A sharp rise in bitcoin prices has pushed the cryptocurrency above $30,000 (£24,118) for the first time since June 10 last year, just before crypto lending company Celsius froze withdrawals in the period. prior to its collapse.
Even given that recovery, the token is still well below its all-time high of $68,000 in November 2021, and well below where it was before the Terra stablecoin failure caused the “crypto winter.”
However, the recent steady rise in bitcoin’s value has sparked discussion of another cryptocurrency boom and reignited fears of widespread market manipulation.
The collapse of Silicon Valley Bank last month and the broader contagion it has sparked in financial markets prompted some cryptocurrency fans to turn to bitcoin, the industry’s original and most valuable token, as a way to hedge against fears. that the entire traditional “fiat” economy would collapse.
That attitude was typified by American venture capitalist Balaji Srinivasan, who in March bet $1 million that the price of a single bitcoin would exceed $1 million by June of this year. His claim was that the US dollar would soon experience hyperinflation, causing the dollar value of a bitcoin to skyrocket.
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What is Bitcoin?
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Bitcoin is a ‘cryptocurrency’, a decentralized tradable digital asset. Invented in 2008, you store your bitcoins in a digital wallet and transactions are stored on a public ledger known as the bitcoin blockchain, preventing the digital currency from being spent twice.
Cryptocurrencies can be used to send transactions between two parties through the use of public and private keys. These transfers can be made with minimal processing cost, allowing users to avoid the fees charged by traditional financial institutions, as well as the supervision and regulation that comes with it. The lack of oversight from a central authority is one of the attractions.
This means it has attracted a variety of patrons, from libertarian monetarists who relish the idea of a currency without inflation and no central bank, to drug dealers who like the fact that it’s hard (but not impossible) to track down a currency. bitcoin transaction. to a natural person.
The exchange rate has been volatile, and some consider it a risky investment. In January 2021, the UK Financial Conduct Authority warned consumers that they should be prepared to lose all their money if they invest in schemes that promise high returns from digital currencies like bitcoin.
In practice, it has been much more important for the underground economy than for most legitimate uses. In November 2021 it hit a record high of more than $68,000 as a growing number of investors backed it as an alternative to other assets during the Covid crisis.
Bitcoin has been criticized for the system’s vast energy reserves and associated carbon footprint. New bitcoins are created by “mining” coins, which is done by using computers to perform complex calculations. The more bitcoins that have been “mined”, the longer it will take to mine new coins and the more electricity will be used in the process.
“This is the time when the world returns to denominating bitcoin as digital gold, returning to a model very similar to the one before the 20th century.” tweeted, explaining the bet. “It will all happen very quickly once people look at what I am saying and see that the Federal Reserve has lied about how much money is in the banks. All holders of dollars are destroyed.”
Alex Adelman, chief executive of bitcoin rewards app Lolli, said Monday’s rally had “no clear catalyst” but was “indicative of new bullish bitcoin market conditions and strong investor confidence.” “. Bitcoin’s continued strength suggests that Bitcoin is emerging from the so-called ‘crypto winter’ into a new phase of strength and renewed interest from retail and institutional investors.”
But the rally, after bitcoin prices hovered around $28,000 for nearly a month before hitting a final $2,000 in one day, also raised concerns about market manipulation.
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What is a stablecoin?
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A stablecoin, as the name suggests, is a type of cryptocurrency that is supposed to have a stable value, such as $1 per token. How they do this varies: the biggest ones, like Tether and USD Coin, are effectively banks. They have large reserves of cash, liquid assets, and other investments, and they simply use those reserves to maintain a stable price.
Others, known as “algorithmic stablecoins”, try to do the same but without reservations. They have been criticized for being effectively backed by Ponzi schemes, as they require continuous cash inflows to ensure they do not collapse.
Stablecoins are an important part of the cryptocurrency ecosystem. They provide a safer place for investors to store capital without going through the hassle of getting paid out in full, and they allow assets to be denominated in conventional currency, rather than other extremely volatile tokens.
TO report 2022 published by the US National Bureau of Economic Research found that “wash trading,” the practice of selling cryptocurrencies between related parties to influence the reported price, averaged “more than 70% of reported volume” across 29 exchanges. not regulated.
In June 2022, the US Securities and Exchange Commission (SEC) permission denied to launch a bitcoin-pegged ETF, which would allow investors to buy exposure to the cryptocurrency on public stock markets, after concluding that it was impossible to prevent fraud and market manipulation from affecting the price.
In addition to laundering transactions, the SEC said the market could be influenced by people with a “dominant position” in bitcoin manipulating its price, through fraud and manipulation on trading platforms, and through manipulative activities. involving stablecoins “including pegging”.
