El Salvador’s bitcoin move puts best, worst crypto impulses on display: Morning Brief

El Salvador’s bitcoin move puts best, worst crypto impulses on display: Morning Brief

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Wednesday, September 8, 2021

A country’s embrace of bitcoin puts 2 competing crypto visions on display

Tuesday marked what one observer called the “start of a new world,” as El Salvador officially became the first country to accept bitcoin as legal tender. 

The eagerly anticipated move is a big test of cryptocurrency’s staying power, and foreshadowed what could lie in store for other countries, namely Panama, as more economies adapt to the suddenly hot global cryptocurrency movement.

“I believe this is a threshold moment in the evolution of digital currency and that it ushers in the start of a new world as we can expect more nations, especially those with developing economies, to follow El Salvador’s historic lead,” said Nigel Green, founder and CEO of deVere Group, a financial advisory firm.

Green’s remarks echoed those of Cathie Wood, an irrepressible bull who runs Ark Invest. She’s exposed to the crypto market via levered stocks like Coinbase (COIN) and Square (SQ) in her various innovation focused exchange-traded funds (ETFs).

In an interview with Yahoo Finance Live last week, Wood declared that crypto will usher in “a new global monetary system. It’s a rules-based monetary policy, which is completely decentralized and therefore is not subject to the whims of policymakers.”

She added that crypto is “a hedge against the whims of policymakers, especially in emerging markets.”

Despite El Salvador’s move and Wood’s bullish endorsement, crypto couldn’t quite outrun its reputation as a highly volatile asset. The duality is best encapsulated by what one El Salvadorean entrepreneur told The Wall Street Journal: “My mother believes that bitcoin is a thing of the devil, but bitcoin has a lot of advantages.”

Indeed. Quicker than you could say “Chivo”, bitcoin revealed its devilish side, tumbling below $50,000 and swooning over 17% intraday as some long positions got liquidated en masse. El Salvador’s electronic wallet also suffered first day glitches that temporarily disabled the technology.

The sell-off also weighed on newcomers like Solana (SOL1-USD) and Cardano (ADA-USD). Both are quickly becoming two of the hottest tickets in crypto investing, as Yahoo Finance’s David Hollerith highlighted earlier this week — but Cardano posted a double-digit drop in Tuesday’s whipsaw trade.

In fact, Wood’s comment exposed the central paradox at the heart of Tuesday’s active day in crypto markets. If you’re an investor that embraces digital currency based on its decentralized appeal, is it really constructive to have a central government (especially one with the checkered past of El Salvador’s) act as a major market player?

Bitcoin’s inexplicable reversal also underscored an element that Barry Bannister, Stifel’s chief equity strategist, emphasized on Tuesday. Speaking to Yahoo Finance, he called the digital currency a “speculative asset” that’s light years from being a safe-haven like gold (GC=F), the U.S. dollar or the Japanese yen (JPY).

“Bitcoin is an asset that moves with global liquidity,” and waxes and wanes with global money supply growth, which has been declining since March, Bannister explained. He enumerated reasons like a Federal Reserve that may start tapering stimulus, a tightening of monetary policy by China, and a surge in COVID-19 infections that will feed flight-to-safety bids for safe-havens.

“When all of that hits, bitcoin, being a spec asset, is just going to plunge” — perhaps as low as $15,000, he said. ”I think it’s going to be a terrible performer by year-end.”

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

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What to watch today

Economy

  • 7:00 a.m. ET: MBA Mortgage Applications, week ended September 3 (-2.4% during prior week)

  • 10:00 a.m. ET: JOLTS Job Openings, July (10.049 million expected, 10.073 million in June)

  • 2:00 p.m. ET: Federal Reserve’s Beige Book

  • 3:00 p.m. ET Consumer Credit, July ($25.000 billion in July, $37.690 billion in June)

Earnings

Post-market

  • GameStop (GME) is expected to report an adjusted loss of 67 cents on revenue of $1.123 billion

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  • RH (RH) is expected to report adjusted earnings of $6.49 per share on revenue of $974.8 million

Politics

  • President Biden, alongside U.S. Secretary of Labor Martin Walsh, will give a speech in honor of labor unions at the White House at 11:20 a.m. ET today. The president is also set to receive a briefing from his COVID-19 response team ahead of what’s being billed as an address to the nation on the pandemic tomorrow.

  • Congress remains in recess but the Speaker of the House of Representatives Nancy Pelosi could make some headlines today with her weekly press conference at 9:45 a.m. ET in Washington. She will then travel to Massachusetts to receive an honorary degree from Smith College in the evening.

Top News

European markets slump after sombre Wall Street and Asia session [Yahoo Finance UK]

Bitcoin crashes after El Salvador’s troubled rollout [Yahoo Finance UK]

Coinbase gets wells notice from the SEC on lend product [Bloomberg]

PayPal to buy Japanese unicorn Paidy in $2.7 billion deal [Bloomberg]

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