The last week for cryptocurrency markets was going very well before the sell-off Friday night. Despite the -6% sell-off in Bitcoin price yesterday, the top 3 cryptocurrencies by market capitalization have done well during ongoing turmoil in traditional markets. XRP was the outlier last week, surging nearly +12%. What is the catalyst behind the XRP rally, and how is Bitcoin stacking up against traditional markets?
As mentioned above, crypto markets by large were having a solid week before a sudden drop on Friday night. Despite this drop, a select few managed to maintain solid momentum going into the weekend. Among the top 3 digital assets by market capitalization, XRP has outperformed – rallying over +12%.
XRP Price Catalyst
Aside from the on-going legal battles that Ripple is facing, many investors are expecting announcements. Rumors surfaced last month regarding Ripple and Bank of America, but the market has yet to hear anything from either party. Ripple entering a partnership with the National Bank of Egypt last month still seems to be the most strategical news this year. As mentioned in the report, this deal opened up all sorts of avenues for Ripple, including the possibility of taking significant market share from SWIFT in the future.
Rumors around the Federal Reserve last week could be the catalyst behind XRP price action. Last week a draft bill was introduced to the U.S Senate Committee around the potential for a “digital dollar.” The U.S Democratic party put together this bill that would essentially revolutionize payments to Americans that were hit hard by Coronavirus. According to the document, the Federal Reserve would offer bank accounts to all Americans, but it would be in the form of digital “FedAccounts.” Your everyday commercial bank would be bypassed, and all Americans would have a “FedAccount” just like they do a social security number. Many questioned who would be powering this “digital dollar?”
The most interesting part of the bill was the time frame. It was clear that the ultimate goal of the proposed digital dollar wasn’t just for Coronavirus relief. The way it was pitched was for the long term opposed to the short term. Evidence of this comes from a quote in the bill:
“All Federal Reserve banks shall, not later than January 1, 2021, make digital wallets available to all residents and citizens of the United States and to businesses domiciled in the United States.”
Ripple Has Been Connected To The Fed
Last month, it was reported that the Federal Reserve was looking into a digital currency model in the form of a “central bank backed digital currency.” It’s still uncertain how they plan to power this technology, but many believe that Ripple could be involved in some capacity. The Federal Reserve has been looking at ways to revolutionize payments since 2013. In 2015, the entity introduced the “Faster Payments Task Force Steering Committee” in which Ripple was involved. In 2017, After 2 years of the steering committee being in place, the Fed shared further insight on their action plan and “highlighted Ripple’s ability to underpin the next generation of cross-border payments.” It’s evident that the Fed is familiar with the tech behind Ripple. We now enter a time where material interest of a “digital dollar” is surfacing. With Ripple consistently working with regulators and partnering with 200+ financial institutions / money transfer firms, investors in the space may be starting to connect the dots..
Bitcoin Has Still Been A Solid Hedge
Bitcoins price has historically been non-correlated to traditional markets, but it’s had a difficult time doing so during market turmoil. Despite the original sell-off a few weeks ago where Bitcoin price fell nearly 50%, it has since stabilized a bit and displayed non-correlated characteristics. Bitcoin was originally believed to be selling off due to liquidity constraints on a global scale. Many investors were recently flocking to cash and selling any liquid assets, even gold and Bitcoin. The Fed has continued to inject capital into the financial systems, now surpassing 2+ trillion. Despite this move harming the fate of the traditional economic system in the long-term, it should put less selling pressure on Bitcoin.
Stock Market / Traditional Markets
Traditional markets continue to float on thin ice even though the Federal Reserve is leveraging all their resources. Despite the markets rallying a bit last week, the S&P 500 is still -20% year to date. In addition, the technology sector is the only U.S sector that is positive year to date. Energy has fallen -52% ytd and financials have fallen -31% ytd. Coronavirus has brought massive turmoil, as it’s halted operations around the globe.
Many companies could not afford this, as corporation debt has reached all-time highs during low interest rate environments. In addition to the billions that created out of thin air by the fed to support the markets, the senate also approved a $2 trillion economic relief package that was firmly announced on Friday. Even after this announcements, the markets fell -900 points to cap off the week. Weekly unemployment claims hit record highs last week and the market continues to be in an uncomfortable spot. With the Fed planning on creating in excess of $6+ trillion out of thin air, many investors are also starting to wonder how they will support this debt. The fact that the Fed has to inject 30% of the U.S GDP to stay afloat is a potential ticking time bomb..
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