Tesla Offers Olive Branch to Bitcoin as World Bank Fights Cryptocurrency Adoption
While initially being buoyed by positive indications from Elon Musk and Tesla, cryptocurrency markets were held down last week by interest rate announcements from the US Federal Open Market Committee. Elsewhere, the World Bank moved against El Salvador’s Bitcoin adoption and crypto took center stage in the sport of NASCAR racing.
- Elon Musk and Tesla offer Bitcoin an olive branch
- Fed announces new updates on an interest rate plan
- World Bank stands against El Salvador
- Cryptocurrencies enter the NASCAR arena
- Big-ticket reports to watch out for this week
Tesla u-turns on Bitcoin payments
Earlier this year Tesla, the electric car manufacturer, announced that it would be accepting Bitcoin as a form of payment for its electric vehicles. The manufacturer also purchased $1.5 billion worth of BTC for the company’s balance sheet. This was met with great encouragement from the cryptocurrency community and was pushed for by Tesla’s CEO, and cryptocurrency fan, Elon Musk.
However, soon after making the announcement, the CEO became unhappy with the energy usage required for Bitcoin mining and, therefore, removed the option for Bitcoin payments. He subsequently inferred that the company had sold some of its BTC holdings. Bitcoin uses a proof-of-work system to validate transactions and secure the blockchain. This requires a significant amount of computing power.
The u-turn from Tesla accompanied by other negative headlines led to a period of fear, doubt, and uncertainty (FUD) in the cryptocurrency markets. Many believe that the company manipulated the market in a ‘pump and dump’ type scheme, however, this was denied last week.
On Sunday, after being questioned on the ‘pump and dump’ style tactics Musk commented that Tesla would start accepting Bitcoin as a form of payment once there is proof that Bitcoin miners are using clean energy solutions for approximately 50% of all work. He also added that the sale of BTC assets in May was to test that bitcoin could be liquidated without affecting the market price.
Positive comments from the entrepreneur were the first concrete signs that Tesla is not backing away from Bitcoin. After the comments were made, bitcoin prices rallied to over $40,000. With this new turn in the story, it is a little clearer that Musk, along with Tesla, believes that Bitcoin has a role to play in the future of financial payments.
Bitcoin held back by interest rate worries
The US Federal Reserve moved markets this week by confirming higher than expected forecasts for inflation in 2021. During a two-day meeting, officials from the central bank outlined a plan, referred to as the ‘dot plan’, which included two interest rate increases in 2023 to combat the rising inflation. The Fed has previously stated that interest rate increases would be unlikely until at least 2024.
The move up in the timeline for interest rate spikes resulted in an instant fall in ‘risk on’ assets such as stocks and cryptocurrencies. Deputy Chief Economist from Aberdeen Standard Investments, James McCann, said “This is not what the market expected. The Fed is now signaling that rates will need to rise sooner and faster, with their forecast suggesting two hikes in 2023. This change in stance jars a little with the Fed’s recent claims that the recent spike in inflation is temporary.” To temper market expectations during a one-hour press conference, Fed Chair, Jerome Powell, said that the plans should be taken with a “big grain of salt”.
Although trying to temper expectations on Wednesday, it was later in the week that the markets, including cryptocurrencies, moved sharply lower. On Thursday, the St Louis Fed President Jim Bullard spoke with CNBC and outlined that he sees interest rates rising in 2022. In the interview, Jim said “We’re expecting a good year and a good reopening. But this is a bigger year than we were expecting. More inflation than we were expecting. I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures.” Inflation forecasts have now risen to 3.4% and GDP forecasts have increased to 7%.
All risk-on markets continued to spiral downwards during the second half of last week, with the Dow Jones experiencing its worst week since October. From the cryptocurrency perspective, it highlighted the continued interconnectivity with the wider financial economy. The asset class has not yet completely separated itself from traditional financial assets and future interest rate moves are likely to have a bearing on the price.
World Bank does not support Bitcoin adoption in El Salvador
Two weeks ago El Salvador passed legislation to make Bitcoin legal tender in the country. It became the first-ever country to do so. Marked as a historic event it was celebrated by the cryptocurrency community and was speculated as the first step towards true global adoption.
However, last week the World Bank dampened spirits by publicly announcing that it cannot support the move. A World Bank spokesperson commented during the week and said “We are committed to helping El Salvador in numerous ways including for currency transparency and regulatory processes. While the government did approach us for assistance on Bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings.”
El Salvador had reached out to the World Bank for technical and implementation assistance. The country also wanted advice on writing standards for cryptocurrency. El Salvador now plans to work with the Central American Bank for guidance.
While support from the World Bank would have added strength to the Bitcoin integration, members from the cryptocurrency community were not surprised by the World Bank’s stance. Samson Mow, Chief Strategy Officer at Blockstream posted after the news “Breaking: World Bank cannot help El Salvador make World Bank obsolete.” Another Bitcoin Bull, Anthony Pompliano commented “the World Bank hasn’t figured out how to make money off bitcoin”.
Although currently unsupportive of the move, an article written by Forbes suggests that eventually, the World Bank may not have a choice but to accept the decision. Buried within its 1944 founding documents, procedures are outlined that the World Bank has a commitment to accept payments from member states in any local currency, which now will legally include Bitcoin.
Crypto enters NASCAR
A professional NASCAR driver, Landon Cassil confirmed last week that he will be receiving salary payments in both Bitcoin and Litecoin for the remainder of the season. The move comes from a sponsorship deal made with Voyager, a cryptocurrency platform.
Landon Cassil has been interested in cryptocurrencies for some time, stating that he used to mine Bitcoin in his basement. He has also traded Litecoin for many years.
“There are a handful of pilots who like crypto, but I am probably one of the ones who has been around long enough and I am quite comfortable with how it works. I can trade it right away before the market changes or hold onto it while the market goes up or down, take out a little, pay my bills with it and keep the rest”.
Landon Cassil is now part of a growing list of celebrities and athletes becoming increasingly involved with digital assets. Not only is the deal lucrative for Cassil, but it also provides a boost to crypto visibility and mainstream cryptocurrency adoption.
Big-ticket reports to watch out for this week:
Monday – Australia Retail Sales, China Interest Rate Decision, Euro Central Bank President Speech
Tuesday – US Existing Home Sales, US Fed’s Chair Powell Testifies
Wednesday – Bank of Japan Monetary Policy Minutes, Euro Markit Manufacturing PMI, UK Markit Manufacturing PMI, Canada Retail Sales (MoM), US New Home Sales (MoM), Euro Central Bank President Speech
Thursday – European Council Meeting, Bank of Japan’s Kuroda Speech, Bank of England Interest Rate Decision, US Initial Jobless Claims, US Goods Trade Balance, US Durable Goods Orders, US GDP Annualized.
Friday – European Council Meeting, US Michigan Sentiment Index
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