First Mover: Stimulus Flood Tested Bitcoin in Real-Time, and It Passed

PLUS: Japan's SBI acquires crypto trading desk B2C2

December 16, 2020 Everything you need to make sense of the crypto markets and beyond By the CoinDesk Markets Team Edited by Bradley Keoun If you were forwarded this newsletter and would like to receive it, sign up here.  Bitcoin (BTC) +1.5% $19,728 Ether (ETH)  +0.8% $594 (Price data as of Dec. 16 @11:47 UTC) TODAY: Price Point: Prices creep higher, nosing past $19.8K.  Market Moves: Bitcoin analysts had positioned the cryptocurrency for years as a potential hedge against central bank money-printing. But the scenario seemed abstract, or at least slow-going, until the coronavirus hit early this year and the Federal Reserve quickly pumped a fresh $3 trillion into global financial markets.  Bitcoin Watch: Prices climb to two-week high though $20K continues to present stiff resistance, CoinDesk's Omkar Godbole writes.  What's Hot: Japan's SBI acquires crypto trading desk B2C2, London-based investment firm Ruffer allocates 2.5% of fund to bitcoin, Riot Blockchain pilots new liquid-cooling technology for bitcoin mining in (hot) Texas.   Price Point Bitcoin prices were rising for a fifth straight day, pushing closer to the crucial psychological threshold of $20,000.   "If bitcoin's trend over the past days continues, we could very well see the index at new highs," the Norwegian cryptocurrency analysis firm Arcane Research wrote Tuesday in a report. "However, if history is any indication of future performance, some kind of pullback in the overall market confidence should appear sooner rather than later."   In traditional markets, European shares rose and U.S. stock futures pointed to a higher open as investors cheered prospects for a vaccine rollout and more economic stimulus while awaiting an expected announcement from the Federal Reserve at 2 p.m. Washington time on the latest monetary-policy decisions.      Analysts at Deutsche Bank and Bank of America say the Fed might adopt "qualitative" guidance as a way of determining how long to maintain its stimulus-focused purchases of government bonds, ongoing at a pace of $120 billion a month. Led by Chair Jerome Powell, the Fed already has added about $3 trillion to its balance sheet this year, roughly three-fourths the amount of money previously created in the 107-year-old institution's history.   Read More: New Federal Reserve 'Qualitative' Approach Could Push Further Into Experimental Realm Market Moves (Editor's note: This is the third installment of First Mover's recap of how the bitcoin market evolved over the course of 2020 and what it means for the future. Today we cover March and April, when the fast-spreading coronavirus began to take its toll on the global economy, sending markets into a tailspin and leading to an unprecedented financial response from governments and central banks around the world.)    It started off in late February as just another thread in the bitcoin market commentary. Global authorities were struggling to contain an unusually contagious and deadly virus outbreak from spreading beyond China.    Bitcoin, fresh off a five-month high around $10,500, racked up three straight days of price declines greater than 3% each. Initially, it seemed like no big deal in notoriously volatile digital-asset markets, especially since global stock markets were getting hit too.    "There's certainly a bit of fear in the bitcoin market, but it's not anything close to the panic we're seeing on Wall Street today," Mati Greenspan, founder of the analysis firm Quantum Economics, which specializes in cryptocurrencies and foreign exchange, said Feb. 24. "Three percent is a very different figure for stocks and for bitcoin."      What happened next was one of the swiftest and deepest sell-offs in the history of global markets, dragging down bitcoin to as low $3,850 by mid-March.    Which of course was followed by a dramatic push by U.S. lawmakers, the Federal Reserve, the European Central Bank, Bank of Japan and authorities around the world to ply markets and the economy with trillions of dollars of stimulus money, bringing asset prices roaring back. By the end of April, bitcoin had more than doubled to about $8,600.    