El Salvador Unfazed by Bitcoin’s Recent Price Drop

The price of Bitcoin went down sharply on Tuesday, plunging 19% from $52,956 to $42,900 yesterday, undoing the gains it made recently and wiping out more than $180 billion in market value. El Salvador, the country that officially adopted bitcoin as legal tender yesterday, appeared unfazed by the dip, and capitalized on it instead. The country simply purchased another 150 BTC as soon as the price was right.

According to analysts, the reason for the drop was clear. Investors were choosing to sell while the price was still high, after bitcoin had failed to rise above the significant limit of $ 53,000 recently. The digital currency had become 12% more valuable since the end of last month. In April, bitcoin reached an all-time record with $ 64,895.

El Salvador becomes the first country in the world to legally adopt bitcoin and accepting it as a legal tender. Every resident who opens an account in the government’s bitcoin wallet Chivo, receives a $ 30 bitcoin gift. The Central American country has recently bought 400 bitcoins for about € 17.5 million. Earlier on Tuesday, Salvadorans who were trying to download the Chivo digital wallet found that it was not available on the popular app stores. A later tweet from president Bukele mentioned that the government had temporarily unplugged it, to connect more servers to deal with the overwhelming demand.

Though many may have tried to open Chivo, most Salvadorians are not all running to the newly opened bitcoin machines to change their dollars to Bitcoin. Surveys have shown that Salvadorans are skeptical about the use the digital currency, mainly because they believe its value fluctuates too much. People are used to a very stable US dollar.

The fact that bitcoin’s value dropped so sharply on the first day, may not help generate the trust president Nayib Bukele is looking for in its citizens. And the mistrust in the digital currency reached a climax with more than 1,000 people marching in El Salvador’s capital San Salvador on Tuesday, to protest the adoption of bitcoin as a legal tender.

Companies in the El Salvador will have to accept the digital currency in exchange for goods and services. The government will also accept bitcoins for paying taxes. But protesters feel the poorest may struggle with the technology to make bitcoin accessible to them. Right now, nearly half the population has no internet connection, or has very spotty connectivity.

But president Bukele is full of trusts. “Like all innovations, El Salvador’s bitcoin process has a learning curve,” Bukele said in a tweet. “Not everything will be achieved in a day, or in a month.”

With bitcoins, it becomes cheaper for El Salvador residents working abroad, mostly in the United States, to send money to their families in El Salvador. It costs Salvadorian’s hundreds of millions of dollars in bank commissions every year to send their family members US dollars.

Regardless of the possible price fluctuations El Salvador plans to buy many more bitcoins, President Nayib Bukele said earlier on Twitter. In 2020, the small country had a gross domestic product of more than $ 24 billion. According to the World Bank’s most recent figures, 29% of the population lives below the poverty line. For the time being, the country will still accept US dollars too.

source: the blockchain web site

The Cryptocurrency Whale Phenomenon: How do Investors thread Volatility Splashes?

Cryptocurrencies remain extremely volatile. Bitcoin is consistently on track for topping their biggest monthly increase and decline. It faced one of their record-highs of 37.5% decline just this May 2021, and frequently sees drops like 37% drop seen in November 2018 and 40% slide in September 2011. Most recently, the price of bitcoin climbed to $34,805.19 Monday 28th June 2021, up 8% from where it stood at 5 p.m. ET Friday, after Mexican billionaire Ricardo Salinas Pliego encouraged its purchase. This volatility serves as a double-edged sword, both as an exciting asset choice for some investors and apprehension for others, preventing widespread adoption.

One contributing factor to volatility is that the crypto markets have an abundance of whales – a term given to someone who holds a significant amount of a particular asset; someone who holds a minimum of 1,000 Bitcoin is considered to be a whale. The sheer size of their holdings means that, when they decide to sell, the market is suddenly flooded with this asset, causing big price movements.

These powerful investors exist across all asset classes, but cryptocurrencies are particularly vulnerable because there are more whales, but much smaller volumes and less liquidity across a fragmented sea of exchanges. Without sufficient liquidity, these whales are trapped in a proverbial swimming pool, destined to send huge waves through the market as soon as they move. Because each exchange is segregated into their small swimming pools of liquidity, they are incredibly susceptible to whale movements.

