Topline
Successful institutional adoption has lifted the world’s largest cryptocurrency to new meteoric heights this year, but bitcoin’s underlying technology has also piqued the interest of central banks looking to create their own digital currencies itself – a move that the Bank of America warned on Wednesday is bad news for the cryptocurrency market.
“Kryptonite central bank digital currencies are for crypto,” Bank of America analysts say, and … [+]
NurPhoto through Getty Images
Key facts
A growing number of central banks (around 86%, according to the Bank for International Settlements) are actively examining the development of central bank digital currencies, or CBDCs, in an effort to expand the region. protect them from cryptocurrencies, “Bank of America analysts said in a note Wednesday to clients.
CBDCs effectively combine the effectiveness of cryptocurrency transactions with central bank-backed fund safeguards (such as currency), and while “very radical,” their implementation would also make it easier for governments to pursue monetary policy measures. which helped to keep. the economy floated at the time of the pandemic.
That’s not good news for private cryptocurrencies like bitcoin, analysts note: CBDCs are likely to be motivated by the Government eliminating currency and other cryptocurrencies in the long run by reducing the demand for both.
That’s especially bad for bitcoin, whose advanced prices have been “entirely” dependent on higher demand that outperforms the token-based supply, Bank of America says, bitcoin’s volatility makes it inconvenient as a source of wealth or payment equipment – unlike the allure of CBDC.
The European Central Bank has helped steer the cost on CBDCs, demanding a digital euro that “protects the place of sovereign currencies in the digital age,” while exploding other cryptocurrencies as “assets highly speculative. “
In a note in February, Macquarie Capital analysts said the Federal Reserve and the ECB could debate their own CBDCs as early as next year as governments ramp up regulation in the discouraged area consumers from accepting other signals – a move that analysts say could lead to tank crypto prices below normal levels.
Quote Cruise
“Whatever technology is used for digital euro, its nature – the fact that it is a risk-free burden from the central bank – makes it fundamentally different from crypto,” said ECB board member Fabio Panetta in October of the central bank’s CBDC.research. ”Cryptassets … are largely unregulated, which pose a significant risk to consumers, and their price is highly volatile because [they] they have no intrinsic value, which means they trade as a speculative commodity. “
What do you look
Bank of America expects the ECB to decide to run a full CBDC test by the middle of this year, but the Fed has been much more lazy to move forward with its own token. “We are looking carefully at the question of whether we could issue a digital dollar,” Fed Chairman Jerome Powell said while testifying before a Senate committee last month. “We don’t have to be the first; we have to do it right. “
Key background
The price of bitcoin has skyrocketed 10-fold over the past year as institutional investors are tossing it to the cryptocurrency spot and building government spending ramps up inflation concerns. On Wednesday, Morgan Stanley was the first major bank to offer bitcoin exposure to wealthy clients, but it limits the fund to investors with “aggressive risk tolerance. ”Goldman Sachs also doubles in place; The banking powerhouse resumed its cryptocurrency trading desk this month after it abandoned plans to do so when the cryptocurrency market collapsed in 2018.
Amazing info
Bitcoin prices rose more than 2,000% in 2017 as crypto-brokers like Coinbase helped make cryptocurrency trading mainstream, but prices were thinning more than 80% the following year when countries like India, South Korea and China down the place with higher regulation. .
Further reading
Goldman Sachs to launch crypto trading activity this month following the massive rise of Bitcoin (Forbes)
Bitcoin Poised for ‘Massive Transformation’ into the mainstream, Citi says (Forbes)