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European Central Bank Follows US Fed’s Footsteps With 25 BPS Hike

On Thursday, the Governing Council of the European Central Bank (ECB) announced that it was raising “three key ECB interest rates” by 25 basis points (BPS) in a move similar to the one taken by the United States Federal Reserve. 

The US Federal Reserve, on Wednesday, increased its fund rates by an additional 25 BPS, its highest interest rate in 22 years.

European Central Bank In The Fight Against Inflation

The European Central Bank, in its statement, admitted that although inflation continues to decline, it is “still expected to remain too high for too long.” In a bid to fight inflation and return it to its 2% medium-term target in a timely manner, the governing council has continued to hike the interest rates for some time now, and this has further raised concerns for investors in the financial market as to whether or not there will be hikes before year ends. 

For context, the ECB has raised rates by 4.00% since last year July, accounting for the fastest-tightening cycle in its history. It is projected that this rapid increase in rates could negatively affect the expansion of loans in the European region and economic activity also. 

A quarterly poll released by the ECB on July 25 revealed that the companies’ demand for loans plunged to its lowest in the second quarter of this year. The eurozone has less developed and liquid capital markets than the United States, so there is an overreliance on banks in financing the economy. 

And now, according to ECB Chief Economist Philip Lane, the tighter monetary policy is massively impacting bank loans. So such policies will undoubtedly cause a liquidity squeeze. 

Bitcoin’s Role

Although inflation continues to decline, it is evident that the ECB and US Federal Reserve aren’t getting the desired results as to the target to which they want to bring inflation down to. As such, these financial bodies may continue increasing the rates to as high as possible despite the dramatic economic slowdown. 

Investors are aware of this position and are looking toward Bitcoin and other cryptocurrencies for succor. For a long time now, Bitcoin has been tagged as a ‘hedge against inflation,’ and it seems that many are realizing that this is more than a tag as Bitcoin has remained stable despite the growing rates, which many would have expected would send Bitcoin and the crypto market spiraling down. 

Unlike the United States, European investors are lucky to have more regulatory certainty in the region. The Markets in Crypto Assets (MiCA) regulation offers a sense of direction to stakeholders in the European crypto industry. This will help businesses and investors navigate their way when operating and dealing with crypto assets. 

Bitcoin price chart from Tradingview.com (European Central Bank)

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Spanish Authorities Warn Cryptocurrency Exchanges For Unregistered Services

Cryptocurrency businesses have continued to receive pressure globally from different regulatory bodies. For example, the Spanish National Securities Market Commission (CNMV) recently released a warning to many financial markets and crypto-related businesses. The warning is on unregistered services which they offer.

From the official document from CNMV, about 11 entities received the warning from the regulatory body on August 16. The document stressed the non-compliance of these entities with the registry of the commission.

Among the listed entities are some prominent crypto trading platforms like Bybit and Huobi. However, this Spanish regulatory body maintains that the unregistered entities have no authorization to provide investment services in the country.

Related Reading | Total Cryptocurrency Market Cap Value Surges Across $1.9 Trillion Setting A New Record

According to CNMV’s consulting page, the mandate to provide security-related services is only for registered companies in Spain. Though CNMV has no power to ban a company from operating in Spain directly, it can put forth a court appeal.

Through a November report, Crypto Company Guide in Spain disclosed that about 120 crypto businesses are registered and operational in Spain.

Spain’s Move So Far With Cryptocurrency

A review of some activities from last reveals that Spain has created a friendly environment for crypto businesses.

First, there was the approval of a law to develop a sandbox for financial technologies by the Committee on Economic Affairs and Digital Transformation.

In his speech, Professor Ismael Santiago from the University of Seville confirmed the sandbox would enhance new jobs with increased value. Also, it will bring economic competitiveness and technological development.

Moreover, the professor confessed that implementing the sandbox will be a push-up for Spain by making it a reference point in Europe. In fact, such an establishment catalyzes the crypto ecosystem while attracting more national and international talent.

