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Can US Lawmakers Really Just Mint Two $1 Trillion Coins to Back a Digital Dollar COVID Stimulus with "No Additional Debt"?

As the economy continues to deteriorate in the ongoing COVID-19 pandemic climate, US Lawmakers are once again pitching the creation of a sovereign digital dollar to quickly distribute the proposed stimulus packages.

Congresswomen Rashida Tlaib (MI-13) and Pramila Jayapal (WA-7) unveiled the Automatic BOOST to Communities Act (ABC), legislation to immediately provide a $2,000 payment using BOOST debit cards to every person in America as economic stimulus relief during the COVID-19 crisis.

After the initial payment, the ABC Act will provide a further $1,000 in recurring monthly payments for a full year from the time the coronavirus pandemic has been defeated.

According to a release on 16 April, “the ABC Act would be funded directly from the Treasury with no additional debt issued by minting two $1 trillion coins, and additional coins as necessary.”

FedAccounts and the Two Trillion Dollar Question

While there has been discussion about the Federal Reserve getting involved in the ongoing race for Central Bank Digital Currency (CBDC) dominance with a proposed FedCOIN, the motivations previously revolved around concerns with China’s determination to launch their DCEP and Facebook’s Libra project, which incidentally may be showing up once again on the Fed’s radar with the release of their new white paper earlier today.

The ABC Act would jolt the Federal Reserve into action if passed, and the Fed would be authorised by Congress to create digital wallets for all people and businesses in the US. These digital wallets are called “FedAccounts” in the proposal. The digital dollars that will be distributed are not going to be stablecoins and there is no mention of the payments being based on blockchain infrastructure.

An alarming notion is the insinuation that the FED must recognise the two newly minted Treasury coins valued at a trillion dollars each to back the payments with “no additional debt” and the explanation given seems like an exercise in creative accounting. According to Fortune, “Under the plan, the Treasury would mint the two $1 trillion coins, then deposit them at the Federal Reserve. Forced by law to recognize the coins as legal tender, the Fed would add $2 trillion to the Treasury’s account. The Treasury would then use this money, under Congress’s direction, for stimulus.”

FinTechs Enlisted in the Fight Against COVID

The bill was introduced as concerns continue to be raised regarding the timeliness of the $1,200 stimulus payments authorized under the CARES Act. While the IRS has been distributing the stimulus, it has not been an easy or quick process so far.

An appeal to Congress by Financial Innovation Now (FIN), on March 19, for FinTech companies to help distribute the loans digitally was given the green light by Lawmakers over the last week.

PayPal, Square and Intuit have received the US Government’s approval to take part in the Small Business Administration’s (SBA) Paycheck Protection Program(PPP) which was established in response to the COVID-19 pandemic triggered global financial crisis.

FIN is a FinTech alliance which includes Square, PayPal, Intuit and Stripe. In the letter addressed to lawmakers they argued that they had “the reach, relationships, and digital capabilities to reach those businesses most vulnerable” in a more timely fashion while the traditional US insititutions were left wanting in this regard.

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How Does Cryptocurrency Regulation News Affect the Bitcoin Price? Bank Of International Settlements Research Reveals

New research conducted on behalf of the Bank for International Settlements indicates that contrary to popular belief, the Bitcoin price and other cryptocurrency prices respond very positively to news of incoming regulations,when they are clear.

The Dallas Federal Reserve Bank’s Globalization Institute recently published a working paper by researchers from the Bank for International Settlements which found that crypto markets react positively to clear regulations and often decline at news of central bank resistance and bans.

Crypto Markets Thrive With Clear Regulation

It may be no surprise that the official white paper reveals that cryptocurrency markets tend to take a plunge when news surfaces of a potential government or central bank imposed ban on the horizon. The findings ,however, show clear evidence of the markets surging when clear crypto regulations are announced.

Source: Federal Reserve Bank of Dallas Globalization Institute

The researchers analyzed Bitcoin and other cryptocurrencies to determine the factors that were instigating price movements in relation to official government action. Tackling the question directly, the BIS researchers wrote, “Why do news events about national regulations have such a substantial impact on cryptoassets that have no formal legal homes and are traded internationally? Part of our interpretation is that cryptocurrencies rely on regulated institutions to convert regular currency into cryptocurrencies.”

