08 Sep 2021 · 13 min read

Bitcoin Soaring Past 50,000 USD Under Growing Regulatory Scrutiny

Disclaimer: The text below is an advertorial article that was not written by Cryptonews.com journalists.

Serge Dryamov, CMO at ChangeNOW, is the guest author for this piece on Cryptonews.com.

On the morning of August 23, bitcoin surpassed 50,000 USD for the first time since mid-May. The bullish trend started on July 21 after the original cryptocurrency set a new local minimum of around 29,400 USD. This price surge has not only dispelled overall concerns regarding the forthcoming bitcoin collapse, but has also brought optimism to the whole industry. The market capitalization has grown and even exceeded 2,2 trillion USD on August 24, according to CoinGecko.

The subsequent two-day correction has resulted in bitcoin symbolically dropping to 47,000 USD price level while demonstrating a keen sustainability at the same time. Now the main cryptocurrency again has hit 51,000 USD and is hovering somewhere above this mark, and many believe that it's seeking to move towards its previous historical maximum. Let’s see whether the current bull run is a logical continuation of the previous one and what has been influencing the bitcoin price swings all this time.

Institutional interest moves bitcoin to a record high

It all started in January 2021, with Elon Musk adding the hashtag #bitcoin to his Twitter bio, which instantly catapulted the cryptocurrency price by as much as 20%. The impact that one of the world’s richest people had on the market movements has eventually become a subject of concern among financial experts and regulators.

But what was really obvious is that Elon Musk proved to be an active “supporter of bitcoin” as he admitted during one of the online conversations in Clubhouse. His further pro-dogecoin and pro-bitcoin tweets had been a regular news presence during two weeks before his activity culminated in Tesla’s notable purchase. The electric car giant led by Musk, revealed its 1,5 billion USD purchase of bitcoin in early February. Moreover, the company claimed it would start accepting btc as a payment method, so this investment should have given Tesla much needed liquidity in the cryptocurrency. The joint filing with the Security and Exchange Commission (SEC) also declared that buying bitcoin stands for “more flexibility” to diversify and maximize further returns on the company’s cash.

After the announcement had been made, bitcoin itself saw a record-breaking week and finally surpassed 50,000 USD. What also added to this spectacular bitcoin boom was the expansion of cryptocurrency initiatives from Visa and Paypal global payment systems. The former announced its partnership with a Kansas-based digital bank First Boulevard to integrate bitcoin and cryptocurrency features into their products, while the latter decided to accelerate the mainstream acceptance of bitcoin outside of the U.S.

Actually, while Tesla is the most prominent institution to go big on bitcoin, it’s not the first. In 2020, an analytic software company MicroStrategy added 1 billion USD worth of btc to its balance sheet. According to CEO Michael Saylor, they recognized that “the world’s most adopted cryptocurrency” could be “a dependable store of value” so they would pursue their “strategy of acquiring btc with excess cash” and target efforts to squeeze as much as possible out of capital raising transactions for this. Since late February, MicroStrategy has begun to actively grow its stash in bitcoin completing big bitcoin purchases one by one right up to the present moment. This culminated in the Michael Saylor-led company now holding approximately 109,000 btc amounting to nearly 3 billion USD, which is two times more than the value of bitcoins held by Tesla. This makes MicroStrategy the biggest public bitcoin holder.

The third institution position that followed suit and also started investing in bitcoin as a long-term holding is Square. The digital payment solutions provider reaffirmed what it had disclosed at the end of 2020 and, as a result, Square’s both bitcoin purchases valued at 220 million USD have equaled about 5% of Jack Dorsey-led company’s cash holdings. This symbolized “ongoing commitment to bitcoin” as “an instrument of economic empowerment”.

Other institutional investors began getting involved in btc as well, with the fintech lender Affirm being among those who considered the asset a potential moneymaker. The company's CEO Mark Levchin, who was previously famous for its scepticism regarding bitcoin, seemed to be warming up to it and finally accepted the need to contend with the cryptocurrency that becomes stronger with each passing day. Paul Tudor Jones, Carl Icahn, Jeffrey Gundlach… Increasingly, worldwide known billionaires, entrepreneurs and hedge-fund moguls turned to advocating bitcoin amidst the Federal Reserve’s (Fed) ongoing banknote pump, and thereby encouraging other institutions to withdraw the cryptocurrency from exchanges and accumulate it in their custody wallets.

This altogether led to the world’s most popular cryptocurrency breaking record after record and finally reaching 64,800 USD on April 14. But only for a while.

Regulators heighten pressure causing bitcoin collapse in May

A month later, A short time earlier, Elon Musk said Tesla would refuse accepting payments in bitcoin in exchange for its products. In his tweet he cited the environmental impact of Bitcoin mining, which requires huge amounts of electricity and hence increases fossil fuel usage. But even though Musk noted that Tesla is not going to sell any bitcoin and still hoping to use the cryptocurrency as soon as the negative impact of mining transaction gets lower, btc price fell below 50,000 USD, which was an instant 15% drop.

