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US Federal Reserve Experimenting with Blockchain-Based Dollar

The United States Federal Reserve, which is the Central Bank of the USA and one of the most powerful organizations in the world, has revealed that they are experimenting with a blockchain-based digital dollar, also known as a central bank digital currency (CBDC).

Federal Reserve Chairman Jerome Powell indicates that while the organization is not currently developing a CBDC, it is conducting small-scale experiments with blockchain technology to gain hands-on experience, to better understand the opportunities and limitations of a CBDC in the United States. Also, the legal concerns surrounding a potential digital dollar are being explored, including monetary and payment policies, financial stability, supervision and operational issues, and vulnerability to hacking.

One of the main legal questions is the degree of anonymity that users would be allowed to have, while simultaneously maintaining anti-money laundering (AML) standards.

The news of the Federal Reserve experimenting with blockchain technology is simultaneous with China’s persistent announcements that a digital Yuan (CNY) is coming soon. Some lawmakers in the United States are fearful that they will miss out on an opportunity to revolutionize the world financial system, and that the USD could lose its global reserve currency status if China launches their CBDC and the Federal Reserve does nothing.

 

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Congressmen Call for Federal Crypto

Congressmen French Hill and Bill Foster have sent a letter to the Federal Reserve, the Central Bank of the United States, calling for the creation of a national digital currency.

Hill and Foster are concerned that digital fiat currencies and cryptocurrency are a long term threat to the USD, and cite a report from the Bank of International Settlements that over 40 countries are developing national digital currencies.

Essentially, people around the world are seeking the ease and security of cryptocurrency, and Hill and Foster believe the United States needs to create a digital currency or risk losing control over the monetary system.

Further, they reference the relevant laws, which shows that the Federal Reserve has the power to develop a national digital currency.

If an official United States digital currency were to be developed it would likely be a stablecoin pegged to the USD, similar to Tether and USD Coin.

At this time it is unknown if the Federal Reserve is seriously considering this proposal.

 

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Bitcoin Loses Grip on $13,000 as Bears Take Over

Bitcoin Loses Grip on ,000 as Bears Take Over

Within hours of yesterday’s analysis, Bitcoin bulls were forced to release their grip on the USD 13,000 price levels as North American traders flooded in to snap up easy profits.

Profit taking could not have been a tough decision to make, when entry points of USD 11,000 and below just days ago meant that short-term speculators and weekly traders could book and easy 15% or more profits, knowing that a return to these levels should be easy, given the demand for Bitcoin.

The world’s most-traded digital asset has not seen demand dipping very much after the series of crops in the past 24 hours, beginning with a slip from the daily high of USD 13,175 around 1:55 pm UTC to USD 12,464 in an hour. By the time late afternoon approached in North America, sellers had further dragged down the price to USD 11,680, before Japanese and Chinese traders attempted to retake ground at USD 12,000 — successfully at first but then foiled towards noon China time when further falls brought a current low of USD 11,202.

As London settles into coffee and croissants, Bitcoin does appear to be somewhat stable at around USD 11,447 (10:00 am UTC, CoinDesk) after shedding 11% of its price in a day.

The key to where the rest of the week heads to now lies with how those who entered the market at the last flash crash will do. Many bought in at around the USD 10,500 range and will be pressured to take a quick profit now to still stay ahead in case Bitcoin looks for further floors. However, they may be tempted to take their chances and put in tight stops closer to USD 11,000, while upping a target to above USD 12,000, safely away from the critical resistance at USD 13,000.

If altcoins traders were complaining about the lack of growth in the withering heat of Bitcoin’s resurgence, then they will for sure be feeling miserable in the aftermath of the past day’s performance. A sea of red charts fills the expanse, with not a single coin — not even Tether — in the Top 30 by market capitalization (CoinMarketCap) safe from the scourge of crypto bears.

QTUM, EOS and BCH lead the losers, giving up 20% of their value overnight, while DASH and BTG managed to prevent double digit percentage losses, albeit just barely at 9% plus.

