Hello and welcome to this week's Overbit News. In our first article of the week, the Bank of England cautions that the rapid expansion of cryptocurrencies might jeopardise financial stability.
Even if the current direct dangers are "minimal," the Bank of England maintained its warning that the fast expansion of cryptocurrency assets may pose stability concerns to the United Kingdom's financial system.
In the central bank's December Financial Stability Report, the Financial Policy Committee warned that crypto assets are becoming more integrated with the larger financial system and that better regulatory and law enforcement frameworks are needed to manage risks. According to the paper, financial institutions should adopt crypto assets with caution and caution until a regulatory framework is in place. According to the survey, while crypto assets are now a modest part of institutional investor portfolios, they have the potential to grow.
It warned that a major decrease in crypto asset valuations might prompt institutional investors to sell other financial assets, potentially causing financial system shocks, and that leverage could increase such spillovers. According to the research, while no large UK banks have revealed direct exposure to crypto-assets, several are starting to offer crypto derivatives trading and custody services.
In October, Deputy Governor Jon Cunliffe of the Bank of England said that the fast-growing cryptocurrency market might pose a threat unless it is promptly regulated, signalling a turnaround for the central bank, which had previously regarded digital currencies as assets with no fundamental value.
The UK Treasury's regulatory proposal for "stablecoins," including systemic stablecoins under the bank's regulatory remit, was welcomed in the report released on Monday. "It takes time to develop regulatory standards," Cunliffe said at a press conference on Monday. "We'll need to make sure we have regulation in place before it becomes a problem."
In our second story of the week, we look at a recent Bloomberg Intelligence report that states Bitcoin is in a consolidating bull market and is on its way to $100,000, despite falling nearly 30% since its all-time high in November.
According to the paper, BTC's bull run is unlikely to come to an end, and the fixed supply will keep prices rising. "The key question facing Bitcoin nearing the onset of 2022 is whether it's peaking or simply a consolidating bull market," the report said.
The report also emphasised how this year's corrections have strengthened the asset and its bull market, as Bitcoin has endured and overcome China's mining ban to reach new all-time highs. In addition to breaking through previous highs to reach $69,000 in November, the Bitcoin network hash rate recently reached a new all-time high, demonstrating the consensus protocol's deep resilience.
"We see it as more of a matter of time, owing to the economic fundamentals of increasing demand vs decreasing supply," according to the report. Further mainstream adoption will increase demand for bitcoin, as evidenced by new exchange-traded funds and futures and legal tender status in El Salvador.
Per the paper, prices will climb, and volatility will diminishas BTC issuance drops and awareness develops. Greater regulatory clarity for Bitcoin in the United States may help fulfil an even greater demand for the asset by increasing its acceptance among certain sorts of investors.
"A primary force to reverse expectations for Federal Reserve tightening in 2022 is a drop in the stock market, which may be a bit of a win-win for Bitcoin," the report said, adding that Bitcoin is "well on its way to becoming a digital store of value. "
"Bitcoin will face initial headwinds if the stock market falls," according to the report, "but to the extent that falling equity prices pressure bond yields and incentivise more central-bank liquidity, the crypto may emerge as a primary beneficiary."
The report also mentioned the US Treasury long bond's inability to maintain yields above 2% despite widespread consensus for higher yields, a phenomenon that could lead to a deflationary environment next year, favouring Bitcoin. According to Bloomberg Intelligence, funds are shifting away from "old analogue gold" and toward Bitcoin.
According to Bloomberg, Bitcoin's fixed supply, enforced by a diminishing issuance every four years, could help it outperform stocks again next year, putting it ahead of an extended stock market that has not experienced a 10% correction since the 2020 crash.
This concludes this week's edition of Overbit News!