Despite the Tesla CEO's own views, his ecological concerns are also marked with regulatory context. Elon Musk’s business highly depends on the U.S. government public subsidies. The current trend of contributing to the green economy maintained by today’s president Joe Biden and his administration can’t be ignored. So it seems likely that the U.S. authorities’ position was taken into account when Musk decided to give up on bitcoin for a while.

At the same time, China claimed to have banned various institutions from crypto-related businesses and warned traders against speculative crypto trading. Bitcoin responded with a drastic one day plunge by 22%, hitting a three-month low of slightly over 32,000 USD, which entailed 500 billion USD being wiped out from its peak market value.

For years, Beijing has curved its path to completely ban bitcoin and this attempt to clamp down on a burgeoning market seemed to be the latest one. But since then, the Chinese authorities only dialed up pressure by arresting people who have been using crypto for illegal purposes en masse along with forcing banks and payment businesses to give up on services related to cryptocurrency transactions. Particularly noteworthy is that, as of May 2021, crypto exchanges and initial coin offerings have already been prohibited under Chinese law with crypto mining crackdown being in full swing.

Beijing's war on crypto heated up even more on July 6 when the China’s Central bank called for the shutdown of crypto-related companies that were suspected “of providing software services for virtual currency transactions.” The regulator also warned “not to provide other services related to virtual currency, including providing business premises or marketing.”

As most cryptocurrency exchanges and other relevant projects are based in China, investors got afraid of other stricter measures and preferred to save their profits by selling crypto assets. Moreover, regulators from all around the world picked up on Chinese experience that weighted on the btc price. Amidst the news about Binance being banned from undertaking any legal activity in the U.K. and the New Jersey Attorney General ceasing activity of the local crypto services firm BlockFi, Bitcoin finally plummeted below 30,000 USD on July 19. Among other reasons, the bitcoin price declined owing to a big sell-off in global stock markets that also caused the increased btc sales on cryptocurrency exchanges.

Standing behind the cryptocurrency service that strives to do its part in the industry’s maturation, we at ChangeNOW saw that people preferred distancing themselves from the falling market rather than trying to take advantage of it.

New drivers of bitcoin growth

The bitcoin’s profitable exchange rate made retail investors willing to save their profit sell the cryptocurrency. In this term, the latest cryptocurrency collapse just signaled another “healthy rebalancing”, which means it will barely undermine bitcoin in the long run. As the CEO of investment manager Nickel Digital Anatoly Crachilov told Forbes, the cryptocurrency market tends to clear excess speculative positions and consolidate before its next phase of expansion."

Many like Crachilov predicted the btc price to stabilize at 30,000 USD level with the further possibility of the market recovery. This is exactly how it happened, as there appeared to be more cryptocurrency buyers and hodlers rather than sellers.

The scenario where bitcoin started gradually regaining its momentum was forged by some promising news. In early August, the SEC Chairman Gary Gensler signaled a possible approval of exchange-traded funds (ETFs) with securities supposed to be traded on exchanges at bitcoin price. Although some experts like Todd Rosenbluth said the SEC is unlikely to rush into this idea any time soon as the regulator is only looking to further regulation and seeking more information on ETF products, some institutions like Grayscale felt enthusiastic about the news and even plan to convert their stocks into an ETF. Thus, Gensler’s attitude has encouraged investors to think that ETFs will somehow be approved and thus open the way to the market for new retail players.

Whether the upward trajectory of btc price would continue mostly depended on the readiness of institutions and new market participants to continue buying the cryptocurrency at 30,000 USD. So when one more leading institution announced a huge 500 million USD purchase worth of bitcoin, the cryptocurrency continued to thrive. The U.S.-based crypto exchange Coinbase added btc to its balance sheet with the further plans to allocate 10% of its quarterly profits into a crypto portfolio. The company’s CEO Brian Armstrong expressed his hope to keep this percentage growing over time so Coinbase “could operate more of its business in crypto.” Bitcoin climbed to 47,000 USD on the news after its price had been floating around 45,000 USD the previous two days.

Shortly thereafter, Elon Musk hinted that Tesla may again change its stance on accepting bitcoin and PayPal reaffirmed its commitment to enable its UK customers to buy, sell and hold cryptocurrency on its platform. This is the first international expansion of PayPal’s crypto service since it became available to the U.S. customers last year, through which the payment giant reinforces its revolution in the mostly unregulated market. An update from the British Financial Conduct Authority (FCA) on Binance complying “with all aspects of the requirements” imposed by the regulator has also benefited bitcoin that grew to 48,000 USD following the news.

