The following article is the rework of the thoughts put forward by Mati Greenspan, the Senior Market Analyst at eToro.
The US Treasury Secretary, Steven Mnuchin, yesterday made an emergency press address on rising concerns around cryptocurrency. In his speech, he noted that cryptocurrencies are being exploited to facilitate “billions of Dollars in illicit activity.” He even went as far as to call it a “matter of national security.”
Ever since Facebook announced Libra, it has grabbed the attention of almost all regulating bodies, including the President of the US. All parties, including the Treasury and Federal Reserve, shared similar views.
These comments came on the back ahead of a much-anticipated appearance from Facebook’s head of Blockchain development, David Marcus, before the US Congress that will be held later today.
Make no mistake, the US government’s top objective is to protect “the role of the US Dollar as the world’s reserve currency.” The Fed Chairman expressed concerns around Libra primarily due to this reason as well apart from security concerns. If Libra continues to grow in volume, eventually it will affect the powers of the Central Bank.
Nevertheless, David Marcus will attempt to clarify these concerns as he mentioned in his testimony submitted to the Senate yesterday.
Bitcoin Price Analysis
What I found most fascinating was to see the reaction of the price of bitcoin in real-time during the briefing, which can be seen below in the purple rectangle. As we can see, throughout the speech and in the subsequent 30 minutes, bitcoin surged by 5%.
This is because of the fact that while Secretary Mnuchin expressed an emergency concern around cryptocurrencies, it was primarily targetted at Libra and it’s illicit use. Moreover, Mnhuchin explicitly clarifies that using bitcoin for speculative purposes (i.e., a store of value), primarily through regulated entities, is completely fine.
In short, the progress with institutional investment in Bitcoin will continue without hinderances.
Moreover, his comments couldn’t have come at a better time as far as technical analysis is concerned. As he spoke, bitcoin has bounced off the now significant level of $10,000. Hence, Bitcoin is currently trading in a tight range between $10,000 and 13,000. A break-out of this range in either direction could be massive.
Bitcoin’s Fear & Greed Index
The index tracks overall market sentiment using various volume, social, and price indicators. A reading of 0 is maximum fear, and 100 is maximum greed. Yesterday the index tracked as low as 16, while just one week ago it was as high as 84. It has rebounded a bit today though back to 34.
This is an important indicator of market sentiments. Bitcoin [BTC] investors are not concerned about what Trump or the Government thinks about it as long as they are noticing it. Hence, the comments have been largely welcomed by the crypto-community. However, regulatory oversight and crackdown could affect the market sentiments in the short term.
Mati Greenspan is the Senior Market Analyst at eToro, a global social trading and investment platform. Mati is a licensed portfolio manager in the European Union and his main focus is on macroeconomic analysis, portfolio diversification and cryptocurrencies. Follow him on Twitter at @matigreenspan