This week has been one of the most volatile ever for cryptocurrencies. Conflicting news reports and a storm of events have seen it rocket and drop back down. We discuss the week’s volatility in the article below.
Within the last 24 hours, a Bitcoin price analysis shows that the currency has climbed around 10%. This puts it back at its key rating of above $90,000, increasing the crypto market cap to well over $3 trillion. The key takeaway, and the reason for this volatility, has been the possibility of a crypto strategic reserve set up in the US. As people have argued for and against it, the pendulum has swung widely with some of the biggest losses and gains seen in markets for years.
Fresh News on a Crypto Reserve
Today’s comment that has rallied markets is the announcement that a strategic reserve will be unveiled this week at Friday’s crypto summit. US Commerce Secretary Howard Lutnick told an independent news site that a definite Bitcoin reserve is on the cards, and the question is just about how to handle the other cryptocurrencies that were also mentioned. He also said Friday’s meeting will be about how that is done and in what timeframe. He also added that Bitcoin will gain a unique status.
Most of those taking heed of the meeting will be looking for a definitive roadmap on how this is rolled out. This must include how it will be structured, and crucially what it will be funded by.
The Road to a Strategic Reserve
All of this began when crypto was being discussed by the incoming government. This cooled off somewhat, with plans for a strategic reserve seemingly on the back burner. That was until the weekend that started March when the plan was revived through comments made on social media and the diary date of a crypt summit. This said that the reserve would hold Bitcoin, Ethereum, XRP, SOL, and Cardano. This inevitably saw a huge spike in prices, with Cardano amassing a sizeable 60%.
However, by the next day, the opposition was out in full force, with a sizable amount of backlash coming from the cryptocurrency sector itself. Added to a bad day on Wall Street, this caused the risk assets of crypto to see the previous day’s gains wiped off. By the next afternoon, all the mentioned currencies were at the price they had been before the announcement, with Cardano taking a bigger hit.
There are worries about this, and in a bullish market, many are pointing to other events that have been slightly overshadowed by the news. The main one of these is that $1.4 billion was recently stolen from a cryptocurrency exchange, in one of the biggest digital heists ever committed. While it is believed many of the funds are still traceable, it does bring up questions about security.
Added to this is the implosion of the memecoin sector. This saw a huge number of liquidations, with memecoin markets in turmoil. Attracting growing concerns about insider manipulation and their sustainability has had an impact on the blockchains upon which they are built. For example, Solana has lost $50 billion in value over the past month alone.
One of the big questions focuses on why volatile currencies like SOL, XRP, and Cardano will be included. Bitcoin and Ethereum are volatile enough, but they at least have a proven track record in the minds of investors, particularly those in the Tradfi sector. Others are also worried about the risk this brings to taxpayers, as this could essentially mean using their money.
Comments from David Sacks on social media have suggested that funding will not come from taxes or a spending program. Usually, strategic reserves are built from funds left over from natural resources in a country. However, this may suggest that the plan is to use frozen and acquired assets to fund the reserve.
Crypto Across the Globe
Globally, many will be looking to other countries to see how their Bitcoin ventures are faring. Switzerland is currently debating its outlook on Bitcoin, possibly even touting the idea of bringing Bitcoin ETFs to Europe as has been seen in the US. Germany and other countries are already considering adding to their amounts, with many countries also having holdings in organizations that deal in cryptocurrency.
However, the finger will be firmly pointed at El Salvador as an example of how not to integrate cryptocurrency into mainstream finance. They passed a law that made Bitcoin legal tender, which had to be accepted in exchange for goods. The country’s poor economic state meant that it accepted a bailout by the IMF, but only in exchange for a curtail of these rules. This has provided them with $1.4 billion, but the IMF is still unhappy with their Bitcoin mining and purchasing.
All eyes will be on Friday’s summit. The results of this could have lasting ramifications on cryptocurrency and Bitcoin. Inevitably, short-term losses and gains will result. However, continued institutional acceptance like this will inevitably see it rise over the long term.