Bitcoin recovery also caused a kind of mini “altcoin season”, whereby btc alternatives saw a significant increase in demand with the majority of them pointing towards new 2021 all-time highs. The most vivid example of such a trend is cardano that reached its historical maximum of 2.58 USD on August 20. Over the last month, cardano price has surged 115% while its market cap has doubled.

This altogether increased the total cryptocurrency market capitalization. In August it rose by almost 800 billion USD and surpassed 2 trillion USD for the first time since mid-May.

The prospects are bright

Of course, the times are still challenging for the cryptocurrency sphere but the market is definitely poised to become even more resilient and self-sufficient. Every single time bitcoin manages to resist external threats so modern crypto exchanges should focus their efforts on teaching crypto holders to be forward-looking.

Thereby, starting as a mere instant exchange, we at ChangeNOW focus on providing our users with more comprehensive instruments that could help them avoid excess FOMO. These instruments may not be that evident to novices, but they give people more opportunities to diversify their experience and profit both in bull and bear markets. We suggest that the more such opportunities cryptocurrency services will give, the less people will join the dumping sell-offs once bitcoin falls down. That’s why our NOWLoans saw the light of day on the main platform in a row with some other crypto adoptive measures like zero-fee trading services from AAX and bitcoin futures trading from Changelly.   

To summarize, it looks like bitcoin is on the ride again, and the whole industry is watching closely where it’s heading this time. Expert opinions are diverse, but, in general, there are two groups of financial analysts that adhere to opposite views.

The former suggest that bitcoin has all chances to sit at above 50,000 USD in the near future. If this happens by this autumn, investors are more than likely to consider the upward trajectory as a strong bullish sign and come into play, punching btc price to new historical maximums of 70-75,000 USD. And the latter are afraid that the actions similar to those made by Chinese authorities may eventually force investors to get rid of their crypto assets and cause another price drop to the level of 20,000 USD.

The major fear lies in the stance of central banks that don’t want to risk their standings in the global financial system. And in the case of China, cryptocurrency is a direct threat to the current regime, which forces the Chinese Central bank to continue its anti-crypto agenda highlighting bitcoin “has no real value” while also calling operations with digital assets an “investment speculation”.

“All central banks want to control them [digital currencies] – the PBOC, the US Federal Reserve, the European Central Bank,” says Carsten Murawski, professor of finance at the University of Melbourne in Australia. “They have no interest in parallel currencies floating around. Some countries may not be too worried but in China it could be more of a concern.”

But we already see that crypto mining is back online post the notorious Chinese ban. All signs indicate that mining firms and crypto services don’t stop their activity but just migrate to more bitcoin-friendly countries. CEO of Seattle-based crypto mining firm Luxor Nick Hansen estimates that over time 50% of bitcoin hash rate would go to North America and Asian countries while another 15% would end up in Latin America, which seems quite logical against the background that El Salvador has become the world’s first country to adopt bitcoin as a legal tender. In June, lawmakers of the local Congress voted by a supermajority in favor of the Bitcoin Law, receiving 62 out of 84 of the legislature’s vote.

Currently, the Central American Bank for Economic Integration (CABEI) is actively giving El Salvador technical assistance on implementing bitcoin in order to "navigate waters that have yet to be explored." As part of the government’s plan, El Salvador also began installing Bitcoin ATMs, which will allow its citizens to convert the cryptocurrency into U.S. dollars and withdraw it in cash. It still remains unclear how Bukele and his administration is going to make bitcoin adoption a reality, but the relevant law will come into force already in September. Salvadorans will be able to download the government’s Chivo digital wallet, enter their ID number and receive 30 USD in Bitcoin, according to Finance Minister Alejandro Zelaya.

Of course, while the Salvadoran government emphasizes that Bitcoin would become a great solution for cross-border payments as the country relies heavily on remittances, the global organizations warn against using crypto as national currency. What President Nayib Bukele views as an “unrestricted legal tender with liberating power” and “a great leap forward for humanity”, the World Bank and the International Monetary Fund consider a threaten to “macroeconomic stability” due to “the environmental and transparency shortcomings."

But Latin American countries are watching very carefully the activities that El Salvador takes and waiting for the risky trailblazer to prove bitcoin could really cut the cost of remittances. And some of them are already taking its cue. Honduras is also seeking a better remittance system while Cuba is joining the rank of official crypto adopters, in the hope that this would help the country bypass strict embargo laws imposed by the former U.S. president Donald Trump upon the South American region.

Anyway, there are two key deductions called for by the recent bitcoin behaviour:

  1. No one would doubt that today bitcoin has significant weight and has proved to be a worthy opponent to worldwide regulators. Governments contend with digital assets as they have become indisputable reality.
  2. Amidst the huge institutional adoption, all the restrictive measures, for example, the already lifted cryptocurrency ban in India, had yet to be substantiated.