Jerome Powell's hearing before the Senate. Let's try to answer what impact these events will have on the future of cryptocurrencies and what valuable information we could draw from the Fed chairman's statement.

ETFs on bitcoin

Bitcoin has surged, reaching its highest level since April, and one of the reasons for this optimism is the potential launch of a spot ETF on bitcoin (not based on contracts). Several investment firms last Thursday (15.06) filed applications to create such ETFs. Despite recent negative news and regulatory concerns in the cryptocurrency industry, the announcement of these applications could revitalise this market. BlackRock's application, which would allow investors exposure to bitcoin without the need for real assets, seems interesting. Other companies such as WisdomTree and Valkyri have also applied for bitcoin ETFs. According to data collected by CryptoQuant, following BlackRock's application, the amount of bitcoin held in one of Coinbase Custody's portfolios increased by 2,500 BTC (approximately US$75 million). Coinbase Custody is a service of cryptocurrency exchange Coinbase that allows institutional investors to securely store larger amounts of tokens such as bitcoin, among others. If BlackRock's application is approved by regulators, Coinbase will act as a custodian for bitcoin held within the BlackRock Bitcoin ETF.

According to Bradley Park, an analyst at CryptoQuant, the BlackRock conclusion may have had a positive impact on the sentiment of bitcoin holders and investors, which may explain the increase in Coinbase Custody stored cryptocurrencies. "The BlackRock effect has positively impacted the market and resulted in bitcoin purchases by institutions," Park said.

Source: Conotoxia MT5, BTCUSD, Daily

Changing narrative on the part of the Fed

The second key piece of information appears to be the Fed chairman's statements at the bi-annual hearing before the House of Representatives Financial Services Committee. Jerome Powell stated that bitcoin as an asset class has "staying power". He also expressed his belief that the Fed should play a strong role in overseeing stablecoin, which represents a significant segment of the cryptocurrency market over which legislators are attempting to establish regulation.

Powell said the technology, which involves tokens linked to the price of an underlying currency such as the dollar and issued by private companies, should be closely supervised by the federal government. The Fed chief also expressed concerns that if stablecoin issuers were registered directly by individual states, the Fed would be limited and unable to take action. Powell said that allowing significant private money issuance at the state level would be a mistake. He has previously specified that stablecoins can be a valuable part of the payments world and should be regulated in a manner similar to money market funds and bank deposits.

Bills to regulate stablecoin have stalled in 2021. However, the chairman of the Financial Services Committee announced that if a positive decision is reached during the July congressional session, the current stablecoin bill will be sent to the Senate. This step appears to be the first major move to regulate the stablecoin market and allow financial institutions to operate freely in it. Opening up this sector to financial institution capital could reverse the trend of stablecoin's year-on-year capitalisation decline of 16.8%.

Why do stablecoins seem so important? They are a type of money in the cryptocurrency world and provide a good alternative to monitor capital flows.

Source: https://btctools.io/stats/market-cap

 

Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark.