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Bitcoin and other cryptocurrencies are skyrocketing this week, continuing their trend of breaking the stock market over the past month. While the volatile behavior of bitcoin (BTC-USD) still baffles many investors, it is increasingly becoming the safest bet as regulators around the world report a tightening in the crypto industry.
While the global crypto market sometimes moves at the same pace as other risky assets, since October the asset class has shown some divergence. The S&P 500 (^ GSPC) is down over the past month, but bitcoin, the largest cryptocurrency, rose more than 15% and was trading at around $ 54,000 on Thursday. Ethereum (ETH-USD) and Doegcoin (DOGE-USD) also gained over 15% last week. Meanwhile, the Shiba Inu coin (SHIB-USD) has risen over 150% but is still trading well below the value of a dime.
Although the 24/7 crypto markets remain in perpetual price discovery, investors tend to agree that this week is bullish for BTC. Bitcoin’s $ 1,000 billion market cap and store of value – attributes that compare it to gold – are more appealing than ever to long-term holders. For large institutional investors, its regulatory clarity makes it more attractive than many other crypto assets. Other macroeconomic indicators such as decisions emanating from the Federal Reserve could further tip the market in favor of bitcoin.
A leading risk indicator
“Bitcoin looks very technically clean, on the rise,” said Christopher Vecchio, senior strategist at DailyFX.com. While Vecchio pointed out that it is difficult to call an asset with bitcoin’s level of volatility a safe haven, he said that bitcoin is a major risk indicator for tech stocks and that BTC could trade higher. in the coming weeks.
Long-term holders of the asset tend to agree that the biggest players in bitcoin follow its risk behavior at the macro level.
“What the big traders watch are the SEC, the Fed, inflation, ETF regulations. This is news that is moving prices, ”Ben Cousens, director of British venture capital firm Lakestar, told Yahoo Finance.
Bitcoin owner himself, Cousens has said that bitcoin’s price volatility has made the past few months what those who are dyed-in-the-wool bitcoin investors are calling a “stacker’s paradise.” “Throughout this volatile period, long-time holders [of BTC] have just accumulated. This usually results in a squeeze in supply that looks like what we are seeing, ”he said.
The regulatory effect
Bitcoin is also benefiting from an increased focus on regulation, according to billionaire investor and entrepreneur Matthew Rozak.
“In terms of testimony in Congress and US government agencies,” bitcoin and ethereum “have great regulatory clarity,” Rozak told Yahoo Finance.
During a period of scrutiny in the crypto industry, bitcoin – risky as it may be – has established itself as one of the safest crypto assets under crackdown.
Speaking to the U.S. House of Representatives Committee on Financial Services on Wednesday, Securities and Exchange Commission Chairman Gary Gensler reiterated his belief that the crypto industry needs to be more heavily regulated. Gensler said most cryptocurrencies are not currencies but investment vehicles that should be overseen by US securities law.
“It is unlikely that 5 or 6,000 forms of private money will persist. Economic history tells us that is unlikely, ”Gensler said in her testimony. “So a lot of these currencies aren’t really currencies. They are not used to buy a cup of coffee at Starbucks … Most of them are investment vehicles, means of raising funds for entrepreneurs in the United States. “
However, Gensler showed partial agreement with Rozak, claiming that a handful of crypto assets “could compete with gold or silver,” representing a “digital speculative store of value, because gold is a reserve of speculative value over the centuries “. Gensler’s statement follows the precedent set before him by the SEC under former President Jay Clayton who ruled that bitcoin and ether, the cryptocurrency that powers the Ethereum network, are not securities.
Going forward, Gensler and other U.S. regulators such as the Treasury Department and Federal Reserve are looking to implement more comprehensive regulation around stablecoins at the issuer and platform level. While the regulation of stablecoins may not appear to have a direct impact on the price of bitcoin and ether, there could be ripple effects for the broader crypto market in the short term if stablecoins see stricter regulations.
On the one hand, it would reduce liquidity, according to Eswar Parsad, professor of economics at Cornell University and author of “The Future of Money”. “Such regulations could be seen as the forefront of a broader regulatory crackdown on cryptocurrencies and crypto assets,” Parsad said.
“This will stop some trade flows, assuming people don’t switch to other algorithms [stable]coins, ”said Gina Pieters, an assistant professor at the University of Chicago who has researched stablecoins. Most often, with a 1: 1 ratio to the US dollar, the most active crypto traders often use stablecoins as a means of entering and exiting other non-indexed cryptocurrencies like bitcoin during periods high volatility.
While regulation could reduce investor exposure to stablecoins and halt trade flows, at least temporarily, bitcoin’s divergence from the S&P 500 could also mean investors are seeing it again as a safe haven.
With a market capitalization of $ 1,000 billion, bitcoin is most often equated with “digital gold”. Gold has a market capitalization of $ 10,000 billion. For bitcoin to equal this size, bitcoin would need to reach $ 500,000. While Rozak doesn’t expect bitcoin to hit this price anytime soon, he remains bullish. During his ten-year journey of owning the asset as it went up and down dramatically, “This definitely tests you,” he said.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow it @dshollers.
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