The above indicates that having clear regulatory oversight when bridging the traditional markets to the crypto markets through fiat on and off-ramps are still important to crypto traders as are finding official institutional channels.

Despite its reputation of wanting to be left well alone by regulation, the new research highlights the contrary and clearly indicates that at this fork in crypto’s history, as put by the researchers,”authorities around the globe do have some scope to make regulation effective,” as the community appears to be seeking more regulatory clarity, not less.

BIS Reports on the Changes to Payment Industry and COVID Impact

As reported on April 15, the Bank for International Settlements (BIS) has previously released a quarterly report on the changes in the payment industry, including the market impact of the recent coronavirus outbreak.

Some of the trends mentioned in the report include stablecoins, tokenized securities, CBDCs, cross-border payments, and peer-to-peer payments.

The pace of change and innovations’ potential for disruption in the payments industry was one of the key takeaways of the report. In turn, this has propelled payment systems to the top of policymakers’ agenda, according to the BIS.

Coinbase CEO: Americans are Investing Their COVID Stimulus Checks in Bitcoin

Brian Armstrong, the CEO of US-based crypto exchange Coinbase, has revealed data showing how $1,200 deposits similar to the stimulus checks being offered to Americans by the government have skyrocketed this week. Coinbase is the leading crypto exchange on American soil.

Americans bullish on Bitcoin

The information presented suggests that some Americans are looking at the other side of the coin in their stimulus checks as they are not using them to purchase food and gas. Instead, they are keeping their fingers crossed and investing in Bitcoin.

The stimulus cheques are part of US President Donald Trump’s plan to render a helping hand to U.S. citizens as the coronavirus pandemic continues causing economic turmoil across the globe. Reportedly, at least 22 million Americans have lost their jobs.

The Internal Revenue Service (IRS), the revenue arm of the United States federal government, started disbursing the stimulus checks worth $1,200 to approximately 80 million people. Eligibility was pegged on annual gross income that did not exceed $75,000.

Statistics from a CNBC survey showed that the majority of Americans were using the stimulus checks on food and gas at 16% and 10%, respectively.

Bitcoin halving on the horizon

With the much-anticipated Bitcoin halving event just around the corner, the data availed by Armstrong imply that some Americans want to add value to their stimulus checks by investing in Bitcoin.

The Bitcoin halving scheduled for May will slash the mining reward from 12.5 BTC to 6.25 BTC. As a result, the supply of Bitcoin will reduce, and depending on demand; the price is anticipated to increase. The second halving event took place in July 2016, and a year later, in December 2017, Bitcoin’s price reached an all-time high of $20,000.

Recently, a surge in Bitcoin online courses was witnessed as the demand hit 300%, and this is linked to measures, such as lockdowns, social distancing, and quarantines, being necessitated to curb the coronavirus pandemic.

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Bitcoin Bull Run Ahead? Understanding the Factors Driving Bitcoin's Price Growth

Bitcoin breached its key resistance of 7,300$ today. Block halving, change in economic supply and an Ichimoku Kumo twist are driving the price forward, let’s take a look into how these factors are going to affect the price of bitcoin ahead.

1. Bitcoin Monetary Supply

The economics of the bitcoin system is computerized and thus we have knowledge about Bitcoin issuance over a period of time. This helps us understand the inflation rate of Bitcoin, its circulation in the open market, and how it would impact the price.

Source: bitcoinblockhalf.com

2. Bitcoin Supply Economics

Total Supply: 21,000,000 Bitcoins to ever be produced

Block Interval: 10-minutes time difference between each block.

Block Halving: Every 210,000 blocks or approximately every 4 years.

Change in parameter: Requires all Bitcoin participants to agree by consensus to approve the change.

Reduction in supply and block reward indicates that the inflation rate of Bitcoin is going to reduce significantly. This reduction in price leads to an increase in the value of each bitcoin, further based on historical price analysis we can see that Bitcoin has always rallied due to a halving changing its supply economics.

