Pre-market inventory: Is the Bitcoin winter starting to thaw?

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It was a cold and harsh crypto winter. But signs of a thaw, spurred by global monetary chaos, are beginning to appear.

What’s going on: Bitcoin hit its highest level in more than a week on Tuesday, gaining more than 5% as the pound and other currencies battled against the ultra-strong dollar. The gains gave crypto bulls hope that bitcoin was becoming a safe-haven asset, or an asset that acts as a hedge when stocks fall.

Then, around noon, the dollar gained strength and bitcoin crashed again, wiping out all of its recent gains. Bitcoin fell another roughly 1% on Wednesday after the Bank of England tried to consolidate Britain’s debt.

When the dollar is strong, “there is no safe haven,” eToro crypto consultant Glen Goodman warned on CoinDesk TV on Tuesday.

A bit of context: Bitcoin is struggling to find its way: The digital currency has been hovering between $18,000 and $25,000 since mid-June after a massive crash wiped nearly $2 trillion from the crypto market. This is currently down 60% since the start of the year.

The coin soared through the Covid era on the wings of near-zero interest rates, stimulus liquidity and a large influx of investors from large-scale institutions and hit an all-time high of near $70,000 in November.

Then central banks began to raise rates to fight inflation, and the dollar strengthened significantly, appealing to investors as the ultimate safe haven. At the same time, the economy began to deteriorate and new investors who still viewed bitcoin as a risky asset came out in droves. The crash sparked a wave of bankruptcies among start-ups like crypto trading platforms Voyager and Celsius.

« In today’s macro climate, when you have inflation and a huge selloff and big failed crypto projects, people are going to pull out, » Tyler Winklevoss, co-founder of the platform, told me. crypto exchange Gemini, in an interview. earlier this month. “Bitcoin is still new, so it is still seen by many as a risky asset. And as people take risk off the table, bitcoin will suffer. But all assets suffer, bitcoin is not alone in this. case.

The silver lining: But even as bitcoin prices fall, investors are seeing signs of bottoming out.

Ben Gagnon, mining director at Bitfarms, sees anything below $20,000 as the price at which institutional investors in good weather will pull out of the currency permanently, which will help stabilize bitcoin’s current volatility and send it on an upward trajectory.

As of Wednesday morning, bitcoin was trading below $19,000.

« I would be very surprised if we ended the year this low, » Gagnon said. « I think Bitcoin will start to recover now that it’s kind of shaken by a lot of the excess. »

« It’s an interesting time, » said Chris Kline, COO and co-founder of Bitcoin IRA, a digital asset technology platform. “Over the past eight months, bitcoin has acted like a technology stock because there have been so many institutional investors.” As that money rolls over, he said, things could change.

That’s a big TBD, but bitcoin advocates remain cautiously optimistic.

Crypto advocates aren’t too happy with the Federal Reserve, and that sentiment seems to go both ways.

Fed Chairman Jerome Powell called for more regulation of digital assets on Tuesday morning at a Banque de France conference on the digitalization of finance.

While crypto bulls are likely to argue that falling markets and other assets have caused the value of digital currencies to plummet, Powell said he fears otherwise. The recent plunge Bitcoin prices, he said, could spill over and cause broader financial turmoil. Digital currencies must be regulated and have controls in place, just like other market assets, he said.

“There is a real need for more appropriate regulation,” he said, especially as crypto “grows and starts to reach more retail customers.”

Other central bankers were not as nuanced as Powell. « I don’t see any cash value » in cryptocurrencies, said Ravi Menon of the Monetary Authority of Singapore. « The hour of reckoning has come. »

The Federal Reserve does not regulate cryptocurrency in the United States, but it does monitor cryptocurrencies held by banks. The central bank is also considering the launch of a central bank digital currency, which is essentially a digital version of the dollar.

That currency isn’t coming anytime soon, Powell said. “We see this as a process of at least two years, where we work and build public confidence in our analysis and in our final conclusions, which, as I said, we certainly have not yet achieved. . »

Representatives Maxine Waters and Patrick McHenry attempted to negotiate a invoice which would regulate the companies behind stablecoins – digital assets pegged to the dollar and used as an alternative to the high volatility of cryptocurrencies like bitcoin.

The bill would subject them to Federal Reserve oversight and reserve requirements to protect customers in the event of insolvency — exactly the kind of regulation Fed Chairman Powell called for on Tuesday.

But the can continues to get fired on the road. That’s because Congress has been « reluctant to write the text of the bill, » Politico reports. They struggle to understand how to regulate crypto.

« I don’t think anyone would advise that someone who is uninformed or unfamiliar with the industry is in a position to legislate and regulate, » Ben Gagnon, who engages with politicians to defend his crypto-mining company, Bitfarms.

“There have been federal government initiatives by agencies to study bitcoin, but that process is largely non-existent,” he said.

The White House recently released its own crypto regulatory plans, but critics argued they lacked some real teeth. The Blockchain Association, one of the largest digital asset industry groups, said the Biden administrations report lacked « substantive recommendations. »

Executive director Kristin Smith said in a statement that the report focused too much on criticizing the industry and was light on politics. She called the reports « a missed opportunity to cement U.S. crypto leadership. »

Cintas (CTAS) and Paychex (PAYX) report earnings before the bell.

U.S. pending home sales will be released at 10 a.m. ET.