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Bitcoin as a last resort? Murmurs of crypto as reserve currency abound

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Reserve currency is money held by central banks or treasuries usually for international transactions. Argentina is not going to be able to purchase a Boeing 737 MAX passenger jet, for example, with its highly inflationary peso; it will have to pay with U.S. dollars, which is why Argentina keeps dollars on hand — i.e., in “reserve.”

A second basic function is to support the value of a national currency. If the Brazilian real, for instance, plummets during an economic contraction, Brazil’s central bank could bid it up again by purchasing reals with dollars that it holds in reserve.

Could Bitcoin (BTC) fulfill these key functions of a reserve currency? “I certainly think so, in the future at least,” Franklin Noll, a monetary historian and the president of Noll Historical Consulting, told Cointelegraph. Bitcoin’s electronic nature makes it well suited for settling payments. “If gold was used in the past to do so, this digital gold should do the job as well, if not better.”

Meanwhile, these are unusual times. When markets crashed amid the COVID-19 crisis in March, Bitcoin followed suit. “BTC did not perform well,” Sinjin David Jung, managing director at International Blockchain Monetary Reserve, told Cointelegraph. But in early 2021, the world is facing a different circumstance, one marked by extensive stimulus spending — especially in the United States — and if the dollar falters, according to Jung:

“BTC’s position is almost like the ‘last resort reserve currency’ in holding value if the increase of the U.S. dollar supply becomes the only tool for avoiding financial depression while paradoxically resulting in supercharging the market.”

“The U.S. dollar is still king”

But challenges remain, and Bitcoin probably won’t supplant USD anytime soon. Said Noll: “The current problem with Bitcoin — as with gold — is that few, if any, goods or debts are denominated in Bitcoin.” Furthermore, according to him: “It’s hard to see a future where a significant amount of the world’s trade is denominated in Bitcoin. The U.S. dollar is still king.”

Jonas Gross, project manager at the Frankfurt School Blockchain Center — a think tank associated with the Frankfurt School of Finance & Management — sees little chance that BTC will be used as a reserve currency by any industrialized country in the near future. “Skepticism remains very high,” he told Cointelegraph, referring to a recent statement made by European Central Bank president Christine Lagarde that called for global regulation of BTC because of money laundering concerns, among others.

That said, “the U.S. dollar’s dominance as the world’s reserve currency could indeed be threatened,” continued Gross. China is in advanced testing of its central bank digital currency — i.e., its digital currency/electronic payment project — which could be launched as early as 2022, and foreigners might be allowed to access and use it for transactions. In that event, Gross added:

“It would be possible to use a digital version of the yuan for global payments easily and conveniently — transaction costs could be reduced, and the digital yuan would ‘flow across borders’ quite easily.”

China’s yuan will have to go some distance to catch the dollar, however. USD accounted for 60.46% of the world’s allocated foreign exchange reserves as of Q3 2020, followed by the euro (20.53%), Japanese yen (5.92%) and U.K. pound sterling (4.50%), according to the International Monetary Fund. The yuan was only fifth (2.13%).

Just six dominant reserve currencies since 1450

Campbell Harvey, professor of international business at Duke University, told Cointelegraph that as the rates of borrowing in the United States rise, “the riskier it [USD] becomes as a reserve currency. At some point, it is too risky, and alternatives are sought.” Indeed, economic history teaches that global reserve currencies do not last forever.

In August, business intelligence firm MicroStrategy announced that it had adopted Bitcoin as its primary treasury reserve asset. At the start of 2021, former Canadian prime minister Stephen Harper raised the ante, suggesting that not only companies but governments might use crypto as a reserve, albeit as part of a “basket of things” that also included gold and fiat.

There have been six major world reserve periods since 1450, with an average span of about 94 years. The U.S. dollar has already been the world’s reserve for 100 years, surpassing the average, and is nearly equal to its predecessor, the British pound, which dominated for roughly 105 years.

BTC by itself is unlikely to become a reserve currency because of its extreme volatility, though, Harvey said. “Currently, the USD volatility versus 10 leading currencies is about 3%–4% per year. BTC is in the range of 80%–90%.” Gold, he added, has an annual volatility of about 15%.

Part of a basket?

On the other hand, cryptocurrencies could be used as part of a basket in the future, added Harvey. “It would unlikely be a single cryptocurrency in the basket. By the time this happens, all major central banks will have their version of a cryptocurrency.”

The idea of a diversified basket is not new, continued Harvey, referencing F. A. Hayek’s 1943 Economic Journal paper titled “A Commodity Reserve Currency.” Still, “there are plenty of issues: What assets do you use and what are the weights?” Also, who actually determines the weightings and if and when an asset is to be added or dropped?

“Bitcoin could indeed be used as part of a ‘basket of things’ as a hedge against inflation and political turmoil,” Gross said. One already sees BTC being used as a corporate treasury reserve, he added, mentioning MicroStrategy. Noll, too, viewed some corporations’ recent embrace of Bitcoin as a treasury reserve as a significant development:

“It is a short step from widespread private reserve currency/asset to public reserve currency/asset. If Bitcoin is good enough for banks, insurance companies and cities, it certainly is good enough for a small nation looking to bolster its own reserves.”

