Markets: Bitcoin Moving Sideways, Fed’s Powell Under Heat On Crypto
The Federal Reserve chief, Jerome Powell hinted that the U.S. central bank isn’t likely to dial back monetary stimulus anytime soon.
Bitcoin was mainly moving sideways, holding around $33,000, after falling for two straight days. The number one cryptocurrency by market capitalization is now in its eighth straight week of trading flat.
According to analysts, BTC trading was buoyed along with assets in traditional markets by Federal Reserve Chair Jerome Powell’s assurances that he’s still not seeing “substantial further progress” on an economic recovery – signaling that the U.S. central bank isn’t likely to dial back monetary stimulus anytime soon.
The Fed Chief’s comments come after Tuesday’s U.S. Labor Department report that inflation accelerated in June by the fastest pace in 13 years. Bitcoin is seen by some investors as a hedge against inflation because of the cryptocurrency’s fixed supply schedule.
Edward Moya, senior market strategist at Oanda, commented:
“What helped cryptocurrencies turn positive was the broad-based rally on Wall Street. The Fed seems stubbornly dovish and willing to tolerate a few more months of surging pricing pressures before considering a change of tune over the transitory/persistent inflation debate.”
Analysts looking for clues what happens next
Cryptocurrency analysts are going through blockchain data for clues on which way the market will go, as bitcoin has been stuck in the $30,000 and $40,000 range for eight weeks now.
Head of digital assets at FundStrat, David Grider, wrote Wednesday in a weekly report that he is looking closely at the “spent output profit ratio,” or SOPR. The metric is calculated by dividing the average price at which bitcoin was sold by the average price at which it was bought.
Grider wrote:
“When SOPR is above 1, it implies owners of the asset are in profit at the time of the transaction. Below 1 implies sellers have capitulated and sold at a loss.”
The metric has stayed below 1 since May, possibly a sign there’s a “healthy reset of profit taking,” reminiscent of a similar episode that played out in March 2020, at the start of the coronavirus pandemic. Several months after that, bitcoin prices rallied and ended up quadrupling on the year.
“In a bull market, as we expect we are in today, a SOPR below 1 can indicate a local bottom as sellers are reluctant to sell at a loss,” Grider wrote.
Glassnode chart annotated by FundStrat shows local tops and bottoms in the Bitcoin blockchain’s “spent output profit ratio.”
Powell talks govt stablecoins taking over crypto
The Fed chief, Jerome Powell spent much of his semiannual testimony before the House Financial Services Committee addressing the outlook for the U.S. economy, the prospects for inflation and the likely path of monetary policy.
He was also grilled on cryptocurrencies.
U.S. Rep. Patrick McHenry of North Carolina, the. ranking Republican on the committee, asked when the Fed would deliver its much-anticipated report on central bank digital currencies (CBDC) and crypto.
Powell said that report, previously expected to arrive this month, will appear in September.
“U.S. regulation, along with environmental, social and governance (ESG) concerns, are the biggest risks to cryptos, so a September Fed release of [the central bank’s] concerns on digital currencies should be viewed as good news for bitcoin,” according to Oanda’s Moya.
Powell also weighed in on stablecoins, arguing they will need to be more closely regulated if they are going to be a major part of U.S. payments networks.
“Stablecoins certainly have some advantages in terms of faster payment systems and have some attributes of CBDCs, but there are some risks with stablecoins right now,” Powell said. “I think the issue is that stablecoins are a lot like money market funds or bank deposits or a narrow bank.”
In response to a question from Rep. Stephen Lynch (D-Mass.), Powell said the dollar’s status as the world’s reserve currency isn’t in danger of being threatened, even as other countries develop CBDCs.
The chairman said central bank digital currencies might undermine the case for decentralized digital assets.
“You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency,” Powell said. “I think that’s one of the stronger arguments in its favor.”
Altcoin Roundup
AXS Rally: The rally in Axie Infinity’s governance token AXS is showing no signs of slowing down as users continue to flock to the play-to-earn battle economy amid lackluster action in the broader crypto markets. The AXS token clocked a new record high of $23.60 early Wednesday, surpassing the previous peak of $22.50 reached Tuesday, according to data source Messari. Axie Infinity shards, or AXS, is the governance token of the Axie Infinity platform, an Ethereum-based digital marketplace for the game Axie Infinity.
Chia continues expansion: Chia Network, the smart transaction platform created by BitTorrent founder Bram Cohen, has added five executives across multiple divisions, including sales, product development and professional services, and has nearly doubled its workforce since closing its last venture round in early May.
Solana’s Phantom Wallet Raises New Round to Go Multi-Chain: Phantom, a digital wallet that’s on the Solana blockchain network, has raised $9 million in a Series A funding found led by Andreessen Horowitz (a16z). Other participating investors included Variant Fund, Jump Capital, DeFi Alliance, the Solana Foundation and Coinbase investor Garry Tan. The funding will be used to expand the Phantom team, develop new features and expand to other blockchains, said the firm.
