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Stablecoins issuance is not artificially inflating the prices in the cryptocurrency market, despite some controversial beliefs, suggested new research on the matter.
At the same time, the paper acknowledged their vital role in the digital asset field and predicted that it’s only prone to grow in time.
By evaluating this “more precise measure of Tether inflow to the secondary market,” the total supply, and the shock effects on Bitcoin’s price, the authors found “no systematic evidence that stablecoins issuance affects cryptocurrency prices.”
Safe-Haven Role
By referring to the events in mid-March when the cryptocurrency market plunged by up to 50% in 24 hours, the research said that “stablecoins consistently perform a safe-haven role in the digital economy.” As they are especially attractive to traders in times of intense volatility, the market capitalization of most stablecoins surged at that point, while Bitcoin and altcoins took a sharp dive.
Back in Q4 of 2017, before the massive price pumps, the total market cap of all stablecoins equaled at approximately $1.25B, per data from CoinMetrics. At the time of this writing, it’s exceeding $9 billion – meaning a 620% surge in just over two years.
As such, it’s no surprise that their role in the market continues growing. For instance, ERC-20 stablecoins are responsible for 80% of the daily adjusted transferred value on the Ethereum blockchain. Thus, the whole network recently came into full parity with Bitcoin.
Tether Do Not Inflate The Crypto Market
Last year, two academics updated a study and claimed that the most widely used stablecoin – Tether (USDT) – was behind the 2017/2018 parabolic price increase in which Bitcoin reached its ATH of $20,000. Almost immediately, Tether responded by refuting all allegations, saying that USDT has never been involved in any price manipulation.
While this argument is left without a conclusive answer, recent research supported Tether’s position.
The authors of the report were Ganesh Viswanath-Natraj – assistant professor of finance in Warwick Business School, and Richard Lyons – chief innovation and entrepreneurship officer at UC Berkeley.
They referred to one significant change in the Tether issuance process. Prior to 2018, all coins “created via grants were immediately distributed to Bitfinex and on to the other exchanges for trading in the secondary market.”
However, ever since 2018, Tether Treasury retains a fraction of all USDT in circulation. The Treasury can use these reserve holdings to sell them for dollars in case the Tether price in the secondary market is above parity
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Bitcoin is reducing its correlation with the stock market, and is transitioning towards gold’s performance, a recent Bloomberg report claimed. Amid the current COVID-19 crisis, both assets will outperform equities and emerge as the most substantial gainers.
Bitcoin To Join Gold
The unexpected outbreak of the COVID-19 pandemic jolted world economies and financial markets. The cryptocurrency space was not exempt from adverse price developments. However, a recent Bloomberg document outlined that the primary digital asset is declining in terms of volatility and is preparing to become a more stable asset amid the coronavirus crisis:
“This year will confirm Bitcoin’s transition from a risk-on speculative asset to the crypto market’s version of gold, in our view. From a volatility perspective, declines in Bitcoin’s reading and the rise for the stock market’s shifts performance favor toward the crypto asset.”
Per the paper, the most recent stock market movements are pushing Bitcoin to “divorce” its correlation with equities and, instead, to join gold. Evaluation in the report “depicts the 52-week correlation of Bitcoin to gold jumping to the highest in our database since 2010.” It also added that BTC’s relationship with gold “is about twice that of equities.”
Therefore, the benchmark cryptocurrency’s maturation processes toward a store-of-value mechanism akin to gold should continue, the report concluded.
Bitcoin And Gold To Emerge The Strongest From COVID-19
In attempts to fight the economic aftermath prompted by the coronavirus, world central banks and governments began printing excessive amounts of money and rushed them into the markets. The report also touched upon these drastic measures and predicted that BTC and gold are prone to gain the most out of the situation:
Making a compelling prediction regarding gold’s price by the end of the year, the paper determined that it will break the previous all-time high and breach $1,900. In a Bank of America report on gold’s performance, the giant institution stated that the precious metal could even reach $3,000 next year.
Bitcoin, on the other hand, utilized the current COVID-19 situation to distinct itself from other cryptocurrencies, the report reasoned. According to the Bloomberg Galaxy Crypto Index, which measures the performance of digital assets by combining various indicators, BTC’s ratio is recovering from a dip below its “upward-sloping 52-week moving average”, while other coins are declining
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Bitcoin futures contracts allow traders to speculate on the price of Bitcoin without necessarily have to own it. They are a derivative product that gained serious popularity in the past years.
Traders are always looking for information that would give them an edge in the market. Arguably, the most valuable data is that which offers an insight into what other traders are doing.
Open Interest (OI) could provide some of this information with appropriate interpretation. Understanding it and its impact on the Bitcoin’s price could help traders make better decisions.
Open Interest And Trading Volume
The overall trading volume and open interest are somewhat related concepts. While the volume accounts for all of the contracts that have been traded in a given period, open interest only considers the total number of open positions by market participants at any given time.
Open interest is calculated by summing up all the opened positions, regardless of whether they are long or short, and subtracting those that have been closed.
Evidently, the open interest increased from 1 to 13 as traders place new positions. However, as Alicia closed a position of 3 BTC, the open interest declined. This above example shows how open interest changes depending on the number of open contracts.
Why Does Open Interest Matter In Bitcoin Trading?
In legacy markets, traders monitor the changes in open interest closely. Analysts typically use it as an indicator to pinpoint the strength behind price trends and market sentiment.
Open interest is indicative of the capital flowing in and out of the market. If more capital flows to Bitcoin futures, the open interest will increase. However, if the capital flows out, the open interest will decline.
