Updated: Nov 20, 2021
In the past week, two events of such significance have occurred that I wanted to address them in this blog post rather than just leave them to my "Did You Know" page of "Weekly News Events" on the website.
Event #1: A week ago today, Jelena McWilliams, (a hold-over from the Trump admin.) who chairs the Federal Deposit Insurance Corp. (FDIC), told Reuters in an interview on Monday (Oct. 25) that "a team of U.S. bank regulators is trying to provide a roadmap for banks that could include clearer rules over holding cryptocurrency in custody to facilitate client trading, using them as collateral for loans, or even holding them on their balance sheets like more traditional assets." McWilliams' comments provide the fullest picture yet of what regulators are exploring as part of a team, first announced in May, to ensure cryptocurrency policy coordination among the three main U.S. bank regulators - FDIC, Federal Reserve and Office of the Comptroller of the Currency.
This is hugely bullish for Bitcoin. There are close to 5000 banks in the U.S. that the Comptroller of the Currency last July 2020 wrote to and basically stated that the OCC has their backs, so they can offer Bitcoin purchasing and custody services to their customers without having to be concerned with regulatory exposure from the federal government. So U.S. banks will begin to enter the market to buy Bitcoin going forward.
Event #2: According to the article that was recently reported in Cointelegraph, "Bitcoin miners appear reluctant to sell their BTC, as the hash rate increases, despite the recent sell-off." You'll note from the new Glossary page of our website that "the hash rate is the speed at which a cryptocurrency miner operates. Specifically, it is the speed of the computing device used by the miner to develop the unit of cryptocurrency."
This is significant because an increase in the hash rate indicates that the recent reduction in mining capacity in China, due to the crackdown on all things Bitcoin in China, has had no effect on the production of Bitcoin due to Bitcoin miners relocating their operations to the U.S. and other locations outside of China. The article goes on to say "Bitcoin miners are accumulating Bitcoin (BTC) as the network hash rate continues to recover, according to on-chain analytics provider Glassnode. In its Sept. 20 Week on Chain report, Glassnode stated that miner BTC balances are increasing, with wallets associated with miners having stockpiled 14,000 BTC (worth roughly $600 million) over the past six and a half months."
This is due to, as I pointed out in my Sep. 17 blog, BTC miners no longer having to sell part of their newly mined BTC to cover operating expenses, because the elevation of BTC as a new asset class has given miners the stature to be able to borrow in the capital markets to fund their operations. Paying market rates of interest to borrow money in the capital markets is nothing compared to the rate at which the price of BTC has increased this year.
So while event #1 above indicates a dramatic increase in the demand for BTC going forward on the part of almost 5,000 U.S. domestic banks, event #2 above indicates a dramatic decrease in the supply of BTC going forward due to the hoarding of newly mined Bitcoin on the balance sheets of the Bitcoin miners. The combination of these two events means that an increase in the price of BTC going forward is inevitable. It's Econ 101 at it's most basic levels.