Incredibly, Bitcoin dominance has continued to grow amid its current collapse, and holds a steady sway over altcoins at 65.5% dominance.

Analysts are still struggling to pick up the pieces and pinpoint a cause to the day’s fall. The US dollar took a slight battering over the euro when Federal Reserve Chair Jerome Powell‘s testimony yesterday opened the door even wider to a rate cut for the central bank. But since that was already expected by most, then it was more likely his comments against Facebook’s crypto project Libra that would have impacted Bitcoin price. Over the entire course of his speech, Bitcoin’s price took its first plunge and continued to decline.

In his semi-annual testimony — three hours long —  on monetary policy before the US House of Representatives Financial Services Committee, Powell insisted that Libra “cannot go forward” until it was able to address “serious concerns”. He stated:

“Libra raises many serious concerns regarding privacy, money laundering, consumer protection, and financial stability… It’s [digital currencies] something that doesn’t fit neatly or easily within our regulatory scheme but it does have potentially systemic scale. It needs a careful look, so I strongly believe we all need to be taking our time with this. The process of addressing these concerns should be a patient and careful one, not a sprint.”

Mark Yusko, founder of Morgan Creek Capital Management, however, is among those unperturbed by short term news and repeatedly says that new all time highs are only a matter of time for Bitcoin. He told CNBC’s Fast Money:

“We’re definitely going to reclaim all-time highs… It’s the best performing asset class this year… I think we’re in the next parabolic move that will take us probably into the USD 30,000 level before we get another correction.”

Other analysts also point out that this short term range of cycles are a part and parcel of Bitcoin’s upwards trajectory, with investor psychology at play each and every week. CCN’s Lawrence Meyers says simply that Bitcoin also has to respect “a fundamental rule in physics” in which “what goes up must come down”. He says that people should trade like whales and look back to history where this pattern has repeated itself time and again.

Whatever the scenario for the near term, interest in Bitcoin is not going away, and as Binance finally made its much-anticipated margin trading available today, it also recorded over USD 1 billion in Tether inflow, even as price ebbed lower. Not that that has helped BNB price!

【Binance Records A Whopping $1 Billion Inflow In USDT As Bitcoin Price Trickles Down】Binance, one of the world’s largest exchanges, witnessed a massive inflow of USDT as much as a billion doll…https://t.co/sPs7Voukxu

— Trần Anh Thái (@anhthai8790) July 11, 2019

 

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Federal Reserve Could Lift Bitcoin Towards $100,000

Federal Reserve Could Lift Bitcoin Towards 0,000

With the past two days seeing Bitcoin smash past — and stay well above — the psychological resistance level of USD 10,000, there are many analysts now scrambling to find a reason for the sustained rally. There will not be many, though, who might credit the US Federal Reserve.

That’s not unusual of course, since the entity responsible for producing the world’s most recognized fiat currency, the US dollar, will not likely want to help propel Bitcoin as the crypto has been touted as a natural replacement and alternative to the US dollar.

However, it could be doing just that, albeit unintentionally. Just two days before the landmark five-digit valuation, Federal Reserve Chairman Jerome Powell had announced the decision to maintain the benchmark for the federal fund’s interest rate, setting a target within a range of 2.25% to 2.5%.

Financial experts reviewed this statement and made one significant observation: the Federal Open Market Committee (FOMC) had actually enacted several policy changes. Most significant of all was that they replaced the term “patient” with a vague statement of “closely monitor the implications of incoming information for the economic outlook”.

For a lot of people, this hinted that inflation and geopolitical risks have been pressuring the Federal Reserve to consider cutting the interest rate instead. And this knowledge has apparently already led trading floor investors to bet with “100%” confidence that it will happen as soon as July, further putting pressure on the dollar, at least, according to CNBC.

The net result, according to CNN digital correspondent Paul La Monica, is:

“That has been viewed as a positive for bitcoin as well as gold, which are looked at as alternative currencies that should rally when central banks take actions that reduce the value of government-backed currencies.”