Hence, increasing open interest is indicative of a bull market, whereas if it decreases, this signals a bear market.
Usually, analysts monitor the correlation between the asset’s price, volume, and open interest to analyze the current market sentiment. The following table shows the interpretation of market behavior based on the changes in the above factors.
Open Interest And Its Correlation To BTC Price
Looking at the historical performance of Bitcoin’s price regarding its open interest, there is an evident positive correlation. Data from the widespread monitoring resource Skew tracks the open interest for Bitcoin futures since the beginning of the year. Below is a chart that reveals how it relates to the price.
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The amendment to the Special Financial Reporting Act, which regulates the cryptocurrency exchange information system, passed the plenary session on the 5th National Assembly. This means the full legalizations of cryptocurrencies in South Korea. However, a restructuring of the blockchain industry is expected due to the large number of small and medium-sized exchanges that do not meet the reporting requirements.
The National Assembly held a plenary session this afternoon and decided to revise the special law that passed the judiciary committee the day before according to Coindesk Korea. It has been two years since Representative Je Yun-kyung and the Democratic Party’s representatives were launched in March 2018 under the Financial Services Commission’s legislation.
Anti-money laundering obligations to exchanges
The revised special law is mainly to grant anti-money laundering (AML) and terrorist financing (CFT) obligations to virtual asset providers (VASPs) such as cryptocurrency exchanges.
Under the Special Act, a virtual asset business operator must report to the Financial Services Bureau of Financial Information Analysis (FIU) with a verified real name, assigned to a single bank account that can be used for deposits and withdrawals to the crypto exchange. Also, the operator should obtain the Information Security Management System (ISMS) certification.
The guidelines introduced by the FTC in 2018, forces exchanges and their users to use the same bank when depositing and withdrawing money into cryptocurrency exchanges. Currently, only four major exchanges (Upbit, Bithumb, Coin-One, Cobit) have signed this service agreement with banks.
The ISMS certification is a system that the Korea Internet Security Agency (KISA) certifies that a company can secure key information assets. Depending on the size of the exchange, certification is expected to cost several hundred million units and take more than six months. Now, all exchanges have 6 months to comply with the new regulation or risk to be shut down.
Blockchain Industry Restructuring
The amendment to the Special Reporting Law means that the cryptocurrency will be fully legal in South Korea. The cryptocurrency industry, which was in the gray zone, was first regulated by law. In the meantime, there were no regulations so anyone could make a cryptocurrency exchange business as if they were creating an Internet homepage. As a result, the market has been mass-producing victims due to constant market-related events such as price manipulation, insider trading, and so-called pump and dump schemes.
Revision of the Special Act will reduce investors’ damage through market consolidation, but at the same time, the restructuring of the blockchain industry is expected to proceed. If the bank does not add a ‘real name withdraw and deposit account service’ contract as the Financial Services Commission notices, the domestic crypto market may have only four major exchanges. An ISMS certification and an IT system for future tax filing are also possible only with exchanges with sufficient capital.
The amendment, which passed the plenary session of the National Assembly, shall be promulgated by the President within 15 days of being transferred to the government. The amendment shall take effect one year after the date of promulgation. Existing virtual asset operators operating must report within six months of implementation. Existing cryptocurrency exchanges should have a ‘real name verification deposit and withdrawal account service’ and ISMS certification until about September 2021.
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For the Commercial Court of Nanterre, bitcoin is a fungible intangible asset. An important decision that should facilitate bitcoin operations and ensure better market liquidity.
Court decisions concerning cryptocurrencies are so rare that they deserve attention in a universe in the process of regulation. But the decision of the Commercial Court of Nanterre, dated February 26, and revealed by “L’Agefi”, is the first in France, reports LesEchos. Above all, it allows to qualify the legal nature of bitcoin, the most famous and oldest cryptocurrency.
Indeed, the court considers bitcoin as a fungible intangible asset, which is legal as an interchangeable good, but not individualizable like fiat money.
“The scope of this decision is considerable because it allows bitcoin to be treated like money or other financial instruments. It will therefore facilitate bitcoin transactions, such as lending or repo transactions, which are growing, and thus favor the liquidity of the cryptocurrency market , ” says Hubert de Vauplane, lawyer specializing in Kramer & Levin.
This decision was taken in the context of a dispute between the French exchange platform Paymium and the English alternative investment company BitSpread. In summary, Paymium loaned 1,000 bitcoins to BitSpread in 2014, before the hard fork of bitcoin in 2017, which resulted in the new cryptocurrency, Bitcoin Cash, at a one-to-one parity. The reason for the dispute is whether the borrower should return to the lender the bitcoin cash created by the fork.
The Legal nature of bitcoin
To answer this question, the Tribunal, therefore, considered the legal nature of bitcoin. The Covenant Law has above all given a status to cryptocurrency players. Once judges have considered bitcoin as a fungible asset, in other words, like money, bitcoin lending falls under the “consumer loan” (not to be confused with consumer credit), which transfers ownership property loaned to the borrower during the term of the loan. And so, the bitcoins Cash belongs to the borrower, like the dividend to the shareholder, considers the Court.
Some cryptocurrency players do not share this analysis and consider the fork more as a destruction of value. Today, bitcoin is worth more than $9,140 and bitcoin Cash $340 at the time of writting. Now all loan contracts will be accompanied by a return clause to the lender in the event of a fork. The question of the possession of rights between debtors and creditors before and after the split undoubtedly promises great legal battles.
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