3. Bitcoin Historical Price Movement

What Bitcoin will do in terms of pricing for a halving event is always a question for everyone. Experts believe that halving is already priced in by the market and thus there’s no expectation for the price to do anything. Others believe that due to price equilibrium, a halving of supply should cause an increase in price if the demand for Bitcoins is equal or greater than what it was before the halving event. The chart below provides a historical analysis of bitcoin’s price movement.

Source: bitcoinblockhalf.com

4. Ichimoku Cloud Twist

Ichimoku Kumo has turned bullish which means that the sentiment of the market has turned bullish, whenever Ichimoku cloud turns bullish bitcoin sees a continued bullish momentum.

With 18 days to halving, this is a very good sign for the market. Tenkan-sen is also supporting the price, indicating bullish momentum. Tenkan-Sen, also known as the Conversion Line, is the mid-point of the highest and lowest prices of an asset over the last nine periods. The Ichimoku cloud is a colored part of the indicator indicating a change in market trend which helps to identify the market trends.

The RSI also known as Relative Strength Index is a momentum indicator that measures the volatility of recent price changes to evaluate and identify overbought or oversold conditions. The RSI is displayed as an oscillator which line graph and reading between 0 to 100. Bitcoin RSI index is currently ranging between 60 to 40 and is showing a momentum towards 100. This means that the price is still not overbought and has room for an upward movement.

Strong fundamentals are driving bitcoin’s growth. With a reduction in inflation, the price tends to move towards the equilibrium, and movement towards equilibrium indicates a bull run. These factors are going to drive the growth of bitcoin’s price on a larger timeframe.

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Bitcoin's Correlation with S&P 500 at a Nine Year Peak, says Quantum Economics Founder Mati Greenspan

Mati Greenspan, founder of Quantum Economics believes the coronavirus pandemic has brought Bitcoin closer to the S&P 500 than ever before.

During his presentation at Virtual Blockchain Week, crypto analyst Mati Greenspan explained that Bitcoin and legacy assets are increasing in correlation due to COVID-19. Greenspan incidentally also received high praise for his ability to deliver the virtual presentation while caring for his child under the unique lockdown circumstances.

Leveraging data from Coinmetrics as shown in the screenshot from the presentation below, Greenspan demonstrated that Bitcoin and S&P 500 now have a correlation of around 0.6 which is a new high from the previously recorded 0.3 in January 2011. Greenspan interprets 0.3 as having almost no correlation.

Source: Screenshot from Virtual Blockchain Week

Bitcoin Not Our Saviour, Cuban Agrees

Greenspan argued during his presentation that “nothing has emerged” that indicates Bitcoin or cryptocurrency will “be our saviour.”

Billionaire Mark Cuban also recently argued that the dependency of Bitcoin on fiat currency is one of the greatest barriers to its widespread adoption. He argues that at the moment, you have to convert Bitcoin to fiat currency to spend it.

In a recent interview with Kevin O’Leary, Cuban pointed out some challenges of cryptocurrencies such as difficulties in spending crypto, widespread understanding, and onboarding challenges as some of the reasons why he does not personally hold cryptocurrencies.

Risk Asset or Digital Gold

Greenspan also stated that Bitcoin is still considered a “risk asset” to most investors and is not a safe haven like gold which, “took thousands of years to build up.”

While he is correct that gold has achieved this status over a thousand years, a new report from Bloomberg indicates that Covid-19 pandemic markets have also greatly accelerated Bitcoin’s maturation to a new type of digital gold.

According to the April 2020 Bloomberg Crypto Outlook entitled Bitcoin Maturation Leap, the stock market’s volatility instigated by the coronavirus disruption has shaken up the entire crypto market and may have greatly accelerated Bitcoin’s transformation into a safe haven asset like Gold.

Per the report, “This year marks a key test for Bitcoin’s transition toward a quasi-currency like gold, and we expect it to pass.”

