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Bitcoin malfunctions

  Since hitting an all-time high of around $68,000 in November last year, Bitcoin has come out of a slump that has been plunging all the way.
  Meanwhile, Wall Street analysts have found that investor enthusiasm for Bitcoin has waned. Jim Greco, managing director of crypto trading firm Radkl, has said that amid Bitcoin’s malaise, growth in active addresses, a measure of transaction activity, has stalled.
  UBS analyst James Malcolm even bluntly said, “Investors have gradually realized that given Bitcoin’s volatility and limited supply, this cryptocurrency is not actually a better currency.”
  Cryptocurrencies, led by Bitcoin, have failed. ?
Cryptocurrencies are no longer going out of their own way

  In January of this year, Bitcoin crashed again. On Jan. 21, bitcoin prices plummeted all the way to the lowest point since August 2021, and the decline continued, eventually recovering as it fell to $35,000. So far, bitcoin prices have halved from their all-time highs last fall.
  It is worth noting that this slump in Bitcoin came on the heels of the sharp drop in U.S. stocks on January 20. In fact, since the beginning of this year, cryptocurrencies and the U.S. stock market have gone out of a downward trend that almost coincides. The immediate reason for this round of decline is that investors are uncertain and worried about the changes that a series of Fed rate hike expectations may bring to the market.
  In a report published in January, James Malcolm said that raising interest rates by the Federal Reserve could reduce the attractiveness of Bitcoin and other cryptocurrencies in the eyes of investors.
  “If the Fed takes action to control inflation, then investors’ claims of holding bitcoin as a hedge against inflation will not hold up.” He explained that for cryptocurrencies, the Fed’s tightening of monetary policy is certainly an issue bad thing. Over the past two years, cryptocurrency prices have risen without the help of ultra-easy monetary policy.
  “Cryptocurrency is no longer an isolated safe-haven asset, it is responding to changes in global policy,” said Clara Medalie, research director at crypto market data provider Kaiko, in an interview.
  A latitude that can verify this statement is: Kaiko data shows that the positive correlation between cryptocurrency price movements and stock market movements has reached the highest point since September 2020. That is, when stock prices go lower, so does Bitcoin.
  The correlation between the two is sometimes strong and sometimes weak, but for a long time, cryptocurrencies such as Bitcoin have their own independent logic of ups and downs. Now, things have changed. After cryptocurrencies became widely accepted by investors, cryptocurrencies became sensitive to changes in the stock market.
  On January 21, Bitcoin’s dollar value fell. On the same day, the share price of the video website Netflix also fell by 20%, and the market value of 40 billion was evaporated in one day. The immediate reason for Netflix’s stock price drop is that it expects that the number of new subscriptions this quarter will shrink significantly compared to the same period last year.
  Some analysts said a massive sell-off in popular stocks would see investors sell some of the cryptocurrency to cover overall losses or to cover margin calls. This phenomenon has been observed more than once, according to Chris Bendiksen, research director at London-based asset management firm CoinShares. “Bitcoin’s strong liquidity feature will allow investors to sell a portion to collect when they need to make a margin call.”
Decentralized cryptocurrencies vs centralized exchanges

  Decentralization has always been considered the greatest value of cryptocurrencies. The origin of cryptocurrencies is a rebellious attempt by some technical believers to the highly centralized traditional financial system and the continuous issuance of depreciated fiat currencies under the impact of the global financial crisis in 2008.
  But recently, a move by Coinbase, the largest cryptocurrency exchange in the United States, has shattered the decentralization beliefs of many cryptocurrency investors.
  On March 6, Coinbase announced that the platform has banned 25,000 cryptocurrency wallet addresses associated with Russian users. Coinbase believes that these wallet addresses are involved in illegal activities. The encrypted wallet address is a unique account number consisting of numbers and letters, which is associated with the wallet where the user holds the cryptocurrency. Coinbase’s chief legal officer, Paul Grewal, said in a blog post that the company had already submitted these wallet addresses to the U.S. government to assist the U.S. government with sanctions against Russia.
  According to Bloomberg, both Russia and Ukraine have seen an increase in cryptocurrency holders since the Russian-Ukrainian conflict intensified. Another data shows that the number of cryptocurrency holdings in Russia has always been in the top position in the world.
  According to Marlon Pinto, head of investigations at London-based risk consultancy AnotherDay, cryptocurrencies are a bigger part of Russia’s financial system than most countries due to distrust of the Russian banking system. A report by the Russian government estimates that there are more than 12 million cryptocurrency wallets opened by Russian citizens, and the total amount of funds involved in these cryptocurrencies is around 2 trillion rubles, or about $23.9 billion.
  In addition to individuals, some countries are also trying to avoid the risks posed by the US-centric world financial system by holding Bitcoin. Iran, which faces tough U.S. sanctions, has used cryptocurrency mining to evade sanctions, according to analyst firm Elliptic. Those sanctions have restricted Iran’s access to global financial markets, and Iran has used its advantage as a major oil producer to mine bitcoin and use it to import goods as a way to circumvent sanctions that restrict payments to Iranian financial institutions.
  But apparently, Coinbase’s massive ban on Russian-related cryptocurrency wallets has dashed any personal or official desire for hedging.
  On overseas social media, a large number of netizens expressed their disappointment with cryptocurrencies and exchanges. “I think we can all agree that Coinbase is useless. The platform’s move to ban Russian accounts is completely contrary to the nature and purpose of cryptocurrencies. Cryptocurrencies are supposed to be a completely decentralized financial solution, not controlled by any central bank or monetary authority. Take control,” a Reddit user posted.
  Gao Zan’s thread responded, “All centralized exchanges are businesses that operate according to government rules and regulations, and of course they will be affected by official orders. Just don’t put bitcoins on exchanges.” But it needs to be acknowledged The thing is, at present, a large number of bitcoin transactions still need to be carried out through exchanges, and for most retail investors, storing cryptocurrencies in the wallets of exchanges is the easiest way to hold them.
  The exchange’s statement has thus become the focus of regulators and investors. A spokesman for Biance, the world’s largest cryptocurrency exchange, said in an interview with the media that the unilateral ban on Russian accounts goes against the raison d’être of cryptocurrencies. The platform’s CEO Brian Armstrong also posted a series of posts on social media, saying that Biance will not rashly ban Russian users, partly because cryptocurrency is a lifeline when the Russian ruble collapses, “We believe that everyone should have The right to basic financial services, unless prohibited by law.”

