Crypto Sends Sell Signal as Congress’ Facebook Fixation Grows
(Bloomberg) -- While U.S. lawmakers zero in on Facebook Inc.’s ambitious plan to upend the global financial system via its cryptocurrency project, technical indicators are flashing major warning signals when it comes to the price of digital assets.
Based on the GTI VERA convergence-divergence indicator, the Bloomberg Galaxy Crypto Index -- which tracks some of the largest digital assets and is comprised 30% of Bitcoin -- received its first sell signal since early June. The indicator detects positive and negative trends, and the last time it flashed a warning sign on June 4, the index fell about 10% in one trading session.
It’s been a volatile month for crypto assets. Prices surged in June after Facebook announced plans to launch its own digital coin called Libra, which the company hopes will one day trade much like the dollar. The launch added to optimism that digital assets are becoming more widely adopted by mainstream institutions. Bitcoin gained more than 40% last month.
But Libra’s success is far from guaranteed. It’s drawn the ire of policy makers who have raised privacy and regulatory concerns. House Democrats wrote to Facebook’s top brass earlier this month requesting that the social media giant stop developments on Libra until regulators and Congress have an opportunity to scrutinize it more closely.
Libra again took center stage on Thursday during Federal Reserve Chairman Jerome Powell’s second day of testimony on the economy to Congress. The initial question from Mike Crapo, the Republican senator from Idaho who leads the Senate Banking Committee, was about Facebook’s plan for a digital currency.
In response to questions Wednesday from Maxine Waters, a Democrat from California and the chairwoman of the House Financial Services Committee, Powell said that “Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability.”
Prices of most cryptocurrencies were down for a second day.
Facebook, in an attempt to soothe skeptical lawmakers, said earlier this week that Libra’s purpose is to create a secure and low-cost way for consumers to send money around the globe.
“Bitcoin is shouldering Fed Chair Jerome Powell’s serious concerns about Facebook’s planned digital currency Libra,” Edward Moya, senior market analyst at Oanda, wrote in a note. “Libra was expected to be the springboard for other cryptocurrencies to emerge, but it seems we will see a tougher road ahead for digital coins.”
The Bloomberg Galaxy Crypto Index dropped about 5% as of 12:19 p.m. in New York, while Bitcoin eased about 1% to $11,719. Other digital tokens also retreated, with XRP falling about 8% and Litecoin losing more than 5%.
“Is it something that they should be watching? Is the Fed watching and how, if at all, should they be involved in terms of setting guidelines, or rules, or legislation or regulation around cryptocurrencies?” said Michael Arone, chief investment strategist at State Street Global Advisors. “It’s top of mind for politicians.”
--With assistance from Kenneth Sexton (Global Data).
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