Crypto newsletter: Bitcoin strikes one year high, Facebook rolls out Libra

Summary:

• Facebook rolls out its cryptocurrency strategy, the project backed by Visa, Mastercard or PayPal
• JP Morgan suggests importance of Bitcoin futures has been understated
• Bitcoin seems to be the best crypto choice during bad times

Facebook helps Bitcoin climb one-year high

A long-awaited white paper regarding a new cryptocurrency called Libra was released by Facebook on Tuesday. The social media company informed that its new digital currency would likely be launched in 2020 and many firms including Visa, Mastercard, PayPal or eBay would work to develop the technology. Facebook said that Libra should be much less volatile as it would be pegged to traditional financial assets, including fiat currencies. Let us notice that prior to the Facebook announcement Bitcoin was gaining momentum due to hopes that the large social media company would help blockchain technology develop. However, the key question that some people may ask is whether Libra could threaten Bitcoin. There is no doubt that Facebook has a large pool of users (ca. 2.5 billion), however, it is unlikely that Facebook will want to topple Bitcoin or other cryptocurrencies for the simple reason: a target group for Facebook are people having no bank account (roughly 1.7 billion people may operate outside the financial system, according to Facebook estimates). Facebook wrote in its white paper that “we believe that many more people should have access to financial services and to cheap capital.”  

Bitcoin has seen almost an uninterrupted rally since April. However, it is approaching the important technical resistance placed somewhat below $10k. There is no doubt that this level may matter a lot. Source: xStation5

Has Bitcoin futures importance been understated?

Large commercial banks weigh in on cryptocurrency-related topics from time to time and their opinions tend to exert noticeable reactions on prices. According to JP Morgan the importance of the listed futures market has been significantly understated. The bank drew such a conclusion based on reports from crypto asset manager Bitwise and the Blockchain Transparency Institute. These reports pointed that only a small percentage of reported crypto trading may be genuine. Hence, JP Morgan claims that the real volume on Bitcoin could be around $36 billion instead of the reported value of $725 billion. Finally let us refer to the report published by Bitewise in March when it said that some cryptocurrency exchanges deliberately inflated their trading volume so as to appear higher in various rankings. Keep in mind, the higher in a ranking an exchange is, the more users could be attracted and thereby the more fees could be generated.

Is Bitcoin a good choice for bad times?

The end of May was all about risk-off due to rising concerns regarding trade wars not only between the US and China but also between the US and Mexico. As a consequence, we got a massive capital flow toward safe haven assets like US bonds with the yield on 10Y bond declining to below 2.1% from above 2.4% in just several days. Due to the fact that Bitcoin is considered as a “safe” cryptocurrency in this world by some market observers, we focused on its behaviour during the time of market turbulence. It turned out that outperformed its peers during a week since US yields began heavily sliding. Then it gave way to Ripple and it regained the lead subsequently when Facebook-related revelations arose.

Bitcoin tends to outperform its peers during market turbulence. Source: Bloomberg