For that reason, we need to solve the liquidity problem by joining all these segregated small swimming pools into one big ocean. The trading technology of the crypto market has not yet caught up to the maturity and stability of forex, which employs OTC trading, which is how it minimizes the effects of large buy and sell orders that can drastically move the market. If the crypto market integrates that, this can dramatically improve crypto exchange liquidity and stabilise pricing as a result. It’s time to deepen the liquidity pool.

The influence of whales

Cryptocurrency assets are still fundamentally very concentrated. The sudden growth of Bitcoin means that a large portion of the market is owned by a small majority of traders who were fortunate enough to buy lots of Bitcoin when the price was low. Currently, around 40% of Bitcoin is held in around 2,500 accounts.

The same is true of altcoins. For example, it was revealed in February this year that one person holds 28% of Dogecoin, which has soared by almost 1,400% since the start of the year. An individual in possession of that large a proportion of the market has a huge effect on the price.

And the effects of these whales are visible. When whales are selling, the prices of cryptocurrencies are on a downward spiral. On April 18th, for example, one trader moved 58,814 BTC – worth more than $3.3 billion at the time – from Binance to a private wallet at the same time as the prices slid to a low of $51,541 per unit.

While whales are clearly affecting the price of Bitcoin, their influence is greater among altcoins, which have lower market caps and are less liquid. Not long ago, the price of Ethereum plummeted by more than 50% on the Kraken Exchange, plunging from $1,628 to $700 within the space of minutes.

The CEO of Kraken attributed this to single sell, saying “it could be that a single whale just decided to dump his life savings.” For Ethereum to drop $1000 dollars in three minutes is extraordinary and it proves that even the biggest exchanges with large volumes can be rocked by big whale movements.

Shrinking liquidity

Considering price swings are compounded by fragmented liquidity, the market must pay attention to the fact that liquidity is getting worse, not better. The amount of Bitcoin on exchanges is down 20% over the last 12 months. Slowly but surely, liquidity is drying up and the pool is getting smaller.

The bullish cryptocurrency market means people are holding the asset, simply watching the price tick up. Evidence suggests that there is a growing number of whales, with the number of individual holders of over 1,000 Bitcoin at an all-time high of 2,334. So, despite growing popularity, there is still only a very limited amount and diminishing amount of cryptos changing hands.

Contributing to these problems, big investors are entering the crypto market in swathes. Institutional investors, hedge funds, high-net worth individuals, and companies – most famously Tesla – are all looking to hold and trade crypto assets. And with more buying power, it is likely to increase order sizes and add to the influence of whales.

We cannot prevent these big players from influencing crypto trading, but solutions for the underlying lack of liquidity that exacerbates price swings exists.

Unifying the pool

To combat whale-induced price swings, the market is slowly adopting tactics from other asset classes. For example, many OTC brokers are targeting crypto whales to trade digital currencies over the counter because they can access more liquidity than exchanges.

However, for a lasting solution that can cushion large orders and prevent sudden and drastic price changes, exchanges should turn to trading technology that has been mastered in other markets. For example, the FX markets have long provided Straight-Through-Processing capabilities on a global liquidity network, where orders are aggregated and processed using Smart Order Routing. This infrastructure allows global price discovery, where the best bid and ask prices are presented to all market participants, regardless of trading avenue.

Effectively, it allows exchanges to leverage the liquidity of other exchanges, including from the biggest in the industry. Using this model, exchanges can consistently provide traders the best prices and absorb the impact of big whale splashes by drawing on liquidity from the wider market. The multiple individual pools join to become an ocean.

Only once these issues are addressed will cryptocurrencies be free of the volatility that comes with so many big fish in a market lacking depth.

source: the blockchain web site

Big News From a Small Country – Bitcoin to become legal tender in El Salvador

A scoop for a small Central American country is worldwide news. In El Salvador it should soon be possible to pay for everything with bitcoin. On June 9, the 39-year-old President Nayib Bukele sent a bill to parliament to make bitcoin legal tender. The bill was passed by a vast majority. The Central American country is now the first country ever in the world to make Bitcoin legal tender.

The new law is good news for residents of the country. And the eyes of the world will surely be on this developement after this new law turns into practice in 90 days. bitcoin enthusiasts are happy, as they see it as a big step towards a world in which everyone can pay with digital currency. There are still many questions about how this will work out in practice.

The current currency in the country, the US dollar, will also remain valid, but soon everyone’s local greengrocer and supermarket will also have to accept payments in bitcoin, just like government agencies such as the tax authorities. The 90-day period is intended to prepare the country for the transition.

