First Mover: Risks Nobody's Ever Seen, From the Fed to Tether (and GameStop)

January 27, 2021

Everything you need to make sense of the crypto markets and beyond

Sponsored By:

By the CoinDesk Markets Team

Edited by Bradley Keoun

If you were forwarded this newsletter and would like to receive it, sign up here.

Bitcoin (BTC)

-4.6% $31,025

Ether (ETH)

-6.6% $1,277

(Price data as of Jan. 27 @13:03 UTC)

TODAY:

Price Point: Bitcoin was lower, trading in a tight range over the past six days, with the Federal Reserve's latest decision due out later Wednesday.

Market Moves: Risks surrounding the stablecoin tether (USDT) have been known for years, but they're commanding fresh attention as the amount outstanding swells to $25B, CoinDesk's Daniel Cawrey writes.

Bitcoin Watch: Market volatility could ensue if Fed Chair Jerome Powell strays from the script during his press conference, CoinDesk's Omkar Godbole writes.

What's Hot: Micree Zhan gains control over crypto-mining-computer-maker Bitmain with $600M deal, Genesis loans surge by 81% in 4Q, ARK's Cathie Wood sees delayed bitcoin ETF approval, GameStop's 700% year-to-date rally confounds regulators.

SPONSORED BY NEXO

Your digital assets deserve a savings account in their BEST INTEREST. Leading crypto lender Nexo treats you, your crypto and your fiat to industry-best Crypto & Fiat services, featuring:

* Up to 12% interest on digital assets, paid out daily!

* Yields available on BTC, ETH, LTC, BCH, XRP, XLM, EOS, TRX, LINK, BNB, PAXG, USDT, USDC, TUSD, PAX, DAI, HUSD, GBP and EUR.

* No minimum or maximum limits on funds deposited, offering infinite opportunities to earn.

* Full flexibility with no lock-in periods, so you can withdraw your funds anytime.

* #ZeroFees on all transactions.

* Military-grade wallet security and top-tier insurance on all custodial assets with SOC 2 Type 2 certified crypto custodian BitGo.

Get started at nexo.io

Price Point

Bitcoin was lower, though staying in its range over the past six days, between roughly $30,000 and $33,000.

Cryptocurrency traders and analysts planned to keep an eye on an expected Federal Reserve announcement Wednesday at 2 p.m. in Washington (19:00 UTC), detailing the U.S. central bank's latest monetary-policy plans as the coronavirus continues to ravage the economy. At a scheduled press conference afterward, Chair Jerome Powell will likely field questions about the U.S. central bank's $120 billion-a-month of bond purchases – a key focus for bitcoin traders betting that the ongoing money-printing could eventually lead to inflation.

"Bitcoin seems poised to consolidate a little more, but if the Fed is not dovish enough and the dollar rebounds, the $30,000 level could easily break," Edward Moya, senior market analyst in New York for the London-based foreign-exchange brokerage Oanda, said in emailed comments.

(NOTE: CoinDesk's Nathan DiCamillo talked to top economists including Ken Rogoff and Claudia Sahm about this week's Fed meeting. The takeaway was that while no major announcements are expected Wednesday, Fed Chair Jerome Powell and his colleagues at the central bank will soon have to tackle the thorny issue of how to keep inflation from spiraling out of control once the economy opens back up. Full story: How Bitcoiners Should Watch the US Federal Reserve Meeting on Wednesday.)

In traditional markets, European shares slid and U.S. stock futures pointed to a lower open. Gold weakened 0.4% to $1,843 an ounce.

Market Moves

With bitcoin trading in a range, why not spend a little time discussing the potential market risks surrounding tether (USDT), the largest dollar-linked stablecoin? After all, as CoinDesk's Daniel Cawrey reports, a lot of cryptocurrency traders and industry executives would rather ignore the topic altogether, even though in some ways it's become more important than ever.

Tether has become a key source of liquidity for cryptocurrency traders in recent years, since the tokens can easily be moved around in blockchain-based digital markets.

But doubts have persisted for several years about the stablecoin, primarily related to a lack of full audits of the reserves backing the tokens. In 2018 a pair of academics wrote in a peer-reviewed research paper that tether minting might have helped inflate the bitcoin market during the 2017 bull run.

