| Last week, Christine Lagarde, head of the International Monetary Fund (or IMF), gave cryptocurrency her seal-of-approval just days before Bitcoin hit $9,000.
She wrote in a detailed post on the IMF blog about how cryptocurrencies like Bitcoin could provide fast, inexpensive transactions to millions of people while blockchain technology makes financial markets all around the world more secure. Immediately following her comments, Bitcoin received an unexpected surge above $8,000. It’s unlikely that her statement alone caused this price increase, but her post reflects the opinion that is shared by many other leading financial authorities. “Just as a few technologies that emerged from the dot-com era have transformed our lives, the crypto assets that survive could have a significant impact on how we save, invest and pay our bills,” wrote the conservative IMF managing director. These words come roughly a month after the G20 summit, where many central bank directors decided against further cryptocurrency regulations, at least until more data could be collected. This is all great to hear from such an important person, but why is it significant? What effect will this have on cryptocurrency going forward?  In early 2018, regulators attacked cryptocurrency, torpedoing prices across the board and sending the market tumbling downwards. After bottoming out twice, Bitcoin is finally making a resurgence, almost five months later. In my last e-mail, I examined how the “double bottom” is a great indicator of a trend reversal. Now that we’ve had three positive weeks in a row, it’s starting to look like that reversal has been confirmed. That’s a welcome change after how the year started. But this crypto rally could vanish quickly if financial leaders like Lagarde begin to impose regulations. So, it’s extremely encouraging to hear comments like this from the head of the IMF: “Understanding the risks that crypto-assets may pose to financial stability is vital if we are to distinguish between real threats and needless fears. That is why we need an even-handed regulatory agenda, one that protects against risks without discouraging innovation.” I’ve believed that yes, cryptocurrency could use SOME regulation to protect investors. However, ham-fistedly regulating the market out of fear will needlessly stifle growth. Lagarde shares that same opinion, as well as a newly found positive sentiment for cryptocurrency as a whole. Just a month and a half ago, she was actually against decentralized currencies and calling for a “Bitcoin crackdown”. In addition to decreasing the chance of over-regulation, Lagarde’s interest in crypto could mean something even bigger: Adoption of cryptocurrency (most likely Bitcoin) by the International Monetary Fund. |
| I’ve written about this before in the past, but whenever an asset’s market capitalization exceeds roughly $291 billion (the total value of Special Drawing Rights allocated to member nations), it will be eligible for admission into the IMF.
That means that if Bitcoin’s market cap increases to $291 billion, the IMF would hold a large reserve of it for member nations to draw from. If that happened, cryptocurrency would no longer be just a niche investment or novelty. Bitcoin would receive the validation that crypto traders so desperately desire. Bitcoin’s market cap exceeded $291 billion in December last year, but the international finance community was extremely pessimistic about the future of cryptocurrency. As a result, there was no serious consideration of adoption from the IMF. However, we now are hearing Christine Lagarde, the IMF’s managing director, make comments like this: “If privately issued crypto-assets remain risky and unstable, there may be demand for central banks to provide digital forms of money.” If central banks begin offering digital currency, that means the IMF will absolutely have to purchase some as well, skyrocketing crypto prices in the process. So, as we watch Bitcoin steadily rise – keep an eye out for how the IMF responds when its market cap eventually exceeds the “magic number” of $291 billion… …Because what happens after that could change the way we use currency forever. |