And that's when the calls apparently started pouring into cryptocurrency startups from Wall Street. Bitcoin, whose ultimate supply is famously hard-capped at 21 million under the underlying blockchain network's 11-year-old programming, had been cast as a potential hedge against central-bank money-printing and currency debasement, a modern and theoretically more portable version of gold.      "I'm getting calls from real big investors we've never seen before, saying, `Tell me about this bitcoin,'" Michael Novogratz, CEO of the cryptocurrency firm Galaxy Digital, told CNBC on April 2.  Chart of daily bitcoin prices from February through May, showing steep plunge followed by stimulus-fueled recovery. (TradingView/CoinDesk)  Economists wrestled with the question of whether deflationary forces might overwhelm any inflationary impulse, based on the expectation that coronavirus-related lockdowns would decimate consumer and business demand. On a more abstract level, financial historians rekindled discussions over whether the new crisis might precipitate a change in the dollar-dominated global monetary order, similar to the Bretton Woods accord toward the end of World War II.    "I wouldn't rule out anything at this point," Markus Brunnermeier, a Princeton University economics professor who has advised the International Monetary Fund, Federal Reserve Bank of New York and European Systemic Risk Board, told CoinDesk in late March.   Stephen Cecchetti, who headed the monetary and economic department at the Bank for International Settlements in Basel, Switzerland, in the early 2010s, articulated a key concept that has lurked in the bitcoin market commentary ever since: In times of deep turmoil, the presumption of central-bank independence is largely ignored, allowing money-printing to finance government budget deficits racked up due to emergency relief spending. "The central bank has to be a part of the war machine," Cecchetti, now a professor of international economics at Brandeis University, told CoinDesk.     The dynamic helps explain why bitcoin has been swinging alongside traditional markets based on the on-again, off-again talks in Washington over a new government-funded stimulus package.   Some ten months after the coronavirus pandemic first started to infect global markets and the economy, the Federal Reserve is still using freshly printed (electronic) money to buy U.S. Treasuries and government-backed mortgage bonds, currently at a rate of $120 billion a month.    In doing so, the central bank is indirectly financing the U.S. government's budget deficit, which surged to a record $3.1 trillion in the fiscal year ended Sept. 30, more than twice the prior record of $1.4 trillion set in 2009. The Congressional Budget Office has forecast a deficit of $1.8 trillion for the current fiscal year, remaining above $1 trillion every year through 2030.    U.S. government debt held by the public, which started 2020 at an already-lofty $23 trillion, has now surged to about $27 trillion, and some bond-market analysts predict the Federal Reserve might need to keep monetary policy unusually loose for years to come – just so the Treasury Department can afford its interest payments.      The dynamic, set in motion in March and April, continues to prompt more of those phone calls to crypto startups from Wall Street. On Tuesday, Bank of America published a survey of fund managers showing that "long bitcoin" was one of the most "crowded trades" in global markets, along with "long tech" and "short dollar."     "Over the course of 2020, many institutions have started to endorse bitcoin," according to a report Tuesday by the cryptocurrency analytics firm Coin Metrics. "One of the most commonly cited reasons for this change of tune is the growing narrative that bitcoin could serve as a good hedge against inflation."    With bitcoin prices now above $19,000, the story doesn't seem to be going away.  - Bradley Keoun U.S. debt held by the public has climbed sharply this year to about $27 trillion. (Federal Reserve Bank of St. Louis) Bitcoin Watch Bitcoin daily price chart, versus the U.S. Dollar Index. (TradingView/CoinDesk)  Bitcoin has jumped to two-week highs amid the growing chorus of investment banks predicting a continued sell-off in the U.S. dollar in 2021.   The top cryptocurrency was changing hands above $19,800 early Wednesday. That was the highest since Dec. 1, when the cryptocurrency clocked a record high of $19,920. It remains to be seen if bitcoin can hold ground above $19,500. The cryptocurrency has failed multiple times to establish a foothold above that level since Nov. 22, partly because of profit taking by some investors.   