The daily chart shows that the crypto market has taken a dip after setting new records | Source: Crypto Total Market Cap on TradingView.com

There’s a recent move from the Spanish Socialist Workers’ Party via the introduction of a non-law proposition. This has to do with launching a national digital currency following experimentation of the digital euro by the European Central Bank.

Related Reading | Ukraine’s Security Service Closes Illegal Cryptocurrency Exchanges

According to the proposal, when there’s a necessity for a monetary expansion, a national digital currency would allow higher liquidity.

It will enable a more direct process through the provision of liquidity into current accounts. In addition, such a process will create instantaneous transfers without using any intermediaries or third parties.

Furthermore, the use of digital currency ends banks’ privilege over money. This implies that there’ll be no nationalization of credit or nationalization of the banking system.

Featured image from Pixabay, chart from TradingView.com

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European Central Bank Moves Up Investigation Phase Of Digital Euro, How This Could Affect Crypto

President of the European Central Bank Christine Lagarde took to Twitter earlier to announce that the European Central Bank has decided to move up the investigation phase for the euro digital currency. The tweet comes in response to a tweet from the European Central Bank official Twitter handle, announcing that the institution would launch a project to prepare for the possibility of the issuance of a digital euro.

In a press release posted on the central bank’s website, the goals of the project were aligned. This included how long it expected the investigation phase to last, that the project would be designed to users’ preferences, and there had been no technical issues found in a preliminary investigation phase that the bank had carried out.

Related Reading | Bloomberg Analyst Provides Blueprint Of Bitcoin Path To $100,000

Speculations abound about how a central bank digital euro would affect the price and market of currency cryptocurrencies. But for now, the realization of this project remains in the far future as just the announced investigative phase would take over two years to complete.

Hot on the heels of this came the tweet from the president of the central bank stating that the institution had decided to get started on the investigation phase. This came only about an hour after the announcement tweet for the press release went live.

What This Could Mean For Cryptos

Central bank digital currencies are not a new concept. Lots of countries have been experimenting with CBDCs after the popularity of cryptos grew to the point where governments could no longer ignore it. Citizens were going to use it whether governments wanted it or not.

With the advent of CBDCs like the digital euro, it could spell doom for some cryptocurrencies. This means that the digital euro would be backed by the European Central Bank and be tied to the actual value of its fiat counterpart.

Total crypto market cap chart from TradingView.com

Total crypto market cap currently at $1.33 trillion | Source: Crypto Total Market Cap on TradingView.com

This would mean that euro-backed stable coins would have to compete with the digital euro which is really just an electronic format of the euro. The more stable nature of the CBDCs means that they would be less susceptible to large price fluctuations.

Also enters the issue of using cryptocurrencies as a means of exchange and as a currency. If there are successful CBDCs in the market, then the dream of using coins like bitcoin and ethereum as currencies for daily purchases might just be farther off than forecasted.

The appeal of using cryptocurrencies as a currency comes from the fact that they are perceived as a safer option by holders. If the central bank were to bring the same utility with their coins, then cryptocurrencies might be in for a fight.

A Safer Way To Pay

So far, over 46 countries have announced that they are researching into CBDCs and are looking for a better way for their citizens to pay with their currencies. The European Central Bank has now joined the long line of central banks doing this.

CBDCs when compared to fiat money provide faster, cheaper, and more efficient payments. The digital currencies are going to be built on already existing crypto blockchain systems like bitcoin and ethereum.

Related Reading | I Stand By My $100,000 Bitcoin Price Target, Anthony Scaramucci

But while these CBDCs provide all of the above and more, it defeats the purpose of one of the biggest reasons cryptos were created in the first place; people do not want a government-controlled currency. The decentralized nature of coins like bitcoin has been one of the biggest draws of holders to them.

On the other hand, CBDCs will be under full governmental control and governments will be able to track and trace what citizens do with their currencies.

So while CBDCs might pose a formidable threat to cryptos, their centralized nature remains a big reason why investors are not excited about them.

Featured image from Forbes, chart from TradingView.com