In this issue
- Bitcoin rockets to new record prices
- Ethereum surges close to all-time highs
- XRP community ask US government to declare the stablecoin a currency
- China intensifies DCEP digital yuan tests as Russia, Turkey and Ukraine join CBDC race
From the Editor’s Desk
Volatility, thy name is bitcoin.
2021 kicked off with a bang for bitcoin, as prices soared to a new record high of US$34,792.47 on a Monday morning in Asia (Sunday afternoon for those of you in the U.S.). And the news coverage intensified. Business news outlets couldn’t ignore the story, and yours truly was among those tapped to share some views on the record rise of bitcoin on live network news programming. I get it. I do get it. In my former life as a business global anchor, you follow the money story.
But bitcoin isn’t just a money story, it’s so much more than that (which is why I founded Forkast.News). It’s a story that transcends prices, and speaks to a greater narrative that includes a need for an alternative monetary system that may or may not be decoupled from the legacy financial system. What’s driving bitcoin prices north at the moment is the sentiment that it can provide an alternative to fiat currency, and thus is a hedge against the current backdrop of negative yields and infinite stimulus to fight a sputtering, Covid-infected global economy. The irony is that it’s the demand from institutional investors that are driving bitcoin prices higher.
On the news program, I was asked if the markets would see a price correction. It’s a great question, but hard to answer because of the nuance of this new alternative asset class. Correction suggests fundamentals that are missing. But price movements in bitcoin that “correct” (as in drop) are more reflective of the psychological nature of the market. There may be profit-taking that triggers a sell off, only to be replaced by others who are new and just entering the market now; bullish on bitcoin’s anticipated growth this year — whether it’s another 300% increase like we saw in 2020 or not.
What is fundamentally clear (pun intended), is that there is currently more demand than supply. With hashrates on the rise once again to record highs (where the price of bitcoin makes it enormously profitable for miners), the race is on to release the last of the approximately 2.5 million of the 21 million bitcoin that will ever exist ever into the market. This finite product with growing demand that is hedging against the backdrop of unending stimulus and record low interest rates is the real fundamental that supports the price of bitcoin. So while we continue to see volatility swings, which is inherent to bitcoin price movements, one must look more broadly at the trajectory. The price dip recovered quickly, and no doubt we’ll see price dips again, but the floor is being set by those who hold bitcoin and don’t intend on trading it (estimated to be 78% of all bitcoins in existence) and the corresponding demand for the rest.
Volatility, thy name is bitcoin. But then again, if 2020 has taught us anything, volatility is the name of this new game.
Until the next time,
Founder and Editor-in-Chief
1. Bitcoin prices rocket to new stratosphere
By the numbers: Bitcoin — over 5,000% increase in Google search volume.
The Bitcoin blockchain turned 12 on the third of January, and the world’s first cryptocurrency, once again, rallied past its all-time high record for prices as if in celebration of its birthday and the new year. Bitcoin prices shot up beyond US$34,600 shortly after passing up US$30,000 for the first time and is currently trading at around US$ 35,000, as of publication time.
- Bitcoin’s creator, the pseudonymous “Satoshi Nakamoto,” mined bitcoin’s genesis block 12 years ago this week to earn 50 bitcoin and is believed to still hold as many as 1.1 million bitcoin in dormant wallets.
- According to a recent report on bitcoin supply published by blockchain analysis firm Glassnode, only 4.2 million bitcoin, or 22% of its total supply, is available for traders after waves of institutional bitcoin purchases in late 2020. Should this trend continue, it could create a sell-side liquidity crisis as crypto exchange reserves approach depletion.
Forkast.Insights | What does it mean?
It took bitcoin a decade to breach US$20,000, but only three weeks to rocket past $30,000. Record amounts of open interest — derivatives contracts that haven’t been settled — on bitcoin futures has signaled that there is a depth of demand, a phenomenon that has been observed in a number of commodities markets. And where is this depth of demand coming from? Institutional investors that are ready and primed to jump in. A theme of Forkast.News’ reporting in 2020 has been the surge in institutional demand for crypto, and now with all the proper frameworks in place — regulatory and custody primarily — we are ready for the next chapter in bitcoin’s history. Wall Street firms invested US$5.75 billion into digital asset funds in 2020, up 660% from 2019, according to a CoinShares report. Will this trend continue in 2021? We’ll find out.
2. Ethereum rallies toward historic highs
By the numbers: Ethereum — over 5,000% increase in Google search volume.
Bitcoin wasn’t the only crypto that roared into the new year. Ethereum has also soared towards its all-time high in prices, passing US$1,000 for the first time in three years, according to CoinMarketCap metrics. This time last year, ethereum was trading just above US$130.
- Cameron Winklevoss (@cameron): “$ETH was the best performing asset (up 450%) of 2020 hands down and still below its all-time high. Today it’s the equivalent of 15K #Bitcoin I would take that bet all day long”
- On Jan. 4, the day of ethereum’s price surge, other popular altcoins also followed suit, with dogecoin prices rising by 70%, litecoin 17%, and maker by 15%. As reported by Decrypt, even the price of Tether, the stablecoin pegged to the U.S. dollar, reached US$1.02.
Forkast.Insights | What does it mean?
