Why is Bitcoin going down? Cryptos and stocks are under pressure again.

[ad_1]

Text size

The time of dreams

Bitcoin and other cryptocurrencies are selling again, falling at least 5% in the past 24 hours.

The slowdown is putting pressure on crypto-related stocks, including Coinbase Global (ticker: COIN), which was down 2.6% on Thursday to around $ 245. Other crypto stocks were also down, including Grayscale Bitcoin Trust (GBTC), Riot Blockchain (RIOT), MicroStrategy (MSTR), Silvergate Capital (SI) and Square (SQ).

Crypto is under pressure for a variety of reasons: impending government and regulatory crackdowns on Bitcoin, environmental concerns over crypto token mining, and waning appetite for highly volatile risk assets.

Technical commercial pressures can also converge. Trading volume eased over the summer, making cryptos more volatile and vulnerable to selling pressure.

According to David Grider, chief digital asset strategist at Fundstrat, Bitcoin absorbed significant gains between 2020 and early 2021 and remains in a turbulent consolidation market for now.

But some Wall Street bulls don’t seem disheartened, arguing that crypto tokens and blockchain technology are only becoming more entrenched in the financial system.

MoffettNathanson analyst Lisa Ellis reiterated a bullish call on Coinbase on Thursday, maintaining a price target of $ 600. She described four main reasons why Coinbase investors can be optimistic about crypto’s long-term success.

Newsletter Sign-Up

Le Quotidien du Barron

A morning briefing on what you need to know in the day ahead, including exclusive commentary from the editors at Barron’s and MarketWatch.

The first is that blockchain technology offers improvements over traditional financial networks, enabling secure, arm’s-length transactions without a centralized third party (such as a bank or government entity). Once transactions are recorded in the blockchain, which is a decentralized ledger, they become part of an immutable record, she notes, impervious to manipulation or fraud.

Second, while technology presents some challenges, it is maturing and overcoming technological hurdles.

Third, crytpos are gaining ground for more use cases. While Bitcoin is not useful as a medium of exchange because it is far too volatile, it can be used as a store of value like digital gold. Other cryptos, like Ether, can be useful for transactions and smart contracts. And cryptos can be used to create and identify digital assets, such as non-fungible tokens (NFTs).

Its fourth rationale is for the crypto ecosystem to generalize, with large companies embracing the technology, owning crypto assets, and developing new use cases.

Mainstream companies now involved in crypto include PayPal Holdings (PYPL) and Fidelity Investments, Ellis points out. Banks are also tiptoeing into the digital token arena, including JPMorgan Chase (JPM), which is developing a JPM coin for digital payments. A major digital token could soon come from Facebook (FB) and other backers of the pending Diem stablecoin.

Another positive for Coinbase could be the launch of central bank digital currencies, known as CBDCs. China has already launched a digital version of the yuan in a pilot phase. All major central banks, including the Federal Reserve, are actively studying or developing digital tokens of their currencies.

CBDC’s issuance would be positive for Coinbase, Ellis writes, as it would add tremendous credibility to crypto technology and help drive its adoption. CBDCs could also replace stable digital tokens issued by the private sector, a dynamic that could help Coinbase. And the exchange could get involved in the development of the CBDC infrastructure for storage and transactions.

These are all valid points. The problem is that they may already be well known in the market. And it may take a reversal of the bearish narrative now in crypto for stocks to rise again.

El Salvador, meanwhile, is emerging as a test to determine how difficult it can be for Bitcoin to become mainstream. The country passed a law in June that will grant Bitcoin legal monetary status from September.

But as analysts at JP Morgan point out, El Salvador’s bitcoinization is not going well. There are some early signs that adoption might be struggling, at least initially, they wrote in a note Thursday.

A survey of businesses and consumers across the country revealed widespread skepticism, with more than a third of those polled saying they would be wary of Bitcoin transactions. Almost all consumers also said they did not want to be paid or receive remittances from abroad in Bitcoin, according to the survey conducted by the Chamber of Industry and Commerce of El Salvador.

To further complicate matters, international banks and financial institutions are unwilling to allow Bitcoin in their financial models. The International Monetary Fund has told El Salvador that adopting Bitcoin as legal tender will complicate aid to the country.

Write to Daren Fonda at [email protected]

[ad_2]