ECB, BOE Have Scant Leeway to Influence Bitcoin

The latest moves in crypto markets, in context

February 3, 2022

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Good morning, and welcome to First Mover. Here's what's happening this morning:

Featured story: ECB, BOE have scant leeway to influence bitcoin

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Today's newsletter was edited by Omkar Godbole and produced by Parikshit Mishra.

Market Moves

By Omkar Godbole

Bitcoin traded lower, tracking weakness in stock futures linked to the tech-heavy Nasdaq index. The cryptocurrency tumbled over 4% on Wednesday after Meta, the company formerly known as Facebook, posted disastrous quarterly results. The cryptocurrency's correlation with stocks is highest since September 2020.

The Bank of England (BOE) raised official borrowing costs by 25 basis points (0.25 percentage point) to 0.5%, matching estimates. The central bank's policy statement showed four members voted for a 50 basis-point hike, signaling the potential for a faster tightening than historical standards. Officials unanimously voted to begin shrinking the balance sheet.

The European Central Bank (ECB), as expected, kept its benchmark interest rate unchanged at 0.25%. Bitcoin added about 0.75% after the decision. The central bank is under pressure to explain its view on inflation, according to FXStreet.

SOL, the native token of programmable blockchain Solana, tanked 12% following an exploit on Wormhole, a popular bridge between the Solana and Ethereum networks. Coins associated with other smart contact blockchains like Polkadot, Avalanche, Terra, Algorand also slipped 10%.

The exploit came after Bitfinex hackers moved coins on Tuesday and may have added to the fear in the market.

ECB, BOE Have Scant Leeway to Influence Bitcoin

By Omkar Godbole

The U.S. Federal Reserve has emerged as one of the most influential entities in the bitcoin market in the wake of the coronavirus pandemic. What's not clear are the roles of other major central banks, including the European Central Bank (ECB) and Bank of England (BOE).

According to Noelle Acheson, head of market insights at CoinDesk's sister company Genesis Global Trading, those banks' actions matter to traders holding cryptocurrencies in euros, the official currency of 19 of the 27 member states of the European Union (EU), and the British pound.

"We're so used to watching crypto in dollars; we forget that for many, performance is decided by relative movements in local currencies," Acheson told CoinDesk in a Telegram chat. "Also, many traders borrow in local currencies to trade, so higher borrowing costs will eat into their profits."

Dessislava Aubert, senior research analyst at Paris-based crypto market data provider Kaiko, said the growing monetary policy divergence between the Fed and the ECB may influence bitcoin.

"While the Fed expected to hike rates several times this year, the ECB has adopted a more sequential and slow-go approach to monetary policy tightening – explicitly ruling out a rate hike for this year.
This will likely impact the U.S. currency relative to the euro," Aubert said in a WhatsApp chat.

"There is already a rate differential, with between the U.S. yields which have increased since November and German yields which are up only a little. Stronger dollar is generally bearish for equities and bitcoin with BTC moving in the opposite direction to the greenback over the past months," Aubert added.

Full story here: ECB, BOE Have Scant Leeway to Influence Bitcoin

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Crypto Prices

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Ether (ETH)

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The following are the biggest movers in the CoinDesk 20 digital assets over the past 24 hours:

Biggest Gainers:

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Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.

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Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.

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