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Bitcoin Drops Alongside Tech Stocks as Bond Yields Rise

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Bitcoin fell sharply on Monday and continued declining into the early Tuesday session as traders feared its excessive valuations after a 100 percent rise this year.

The benchmark cryptocurrency lost more than $8,000, or 13.91 percent, to trade below $50,000. At its week-to-date low, it was changing hands for as much as $46,700. Bitcoin’s closest market rivals, Ethereum and Binance Coin, also fell 20 and 17 percent in the same period, respectively.

Bitcoin, cryptocurrency, BTCUSD, BTCUSDT

Bitcoin slips after logging its record peak level. Source: BTCUSD on TradingView.com

Corporate Boom in Bitcoin Space

All of the said assets were trading at records before posting broad declines. That raised concerns among traders that the cryptocurrency market is getting capitulated, a reminder of a crash in 2018 that followed a supersonic bull run in the previous year.

Such assets powered the cryptocurrency market’s rebound from a coronavirus pandemic-led sell-off in March last year. They also became a favorite for the small investors who piled into options trading during the lockdown. The retail boom received further tailwinds when Wall Street started taking an interest in Bitcoin as their bet against inflation.

The last couple of months saw MicroStrategy—a public-listed software intelligence firm—upping their Bitcoin reserves to more than 71,000. Tesla, a Fortune 500 company, also purchased $1.5 billion worth of Bitcoin in February, a move that propelled the cryptocurrency market’s cap above $1 trillion for the first time in history.

Meanwhile, PayPal launched a crypto-enabled service onto its traditional payment platform. Mastercard announced its entry into the emerging space. Bank of New York Mellon took a similar call, stating that it would integrate bitcoin custodianship services into the platform that its clients use for traditional securities and cash.

Yield Effect

Bitcoin’s adoption on Wall Street boomed because corporates and investment firms speculated on the cryptocurrency’s emerging role as a safe-haven asset amid global economic uncertainties.

This week’s sell-off did not have a clear catalyst, but it appeared as the US government bond yields rose. Investors lately grew confident for a continued US economic recovery. Treasurys went down, pushing up their yields, which move opposite to the rates. That increases the government bonds’ attractiveness, reducing the appeal of riskier assets such as bitcoin.

The yield on benchmark US 1o-year Treasury note rose from 1.338 percent to 1.367 percent on Monday, its best levels since last February. That led the tech stocks lower, which, like bitcoin, were trading near their record highs.

US government bond, US10Y, bond yields

US government bond yields reach a 12-month high. Source: US10Y on TradingView.com

But analysts in the cryptocurrency space see the latest decline as a short-term shock.

Ben Lilly, a crypto economist, noted that the Federal Reserve would need to buy up more government bonds to keep the economy afloat and yields capped. The statement took cues from Fed chair Jerome Powell’s commitment to keeping its dovish programs intact until they achieve maximum employment in the US.

“If the FED does scale up their purchase of Treasuries, then this can be bullish for bitcoin,” he added.



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Bitcoin

Why is Bitcoin $86K in Nigeria? Here’s why the BTC premium is huge in some countries

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Since the start of 2021, Bitcoin (BTC) price has been chasing new highs on a weekly and daily basis. On Feb. 21, BTC reached a new all-time high at $58,300. However, an interesting phenomenon is that even with many global cryptocurrency exchanges in existence, BTC’s price can still vary greatly depending on geography.

This raises an intriguing question. How can Bitcoin price simultaneously trade at $53,047 in Malaysia, $49,727 in Singapore, $51,133 in India, and over $86,000 in Nigeria? Is the reason simply a temporary imbalance between buyers and sellers, taxes, regulations? Or is there something else at play?

As shown in the chart below, there really isn’t a set price for BTC as nearly every country has its own digital asset valuation.

Bitcoin price premiums. Source: bitcoinpricemap.com

At any given time, cryptocurrency prices will differ between countries, even after adjusting the currency rate. Indeed, some additional buying or selling pressure could create discrepancies, but that should not be continuous and steady.

What’s causing the huge BTC price discrepancies?

This phenomenon isn’t something new or exclusive to cryptocurrencies, however. Exxon Mobil stocks, for example, are traded in the United States, Russia, Argentina, Germany, Mexico, and Switzerland markets.

While there may be different reasons for the friction including bureaucracy and nation-specific laws, they’re basically the same asset. Nevertheless, their prices usually differ after adjusting for currency exchange rates.

Unlike stocks, however, transferring cryptocurrencies usually takes less than an hour, and it doesn’t depend on custodians and depositary receipt administrators. Therefore, bureaucracy can not be the reason for the big price differences for Bitcoin, which is borderless.

On the other hand, suppose one just bought BTC in the U.S. or Europe and is willing to sell it in Argentina to profit from the 6.5% difference. Even if there were no trading fees involved, the result would be the local currency, Argentine Pesos ARS.

Things get more complicated though, as one will need to convert this fiat money back to USD or EUR. There might be domestic restrictions, taxes, or even worse, a different currency rate for foreigners. Moreover, traditional currency remittances don’t take place on weekends and usually take one or two business days.

2020 index of economic freedom. Source: heritage.org

Not surprisingly, the countries with the highest BTC valuations consistently score low on investment and financial freedom global rankings. Barriers and taxes created by strict government controls translate into additional risks and costs for the fiat conversion and remittance. This all contributes to the premium seen versus the remaining countries.

Government action might create extreme situations

Extreme capital control situations such as the Nigeria Central Bank recently shutting down all cryptocurrency-related bank accounts could be behind the current 70% premium versus global BTC markets. But Nigeria likely has the highest premium in the world because this country, in particular, is also the leader when it comes to Bitcoin adoption, based on the latest data. 

Eventually, arbitrage traders will find a solution to bypass sanctions, and the price gap should tighten. But right now, there is no effective way to “profit” from the arbitrage.

For those wondering what would cause Bitcoin to trade below most liquid markets such as the U.S., there is no definitive answer. It is most likely some regulatory hurdle for depositing fiat money on local exchanges, thus creating an imbalance favoring the sell-side.

The negative premium is less common, however, and stablecoins could be used to mitigate this effect. Meanwhile, when a hefty premium is seen in local fiat currency, it does not justify a similar price gap for dollar-denominated stablecoin trading.

Thus, such differences in pricing across various countries represent the risks, red tape, taxes, and inefficiencies of converting fiat between currencies and sending fiat money across borders.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.