José Parra-Moyano, assistant professor at Copenhagen Business School, told Cointelegraph: “It could be that if Bitcoin or other cryptocurrencies establish and continue showing technical security, central banks will incorporate them to their reserves.” But maintaining technical security over time won’t be easy, he suggested.

Is the infrastructure sufficient?

Is BTC’s infrastructure anywhere close to ready? Jung told Cointelegraph: “At this point, only BTC [among cryptos] could be considered a contender for the last resort reserve currency”; its transparency, simplicity and track record “clearly show it to be engineered for this function.”

“There are indeed some hurdles to overcome,” according to Gross. “Lower volatility and higher speed — e.g., implemented through the Lightning Network — would increase BTC’s attractiveness.” Furthermore, he outlined that efforts to educate regulators about cryptocurrencies should be improved so that they understand the potential of the technology “from a portfolio diversification perspective.”

Other potential obstacles are Bitcoin’s “newness” — it has only existed for 12 years — noted Harvey, as well as its still-limited adoption, vulnerability to manipulation — “see the academic evidence on USDT and BTC” — and also vulnerability to algorithmic attacks, “a 51% attack is costly but feasible.” Harvey added:

“Central banks don’t like it because it’s deflationary, and the algorithmic nature of the money creation usurps their economic influence — of course, this last point is also a selling point.”

Jung believes that the often-cited volatility flaw is exaggerated. BTC can’t help but be volatile in the process of its positioning as the last resort reserve currency. It will “continue to be volatile until the conditions are met when the U.S. dollar value starts to consistently drop even as the excess U.S. dollars are fueling greater market gains.”

Finally, in asking about BTC’s potential as a reserve currency, it is assumed that there will always be the need for such a reserve. Harvey, for one, isn’t so sure. “Why do we even need a ‘reserve’ currency?” he asked. “In the future, everything will be tokenized. To pay for something, you will have your choice what to pay in — e.g., BTC, gold, IBM stock, etc. Users will have easy access to millions of cross rates and will be instantly able to ‘pay with whatever asset you choose.’”

“Inherently when you speak about a reserve currency, it is all about long-term stability and competitiveness,” said Jung. “As such, the U.S. dollar will always act as the world’s primary reserve in times of geopolitical uncertainty. But what happens when the world and the U.S. dollar is in a continual state of quantitative easing?”

In that event, all bets are off, and national governments, beginning with smaller countries, might indeed gravitate to a basket of hard and digital assets as their reserve currency of “last resort.” Crypto and blockchain proponents will just have to continue spreading the word and hope that BTC or any other cryptocurrency will eventually become mature and worthy to take up the mantle of a commonly accepted reserve.

Source: https://cointelegraph.com/news/bitcoin-as-a-last-resort-murmurs-of-crypto-as-reserve-currency-abound

Blockchain

Coinbase Decentralization Claim Draws Fury From its Customers

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In a blog post on Feb. 25 titled “Coinbase is a decentralized company, with no headquarters”, CEO Brian Armstrong stated that the firm has moved to a ‘remote first environment’.

No HQ = Decentralized?

He added that 52% of their employees have joined the company in a ‘post-office world’ and 95% of them have the option to work from home. Originally based in San Francisco, many company employees have dispersed across the globe since the beginning of 2020.

“It has helped us attract top talent. One of the best parts about being a decentralized company is that we can hire more of the best people.”

This does not make the company decentralized in crypto terms, as the respondents to the tweet pointed out.

Despite being one of the largest fiat to crypto onramps in the world, Coinbase has garnered a reputation for terrible customer service, higher than industry average fees, and questionable reliability when markets are volatile.

Coinbase Customers Lash Out

The barrage of comments came thick and fast and took aim at everything from customer support to the now predictable service outages during large crypto asset price movements.

“Also you have zero customer support (automated copy paste emails do not count), I guess you can call that decentralised too.”

Another Coinbase customer claimed that he had lost almost a thousand dollars in trading fees with just an $8,000 investment.

Someone else questioned the suspension of XRP stating that the company is still very centralized in the United States. Another disgruntled user stated;

“Coinbase [has come] a long way since 2011 in [the] crypto world. Unfortunately, [its] reputation [has become] tarnished due to unacceptable level of customer service and ignoring your most valuable asset – [the] customer.”

The majority of the complaints were regarding unanswered email and customer support inquiries though there were plenty of mentions of the frequent service outages;

“No headquarters. No customer service. No service at all when the market moves… Good for you coinbase.”

One respondent pointed out it was just a ploy to use a popular word at the moment just like the last bull run when companies added blockchain to their names.

At the time of writing, around 12 hours after the blog post was published, there were too many replies to read, and the vast majority of them were negative. It appears that Coinbase, which still has a number of whale investors, has also decentralized itself from its customers.

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Source: https://cryptopotato.com/coinbase-decentralization-claim-draws-fury-from-its-customers/

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What Bitcoin price levels will invalidate the short-term bearish scenario?

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The price of Bitcoin (BTC) is continuing to range between $48,000 and $51,000, unable to break out of the $51,600 resistance level.