Analyst Peter Brandt puts a number to this, saying that Bitcoin is “taking aim at a USD 100,000 target”:

Bitcoin takes aim at $100,000 target. $btcusd is experiencing its fourth parabolic phase dating back to 2010. No other market in my 45 years of trading has gone parabolic on a log chart in this manner. Bitcoin is a market like no other. pic.twitter.com/wE4j3riMgI

— Peter Brandt (@PeterLBrandt) June 22, 2019

 

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Bitcoin Spike Down to Public Distrust of “Irresponsible” Federal Reserve

Bitcoin Spike Down to Public Distrust of “Irresponsible” Federal Reserve

An asset manager during an interview with financial media outlet MarketWatch said that Bitcoin’s sudden spike earlier this week was a result of growing public discontent and mistrust of the US Federal Reserve Bank. According to him, people now see Bitcoin as a hedge against the “irresponsible monetary and fiscal policy” of the US central bank.

Highlight: “I think we have definitely seen a renewed interest in the last two months,” says Ikigai Asset Management Founder Travis Kling on $BTC topping $5,000. https://t.co/ohsBg29IFZ pic.twitter.com/OUg8dia0Gz

— Yahoo Finance (@YahooFinance) April 2, 2019

Ikigai Asset Management founder and chief investment officer Travis Kling blamed the constant manipulation of interest rates by the Federal Reserve Bank and its political agendas for this public lost of faith:

“We had the Fed do a complete U-turn into dovish mode. Then everyone else [European Central Bank and Bank of Japan] followed… We now have this set-up where they [central banks] have become politicized both in the US and globally. It’s the new world we are living in.”

Kling believes that this mistrust will only become deeper and more people will embrace Bitcoin, so this current stage will lead to renewed interest in the cryptocurrency.

The Federal Reserve has raised interest rates seven times during the current government’s two-year regime. Last year alone, interest rate was upped four times. Critics have called this manipulation, pointing out that during previous eight years of administration under Barack Obama, the Federal Reserve had only hiked rates once.

There are growing calls to abolish the central bank, with Bitcoin skeptic-turned-advocate and ex Congressman Ron Paul — the father of current Senator Rand Paul — persisting with recommendations to allow a free market to determine interest rates in favor of artifical manipulationhas repeatedly said the Fed should let the free market dictate interest rates instead of artificially manipulating them.

 

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No Evident Impact on Bitcoin in Week 2 of US Gov Shutdown

No Evident Impact on Bitcoin in Week 2 of US Gov Shutdown

The Government’s partial shutdown in the US following the row over Donald Trump’s plans for a Mexico border wall has impacted government-run institutions, but its effect on Bitcoin seems to have made a little impact so far.

So far, during the third of such shutdowns in the last 12 months, stock markets have reacted with gains and losses yesterday with fears of a global economic slowdown against the backdrop of President Trump’s decision impacting government services in the US.

On the cryptocurrency front, little effect is evident so far. In fact, the trend has been upward over the past few days with Bitcoin trending between $3830.50 and $4,048.80 over the past two days. Although it’s still early days in the current shutdown, the first of such measures saw a drop in the price of Bitcoin, the second lasted only one night.

After two weeks, Bitcoin’s volatile nature makes it hard to establish whether any fluctuations are the result of what is happening in Washington. However, a prolonged shutdown has analysts considering what may be ahead, particularly with the planned Jan 24thlaunch of Bakkt scheduled for Commodity Futures Trading Commission (CFTC) approval.

Another factor to consider is how the shutdown will affect the U.S. Department of the Treasury, which has already been partially responsible for the Smithsonian being closed due to Federal Reserve Funds not being able to be transferred to government departments in the normal way.

There is a fear that the US dollar value might suffer as the Federal Reserve is seen as not being able to complete its usual tasks, although the country’s banks and other depository institutions still receive Federal Reserve support as normal.

Some economists have suggested that such a fear, although largely unfounded, might strengthen the position of cryptocurrencies, and in the extreme, provoke a dollar nosedive. It has become common to associate cryptocurrency with economic downturns in countries such as Venezuela, where Bitcoin use is propping up many local economies as the Venezuelan Petro becomes all but worthless.

