Bitcoin rises back above $36,000 as El Salvador declares it legal tender and inflation concerns persist

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Bitcoin has lost nearly half its value since April.

  • Bitcoin rose back above $36,000 Wednesday, boosted by El Salvador’s move to make the cryptocurrency legal tender.
  • Persistent inflationary pressures may have also encouraged investors to add exposure to the digital asset.
  • Once bitcoin breaks through $38,000, it may signal an upward trend towards $47,000, an expert said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The price of the world’s most popular cryptocurrency rose back above $36,000 Wednesday, boosted by El Salvador’s historic move in becoming the first country to establish bitcoin as a legal tender. Persistent inflationary pressures may have also encouraged investors to flock to the asset, which some view as an inflation hedge.

Bitcoin rose to $36,840 at around 1:24 p.m. ET Wednesday, rising 17% from the intraday low the previous day. It has lost almost 50% of its value since hitting an all-time high of nearly $65,000 in April.

“This current market pause is not unexpected. Everyone needs time to assess and digest what the community has built,” Paolo Ardoino, CTO of Bitfinex, a cryptocurrency exchange said. “I’m still extremely bullish in the long term about bitcoin and the long-term fundamentals and use cases of the technology.”

Tim Frost, founder of fintech firm Yield, said if bitcoin can break through $38,000, it may signal an upward trend toward its medium-term average of around $47,000 and potentially beyond.

The congress of El Salvador on Wednesday voted in favor of bitcoin becoming legal tender in the country, cheered on by President Nayib Bukele. Once the law passes through the legislative processes, bitcoin will have the same status as the US dollar – the country’s current national currency.

Bitcoin by then will automatically and immediately be converted into US dollars upon use.

Meanwhile, investors are anticipating US Consumer Price Index data on Thursday, which is expected to show inflation picked up faster than April’s pace, which was already the highest reading since 2008. The European Central Bank will also meet the same day.

Several economists including those at Deutsche Bank have said inflation will make a comeback if the Federal Reserve sticks to its current policy of keeping interest rates historically low.

“We expect inflationary pressures to re-emerge as the Fed continues with its policy of patience,” the bank’s economists on Monday said. “It may take a year longer until 2023 but inflation will re-emerge.”

Beyond these, John Wu, president of Ava Labs, the team behind altcoin avalanche, said that as bitcoin becomes more mainstream thanks to institutional adoption, the more closely it becomes correlated to traditional asset classes.

“Bitcoin was the first crypto to feel this impact and begin to recover,” Wu said. “We’re now seeing it ripple through the rest of the crypto markets.”

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Bitcoin rises back above $35,000 as El Salvador declares it legal tender and inflation concerns persist

2021 03 13T111735Z_1_LYNXMPEH2C07M_RTROPTP_4_CRYPTO CURRENCY BITCOIN TREASURY.JPG
Bitcoin has lost nearly half its value since April.

  • Bitcoin rose back above $35,000 Wednesday, boosted by El Salvador’s move to make the cryptocurrency legal tender.
  • Persistent inflationary pressures may have also encouraged investors to add exposure to the digital asset.
  • Once bitcoin breaks through $38,000, it may signal an upward trend towards $47,000, an expert said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The price of the world’s most popular cryptocurrency rose back above $35,000 Wednesday, boosted by El Salvador’s historic move in becoming the first country to establish bitcoin as a legal tender. Persistent inflationary pressures may have also encouraged investors to flock to the asset, which some view as an inflation hedge.

Bitcoin rose to $35,349 at around 8:14 a.m. ET Wednesday, rising 12% from the intraday low the previous day. It has lost almost 50% of its value since hitting an all-time high of nearly $65,000 in April.

“This current market pause is not unexpected. Everyone needs time to assess and digest what the community has built,” Paolo Ardoino, CTO of Bitfinex, a cryptocurrency exchange said. “I’m still extremely bullish in the long term about bitcoin and the long-term fundamentals and use cases of the technology.”

Tim Frost, founder of fintech firm Yield, said if bitcoin can break through $38,000, it may signal an upward trend toward its medium-term average of around $47,000 and potentially beyond.

