Brexit, Impeachment and Deglobalisation: The dawn of a New Age

One week after Brexit and few days after Trump’s victory in the impeachment trial, we can see the beginning of new age in the geopolitical arena. The United Kingdom and the United States were at different times in their history the engines of globalization aiming to a more significant economic integration. The fall of the Soviet Union, described by the Russian President Vladimir Putin as “the biggest geopolitical cataclysm in the modern history” seemed to accelerate the globalization process.

2016 marks beyond the doubt a structural change in the global political and economic equilibrium. Two of the most prominent Western economies opted out from the globalization quest and entered in a new cycle of decoupling their economies from the global economic integration.

Is this wrong? Despite being criticized by the intelligentsia, from a pragmatic point of view is not wrong. Diversification and decorrelation of economic cycles across the world can only benefit everybody.

In this new age of protectionism and decentralization, crypto-currencies and especially crypto-economy has a significant and bright role to play. The recent Bitcoin rally speaks for itself.

Market overview

Bitcoin flirted with the 10 000 USD mark and experienced the earliest and most significant rally in a first-quarter since its beginning. The last week rally breached the upper Bollinger band, but the Relative Strength Index is in the confidence zone with no sign of Bitcoin being overbought.

That MACD shows that the current trend is sustainable at least over the next month. The rally also influenced the Altcoins, some of them including Ripple experiencing record increases, and thereby being massively overpriced.

Is somebody squeezing the shorts?

Bitcoin is moving up quickly and maybe too fast. The cost of carry on Bitcoin futures exhibited a steep increase since December 2019, reaching almost 20% for the March 2020 contract. The rally for the June 2020 contract is less accentuated. Seemingly, massive liquidity is injected in the futures contracts with March delivery. A sudden increase in futures price juxtaposed over a rally in the Bitcoin spot price is the sign of a short squeeze.

A short squeeze can occur when traders would take long positions in the futures contracts involving a specific commodity at a low price and then would try to purchase a significant spot quantity of that same commodity. If Bitcoin squeezers are successful, the traders holding a short position in the futures contract would have to buy Bitcoin at a higher price to be able to sell it back at a lower price, which results in a significant loss for the short holder.

Meanwhile more regulation in the crypto-world...

Germany’s Financial Supervisory Authority (BaFin)

Germany’s Financial Supervisory Authority (BaFin) published guidelines for German companies providing custodian services for cryptocurrencies. All digital assets custodians should apply for a licence by March 31. It is a consequence of a new German law that entered into force on January 2 as a response to the European Union’s Fifth Anti-Money Laundering Directive (AMLD5), which requires crypto firms to demonstrate compliance with enhanced know-your-customer (KYC) and anti-money-laundering (AML) procedures.

The Financial Crimes Enforcement Network (FinCEN)

The Financial Crimes Enforcement Network (FinCEN) announced that “Social media and messaging platforms and others now focusing on the establishment of cryptocurrencies cannot turn a blind eye to illicit transactions that they may be fostering, FinCEN’s representatives underlined that the emerging financial institutions need to ensure that ” their systems resilient to, and report on, money laundering, terrorist financing, sanctions evasion, human and narco-trafficking and other illicit activity”.

This tendency will expand to the entire crypto-currency universe. It will raise a big question mark on whether regulation for fiat currency transactions should be applied to crypto-currencies.

The U.S. Securities and Exchange Commission (SEC)

The U.S. Securities and Exchange Commission (SEC), the American watchdog of financial markets started to dive deeper into the token industry and filed charges against 27 completed ICOs between 2016 and 2020. The most significant penalty in an ICO case (24 million USD) was against Block.One, a U.S. start-up that raised 4.1 billion USD worth of tokens.

Tokens will abide in the future the financial instrument regulatory corpus, thereby making the ICOs more integrated with the capital markets. It could be a massive game-changer for the token underwriters that will see their compliance and legal costs increasing exponentially. ICOs may thus become just another glorified IPO, as anticipated by Ripple’s CEO.

Market outlook

The market delivers positive signals at least in the short term, and there are serious reasons to believe that Bitcoin will find support at 10 000 USD. Some Altcoins like Ripples and Bitcoin Cash will leverage the trend and will move in a territory where they are overpriced. Big dips are still to come this year on Altcoins.