Bitcoin Crash: BlackRock and the Fed Seal the End of Crypto
Mark Oehrlcrypto
XAU/USD : +0.08%
HSBA : -1.14%
MA : -0.54%
wfc : +0.14%
B.K. : +0.26%
golden : -0.16%
Investing.com – Although the SEC has already rejected several applications for approval of a spot-market-based Bitcoin ETF, the world’s largest asset manager BlackRock has also recently submitted such an application.
The rally sparked by this news is no coincidence, as the chances of BlackRock receiving approval for the first and perhaps even only spot Bitcoin ETF are higher than ever.
The reason is that recent events in the US financial system mean that the Fed itself would have control over the new ETF, as Mark Goodwin wrote.
The starting point is the new FedNow banking communications platform , which is set to launch in July 2023. The Fed will use it to manage the regulation and capital requirements that come with the new digital dollar system.
According to Goodwin, this tool will allow the Fed to have permanent control of overnight interest rates and short-term liquidity in dollars. For banks, these overnight interest rates are especially important when they need short-term liquidity overnight to service customer withdrawals. It is possible to borrow dollars in exchange for the deposit of a security (government bonds).
Although up to now this liquidity mechanism has only worked directly between banks, FedNow aims to lead to an automation in which, in addition to the large banks providing liquidity in dollars, the Fed itself is also integrated into the process.
With this new mechanism, the central bank plans to deal with the shortage of dollar liquidity more effectively, since it is no longer dependent on the large US banks and the Eurodollar market to maintain liquidity, as was the case before. When market liquidity runs out, the central bank intervenes in real time.
This can prevent strains on the financial system, as occurred with the 2008 financial crisis, when banks stopped trusting each other and dollar liquidity dried up.
As for the Bitcoin ETF requested by Blackrock (NYSE: BLK ), several interesting aspects now come into play, as Goodwin explained.
Participating in the digital dollar pilot program are BNY Mellon, PNC Bank, Citi, HSBC, Mastercard (NYSE: MA ), TD Bank, Truist, US Bank and Wells Fargo (NYSE: WFC ), as well as SWIFT.
Two of the players involved in the digital dollar play a special role. BNY Mellon is the largest US bank where government bonds are deposited as collateral for the USDC stablecoin. PNC Bank, for its part, was BlackRock’s largest shareholder, with 22.4%.
In addition, the SEC, as the authority responsible for applying for the Bitcoin ETF, has recently filed lawsuits against Binance and Coinbase (NASDAQ: COIN ). The justification was that these cryptocurrency exchanges support the sale of unregistered securities. The lawsuits explicitly claimed that the Binance-issued stablecoin BUSD was an unregistered security. But there was no mention of the Circle-issued USDC stablecoin, which can be traded on both platforms, Goodwin notes.
At the same time, the president of the Fed, Powell, declared that stablecoins are a form of money and, therefore, central banks must decide what their future management should be. He justified it by saying that central banks are the institutions that defend the credibility of money.
Therefore, the US central bank and the Treasury Department are not against cryptocurrencies per se, but they want to have full control of them.
Powell, for his part, has another ace up his sleeve, Goodwin explains.
In his appearance before the Senate Finance Committee on June 21, he stated that Basel III international capital requirements should apply.
In practice, this means that banks must have sufficient liquidity in dollars for the speculative assets deposited in them, such as Bitcoin . This would mean that, with the introduction of this regulation, for each asset deposited in a US bank, such as Bitcoin and gold , the corresponding amount in dollars must be available.
According to Goodwin, it follows that the demand for dollars would increase considerably with the introduction of this regulation. Also, when the price of Bitcoin in dollars rises, the demand for dollars automatically increases because banks have to meet capital requirements.
With this scheme, the Fed and the Treasury can manage the demand for dollars themselves. At the same time, Powell can defend the status of the dollar as the world’s reserve currency, which is very important to him, as he said in his appearance on June 21.
A spot ETF on Bitcoin would also allow the Fed to control the world’s largest cryptocurrency, and that’s where BlackRock comes in. Well, it follows from the ETF application that the Bank of New York Mellon (NYSE: BK ) will be entrusted with the custody of the cash and the fiduciary management of the ETF. In other words, the bank that participates in the digital dollar pilot and also holds the collateral (US government bonds) for the USDC stablecoin, which is considered money.
Thus, through FedNow, the Fed would not only have direct control over the demand for dollars and stablecoins, but also over Bitcoin, which the entire cryptocurrency market has followed closely until now.
Goodwin concludes by noting that ETFs are often used by large financial institutions for short selling. The Spot Bitcoin ETF requested by BlackRock would allow the Fed to send Bitcoin in any direction at any time when the digital dollar becomes a reality and have unlimited control over it. This makes the probability of the Bitcoin ETF arriving high, but by no means a cause for celebration.
It would simply be the end of the dream of a currency at the service of the people and independent of governments and central banks.