The congress of El SalvadorWednesday voted in favor of bitcoin becoming legal tender in the country, cheered on by President Nayib Bukele. Once the law passes through the legislative processes, bitcoin will have the same status as the US dollar – the country’s current national currency.

Bitcoin by then will automatically and immediately be converted into US dollars upon use.

Meanwhile, investors are anticipating US Consumer Price Index data on Thursday, which is expected to show inflation picked up faster than April’s pace, which was already the highest reading since 2008. The European Central Bank will also meet the same day.

Several economists including those at Deutsche Bank have said inflation will make a comeback if the Federal Reserve sticks to its current policy of keeping interest rates historically low.

“We expect inflationary pressures to re-emerge as the Fed continues with its policy of patience,” the bank’s economists on Monday said. “It may take a year longer until 2023 but inflation will re-emerge.”

Read the original article on Business Insider

Crypto assets are not a ‘real investment’ because their fundamentals are weak, says top ECB official

FILE PHOTO: Spain's Economy Minister Luis de Guindos talks to the media during a eurozone finance ministers meeting in Brussels, Belgium, February 19, 2018. REUTERS/Francois Lenoir
European Central Bank Vice President Luis de Guindos.

  • Crypto assets shouldn’t be considered a “real investment,” European Central Bank Vice President Luis de Guindos told Bloomberg on Wednesday.
  • The assets have weak fundamentals and their value is difficult to assess, he said.
  • The ECB called bitcoin “risky and speculative” in its latest Financial Stability Report.
  • See more stories on Insider’s business page.

Crypto assets shouldn’t be considered as a “real investment” because assessing their value is difficult, the vice president of the European Central Bank told Bloomberg on Wednesday. His came as the price of bitcoin and other cryptocurrencies were crashing.

“When you have difficulties to find out what are the real fundamentals of an investment, then what you’re doing is not a real investment,” ECB VP Luis de Guindos said during an interview on Bloomberg TV. “This is an asset with very weak fundamentals and that is going to be subject to a lot of volatility.”

Guindos’ appearance coincided with the release of the ECB’s Financial Stability Report in which it said the surge in bitcoin prices “has eclipsed previous financial bubbles like the ‘tulip mania’ and the South Sea Bubble in the 1600s and 1700s.”

Cryptocurrency prices sank Wednesday after the People’s Bank of China said digital tokens can’t be used as a payment form by financial institutions. Bitcoin tumbled as much as 31% on Wednesday and slid to lows around $30,000 that haven’t been seen since the start of 2021. Ether, the token on the Ethereum platform, fell as much as 44% to trade under $2,000.

Bitcoin has also been under pressure in recent sessions after Tesla CEO Musk said the electric vehicle maker would stop taking bitcoin as payment because of the “insane” amount of energy needed to create new coins and secure the network.

The ECB in its report likened the surge in bitcoin’s price to the speculative run-up in prices of tulips in Holland in the 17th century, as well as the 1720 financial crash centered on British investors in the South Sea Company which engaged in slave trading.

Bitcoin’s price volatility makes it “risky and speculative, while its exorbitant carbon footprint and potential use for illicit purposes are grounds for concern,” the ECB said.

But financial stability risks from crypto assets “appear limited at present,” as they are still not widely for payments and as euro-area institutions have little exposure to crypto-linked financial instruments, the central bank said.

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European Central Bank holds interest rates and bond-buying steady as it weighs up the eurozone’s recovery

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Christine Lagarde is the president of the European Central Bank.

The European Central Bank kept interest rates at record-low levels on Thursday and kept its enormous bond-buying program steady as it weighed up the recovery in the eurozone economy.

The ECB’s main deposit rate will stay at -0.5%, while the coronavirus bond-buying package will stay at 1.85 trillion euros ($2.23 trillion), the governing council said in a statement.

At the bank’s last meeting it pledged to step up the pace of bond purchases in response to rising bond yields.

COVID-19 battered the eurozone economy in 2020, and a resurgence of cases has led many countries to reimpose tough restrictions in 2021.

But policymakers and citizens see hope on the horizon. The European Union’s initially slow coronavirus vaccine rollout is picking up pace and the International Monetary Fund has upgraded its growth forecast for the eurozone in 2021 to 4.4%, after the economy shrank 6.6% in 2020.

