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Why Do Banks Still Hold Bitcoin’s Puppet Strings?

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  • Darryn Pollock
    ⭐ Features

    Cryptocurrency is supposed to be putting the final nail in bank’s coffins, and yet the market jumps and falls on any announcement from the likes of Goldman

Why Do Banks Still Hold Bitcoin’s Puppet Strings?
Cover image via u.today

 

There is little doubting that Bitcoin, and by extension, all cryptocurrencies, are heavily affected by the institutionalized investor and banking model. Cryptocurrencies have encompassed a lot of different facets of society, and one of the major ones is finance and investment.

This means that a big, and powerful, sect of society is sitting on the fence about Bitcoin and its potential- traditional investors. These traditional investors will be the next big wave of adoption, but they are still mostly skeptical as they wait to see how regulators, governments, and legislators deal with this digital currency.

It means that the powerhouses of institutionalized investors, banks and other major financial institutions, are the gateway for this flood of adoption, but it also means that their decisions in dealing with cryptocurrencies affect the investors, and thus effects Bitcoin heavily.

It is as ironic as when Bitcoin was created, its aim was to offer an alternative to the centralized banking model. People were meant to be handed back the power and banks were supposed to fear Bitcoin as the next revolution in finance that would make them obsolete.

Now, what has transpired is the biggest of banks can make one small decision and the entire cryptocurrency market falls or flies.

Goldman’s market sinking move?

Yesterday, the cryptocurrency market suddenly took a sharp and unexpected drop as Bitcoin fell almost five percent in less than an hour. It affected the entire market which was previous to this, showing good and steady gains.

At the time, no one really had an answer for the sudden drop, but a few commentators have come out and pinned the drop to a decision from Goldman Sachs. The Wall Street Bank has deceased to backtrack on its decision to launch a trading desk, citing legal concerns.

Since then, Bitcoin has fallen as low as $6,200- a loss of over $1,000 in less than 24 hours. But is Goldman’s decision really to blame for this?

There is no doubting that banks, especially on the scale of Wall Street giants, have an effect on the price of cryptocurrency as they are building hype about the potential that they will test out the waters of Bitcoin.

There are instances of where Goldman has been linked to cryptocurrency through other companies which they control, such as Circle, but they have yet to take the plunge. It also comes off the back of a period where major banks laughed off Blockchain and Bitcoin.

JP Morgan and their head Jamie Dimon have had a bipolar relationship with Bitcoin since Dimon called it a fraud last year. So, as these banks keep mulling over offering Bitcoin, and thus opening the floodgates to a lot of money for the market, they are building a lot of hype.

The hype bubble

This excitement and anticipation has been personified recently with the potential of a Bitcoin ETF in the offing. The idea being that should an ETF be approved by the SEC, the entry into the cryptocurrency market by some big Wall Street players would be massive.

The hype around this has been tangibly felt though as first, in the lead up to a potential positive decision by the SEC, Bitcoin steadily rose above $8,000, and when the decisions were either delayed or denied, the price collapsed to almost a new year-long low.

Still, the ebbing and flowing continue as the institutionalized banks, and financial institutions, take their time in deciding whether to jump headlong into the market or not. This in itself is handing more power of the market to the banks as they keep the rest of the market on tenterhooks.

Naeem Aslam, Chief Market Analyst at ThinkMarkets, believes that this hype is being fueled by the likes of Goldman, although the bank is just doing what it would do in any case.

“I have openly talked about one thing many conferences- there is no doubt that the Bitcoin price is supported by this hype that institutional banks are going to get involved. Of course, Goldman Sachs sits on the top of this ladder, and my concern has been what if Goldman Sachs says that it wants to review its plans of getting involved in the crypto market? Goldman’s initial announcement to get involved in this cryptocurrency market provided a lot of support for investors and the spillover effect also attracted several other major tier-one banks,” Aslam said.  

An asset game

What this reliance on institutionalized banks means for the cryptocurrency market is that it is still heavily seen as an asset first- more than a currency or a technology. This may not be the case forever, but as the nascent technology finds its place in the world, it is exploring the asset-class first.

About the author

Darryn Pollock is an award winning  journalist from Durban, South Africa. He picked up Vodacom’s Regional Sports Journalist Award in 2017 while expanding his Blockchain and cryptocurrency reach.  He is a contributor to Forbes, Cointelegraph, Binary District, and of course, U.Today. Darryn’s belief is that Blockchain technology will be the driving force of the next technological wave and it is the obligation of journalists and writers to tell its emerging story with integrity and pride.

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Bitcoin Price Can Be Easily Pushed Down by Whales: Professor John Griffin

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  • Alex Dovbnya
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    John Griffin says that rapid price swings are possible because it can be manipulated by deep-pocketed whales who are not stronger than ever

Bitcoin Price Can Be Easily Pushed Down by Whales: Professor John Griffin
Cover image via u.today

Economics professor John Griffin recently rang alarm bells over the impact of Bitcoin whales on the Bitcoin market. 

Griffin told Bloomberg that a few large players could easily push the BTC price down at a whim. 

"The problem with a few large players holding crypto is that when they sell they can easily push the price down, which makes the market susceptible to rapid swings."  

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Whales are getting more powerful 

According to data released by CoinMetrics, the number of orange coins controlled by deep-pocketed Bitcoin investors reached its highest point in four years in 2019. As of December, a whopping 42.1 percent of Bitcoin's total circulating supply is stored in wallets that hold between 1,000 and 1 mln BTC. 

While crypto exchanges are known to be the owners of the richest Bitcoin addresses, investor Aaron Brown warms some of the new whales on the block are family offices and affluent individuals who are not exactly keen Bitcoin believers who might be tempted to jump ship if things turn south. 

“I doubt they have infinite patience, and without significant growth in actual use, I would expect them to quietly withdraw to chase other promising technologies,” Brown said.

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Becrying Tether's impact on Bitcoin 

Speaking of those who don't believe in Bitcoin, Griffin probably takes the cake as one of the most prominent naysayers. Back in June 2018, together with his colleague Amin Shams, he published a paper that explores how Tether was allegedly responsible for propelling Bitcoin to new highs during the peak of the previous bull market in December 2018. 

At the beginning of November, the two academics came up with an even more shooking claim -- the historic ascent of Bitcoin to its current all-time high of $20,000 was the deed of a single whale on Bitfinex, the affiliated exchange of Tether.

Tether dismissed the updated study as a puff piece that was meant to back up a $1.4 trln lawsuit against the flagship stablecoin issuer. 

About the author

Alex Dovbnya (aka AlexMorris) is a cryptocurrency expert, trader and journalist with an extensive experience of covering everything related to the burgeoning industry — from price analysis to Blockchain disruption. Alex authored more than 1,000 stories for U.Today, CryptoComes and other fintech media outlets. He’s particularly interested in regulatory trends around the globe that are shaping the future of digital assets.

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