If Bitcoin struggles to surpass the $51,600 resistance area in the near term, technical analysts say the probability of a correction rises.

BTC/USDT 4-hour price chart (Binance). Source: TradingView

$51,600 is the key level to watch

According to Josh Olszewicz, a cryptocurrency trader and technical analyst, the $51,600 level is currently acting as a strong resistance level.

For Bitcoin to retest the all-time high at $58,000 and initiate a potential rally towards $62,000, it needs to cleanly move past $51,600, he explained. 

Hence, a rally beyond $51,600 is the clear invalidation point for any short-term bearish scenario for Bitcoin.

The failure to break out in the near term could result in a bearish test of lower support areas, found at around $42,000. He said:

“If 4h breaks down, be prepared for some uber bearish calls to start popping at 36.7k meanwhile, I’ll be bidding the daily Kijun at 42k. Alternatively, if $BTC breaks above 4h Cloud at 51.6k, I like ATH retest at 58k, R3 yearly pivot test at 62k, macro PF diag test at 70k, R4 yearly pivot test at 80K. Seasonality suggests we go neutral/sideways through March and then reach for those higher targets in Q2.”

The $42,000 support area is a key level because it marks the top of the previous rally. On Jan. 8, the price of Bitcoin peaked at $42,085 on Binance, seeing a steep correction afterwards.

Bitcoin dropping to $42,000 to retest the previous top as a support area would not be necessarily bearish beyond the short term, however. 

Whale clusters show similar levels of support

Moreover, analysts at Whalemap noted large inflows to whale wallets at $48,500 and $46,500, which they say should provide BTC with some support. 

“The current situation looks similar to the one we had at 29K,” they explained. What’s more, the $46,532 level may now be “the new $29,000,” which held as support during the previous correction in January before the rally continued. They added: 

The $55,400 is an important level to keep an eye on as well. Getting back above it will be a good sign

Whale cluster levels. Source: Twitter/@whale_map

The most compelling argument for a short-term Bitcoin drop

Bitcoin tends to seek liquidity after a prolonged consolidation, which means it can drop down to fill buy orders at lower support areas that can ultimately fuel a new rally.

A pseudonymous trader known as “Salsa Tekila” echoed this sentiment. He said that there is a big support area at $41,000, followed by resistance at $54,000. He wrote:

“My current take on $BTC mid term: 1) Support around $41K. 2) Resistance around $54K. Depending on context, I might trigger swings around those two vicinities. Likely just scalp until then, unless major events come to fruition.”

Bitcoin tested the $44,800 support level in the past 72 hours, but it was not enough to propel BTC above $51,600.

This trend could cause the price of Bitcoin to drop back to the $44,800 level or to a lower support level, at $42,000.

The ideal scenario would be for Bitcoin to hold onto the $44,800 support area if it drops again, stabilize it as a macro support level, and move back up.

Source: https://cointelegraph.com/news/what-bitcoin-price-levels-will-invalidate-the-short-term-bear-scenario

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Nvidia supply shortage won’t stop $50M Q1 crypto miner sales, says CFO

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Nvidia’s ongoing supply problems won’t stop the company from selling $50 million worth of its new CMP chip range in the first quarter of 2021, the company’s chief financial officer Colette Kress forecasted on Feb. 24.

Nvidia failed to meet demand from its core gaming customer base in 2020, and the trend looks set to continue into 2021. Added demand from a horde of cryptocurrency enthusiasts keen to direct Nvidia’s new RTX 30 series GPU to Ether (ETH) mining initially appeared to pile pressure on the company.

But the firm’s CFO expects the recently announced Cryptocurrency Mining Processor product line to hit $50 million in sales in the first quarter of the year. The CMP range is designed specifically for Ether mining, and its introduction was part of an attempt to allocate more units of its RTX 30 range to gamers.

Despite supply problems, Nvidia hit record revenues of $5 billion in the last quarter of 2020, while its stock price soared to all-time highs. This is a near-exact repeat of the market conditions present in 2018, when increased demand amid supply shortages pushed the stock price to the highest level in its history up to that time.

On Wednesday, United States President Joe Biden signed an executive order to address the shortage of semiconductors and microchips. A critical review will investigate the country’s failing supply lines, which have been shown to rely too much on Chinese manufacturing, highlighted by the COVID-19 pandemic.

The chip shortage boosted the value of the PHLX Semiconductor Index, which tracks the value of chip-related stocks, with the index gaining 70% in the past 12 months.

JPMorgan analyst Harlan Sur expects the pump to continue, even though the supply shortage won’t be corrected for some time. 

Sur recently told MarketWatch, “We believe semi companies are shipping 10% to 30% BELOW current demand levels and it will take at least 3-4 quarters for supply to catch up with demand and then another 1-2 quarters for inventories at customers/distribution channels to be replenished back to normal levels.” 

Sur said the previous quarter was the first in which every chip maker JPMorgan tracked actually exceeded forecasted earnings.

Source: https://cointelegraph.com/news/nvidia-supply-shortage-won-t-stop-50m-q1-crypto-miner-sales-says-cfo

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