Bitcoin is about to make central banks irrelevant. At least, that is the view of some crypto punters, who are crediting bitcoin’s latest rally to a flip-floppy Fed. Specifically, Travis Kling, founder, and CIO of Ikigai Asset Management told MarketWatch that Tuesday’s 20 percent-plus surprise rally by bitcoin was triggered by investors losing faith in the Fed and its ‘‘irresponsible’’ monetary policies and turning to bitcoin as a more reliable investment.
Naeem Aslam, chief market analyst at Think Markets, shares the same sentiment and says the way central banks are managing monetary policy will only serve to make bitcoin more attractive.
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Kling has termed the Fed’s QE program while running fiscal deficits as the largest financial experiment, which coupled with its sudden about-face to a more dovish stance reeks of blatant manipulation of interest rates.
To make matters worse, other major central banks including the European Central Bank and Bank of Japan have decided to borrow a leaf from the Fed’s playbook, never mind the fact that the Fed’s decision seems to have at least been partly informed by incessant pressure by President Trump to lower rates. This suggests that central banks have become highly politicized and lost their independence meaning they can no longer be trusted to do the right thing.
Bitcoin cannot be easily manipulated, making it a perfect hedge against a capricious Fed, according to Kling and Naeem.
Bitcoin whales in action
Bitcoin’s sudden 23-percent jump on Tuesday to above $5,000 for the first time in months triggered multiple theories as to what drove the rally. If the two experts are right, that would provide powerful proof that bitcoin is starting to fulfill one of its predicted roles—becoming a viable alternative to fiat.
The argument by the two analysts makes sense on some level.
By its very definition, bitcoin is a fully decentralized digital currency that operates with no central authority or banks. For a long time, the lack of transparency by central banks has mainly been reserved as a talking point for conspiracy theorists and anarchists. But now that the general population has a viable alternative that provides full transparency in the form of bitcoin and other digital currencies, the Fed’s lack of transparency can play into crypto’s hands.
As Naeem points out, bitcoin is unlikely to fully replace fiat currencies or make them totally irrelevant. But it doesn’t have to; bitcoin’s future will remain secure if it can guarantee the following qualities that the Fed is glaringly deficient in:
- Transparency in transactions
- Provides a deflationary system that can be relied upon during times of high inflation
- Uncensorable and non-seizable
- Digitally native currency
Yet, available data suggests that the Fed might be getting more credit than it deserves.
Instead, large bitcoin investors, aka bitcoin whales, might have conspired to rig the markets in a well-choreographed pumping scheme.
According to London-based data firm TokenAnalyst, bitcoin whales intentionally and simultaneously jumped into the market, which then acted as a fuse that triggered a frenzy of buying by smaller investors.
Sid Shekhar, TokenAnalyst co-founder, says the whales had been accumulating bitcoin in their private wallets over the past few months which they then released in large volumes into multiple exchanges. For instance, he says that on Tuesday, bitcoin transactions valued at $7.5 million flowed from a single external whale account to the BitMex exchange.
So, how were these whales able to time their moves to perfection? It appears they used HFT(High-Frequency Trading) strategies to execute their trades.
Reuters reported that a large algorithmically-managed order worth about $100 million was split between U.S.-based exchanges Coinbase and Kraken as well as Luxembourg’s Bitstamp on the same day.
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Source: Business Insider
Further, the sudden spike forced shorts to rush to cover their positions, with BTC/USD short positions plunging from 20,654 BTC to 16,978 BTC – the lowest level since March 2018.
Perhaps the bruising that the shorts must have suffered is a key reason why bitcoin is still holding above the psychological $5,000 level almost a week after the event. In fact, punters are now hoping to see $6,000 soon.
But overall, there’s no clear link between bitcoin’s latest rally and actions or lack thereof by the Fed. Of course, the whales could still have been motivated by the central bank’s sudden change of tact in January but there’s simply no way to tell.
Investors can only hope the whales now don’t do a U-turn and decide to dump their holdings en masse.
By Alex Kimani for Safehaven.com