Whatever doesn't kill bitcoin - and many have tried in the past month to do just that - has a habit of making it stronger, and two weeks after the cryptocurrency crashed 40% from an all time high of $5,000 to less than $3,000 when first China banned ICOs and exchange trading of cryptocurrencies, then Jamie Dimon called it a fraud, the BIS said it has no future unless it is subsumed by central banks, days after South Korea likewise ordered an end to ICOs, the SEC filed the first ever civil charges against companies raising capital through ICOs and Switzerland announced it too was cracking down on ICOs, bitcoin has soared over 40% from its lows, and its price is now back where it was before the Chinese crackdown.
... while ethereum, now back over the resistance level of $300, has staged a similar remarkable rebound despite constant attempts to crush both cryptocurrencues and end ICOs (which as we said several months ago, will likely make ethereum more attractive in the long run as the outright criminal scams associated with ICOs become a distant memory).
As Mate Cser points out, Bitcoin is "getting closer to the $4400 resistance after leaving behind the $4150 level, with the most valuable cryptocurrency being in the forefront of the advance yet again. BTC is the closest to its all-time high among the majors, as it is up by more than 40% since hitting the bottom. With several strong support/resistance levels already below the current price, $4000, $3800, and $3500, the coin looks poised to test the all-time high near $5000 in the coming weeks."
Meanwhile, as if responding directly to a recent report from Macquarie's Viktor Shvets who said that "modern finance" - with global financial instruments of $500 trillion, or 5x global GDP not bitcoin, is the true fraud...
... and that the real danger is not bitcoin, but the reserve status of the dollar, on Friday Philly Fed president Harker said that Bitcoin and other cryptocurrencies are "unlikely to weaken the Fed Reserve's influence on the U.S. economy." He is right: the Fed is perfectly capable of doing that on its own, especially if Yellen makes a few more admissions how it is clueless about inflation... and everything else for that matter. Harker spoke at a fintech event hosted by the Philadelphia Fed.
While some have worried that the rise of a cryptocurrency would make it harder for the Fed to manage the rate of inflation, Harker said that he isn't concerned about the prospect. Onstage, he went so far as to contend that bitcoin has yet to be tested by a real catastrophe, but that when one happens, people will be more likely to flock to government-backed money.
"The paper that's in your pocket, that we call money, only has value because we believe it has value, because we believe the government stands behind it. It's all trust issues," Harker said.
"And so, when cryptocurrencies and other forms of currency emerge, I think the basis of that has to be how do they create that trust?"
Some could counter that the Fed's $4.5 trillion in QE has also yet to be tested by a real catastrophe, and should it fail the test, the consequences for the US currency would be catastrophic.
Harker also acknowledged that while citizens have put varying degrees of trust in what he called the "sovereign states" that stand behind currencies today, other currency models might be possible. This includes, he said, ways in which trust might come from another "large player," or as in the case of bitcoin, an algorithm.
But, as Coindesk noted, his most pertinent critique was perhaps that cryptocurrencies have not been significantly tested enough to ensure confidence. Despite issues such as the collapse of Mt. Gox, once the bitcoin's network's largest exchange, or the ongoing bitcoin scaling debate, Harker argued that cryptocurrency has been largely insulated from "bad times."
"Everything can work in good times," he added, although he may have been envisioning the global stock market which is at all time highs only thanks to trillions in liquidity injections by central banks.
This leads to the second reason Harker said he's not concerned about cryptocurrency hamstringing the Fed's monetary influence: If – and, according to Harker, when – things go wrong, the Federal Reserve and other state agencies will likely be asked to get involved anyway.
"When things really go bad, where do Americans turn?" he asked "Well, they're going to come back to the government. That's the history of the country."
Translated: when, not if, a new crisis comes it will be up to US taxpayers to inject trillions to keep the system going. Again.
Separately, Harker also discussed cryptocurrency regulation. The Philly Fed president was asked how the Federal Reserve might assist or advise on such a strategy. (The Federal Reserve has previously noted that it does not have the authority to directly regulate the technology.) On this point, he was inconclusive, suggesting any ideation is today in early stages.
"How do you regulate an algorithm?" he asked, drawing laughs from the audience. "I don't know yet. The answer is we have to continue to study this."
Still, that doesn't mean there aren't possible next steps. For example, those studies might include looking more closely at how another algorithm, perhaps one created by the Federal Reserve, might ensure fairness in mathematical form, something Harker said is crucial to any potential cryptocurrency controls.
He concluded: "Before we even think about how you regulate an algorithm, how would you even build an algorithm that would have that sense of fairness in it? It is a fairly deep technical question."
... opining on matters of fairness. Brilliant.
Meanwhile, the cryptosurge continues.