So one question is what might happen to bitcoin prices if ungainly revelations on tether emerge. Multiple ongoing investigations, including from the U.S. Department of Justice (DOJ) and the New York Attorney General’s office, have dogged the stablecoin company, as detailed by Cawrey.

What makes this a more pressing issue now is the industry's recent fast-paced growth, which might just magnify the risks: The outstanding amount of tether has roughly quintupled over the past year to about $25 billion.

Outstanding units of the U.S. dollar-linked stablecoin tether have roughly quintupled over the past year to about $25 billion. (Coin Metrics)

Tether General Counsel Stuart Hoegner told CoinDesk, “We work with regulators and law enforcement agencies around the world to help their investigations and help them understand our business."

For their part, authorities have stepped up regulation of cryptocurrencies as the industry's market capitalization climbed above $1 trillion for the first time. In the U.S., the Office of the Comptroller of Currency said this month that federally regulated banks can use stablecoins for payments and other services. U.K. officials released a paper and request for commentary on the use of stablecoins in finance.

Kevin Lehtiniitty, chief strategy officer of Prime Trust, a Nevada-based trust company that has worked extensively with stablecoins, told Cawrey he thinks officials might be planning a framework around stablecoins backed by the regulated banking system – in an effort to weed out possible systemic risks. For now, he says, most cryptocurrency traders are probably just ignoring those risks.

“What are the odds that it’s going to crash in the next few hours that I’m holding?” Lehtiniitty said. ”And that’s that is the world’s dumbest excuse. But I hear it time and time again from over-the-counter and trading partners, other folks, and it drives me nuts.”

Read More: Questions About Tether Just Won’t Go Away. Does the Crypto Market Care?

- Bradley Keoun

Bitcoin Watch

Daily price chart for bitcoin showing recent trends. (TradingView/CoinDesk)

Bitcoin is locked in the $30,000 to $35,000 range for the fifth straight day in a sign of caution ahead of the the Federal Reserve meeting, which could inject volatility into financial markets.

The Fed is expected to leave the interest rate unchanged near zero and maintain its liquidity-boosting bond-buying plan at around $120 billion/month. The status quo decision is unlikely to elicit a reaction from bitcoin and markets in general.

However, if Fed’s chairman Powell drops hints of an early tapering (gradual unwinding) of stimulus programs, stocks could drop and the safe-haven dollar would likely draw bids, pushing bitcoin lower.

“BTC may face selling pressure if Powell signals an early taper,” Darius Sit, co-founder and managing partner at the Singapore-based QCP Capital, told CoinDesk.

The Fed has made it clear since August that it intends to keep interest rates low for some time even after inflation climbs above 2%. According to FXStreet’s Yohay Elam, Powell may indirectly signal a willingness to buy more bonds by calling for increased fiscal (government) spending, in which case liquidity plays like bitcoin and gold would shine. President Joe Biden is pushing for a $1.9 trillion stimulus package, and the government might have to rely on the Fed for at least part of the extra funding, as noted by Elam.

- Omkar Godbole

Read More: Bitcoin Drops, Dollar Bounces Ahead of Federal Reserve Rate Announcement

What's Hot

Analogs

The latest on the economy and traditional finance

Retail traders are piling into viral options calls at all-time high levels, with massive buying of bullish contracts helping to fuel GameStop price pump (Bloomberg)

Tweet of the Day

Valid Points: What's Next for Ethereum 2.0

The price of ether has reached an all-time high less than two months since the Ethereum protocol's historic upgrade. Research analyst Christine Kim and tech reporter Will Foxley break down Ethereum 2.0 and its sweeping impacts on crypto markets, weekly.

Valid Points features original insights on what lies ahead for industry stakeholders and investors. Subscribe to the Valid Points newsletter.

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.

ATTENTION: Scammers have been sending fraudulent emails with links to sites disguised to look like coindesk.com. If you are in doubt about a link, type https://www.coindesk.com directly into your browser; do not copy and paste. Remember, if something seems too good to be true, it probably is.

First Mover

A newsletter from CoinDesk

See Previous Editions

Copyright © 2021 CoinDesk, All rights reserved.

250 Park Avenue South New York, NY 10003, USA

You can manage your preferences here or unsubscribe from all CoinDesk email.