Bitcoin, the world’s most dominant cryptocurrency, plunged by 18 percent to $34,889.62 per coin on Wednesday following the decision of the Chinese government to ban banks and other financial institutions from facilitating cryptocurrency payments.
This was after Elon Musk announced that Tesla Inc has stopped accepting bitcoin for payment of its vehicle due to the rising use of fossil fuels in Bitcoin mining and transactions.
Also, Bloomberg report that Binance is being investigated by the U.S Internal Revenue Service and the Department of Justice for possible money laundering and tax offenses weighed on the entire crypto market and plunged it into the red zone.
Binance is the world’s largest cryptocurrency exchange platform.
A spokesperson for Binance said, “We have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity.”
“We have a strong track record of assisting law enforcement agencies around the world, including in the United States.”
Bitcoin plunged from $64,829.14 per coin on April 16, 2021 to $34,889.62 per coin on Wednesday as selloff grew across the board.
IMF Discourages the Use of Bitcoin as Legal Tender
Global financial body, the International Monetary Fund has informed the public that bitcoin constitutes a high risk to consumers.
In giving this warning, the Monetary Fund made a reference to El Salvador’s recently announced plan to make the coin a legal tender, as the country sets plans to erupt a Bitcoin City which is funded by cryptocurrencies.
On Monday, the IMF released a statement where it referred to the decision made by El Salvador to make bitcoin a legal tender as risky. This was said in spite of the Fund’s admission that cryptocurrencies and other digital forms of money possess the potential to make payment systems much more efficient.
According to the financial body, bitcoin’s high rate volatility means its use as a legal tender opens up serious risks to financial integrity, consumer protection and financial stability. The body then encouraged the strengthening of the supervision and regulation of the new payment system.
In September 2020, El Salvador passed a law that granted bitcoin the status of an official legal tender side by side with the US dollar. This made El Salvador the first country in the world to recognize cryptocurrency officially.
Since then, El Salvador’s government has supported an e-wallet system known as Chivo, which allows El Salvador residents to engage in payments with bitcoin and convert the cryptocurrency to US dollars.
The financial body recognized the benefits of the system, which could augment financial inclusion, while supporting financial growth. The body however called for more legal defences for consumers, to protect them while countering money laundering and the financing of terrorism.
This warning arrived merely days after El Salvador revealed its plans to build the world’s very first ‘Bitcoin City’ which will receive its initial funding from bonds backed by cryptocurrencies. The city will contain commercial and residential areas, airports, restaurants, entertainment venues, and other amenities which are common to a metropolis.
It is still in the conceptual stage but the first bond offering is set for 2022, with construction to begin about two months after financing has been secured for the construction.
El Salvador Announces Plans for Bitcoin City
The President of El Salvador, Nayib Bukele announced on Saturday that the country has kicked off plans to build a new “Bitcoin City”. The new city will be built near a volcano, and will be funded by the cryptocurrency after which it is named.
Like any other city, it will have entertainment, usual services, residential areas, commercial areas, restaurants and even an airport. However, it will be built near the Conchagua volcano in the South-Eastern part of the country.
President Bukele announced that the city’s construction will begin as soon as 2022, and the city will not have any taxes apart from VAT (Value Added Tax).
El Salvador was the first country in the world to officially pass a law that allows Bitcoin to be accepted as a legal tender in the country. However, this move was not positively received by some members of the country’s population.
In September, thousands of the country’s citizens and/or residents hit the streets to protest against the law, showing their disapproval of the country’s decision. The protesters made known their fears that introducing the cryptocurrency into the country could lead to national instability. In order to allow citizens make use of the cryptocurrency, the country has also launched a bitcoin wallet.
Apart from the construction announcement, El Salvador also has plans to raise around $1 billion in a partnership with Blockstream, a digital assets infrastructure company. Half of the money will go towards buying bitcoin, while the other $500 million will go towards energy as well as bitcoin mining infrastructure, according to the government.
Mining is an energy-centric process of creating new bitcoin by solving cryptographic puzzles. The country’s government says that it plans on using geothermal energy obtained from the volcano to power the mining process.
Chief Strategy Officer at Blockstream, Samson Mow said that the bond has a five-year lock up which will take about $500 million worth of bitcoin off the general market for that time period. Blockstream also announced that those who invest in the bond will receive an annual special dividend for their investment.
Bitcoin Price Rise to Continue Into 2022 as Inflation Fears Grow?
The Bitcoin price is likely to continue its skywards trajectory until at least the second quarter of 2022 amid continuing global inflation fears, predicts the boss of one of the world’s largest independent financial advisory, asset management and fintech groups.
The prediction from Nigel Green, CEO and founder of deVere, comes as the world’s dominant cryptocurrency hit another all-time high at $69,000 on Wednesday.
It followed data revealing that inflation has surged to a 31-year high in the U.S., raising the prospect the Federal Reserve will raise interest rates sooner rather than later.
Mr Green says: “Prices paid by U.S. consumers jumped the most since 1990 last month, climbing a staggering 6.2% from a year earlier.
“This latest data out of the U.S. will only compound global fears about inflation as price pressures run hot around the world.
“Inflation in the UK could rise above 5% by early next year, Euro area annual inflation is 4.1% in October 2021, up from 3.4 % the month before, and the cost of goods leaving Chinese factories surged by another record rate last month – 13.5% – and there are increasing signals that consumers are now feeling the pain.”
He continues: “It’s a global issue as businesses have been raising prices as supply chain bottlenecks and a shortage of qualified workers push up costs.
“And it’s one that is likely to last until at least the beginning of the second quarter of 2022, when pressures should start to ease.
“Against this backdrop, and amid some peaks and troughs along the way as markets never move in a straight line with traders taking profit, we can expect to see the price of Bitcoin and other major cryptocurrencies continue their skywards trajectory.
“Bitcoin is widely regarded as a shield against inflation mainly because of its limited supply, which is not influenced by its price.”
This ‘inflation shield’, says the deVere CEO, will bring to the crypto market growing investment from major institutional investors, bringing with them capital, expertise and reputational pull – and further driving up prices.
Earlier this week, as he accurately predicted that Bitcoin would hit fresh all-time highs, Mr Green said that other cryptos can also be expected to move to the upside.
“Bitcoin’s gravitational pull on other digital assets will show itself again this week, pulling up other major cryptocurrencies as it maintains its own strength.
“We can expect those cryptos involved with fintech development, such as Ether, Solana and Cardano, to do particularly well.”
He concludes: “In this inflationary period, Bitcoin has outperformed gold, which has been almost universally hailed as the ultimate inflation hedge – until now.
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