Source: Bloomberg Crypto Outlook: Bitcoin Accelerating Maturation

The researcher’s explained, “When the S&P 500 declined almost 14% in 4Q18, Bitcoin declined about 45%, and both bottomed about the same time. Indicating the first-born crypto is still susceptible to the receding stock-market tide, but in more of a bullish divergent condition, Bitcoin remains up about 9% in 2020 and is hovering near its $8,000 support level, despite about a 20% S&P 500 correction. Our graphic depicts the spiking nature of the correlation between Bitcoin and the S&P 500, notably when equities decline swiftly.”

US-China Cold War Could Benefit Bitcoin

An internal Chinese report presented to Chinese Leader Xi Jinping and his top party members on May 4, concluded that anti-China sentiment is currently at its highest since the 1989 Tiananmen Square crackdown according to Reuters.

The report was created by China’s top intelligence agency, the China Institutes of Contemporary International Relations (CICIR), a think tank affiliated with the Ministry of State Security. People close to the report’s content said that Beijing will face a US-led wave of anti-China sentiment in the aftermath of the COVID-19 pandemic and must be prepared for a worst-case scenario which could include a military showdown between the two superpowers.

China has been heavily criticized on the world stage for its alleged lack of transparency of information on the COVID-19 pandemic and now appears to be doubling down on its censorship efforts. With the US-China trade war already well underway, there are now signs that things could escalate into a full-blown Cold war.

Following the Tiananmen Square incident in 1989, China was heavily isolated and sanctioned by international powers. But China is not the poor toothless nation it once was, it has now grown to the second-largest economy and a base for the majority of manufacturing in the world, and is unlikely to yield to any foreign powers demands.

Bitcoin and the Cold War

According to an article by Forbes on May 11, a source close to the letter compared it to the Novikov telegram, a warning letter sent by a Soviet Amassodar in 1946 to the Soviet Union of American foreign policy which is reported as a major catalyst for the subsequent decades-long Cold War between the USA and the USSR.

For Bitcoin, there are some notable downsides should the US-China tensions escalate to that of a Cold War scale. A larger break in economic ties could be a catalyst for stricter China imposed capital controls on the Chinese population and an even greater acceleration into the development of its own central bank digital currency or DCEP in attempt to completely dissociate from the broader crypto industry.

But there is potential for cryptocurrencies and Bitcoin to shine. Notably there would be significant disruption and roadblocks placed in front of existing fiat gateways been China and the US which could drive further adoption of peer-to-peer transactions of Bitcoin and crypto. China’s economy is still driven largely by exports and there will be a need to build new bridges for capital to flow, and cryptocurrency was designed for such a role.

A Cold War could see China and the US effectively divide up the world economy according to their ability to economically influence them. China most likely will retrench towards the Belt and Road countries of Asia, Africa and parts of Europe while the US will follow suit with the Americas and European allies.

Both sides are expected to suffer greatly from the lack of free trade and will likely result in a further decrease in global economic growth which is already buckling under the strain of the COVID-19 disruption and lockdown.

Billionaire investor Paul Tudor Jones, has made the argument that the effects of these stimulus policies will help highlight the strength of deflationary cryptocurrency economics in contrast to the current inflationary policies of world monetary authorities.

While a Cold Trade War between the largest economies in the world is unwanted, the long term effects for Bitcoin look quite positive. Recently the Bloomberg April 2020 Crypto Outlook also revealed that the creative financial measures of the US Lawmakers and Central banks around the world appear to be accelerating the status of Bitcoin to a new type of digital gold.

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Japan Will Include Central Bank Digital Currency in Honebuto Economic Plan

The Japanese Government has continued its acceleration towards a Central Bank Digital Currency (CBDC) and is set to include its consideration in its formal economic plan.

In a report from Nikkei on July 14, Japanese officials will continue to consider and discuss a CBDC in their official Honebuto Plan for Economic and Fiscal Revitalization. The Japanese government plans to discuss and consider the CBDC while coordinating with other countries, according to the media outlet.

The Honebuto Plan was designed to change the basic structure of politics, expressly in relation to economic and fiscal policy. The announcement of CBDC inclusion demonstrates how serious the discussion in Japan has now become.

Japan Accelerates Towards CBDC

The news of the inclusion of Central Bank Digital Currency in the Honebuto Economic Plan has come just one week after the Bank of Japan (BoJ) announced it will commence a Proof of Concept (PoC) process with the Digital Yen.

