Written by: Yves, Head of Trading at Wirex
The Bitcoin price has exceeded the $50k level a few times mid-august, quoting now at $50,045 at the time of writing. It is building a bullish pattern that would most likely send it back to the $60k levels. The $50k-$51k resistance is still holding for now, but the pressure is high with the introduction of El Salvador’s Bitcoin Law scheduled for September 7th, and with Twitter’s beta testing of BTC and ETH for tips payments. The Bitcoin price is up by more than 65% since the July lows, and Ether more than doubled over the same period. The crypto market capitalization is now back near May’s highest levels.
The market is moderately leveraged based on the inverted rate curve implied from the Bitcoin future/spot spreads: but we are still significantly below the spread levels seen in May. This indicates that the rally is currently less speculative than the one observed in May.
. Perpetual Bitcoin funding rates history
El Salvador’s Congress approved on Tuesday the creation of a $150m Bitcoin trust to facilitate currency change operations. But the voting balance at 80% in favor of the trust’s creation still stands in contrast with public opinion. Indeed, a survey released on Thursday by the University Institute of Public Opinion of the UCA revealed that the country is divided: ‘67.9% of Salvadorans declared they disagree with the approval of Bitcoin’. The survey also mentions that ‘only 4.8% of the respondents correctly defined Bitcoin as a cryptocurrency’. This second figure shows that there is still a long way to go for crypto adoption, and with it, a high potential for demand.
Other countries in the region are also taking positive steps towards cryptocurrency adoption: The Central Bank of Cuba moved to recognize and regulate cryptocurrencies on August 26th. The resolution published mentions more specifically that: ‘The Central Bank of Cuba, for reasons of socioeconomic interest, may authorize the use of certain virtual assets in commercial transactions, and grant license to virtual asset service providers for operations related to the financial, exchange and collection or payment activity, in and from the national territory’
Thousands of Cubans are already using Bitcoin for online purchases. The Central Bank is encouraging the cryptocurrencies contribution to the country’s economic growth, but it is also an attempt to overcome the US restrictions imposed by the Trump administration. These restrictions weighed heavily on cross-border remittance payments as 400 Western Union offices had to shut down in November last year. The financial support provided by Cubans living abroad to their families was suddenly and dramatically shut down. Furthermore, the Covid-19 crisis slowed down tourism, and with it, the US dollar inflow. Amid the chaotic situation created by external factors and internal corruption, locals looked for cryptocurrency remittance solutions like BitRemesas or QvaPay to reinstate the flow of donations. These solutions use banks that are not covered by the US embargo for the crypto/fiat exchange. Cryptocurrencies are also exchanged for Fiat in the black market, spent in ‘Free Convertible Currency Stores’. Unfortunately, these stores have reportedly run out of basic products.
Meanwhile, the IMF keeps on warning against the risks of a potential legal tender, sending readers again to a blog article written a month ago. The Blog describes cryptocurrencies like Bitcoin as ‘cryptoassets’ with a value that is ‘just too volatile and unrelated to the real economy’ to be considered by countries with ‘stable inflation and exchange rates, and credible institutions’.
Bitcoin’s legal adoption path is not a surprise. It is logically starting with countries with unstable inflation, exchange rates and failing authorities. And it starts with the real economy, with the basic necessities. This is the most natural path towards global legal adoption. But it is very difficult to predict whether the successful implementation of a legal tender in one or several struggling economies could actually help reduce the volatility of the first cryptocurrency. And it is difficult to predict whether a reduced volatility would appeal to more countries, including stable economies. For now, the Bitcoin price has yet to reach consensus. And like any startup project, the growth phase always bears the higher risk. But the growth phase is the inevitable step to reach maturity. Once Bitcoin is adopted by the first countries, there is only one question that matters: is a transaction with a Bitcoin-economy more efficient using Bitcoin, given the set of constraints that are relevant to this transaction?
data taken at 08:01 am 03/09/2021
The above is an opinion piece and therefore should not be taken as financial advice. Please do your own research thoroughly when looking at Cryptocurrency.