El Salvador is a very poor country, 70 percent of the population has no access to traditional payment services. Provided people have an internet connection, this will change very soon  The state also arranges courses for citizens who find the world of crypto too complicated. The government feels that digital skills should not be a reason to be excluded.

Many El Salvadorians earn their money in the United States. Part of their income is sent to relatives in the home country on a monthly basis. Those transfers are not free, as there are always commissions to pay. Workers abroad always see part of their hard earned cash disappear into the pockets of American banks that facilitate their transactions. With bitcoin, there is no commission, because cryptocurrency is decentralized, without the intervention of a bank.

But can a coin of which the value can fall or rise by 20 percent in one day actually work as a payment method? A bitcoin is now worth half of the record value in April (more than $ 60,000 then, compared to about $29,595 today). This would mean a retail seller who is paid his turnover in bitcoin, has to sell twice as much in the event of such a price drop in order not to suffer financially. President Bukele recognizes that risk. The national development bank keeps $150 million in a specially set up account to absorb exchange rate risks. Bukele’s government also guarantees that anyone can immediately exchange bitcoins for dollars if they wish. El Salvador is also negotiating a $1.3 billion bailout package to ease the burden of budget deficits and debt with the International Monetary Fund (IMF).

source: the blockchain web site

Bitcoin’s Value is Surging Again after Tesla Tycoon Elon Musk’s latest Tweet

The price of Bitcoin rose again after Elon Musk announced that his company, Tesla, would possibly accept the digital currency as a form of payment again, providing virtual mining would take a more non-polluting path.

Musk announced that if 50% or more Bitcoin mining would be done with renewable energy, this would be enough for him to restart the option for people to purchase Teslacars with Bitcoin again. The electric car manufacturer stopped accepting BTC as a form of payment last May, after only accepting the option for Bitcoin payments for his electric cars for little over 3 months.

Musk’s reasons for his May announcement were his concerns about the excessive amount of fossil fuels needed to generate Bitcoin, and the negative impact this has on the environment. 65% of all bitcoin mining is currently done in China. The country is generating most of its electricity the old fashioned way, by burning coal.

After Elon’s May tweet the value of the cryptocurrency plummeted from its all-time highs (around $ 63,000) to a low of around $33.000 on June 8. After Musk’s latest tweet, the value has now gone up and reached the barrier of $40.000 again.

Musk’s influence on the price of cryptocurrencies can be called remarkable. Bitcoin soared after the tycoon’s message that it could be overcoming a barrier. But he has also been widely criticized for ‘manipulation’ of the worlds most popular digital coin.

Rumours that both Microstrategy CEO Michael Saylor and Tesla CEO Elon Musk formed something called the North American Bitcoin Mining Council (BMC), whose sole purpose is to ensure adherence to renewable energy usage for Bitcoin mining and promote energy usage transparency in the flagship cryptocurrency, did not seem to be entirely true. Apparently the group was spearheaded by Saylor, and Musk was not included.

It became evident that Musk’s involvement was no more than joining an educational call with a group of North American companies to discuss Bitcoin mining.

Many bitcoiners are watching the (BMC) with suspicion. They are seeing the group as some sort of cartel or attempt at “centralized” manipulation.

source: the blockchain web site

Stable Coins Explained

What is Stable Coin?
A stable coin is a type of cryptocurrency whose value usually relies on a different range of assets, such as government currencies such as the dollar or precious metals such as gold.

Exporters adopt various methods to maintain the price of stable coins. Some stable currencies, such as the USDT, USDC, BUSD, and GUSD, have one-to-one support with the US dollar. Other stable coins, such as tether gold, also support physical commodities such as an ounce of gold.

There are also decentralized stable coins such as DAI and FEI that are based on different algorithms.

Before the advent of stable coins, most people traded cryptocurrencies in government currencies, or fiat currencies or other cryptocurrencies. Pankaj Balani, CEO of Delta Exchange cryptocurrency exchange, said that since 2017, cash transactions with stable coins began and accounted for a large share of transactions.

Cryptocurrency trading using stable coins is a faster and cheaper option compared to Fiat currencies and allows for more liquidity. Stable coins, unlike other cryptocurrencies, are theoretically less prone to market fluctuations.

Stable coins are also used to lend cryptocurrencies. You can receive 4% annual interest from depositing  USDC in CoinBase savings accounts. The USDT deposit interest rate can also be from 1.66 to 13.5 percent.


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