Although no timetable for Japan’s CBDC experimentation has been revealed, the BoJ published a report called Technical Hurdles for CBDC, in which the bank disclosed that it would check the feasibility of CBDC from a technical perspective while continuing to collaborate with other central banks that are also in development.

According to Nikkei, it will be the Japanese government, however, and not the Bank of Japan, that will have the final say on whether or not to issue CBDC.

Curbing China’s DCEP

Bank of Japan (BoJ), the nation’s central bank is aiming to create a digitized Yen to curb the potential influence of China’s own CBDC development—the Digital Yuan or Digital Currency Electronic Payment (DCEP). There have been many reports that China is already actively testing its DCEP across a range of civilians, government employees, and even some global organizations within the mainland.

As reported by Nikkei, in the Honebuto policy, it was stated that the BOJ PoC experiments “will be examined in cooperation with each country.” In this regard it was previously announced in February, that six central banks around the world came together to create a working group to share experiences on use cases on central bank digital currency (CBDC). With significant expertise in exploring digital currencies, these six central banks are the Bank of Canada, Bank of England, Bank of Japan, European Central bank, Sveriges Riksbank in Sweden, and the Swiss National Bank, along with the Bank for International Settlements (BIS).

It was reported that Japan has also requested support from the US Federal Reserve to get in front of China. Norihiro Nakayama, the Vice-Minister for Foreign Affairs in Japan was quoted saying that he wishes the “Federal Reserve would partner with six other central banks including the Bank of Japan in studying digital currencies.

Bitcoin Wakes Up from Slump and Surges, While Gold Rallies

Bitcoin, often dubbed “digital gold” by crypto enthusiasts, has just recently surged past the $10, 000 mark, after months of being in a slump.

Bitcoin’s Groundbreaking Bull Run

As the value of the USD has been depreciating with the mass printing of stimulus checks deployed by the US government for pandemic repercussions relief and with gold finally responding with a price rally, Bitcoin (BTC) has finally gained some bullish traction on the crypto market.

The cryptocurrency has been hovering around the low $9000s in value for the longest time and had received a lot of criticism from big players in the crypto industry. Binance CEO Changpeng Zhao (CZ) had commented on it earlier last month and said that he was unsure what it would take to bring Bitcoin out of its slump. However, he did add that maybe time would change the game for BTC, and it seems as if his prediction came to life.

USA’s Part In BTC Bull Run

With the USD being printed in bulk by the US government in the goal of delivering a second round of stimulus packages to the population, many investors have switched to cryptocurrencies as a hedge.

In fact, it was even reported by crypto exchange Coinbase that many Americans had used the first stimulus check of $1,200 USD delivered by the government towards investments in BTC. Crypto advocates tout Bitcoins and altcoins as a means to protect their wealth from government procedures such as economic stimulus packages, which are often regarded as inflationary.

Before the bullish surge on July 26, Bitcoin had been reported to be stagnant for weeks on end, its value remaining average and uninteresting for crypto market watchers.

Bitcoin As An Alternative Investment

The largest digital token in the crypto world experienced a surge of as much as 15%, recording a groundbreaking $10,944 in value, its highest price since last August. The rally escalated after BTC breached $10,500.

Chief Market Strategist at Miller Tabak + Co. Matt Maley commented on Bitcoin’s bullish run:

“It’s attracting the momentum players. And of course, the momentum players play such a big role nowadays that it’s giving bitcoin the big move.”

Gemini CEO Winklevoss Backs Bitcoin

One renowned momentum player, Tyler Winklevoss, is one that has been a Bitcoin advocate for quite some time.

The co-founder and CEO of crypto exchange Gemini had publicly stated that Bitcoin is an interesting hedge and advocated that BTC is set for its next bull run, with the US Federal Reserve printing money as an economic stimulus strategy and the USD consequently depreciating for the time being.

China and EU Trade Talks Included the Potential Cooperation of Central Bank Digital Currencies

The European Union and China recently had trade and economic discussions regarding topics including central bank digital currencies (CBDC) and supply chain.

