CoinLoan Weekly: Hot inflation, IMF's crypto plan, $370B in dormant BTC
Bitcoin was initially perky as it touched $25,000 twice before descending on Tuesday, February 21. This decline halted on Wednesday evening at a low of $23,688.24. The next day, BTC climbed above $24,630 and tumbled below $24,000. After trading at just over $23,100 late on Friday, February 24, it hit a seven-day low of $22,942.08 on Sunday, February 26. The next day, the price reached above $23,750 and dipped.
Friday's trough followed macro data — specifically, the personal consumption expenditures (PCE) price index. This key indicator rose by 0.6% in January, which may prompt further interest rate hikes by the Fed. Compared to January 2022, the index jumped by 5.4%. Bitcoin's dip dragged the rest of the market down, following US equities, a pattern observed in the past. The coin shrugged off that fall on Monday morning, along with other top 10 non-stablecoin cryptos. Meanwhile, the Crypto Fear and Greed Index switched from greed to neutral, descending to 50 points.
At press time, BTC is trading at $23,381.89, with a 24-hour change of -0.1% and a 7-day loss of -5.7%.
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Ether made its way up to $1,717.04 on Monday, February 20, and descended until it hit $1,606.16 on Wednesday, February 22. The price rose to $1,676.81 the next day and see-sawed around $1,650 before sinking to $1,594.96 on Friday, February 24. It then fluctuated around $1,600 and bottomed out at $1,573.24 on Sunday, February 26. After a rebound above $1,650 on Monday, February 27, ETH slid back down to roughly $1,615.
Coinbase's announcement about the launch of Base, its own layer 2 sidechain for Ethereum, is expected to boost Ether's usage and price. The side chain will offer "a secure, low-cost, developer-friendly way for anyone, anywhere, to build decentralized apps," aiming to "onboard 1B+ users into the cryptoeconomy." Previously this month, Visa revealed it was testing USDC payments on Ethereum. Another positive factor is the Shanghai update, currently slated for March 2023. Enabling the withdrawal of staked ETH will mark the completion of the shift to Proof of stake and encourage more people to join Ethereum's staking scheme.
At the time of writing, ETH is worth $1,638.02, with a 24-hour change of -0.5% and a 7-day slip of -4.2%.
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After a 7-day high of $0.405752 on Monday, February 20, XRP rolled down to $0.395, briefly approached $0.400, and slid to $0.388500 on Tuesday, February 21. Subsequently, the token price rose past $0.397 on Thursday, February 23 and sank below $0.390 before plunging to $0.375798 the next day. XRP traded below $0.380 through the weekend and reached higher on Monday, February 27, before a slight decrease.
Last week brought two pieces of bullish news. First, Ripple partnered up with a major UAE exchange — Joyalukkas Exchange — which will use its on-demand liquidity product for cross-border payments. Secondly, RippleX, the development lab for Ripple and XRP Ledger, unveiled plans to build a cross-chain bridge adding interoperability to the XRP network. Neither event seemed to spur positive price action. However, as criticism against the SEC mounted, a prominent lawyer John E. Deaton tweeted that he fully believed "Ripple will win and the current Supreme Court will shut down" the SEC's "gross overreach."
As of this writing, XRP is trading at $0.378581, with a 24-hour increase of +0.5% and a 7-day loss of -4.8%.
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IMF unveils crypto action plan
On Thursday, February 24, the executive board of the International Monetary Fund (IMF) released an action plan advising world governments against giving cryptocurrencies legal tender status.
The statement urges countries to reinforce and clarify their approaches to crypto taxation, keeping them aligned with international standards. Directors, elected by the member states, "generally agreed that crypto assets should not be granted official currency or legal tender status to safeguard monetary sovereignty and stability," it reads.
El Salvador’s Bitcoin law, which made it legal tender, has seriously backfired. With that said, prohibiting crypto is "not the first-best option." Only some of the board members consider outright bans as a possibility. The nine-point plan acknowledges the importance of industry innovation and urges regulators not to stifle it. At the same time, directors believe that targeted restrictions would moderate crypto risks.
The paper urges governments to develop a policy solution that will be a "comprehensive, consistent, and coordinated response." The authors mention three primary motivations – growing crypto adoption in some countries, the "extra-territorial nature of crypto assets and its providers," and the growing "interlinkages with the financial system."
The IMF has previously expressed concerns about the use of cryptocurrencies for capital control evasion. Earlier in February, the IMF directors considered a staff paper warning of potential risks to monetary policy, tax collection, financial stability, and consumer protection in the member countries.
Meanwhile, India's finance minister has urged G20 member states to join the crypto regulation endeavor. The country, currently holding the G20 presidency, is actively working with the IMF and Financial Stability Board (FSB) on crypto regulations. According to Department of Economic Affairs Secretary Ajay Seth, "the idea is that during India's presidency at least the policy stance to crypto assets as well as the roadmap for regulation is broadly agreed upon among the G-20 members."
Almost $370 billion is locked in dormant BTC
The amount of dormant bitcoins is approaching a historical high. Glassnode estimates that 14.99 million coins, worth roughly $370 billion, have been idle for at least half a year. This "old supply" is just shy of the record 15.029 million. The blockchain analytics firm describes the rise as "a turning of the cycle and a marked shift in investor behavior patterns."
Previously, Glassnode characterized dormant coins as "increasingly unlikely to be spent" once the holding period passed the 155-day threshold. According to its latest report, this phenomenon has been spotted in previous bear markets — it acted as a potential harbinger of rebounds, indicating "a perception that the market is oversold."
On February 8, a Bitcoin address that had seen no transactions since October 1, 2012, came back to life, releasing 412.12 BTC. If all those coins were sold, the owner might have cashed in 120,000,000% profit, raking in $9.6 million.
Glassnode's January newsletter suggested that old coins may see the light of day more frequently during "a change in conviction to hold the asset" triggered by volatility. The number of HODLed coins aged more than 6 months started growing at a rate of 100,000 per month in early December, following a period of negative dynamics after FTX’s downfall.
According to another blockchain company, Arkham Intelligence, BTC enthusiasts have their sights on long-term gains and are, therefore, likely to HODL. Meanwhile, "other chains such as Ethereum have communities building tools and services where coins move significantly more, mostly in pursuit of profits," CEO Miguel Morel told Decrypt.
Last week's report by the Bank for International Settlements suggests that over the past seven years, most buyers have entered the market during bull runs. Furthermore, most of those retail investors have "probably" sold for losses. Meanwhile, pro-traders and whales — more "sophisticated investors" — have profited from buying BTC.
The report offers two explanations for this phenomenon — holding significant amounts for a long time and managing to sell before severe downturns. According to its authors, this pattern proves the need for enhanced investor protection.