At the very least, any damage to the value of the US dolljar because of an ongoing shutdown of government services is likely to bring more attention to alternative currencies such as digital money.

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Federal Reserve: CME Bitcoin Futures Prompted Bear Market

Federal Reserve: CME Bitcoin Futures Prompted Bear Market

In a statement widely overlooked by the Bitcoin community, the Federal Reserve published a letter on its website in May 2018 blaming the launch of Bitcoin futures markets on the Chicago Mercantile Exchange (CME) for the decline of Bitcoin’s price.

Indeed, Bitcoin futures launched on CME on 17 December 2017, the same day the biggest Bitcoin rally in history reversed into a fall. On the very first day of Bitcoin futures trading, futures opened at USD 20,650 and closed at USD 19,055.

The Federal Reserve says this sort of market behavior has been observed in other asset classes when futures markets are introduced. Specifically, it mentions how the mortgage industry boom was reversed when futures markets for mortgage securities were launched.

Its reason for this is that when a new asset class is born, there are optimistic investors who buy it up, driving the market upwards. However, pessimistic investors have no voice and no way to bet against an asset’s value, until futures markets are launched. Once futures markets are launched, pessimistic investors can short sell, where they buy futures contracts via a loan, sell them for cash and then buy back the contracts later at a lower price before the contracts expire.

The Federal Reserve implicitly says that Bitcoin would have kept rising past USD 20,000 if CME had not launched Bitcoin futures and explicitly says the CME Bitcoin futures are the exact reason for the beginning of Bitcoin’s price collapse.

Further, the investment opportunity presented by Bitcoin futures diverts investment away from the spot markets. Bitcoin futures on CME are cash settled, meaning no Bitcoins are backing them. Therefore, investment into the futures does not increase spot demand for Bitcoin but in fact, causes Bitcoin’s price to be lower since the money invested into the futures is diverted from the spot market.

The Federal Reserve explains how the combination of short selling and diversion of investment away from the spot markets creates a feedback loop which forces Bitcoin’s price lower.

 

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Federal Reserve Ex-Chair Receives Bitcoin Gift After Crypto Hate Speech

In a good example of the concept “kill them with kindness”, the former Chair of the Federal Reserve of the United States, Janet Yellen, has received BTC 0.0316 worth USD 20 following a speech that contained plenty of hate towards cryptocurrency.

Yellen was the Chair of the Federal Reserve from 2014-2018 and Vice President of the Federal Reserve from 2010-2014. On 29 October, Yellen made a speech at the Canadian FinTech forum, saying, “I will just say outright I am not a fan, and let me tell you why. I know there are hundreds of cryptocurrencies and maybe something is coming down the line that is more appealing but I think first of all, very few transactions are actually handled by Bitcoin, and many of those do take place on Bitcoin are illegal, illicit transactions”.

A study in August 2018 said that only 10% of Bitcoin transactions involve illegal activity, while a different study in January 2018 said it was only 1%.

Further, Yellen said, “For something to be a useful currency, it needs to be a stable source of value, and Bitcoin is anything but. So it’s not used for a lot of transactions, it’s not a stable source of value and it’s also not an efficient means for processing payments. It’s very slow in handling payments.”

In reality, it is well known that Bitcoin is a highly efficient way of sending payments that happen instantly if users do not wait for confirmations. Further, merchants can use processors like BitPay to convert to fiat when they receive Bitcoin, which insulates them from market volatility.

The founder of the Bitcoin gifting service Biterica, Raz Suprovici, sent Yellen USD 20 of Bitcoin to her email and said to the media: “People are afraid of the unknown. I was hoping that when she logged into her Bitcoin wallet with her ID and password, she would see it’s just like a typical online bank account. The money she owns is there, in her control, ready to spend. I hope that this sparks her openness to the technology. Maybe all policy-makers should be gifted a little bit of Bitcoin.”

Suprovici’s idea is simple yet effective. The powerful people who have been speaking against Bitcoin probably have never used it themselves, and sending them a little Bitcoin could change their hearts.