How far can cryptocurrencies go?

  From the birth of the concept to the present, cryptocurrencies headed by Bitcoin have not yet realized any grand visions envisaged except as the investment target of speculators chasing instant riches. The recent price trend of Bitcoin and policy supervision in the context of the situation in Russia and Ukraine have cruelly demonstrated that Bitcoin, as part of alternative asset allocation, as a hedging method to circumvent the centralized financial system, is not very popular at least for now. Makes sense.
  As a circulating currency that has landed in daily life transaction scenarios, the performance of Bitcoin is also unsatisfactory.
  In September 2021, El Salvador, a country in northern Central America, became the first country to adopt Bitcoin as legal tender. El Salvador also announced in November of the same year that it planned to issue $1 billion in bitcoin-backed bonds. This small country with a population of less than 7 million has become a large Bitcoin feasibility laboratory, providing a window for Bitcoin enthusiasts and skeptics alike.
  El Saldovar does this to arbitrage the current cryptocurrency craze by developing new lending markets, while using the profits from bitcoin mining to support expansionary economic policies. El Salvadoran President Nayib Bukele believes that Bitcoin can solve the current problems of wealth disparity and violence in El Salvador, and ultimately make El Salvador the Singapore of Latin America.
  But in reality, after Bitcoin became legal tender, El Salvador rarely actually uses it in everyday shopping. In a recent survey, 70 percent of respondents expressed distrust of the El Salvador government’s move.
  The outside world is not optimistic about El Salvador’s approach. The IMF called on the Bukele government to abandon bitcoin’s legal tender status, arguing that bitcoin’s extremely volatile price is too risky for consumers and unsuitable for use as collateral for sovereign bonds. According to the analysis of economists, Bitcoin bonds in El Salvador can indeed attract some investors who are pursuing high yields or who cannot directly invest in Bitcoin, but cryptocurrencies lack value anchoring and are completely driven by emotions. Therefore, it Violent price swings can increase debt servicing costs and even force El Salvador’s government to use its already meager foreign exchange reserves to cover lost value. Currently, the IMF is conducting protracted negotiations on a $1.3 billion economic support plan for El Salvador.
  In order to match Bitcoin’s legal currency status, the Bukele government spent $180 million to deploy Bitcoin ATMs and e-wallets. As long as you register an e-wallet, you can get $30 worth of Bitcoin. The government of El Salvador says the vast majority of residents have registered e-wallets, but traders say few transactions are made in bitcoin, which is embarrassingly useful in everyday transactions because of its rollercoaster-like price movement.
  People from El Salvador’s financial sector told the media that most people who signed up for e-wallets exchanged free bitcoins for dollars. Others said that because of the scam, the bitcoins in their wallets disappeared. A local lawyer, Ruth Lopez, said her law firm has collected the signatures of more than 1,000 people who said their ID e-wallets had been stolen and $30 in bitcoin was gone.
  Others feel that the technical threshold of Bitcoin payment is raised. A fisherman in La Union said bluntly in an interview with the media that Bitcoin is a mystery to him. According to the plan, this port city will be built into a “Bitcoin City” in the future. “It was a real challenge for me to understand this stuff, especially because I’m illiterate,” said the fisherman. Statistics show that El Salvador’s national literacy rate is 84.1%.
  At present, the overall Bitcoin usage rate in El Salvador is still relatively low. For most El Salvadorans, cash is still king. “We are a nation that likes to actually touch our own money.”

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