The European Central Bank’s decision to hold interest rates came as no surprise to analysts.

“Vaccination numbers within the euro area are beginning to pick up pace, providing hope that economies will soon be able to start the reopening process,” Mohammed Kazmi, portfolio manager for Swiss private bank UBP, said.

He added: “We think it makes sense for investors to start preparing and positioning for the June ECB meeting, which will likely be accompanied by significant growth revisions higher and [bond] purchases for Q3 probably moving back towards a more normal pace.”

The euro was around 0.1% higher against the dollar on Thursday at $1.204, while the yield on the key German 10-year government bond had risen 0.9 basis points to -0.250%.

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European Central Bank holds steady on $2.25 trillion bond-buying package after stepping up stimulus in December

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ECB boss Christine Lagarde has seen the central bank through the coronavirus crisis

  • The European Central Bank announced it would keep interest rates at record lows and bond-buying at €1.85 trillion ($2.25 trillion).
  • The ECB said it had “decided to reconfirm its very accommodative monetary policy stance”.
  • It comes after it boosted bond-buying by €500 billion in December to support the Eurozone.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The European Central Bank held interest rates at their record-low level and kept bond-buying steady on Thursday, taking a breather after increasing support to the coronavirus-ravaged Eurozone economy in December.

The ECB’s governing council kept its main deposit rate at -0.5%, meaning banks are charged to keep money with the central bank, encouraging them to lend it out.

After increasing support last month, the ECB kept its key bond-buying scheme – the pandemic emergency purchase programme (PEPP) – at €1.85 trillion ($2.25 trillion).

Yet the ECB signalled on Thursday that it will not necessarily use the whole package. “If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” its statement said.

The euro was up 0.3% against the dollar in the wake of the decision, to $1.214.

Read more: Goldman Sachs reveals the 8 ‘green-energy majors’ that are set to jump in value in a sector worth trillions of dollars as the renewables race heats up

Analysts expected the ECB to hold fire at its January meeting after it ramped up its bond-buying programme by €500bn in December and pushed back the end of the PEPP until at least March 2022.

Coronavirus cases have surged across Europe since the autumn, forcing countries to lock down their economies once again. Germany on Tuesday extended its lockdown until the middle of February and introduced stricter rules.

At a press conference following the decision, ECB president Christine Lagarde said new cases and restrictions “have likely led to a decline in activity in the fourth quarter of 2020 and are also expected to weigh on activity in the first quarter of this year”.

Yet she said the Bank’s monetary policy is currently “very accommodative”. And she stressed there were a number of “positives” including the rollout of vaccines, the Brexit deal, and the agreement of the €750 billion EU recovery fund.

Lagarde said inflation is likely to “remain subdued” for the foreseeable future due to weak demand, low wage pressures, and the rise in the euro. Yet she said the ECB expected inflation to pick up from December’s -0.3% reading due to increases in energy prices.

The ECB boss urged Eurozone governments to keep spending to support their economies. “The situation is sufficiently uncertain that fiscal [support] needs to be continued at the national and European level,” she said.

Jai Malhi, strategist at JPMorgan Asset Management, said: “The ECB held policy steady today, hoping that its measures implemented in the December meeting alongside the EU recovery fund rollout, will be enough to support the economy until the outlook brightens.

Read more: Bubbly behavior is brewing in markets and Big Tech is reeling from 2 major political events this month – Three investing heavyweights that jointly manage almost $1 trillion break down the impact

“There is no doubt however that Lagarde faces a daunting task in returning inflation to [the 2%] target from its current lull. The recent strength of the euro could make that task even harder. 

“The euro strengthening further over the course of the year could prove to be the catalyst for further action from the ECB and may even bring about the discussion of deeper negative interest rates.”

Claus Vistesen of consultancy Pantheon Macroeconomics noted that Thursday was the first time the ECB had officially said it may not use all of the PEPP.

“This is a slight hawkish tilt in the communication, and also one which could become a target for markets,” Vistesen said.

“After all, the ECB is now saying that if yields remain as low as they are now, there isn’t a reason to deploy the PEPP in full. We wouldn’t put it past markets to test the central bank on this.”

Yet Vistesen noted that Lagarde also said the ECB could expand the PEPP if necessary.

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