First Mover Americas: Biden Issues Crypto Order; Inflation Expectations Hit Record High

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By Omkar Godbole

Bitcoin (BTC) consolidated on overnight gains after U.S. President Joe Biden signed a crypto order early Wednesday directing federal agencies to coordinate their efforts to draft cryptocurrency regulations.

The executive order did not lay out specific positions the administration wants agencies to adopt or announce new regulations for the industry, CoinDesk's managing editor for global policy and regulation, Nikhilesh De, reported.

A senior administration official did a balancing act while talking to reporters, acknowledging potential opportunities for American innovation and competitiveness that digital assets could provide along with risks associated with the growth of the crypto sector.

Some analysts were worried the long-awaited crypto order would announce stricter regulations, given the recent speculation that wealthy Russians are using digital assets to circumvent sanctions imposed by the West.

However, those fears were put to rest late Tuesday after an unintentional release of U.S. Treasury Secretary Janet Yellen's remarks on Biden's then-impending crypto order said the administration would support "reasonable innovation." Bitcoin picked up a bid after CoinDesk reported Yellen's comments, rising more than 7% to $42,000.

While most cryptocurrencies followed suit, privacy coins like monero (XMR) and zcash (ZEC) backed off from Tuesday's high. Both coins surged over 25% on Tuesday, perhaps due to traders anticipating increased demand for privacy on fears of increased regulation.

"My best guess of what's going on: With stronger oversight confirmed, segments of the market that value privacy (for ideological or illicit reasons) will rotate away from trackable crypto assets like BTC and [ether] ETH. Or at least this is what traders are speculating on," Ilan Solot, a partner at the TagusCapital Multi-Strategy Fund, said in an email.

"Traders are thinking that other traders are thinking that oligarchs would buy privacy coins, so they buy privacy coins. But really, no one believes that oligarchs are buying," Solot added.

By Omkar Godbole

The market-based measures of long-term inflation expectations in the U.S. continue to rise, offering positive cues to bitcoin.

The 10-year breakeven rate, derived from the spread between conventional and inflation-adjusted Treasury yields, rose to a new record high of 2.785% on Tuesday, surpassing the previous peak reached in 2005, according to the Federal Reserve Bank of St. Louis.

The above chart shows bitcoin has often moved in lockstep with the 10-year breakeven rate since the March 2020 crash.

"Bitcoin’s 90-day correlation with the United Sates’ 10-year breakeven inflation rate, which reflects inflation expectations, moved higher from the second quarter [of 2021] onward," Babel Finance said in a 2021 crypto market review shared with CoinDesk early this week.

"As an asset with the same durability, exchangeability and scarcity as gold, bitcoin began to partially replace gold as a trading instrument to hedge against inflation in the middle of the year," Babel Finance added.

Whale selling

Data tweeted by Blockware Solutions' William Clemente shows whales, or large investors, have been offloading coins over the past two weeks and the number of coins held by these wealthy investors has dropped to the lowest since September 2021.

A continued whale selling would be a cause for concern for the bulls.