Yellen confirms she got the Bitcoin, saying, “I did receive a gift of Bitcoins this morning and have been very busy ever since so I’ve not looked into it further.” Some might say she has essentially turned from Bitcoin hater to Bitcoin hodler.

 

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Former FDIC Chair Warns US Federal Reserve It Needs Own Cryptocurrency

Sheila Bair, former chair of the US Federal Deposit Insurance Corporation (FDIC), has suggested that the Federal Reserve Bank should seriously consider the prospects of a central bank issued digital currency (CBDC), reports Yahoo Finance.

The concept of a cryptocurrency called FedCoin has provoked interest over past years, based on an idea proposed in 2014 by blogger JP Koning. Since then, the idea has been much discussed and the term is now generically used to describe a CBDC which could be overseen by the Federal Reserve, IMF, and the World Bank.

Currently, the US government can stimulate and slow economic activity in periods of recession and boom. A CBDC, in theory, would not have the same kind of culpability to large fluctuations in value given proper oversight and management by a centralized authority, suggests Coindesk.

Bair has her warnings regarding the Feds status quo regarding its crypto machinations, suggesting, “If it does not stay ahead of this technology, not only could banking be disrupted — but the Fed itself could also be at risk.”

Bair points out that centralized digital currencies would be “much more effective tools for conducting monetary policy to address economic cycle”, but does warn that credit availability issues do mean that consumers holding all of their funds in CBDCs could cause credit deficits without ensuring banks could remain competitive with Fedcoin. This would require careful Fed legislation.

Bair’s comments on the viability of CBDCs by the central bank are timely as government officials around the world are considering the merits of cryptocurrencies like Bitcoin in structure, but state-controlled in vision.

Major central banks now experimenting with digital currencies and blockchain are growing, including The Bank of England, the Banque de France, the People’s Bank of China, the Bank of Canada, the Central Bank of Russia and the Dutch Central Bank.

This is not the first call for a Fed digital currency. Kevin Warsh, former Federal Reserve governor, suggested earlier this year that the creation of a “FedCoin” needed “serious consideration”, as reported in the New York Times.

 

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Futures Launch Added to 2017 Bitcoin Slump, Says Fed

Three Federal Reserve Bank of San Francisco researchers and a finance professor from Stanford University are in agreement that it was the marketplace futures launch in 2017 which gave rise to the dramatic slump in the price of bitcoin, according to Coindesk.

The Federal Reserve paper describes Bitcoin’s December 2017 fall from a USD 20,000 peak as no “coincidence” pointing out that it was consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.

The researchers pointed out that such markets, namely the launch of Bitcoin futures, played a significant role in the slump, and could be viewed as similar to the US housing bubble which developed in the during the 2000s. In this case, mortgage-backed securities were also susceptible to optimistic and pessimistic traders.

The researchers explain:

“And until December 17, those investors [optimists] were right: As with a self-fulfilling prophecy, optimists’ demand pushed the price of Bitcoin up, energizing more people to join in and keep pushing up the price. The pessimists, however, had no mechanism available to put money behind their belief that the Bitcoin price would collapse. So they were left to wait for their ‘I told you so’ moment.”

It was at about this time, at the end of 2017,  that the Chicago Board Options Exchange and the CME Group, the world’s leading derivatives marketplace, gained approval for Bitcoin futures trading from the Futures Trading Commission (CFTC). The price of Bitcoin fell to just above USD 6,000 by late February 2018.

Such pricing dynamics, researchers argue, refers to a trend where demand for a financial instrument is initially driven by optimists who push up the price until the point where the market introduces a mechanism that allows pessimists to invest reversely.

The New York Times has reported that the Intercontinental Exchange, owner of the New York Stock Exchange, could become the latest bank to offer bitcoin futures, stating:

“[ICE] has had conversations with other financial institutions about setting up a new operation through which banks can buy a contract, known as a swap, that will end with the customer owning Bitcoin the next day — with the backing and security of the exchange.”

 

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