William John Market Report 20-05-21
William John reviews cryptocurrency plunge
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William John Market Report 20-05-21

William John Market Report 20-05-21

Category: Reports

Investors have been playing close attention to the cryptocurrency markets this week as regulatory scrutiny and a crackdown on retail speculative trading intensifies. Since the “WallStreetBets-GameStop” debacle, there is no surprise to see regulators pay closer attention to the basket of decentralised currencies including established names like Bitcoin, Ethereum and Ripple as well as emerging currencies like Dogecoin as speculation grips the financial markets like never before. 

Notably, the People’s Bank of China made a statement on virtual currency saying that “virtual currencies should not and cannot be used in the market because they’re not real currencies”. It will be interesting to see what the PBoC does to control virtual currency trading in order to enforce its capital controls. Whether or not cryptocurrencies need to be regulated is a matter for western and eastern authorities. However, it was no surprise to see the price of Bitcoin plunge this week amongst the Chinese announcement alongside other notable figures making alarming announcements, such as Elon Musk, tweeting that Tesla would no longer accept Bitcoin payments on May 12th.

Ethereum and XRP (Ripple’s currency) followed a similar suit, plunging 11.7% and 24.3% from the 1st May until the 19th May respectively. 

Not only have the currencies themselves taken a huge hit this month, but the crypto infrastructure supporting them too. Coinbase, one of the largest cryptocurrency exchanges in the world that handles $335B in crypto trading volume per quarter, took a huge hit to its stock price in the last week or so:

It remains to be seen what regulatory intervention will be proposed by Central Bank’s and Government’s around the world in the coming years regarding the emerging technology. Blockchain and the decentralisation of currency poses a genuine existential threat to the Banking System as we know it. This question, the volatility of the unregulated assets themselves, their popularity with retain traders, and the environmental issues surrounding cryptocurrency “mining” are likely to provoke a legislative response soon, and investors should keep their eyes peeled for further volatility and announcements from the authorities. 

On a final note, the Vice President of the European Central Bank in 2017 remarked “Bitcoin is a sort of tulip […] It’s an instrument of speculation…but certainly not a currency and we don’t see it as a threat to central bank policy”. This is, of course, a reference to “Tulipmania” an asset bubble that occurred in the Netherlands over 300 years ago. Price data from this bubble is relatively scarce, however it is well documented people were putting up their homes as collateral for options on Tulip purchases. If Bitcoin continues to fall, investor’s that have engaged in such speculation could be risking huge losses in a similar vein to Tulipmania, with hundreds of billions in value already wiped off the board and losses for the entire sector approaching $1 trillion, according to a report released by Reuters on May 19th.

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.