The Ethereum blockchain — which aspires to be “the world’s computer” and has essentially become just that for decentralized finance, has been playing a game of catchup with Bitcoin. Although the value locked-in to DeFi platforms has hit an all-time high of US$18.53 billion, according to DeFi Pulse, the rise in the last month has been more gradual and no longer meteoric. Interest in DeFi still exists, but it’s not the summertime rally that added US$9 billion in locked-in value in two months. We can see this because the number of active Ethereum addresses is nowhere near the all-time high of 872,000, which occurred at the peak of DeFi interest in September, along with raw number of transactions, which, while climbing, is only around 100,000 units higher than where it was six months ago.
Ethereum hasn’t turned out to be a store of value like bitcoin. Historically there hasn’t been the same interest from either retail or institutional investors. In addition, there are legitimate questions about the future utility of Ethereum in an era of competing blockchains. But bitcoin is becoming such an expensive asset that traders are no doubt looking for alternatives, and Ethereum may be the next best alternative that has the market cap and liquidity to meet demand.
3. Ripple XRP community petitions White House for clemency
By the numbers: XRP Petition — 3,500% increase in Google search volume.
Not all crypto tokens are enjoying historic bull runs. XRP is still reeling from a lawsuit filed by the U.S. Securities and Exchange Commission (SEC), which alleges that Ripple Labs conducted unregistered securities offerings worth US$1.3 billion. The Ripple community is now attempting to get the federal government’s attention by launching a petition requesting that XRP be declared a currency.
- The petition, which currently has over 34,000 signatures, needs to reach 100,000 signatures by Jan. 28 to get a response from the White House.
- XRP is no longer the fourth largest cryptocurrency by market capitalization as major crypto exchanges have suspended or delisted XRP, which is now trading at US$0.24. XRP has ceded its market capitalization position to litecoin (LTC).
Forkast.Insights | What does it mean?
Ripple, which has been around since 2012, and its relationship with XRP, the pseudo-eponymous crypto token, is a complicated one. Ripple is best known for its suite of real time gross settlement platforms, a 21st century competitor to SWIFT, xCurrent and xRapid, that have been installed as a payment rail in popular payment corridors around the world. These platforms used distributed ledgers (which Forkast.News readers know are similar to blockchains, but not the same thing) to facilitate bank-to-bank messaging that allowed a transaction to be settled in seconds as opposed to days.
In 2019 Ripple unified its product line to try to push more XRP into use. RippleNet, which used XRP, was merged with xCurrent and xRapid, which did not. But XRP still remained an option for liquidity and was not mandated. As such, its market cap and value never really went anywhere given that the need for XRP was a manufactured one by Ripple.
So then what exactly was XRP? A securities offering? A way for retail investors to buy into what they thought was the future of money transfers? That’s the case the SEC makes in its complaint against the company. Considering that there’s not a corresponding utility within the network for XRP, it may be a tough case to defend.
4. China widens DCEP digital yuan testing while Russia, Turkey and Ukraine enters CBDC race
China is intensifying the testing of its new DCEP digital currency through another giveaway, this time through a lottery open to anyone in Shenzhen. The giveaway is distributing 100,000 DCEP “red packets” worth US$3 million. The Shenzhen test — the second for the city in three months — follows a similar test in the city of Suzhou that ended in December.
- Unlike previous tests of China’s new e-RMB — also called “Digital Currency Electronic Payments” (DCEP) — the winners of this round of digital currency do not need to link their e-wallet to any existing bank account. The winners will also be able to spend their digital money between Jan. 7 and 17 at more than 10,000 Shenzhen points of sales, the greatest number of participating restaurants and retailers to date.
- In other central bank digital currency developments around the world, Ukraine’s central bank has chosen Stellar to help create a CBDC, while Russia has identified digital currencies as a possible replacement for the SWIFT system. Turkey also closed out 2020 by announcing a CBDC pilot scheduled for the second half of 2021.
Forkast.Insights | What does it mean?
Tests of China’s digital RMB are picking up speed, crossing the 4 million transaction mark with a value of 2 billion RMB, and tests have on-going since April of this year. But what’s next for the platform? Well, initially the People’s Bank of China hoped it could use DCEP to internationalize the RMB and challenge the USD. Now, it looks like it has backed off one of these goals. Former People’s Bank of China governor Zhou Xiaochuan was quoted in December saying, “[DCEP is] not like Libra and we don’t have an ambition to replace existing currencies.” Zhou claims that Beijing would rather “persuade consumers and overseas merchants to gradually accept digital yuan payments.”
But that’s something for down the road. In the near term, DCEP has its sights set on AliPay and WeChat pay, which collectively control more than 90% of the market in China for mobile payments. “WeChat and Alipay are wallets, while the digital yuan is the money in the wallet,” Mu Changchun, the project’s lead, has said. Which, of course, was always the intent as the popularity of mobile payments had created a bulge in money supply. Too much M2, cash stored in commercial bank accounts, which central bankers have little control, and not enough M0, cash in circulation of which central bankers have the most control.
Although China has sworn off challenging the USD with its DCEP, other CBDC contenders might have other motives for wanting to develop their own state-backed digital currency. Russia, Turkey and Ukraine all have announced that they are researching or actively developing CBDCs. Russia would like a viable competitor to SWIFT, out of reach of U.S. sanctions. Turkey has battled a rough forex market and rounds of U.S. sanctions that have pushed the lira’s value to the floor. Ukraine’s hryvnia, which had a rough 2000s, now finds itself with more liquidity and seeks a new decade of confidence. All three of these countries, for their own reasons, are now exploring having their own CBDC as policy solutions.