Forcing the much-anticipated breakout above $20,000 may be an uphill task for the bulls in the short-run, as there are still large sell orders on the road to the crucial psychological level, as discussed Tuesday.   That said, the long-term bullish case continues to strengthen for bitcoin, a widely-touted hedge against fiat currency devaluation, with observers predicting a deeper dollar decline in 2021 and a rising global stockpile of negative-yielding bonds.   French multinational investment bank and financial services company Societe Generale now predicts a 5% fall for the U.S. Dollar Index (DXY) in 2021 and more losses in the following year, according to efxdata.com. Other prominent investment banks have published similar projections in recent weeks. - Omkar Godbole   Read more: Bitcoin Hits 2-Week High Above $19.7K Token Watch Monero (XMR): Privacy-focused cryptocurrency surges to new 2-year high.    XRP (XRP): Ripple lands former JPMorgan Treasurer (and Jamie Dimon lieutenant) Sandie O'Connor as new board member.   Ether (ETH): Options action subsides in December.   What's Hot Japan's SBI Financial acquires institutional crypto desk B2C2 (CoinDesk)  Cboe Global Markets plans to launch cryptocurrency indexes in 2021, in licensing partnership with CoinRoutes (CoinDesk)  London-based Ruffer Investment allocates 2.5% of $620M multi-strategies fund to bitcoin (CoinDesk) Riot Blockchain, Nasdaq-listed bitcoin mining company, pilots new liquid-cooling technology in Texas to test solutions for difficult (hot) ambient conditions (CoinDesk)  CEO of bitcoin mining startup Layer1, Alex Liegl, resigns as part of settlement between founders, just weeks after he was named to the Forbes 30 Under 30 List for 2021 (CoinDesk)   Silk road's Ulbricht being considered for pardon by Trump, per Daily Beast report (CoinDesk)  Becoming a self-sovereign: How to set up a Bitcoin node with Lightning (CoinDesk)  Analogs The latest on the economy and traditional finance U.S. Congressional leaders say they are closer to bill for coronavirus relief, year-end spending (WSJ)  Massachusetts securities regulators to file complaint against Robinhood (WSJ)  Bets on world of negative interest rates end with capitulation (Bloomberg)  U.S. government-owned mortgage-finance companies Fannie Mae, Freddie Mac slump as Treasury Secretary Mnuchin rules out letting them exit federal control, citing need to maintain consumers' access to home loans (Bloomberg)  Billionaire investor Warren Buffett tells CNBC that Congress should extend the U.S. government-funded Paycheck Protection Program to help small businesses affected by coronavirus restrictions (Bloomberg)  Software firms allegedly breached by suspected Russian hackers, including SolarWinds and FireEye, have seen their share prices nosedive, hitting private-equity stakeholders Silver Lake, Blackstone (Reuters) Iranian oil exports rise as Tehran circumvents sanctions, finds new buyers including China (WSJ)  MSCI, the investment research firm and stock-index provider, said it will delete 10 Chinese companies from global indexes after the U.S. imposed restrictions on their ownership (Nikkei Asia Review)   Tweet of the Day Looking to make someone (or just yourself) happy this Yuletide holiday? Give the gift of crypto art.   As part of the launch of Most Influential 2020 list, CoinDesk is auctioning off 12 original artworks that accompany this year's list of honorees.   The NFTs were created by leading digital artists including Alotta Money, XCopy, Osinachi, Matt Kane, Sarah Zucker, Yonat Vaks, and Olive Allen. They are available at Nifty Gateway and Super Rare (Matt Kane). The artists will donate 50% of the proceeds to charities of their choice, under an arrangement with cryptocurrency donations company The Giving Block.   Learn more about the Most Influential 2020 NFT art auction, running to Dec. 31. Introducing the Most Influential 2020 Who moved the needle on crypto this year? What were the projects that mattered? Who shattered the glass ceiling and broke the mold? From DeFi to bitcoin's late year surge, 2020 was full of big stories, trends and personalities. We've unveiled CoinDesk's 2020 Most Influential list, a selection of 12 people who helped push the industry forward this year. See who made the list. Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. 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