Monday, January 24

Crypto’s ‘FUD spike’ moment has come as the hammer falls in China


Among the myriad pieces of technical jargon and acronyms thrown up by the cryptocurrency community, there is an important concept that is easy for even the liberal arts specialists among us to understand: FUD.

That stands for “Fear, Uncertainty and Doubt” and is a kind of blanket pejorative used to dismiss the seemingly endless list of concerns and criticisms that perpetually haunts the digital asset class even as it continues to grow at an impressive rate. .

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It all started with Bitcoin’s reputation as the currency of choice for drug dealers, money launderers, tax scammers, and malware rescuers. On that foundation, a FUD skyscraper has been erected that now contains concerns about cryptocurrencies’ rapacious energy use and even their potential to spread contagion to the traditional financial system as the dollar value of tokenized assets grows into the trillions. .

Of course, the biggest potential threat is fear, uncertainty and doubt about what governments around the world will do about it. As a result, China’s decision to ban all crypto transactions and mining, coupled with heightened scrutiny of blockchain assets by the Securities and Exchange Commission and other US regulators, is creating a peak FUD moment for cryptocurrencies.

However, what is remarkable is that, like the proverbial “wall of worry” that never seems to hurt the stock market, FUD growth never seems to do much damage to the value of crypto assets. At least not for long. Yes, Bitcoin is down 5% after China’s latest ban on all crypto transactions and promises to stamp out mining of digital assets, but that’s just another day in the back office for this volatile asset class. Bitcoin and other currencies were actually hit the hardest earlier this week as concerns about China Evergrande Group swept across all kinds of global markets.

“If regulators look at something unfavorably, there is a contingent of crypto investors who say, ‘That makes me like it more, not less,'” said Stephane Ouellette, CEO and co-founder of FRNT Financial Inc., a crypto-focused company. capital markets platform. That’s “due to the anti-establishment mindset from which crypto was born.”

There is also a small Chicken Little element to the FUD spread, so many alleged past threats to the asset class never materialized.

Last month, the FUD focused on the US infrastructure bill in Congress that contained mandates on tax compliance for cryptocurrency brokerages. However, it didn’t do much to dent bullish sentiment within the crypto community, with Bitcoin, Ether, and others continuing to rally. Newer coins like Cardano and Solana more than doubled. August volumes on Binance, the world’s largest crypto exchange, rose 65% on the month and open interest in Ethereum futures and perpetual futures rose 41%, according to researcher CryptoCompare.

A website called 99Bitcoins.com tracks what it considers to be “Bitcoin obituaries,” or hot shots stating that the token is worthless by writers and websites with significant audiences. Bitcoin has died 430 times, based on its count.

“Bad news is not unexpected, it comes with all kinds of new technologies,” said Zack Voell, research director at Compass Mining. “But I hope it dissipates and loses some of its regularity as cryptocurrencies become more and more mainstream and more widely understood.”

For Sam Bankman-Fried, CEO of the FTX exchange, many of the FUD-filled headlines these days do not necessarily represent a more negative period for cryptocurrencies. “There is much more attention focused on it and, in particular, much more attention focused on trying to differentiate the negative aspects of the industry,” he said.

When it comes to government actions, the consensus among industry players tends to be that regulations can change the way market participants transact, but any news of the asset class’s demise is very exaggerated.

As Brian Mosoff, CEO of Canadian crypto investment firm Ether Capital Corp, put it: “You can’t regulate at the protocol level, which means you can’t change the Bitcoin code.”

“I don’t think it matters much what the regulators do,” he said during an interview on Bloomberg’s “What Goes Up” podcast. “It will change the way people interact with these assets and how they interact from specific jurisdictions. But I don’t think the assets themselves are going to disappear overnight, ”he added. “What is going to be regulated here are the access points and the markets.”

Still, for Art Hogan, chief strategist at National Securities, there could be a “whistle past the graveyard” mentality as crypto investors ignore what may end up being a huge sea change when it comes to regulatory scrutiny.

“It just hasn’t settled in yet,” he said. But that is likely to change quite abruptly. And cryptocurrencies tend to have abrupt movements. They are never calm, they are never steady. It’s a volatile move to the upside, and many times followed by volatile moves to the downside. ”

One thing that’s for sure is that the stakes are growing, as more and more big money investors from traditional markets, like hedge fund billionaire Steve Cohen, become true crypto believers. .

Another luminary from the hedge fund world, Ray Dalio of Bridgewater Associates, weighed in on Bitcoin this week on Bloomberg TV, calling it a “great achievement” from a technology perspective. Of course, even those accolades were full of FUD.

If “it is successful, there is a risk that the government will ban it,” he said.

© 2021 Bloomberg


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