During the video conference, according to the Ministry of Commerce of China, the two parties discussed the strategic cooperation of the steady recovery and growth of the global economy post-pandemic.

According to the official report, “a series of fruitful results and consensus have been reached in the negotiation of China-EU investment agreement,” including the expansion of the digital economy, and other financial cooperations. The official report said:

“The two sides agreed to strengthen cooperation in green finance and promote the convergence of standards. Agreed to strengthen information sharing and exchanges and cooperation in the fields of digital currency and financial technology.”

The Chinese officials stated that the country is looking forward to singing a memorandum of understanding on bilateral supervision cooperation and to support each other in building international financial centers. The European Union, however, expressed that there will be more reciprocity needed from China before making further progress.

Executive Vice-President of the European Union Valdis Dombrovskis said:

“The current crisis gives us no other option but to work hand in hand with our global partners, including China. By pulling together we can recover more quickly economically, and make progress on areas of mutual interest such as trade and investment relations. However, we also need to address sticking points such as reciprocity in the way our companies are treated. We will need to make further progress on these and other issues ahead of the next leaders’ summit in the autumn.”

The European Commission also stated that a range of regulatory issues in the financial services sector were discussed, including cooperation on green finance, and the international role of the Euro and the Renminbi.

Experimenting with central bank digital currencies

China’s central bank has been rolling out a central bank digital currency, also known as digital currency electronic payment (DCEP). The People’s Bank of China has many times announced that its CBDC was ready, however, it is still currently being tested.

In May 2020, local government employees in the city of Suzhou have received China’s DCEP. The Suzhou municipal government employees will be receiving 50 percent of their transportation subsidies for May in DCEP. The DCEP will be issued to the employees by the nation’s four state-owned banks, including the Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of China, and China Construction Bank. The employees were asked to download digital wallets developed by the banks to be able to receive their subsidies.

Earlier this year, Banque de France, the French central bank launched a program of experiments to test out the potential central bank digital money aimed for interbank settlements.

Potential participants have been invited to submit their applications to experiment with the digital euro, and Banque de France announced the 8 successful applicants: Accenture, Euroclear, HSBC, Iznes, LiquidShare, ProsperUS, Seba bank, and Société Générale Forge.

The three main objectives of the CBDC experiment includes identifying benefits, analyzing potential risks, and modeling as CBDC-based interbank settlement. The French central bank will be working closely with the 8 successful applicants to carry out the experiments in the coming months.

Cryptocurrencies’ Fixed Supply Will Hinder Their Functionality as Actual Currencies, says UBS Economist

Cryptocurrencies have emerged as the new kid on the block in the financial scene, leading to divergent opinions. Paul Donovan, the chief economist at UBS Global Wealth Management, believes that cryptocurrencies hold a fundamental flaw as their supply cannot be slashed whenever demand flops in most cases.

Cryptocurrencies cannot be manipulated

Donovan argued that a “proper currency” should allow central banks to manipulate its supply so that an equilibrium can be restored whenever demand slumps. He noted:

“A proper currency can be a stable store of value, providing certainty that it will be able to buy the same basket of goods tomorrow as it buys today. That confidence is derived from central banks’ ability to reduce supply when demand is falling.”

Donovan alluded to the fact that cryptocurrencies cannot be influenced by switching off their supply. Notably, one of the factors that attract pundits and investors to the crypto sector is the autonomy created by cryptocurrencies as they shun governmental control.

Spending power

The chief economist also delved into the issue of cryptocurrencies’ spending power whenever their value plummeted. He explained:

“People are unlikely to want to use something as a currency if they’ve got absolutely no certainty about what they can buy with that tomorrow.”

The crypto market has nosedived in the last 24 hours after BitMex Research started a Bitcoin (BTC) double spend rumor of around $21. This false information sent Bitcoin price to a low of $28,953, and Grayscale investment saw this as the opportunity to buy the dip and added BTC worth $1.2 billion to its portfolio.

Bitcoin has, however, surged past the $30,000 mark and is trading at $30,581 at the time of writing. Ethereum has also been down by 14.02% in the last 24 hours and hovering around the $1,129 price at press time, according to CoinMarketCap.