Bitcoin loves flirting with the mainstream. But now, as the US president says he wants to get serious, it may be getting cold crypto feet.
When Joe Biden ordered officials to prepare reports on the role of cryptocurrencies in future finance last Wednesday, bitcoin leapt as much as 9% and ether 8%, as many crypto fans hailed a potential milestone in mainstream acceptance.
“The real importance of it is that the president of the United States is talking about crypto,” said Jack McDonald, CEO of Standard Custody, a firm handling digital asset custody solutions for institutional investors.
Yet cryptocurrencies are complicated.
While bitcoin danced above $42,500 following the news, it has since given up those gains and is now back at around $38,000. Similarly ether has slunk back down to straddle $2,500.
That seems a muted market reaction to the White House's first formal pronouncement on crypto — though who can truly understand bitcoin, still licking its wounds from China's rejection and nursing nagging disquiet it's losing its identity.
Regulation can be a double-edged sword. Some industry watchers see bullish signs for bitcoin, saying the presidential announcement could presage US regulations on crypto that will draw far more institutional money from the likes of pension funds and insurance firms.
“Biden's executive order could signal the end to the wild west of crypto as we know it,” said Edmund Kulakowski, senior financial crime consultant at London-based regulatory software company Fenergo.
Yet it may not be such good news for those crypto players that thrive in the wild.
“Quant-driven hedge funds running arbitrage and quant strategies typically shine in more volatile and unstructured markets,” said Ganesh Iyer, chief marketing and strategy officer at New York-based technology company IPC.
“Only time will tell how and when this market will mature. Until that point there is an opportunity now for hedge funds to utilize ultra-low latency networks to make the most of volatile, compliance-light and liquid crypto markets.”
AMERICA'S CRYPTO POWER
What seems certain, regardless of how this plays out, is that US action will have a major impact on the global crypto industry.
America, the epicentre of traditional finance, is fast becoming the same for crypto; 43% of the world's crypto hedge fund managers are now based there, according to PwC, while the United States is now also the centre for bitcoin mining after China's crackdown on that part of the industry last year.
“McDonald at Standard Custody described Biden's order as a “symbolic document”.
"He did not come out and say it's fraud or bad actors doing bad things,“ he added.
“Quite the contrary, there is an admission that digital assets have a place in the future, that this industry requires a thoughtful approach to regulation.”
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Reuters