Cryptocurrency markets were mostly quiet even as leaders meeting at the World Economic Forum in Davos, Switzerland, spoke out about the need to regulate cryptocurrencies.
The price of a single bitcoin mostly hovered in the range between $11,000 and $12,000 in the last 24 hours. At 13:57 UTC, the price of a single bitcoin was $11,233.86, down 1.51% from 24 hours ago. Bitcoin had reached a high of $11,695.92 earlier this morning.
Ripple’s problems continued to multiply after Bloomberg published a report claiming that banks were not interested in its coin, XRP. As of this writing, XRP was down by 4.5% from a day ago and is trading at $1.33. It has declined by 41.1% from the start of this year.
Stellar, which shares its underlying technology with Ripple, has moved in the opposite direction. With an increase of 10.5% from its price 24 hours ago, it was the biggest gainer among the top 10 most traded cryptocurrencies. The valuation for cryptocurrency markets was $554.4 billion at 14:06 UTC.
Davos Musings and Regulation In China
Cryptocurrencies were a hot topic of conversation among prominent bankers and politicians gathered at the World Economic Forum in Davos. U.S. Treasury Secretary Steven Mnuchin reiterated his earlier stance, saying he was mainly interested in preventing bitcoin from being used for “illicit purposes.”
IMF Chief Christine Lagarde shared Mnuchin's concerns. “The fact that the anonymity, the lack of transparency and the way in which it conceals and protects money-laundering and financing of terrorism and all sorts of dark trades, is just not acceptable,” Lagarde said. Similarly, U.K. Prime Minister Theresa May said she would look closely at bitcoin and cryptocurrencies “because of the way they are used, particularly by criminals.”
Bankers came out on the side of blockchain technology, which they said had wide applications in the financial services industry. For example, BlackRock chair Larry Fink said that blockchain technology was “real and it’s going to transform how we do our businesses, and we should not turn our backs on it.”
Meanwhile, Yang Dong, director of the Center for Financial Technology in China, provided a hint of the form that regulations might take in China, a country that was the world’s largest trading venue for cryptocurrencies until last year. He said ICOs may be regulated as securities or programs for equity crowdfunding. According to him, an equity crowdfunding pilot program may be launched by the China Security Regulatory Commission in the future. (See also: Bitcoin Government Regulations Around The World.)
Increased regulation of cryptocurrencies is expected to bring more institutional traders to their fold, thereby reducing price volatility and attracting common investors. It will also weed out bad players from the ecosystem. However, it could also spell an end to innovation within the nascent industry.
The Case Of Tether
Tether is an altcoin that trades at parity with the U.S. dollar. According to its founders, the virtual currency is backed by a supply of physical currency (in this case, physical dollars).
Each time Tether makes a new issuance of its coins, an equivalent amount of dollars is deposited in a bank account somewhere. The premise here is to bring stability in an otherwise volatile cryptocurrency market by establishing equivalency with a fiat currency. It also served as a bridge currency for investors looking to convert their bitcoins into U.S. dollars without incurring significant overhead.
In recent times, Tether has increasingly come under a cloud due to a hack last year (during which it claimed a loss of 31 million coins) and its murky affiliate relationship with Bitfinex, arguably the world’s biggest exchange by trading volume. (See also: Tether Hack: Cryptocurrency Worth 31 Million Stolen.)
A recent report further lays into Tether, claiming that its (non-existent) supply of dollars has propped up bitcoin’s price at Bitfinex, whose capitalization increased as a result of the issue. The report’s author, who chose to remain anonymous for fear of a backlash, analyzed Bitfinex data from March 29, 2017 to January 4, 2018, and found instances where a new issue of coins by Tether to the Bitfinex wallet resulted in a price spike for bitcoin. “Our interpretation of the data suggests that Tether could account for nearly half of bitcoin’s price rise,” the author writes.
For their part, Tether and Bitfinex released a snapshot of accounts on September 15, 2017. But it hedged that release by claiming that it did not constitute “an audit or attestation engagement, which would include a significantly expanded scope of procedures and take substantially more time to complete.”
In a recent post, Zhao Dong, a Bitfinex shareholder, claims that Tether’s bank account held $1.8 billion while Bitfinex’s held $1.1 billion. In the meanwhile, a New York-based accounting firm has taken Bitfinex off its list of auditing clients.
Tether’s problems have left the market open for another “stablecoin.” The founder of TrueUSD claims that investors can be “in and out” of a trade within seconds. The cryptocurrency has partner banks to secure its collateralized assets and uses standardized procedures, such as KYC, to verify its holder's identity.
Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin.