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I said I wouldn't write about it. I promised. I swore.

This article is excerpted from The Node, CoinDesk's daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.

The bet loosely works like this: In 90 days, Srinivasan will send Medlock $1 million U.S. dollars and Medlock will send Srinivasan 1 BTC.

It feels like a marketing ploy. It is a marketing ploy. Srinivasan himself has admitted that this is an ideological bet and not a money-making bet. Instead this marks a moment to ring the alarm about the horrors of money printing and impending hyperinflation.

Before all this, he raised the BitSignal, a promise to pay $1,000 in BTC to people with the best tweets about the state of American decay. Last weekend, Srinivasan and the Twitter faithful raised the alarm: Financial ruin is nigh.

And then U.S. financial markets opened flat on Monday morning. Balajis peers, venture capitalists such as Jason Calacanis, have had mixed reactions. Calacanis called the bet brilliant because the increased attention would likely drive up bitcoins price, but cautioned Balaji about starting a bank run.

In any event, I'll go on record: Bitcoin won't be worth $1 million on June 15, 2023, because of hyperinflation in the United States. This is not financial advice. But instead of focusing on the bet itself, Id rather focus on what a hyperinflated, $1 million bitcoin would even look like.

First and foremost, hyperinflation in the United States would be catastrophic for the global economy. Full stop. The fallout would be genuinely unfathomable. The U.S. is the beacon of stability for the rest of the world. Hyperinflation in the U.S. likely means hyperinflation everywhere.

But, at least we have bitcoin, right?

Right now you could get roughly $28,000 in exchange for a bitcoin. Under hyperinflation with $1 million bitcoin, you can get 35 times that amount for a bitcoin. If you have some bitcoin, that might excite you. But dont think of this as the dollar value of your bitcoin stack increasing 35 times. Instead, think about the price of bread, gas, rice, steak, cast iron pans, electricity, everything increasing 35-fold. It would be the same for your bitcoin.

And then theres the glaring problem: How will you even spend your bitcoin? If youre in a circular bitcoin economic ecosystem like Bitcoin Beach in El Salvador or Bitcoin Lake in Guatemala, youd probably be fine because they have the infrastructure to support a local economy. But even with the many millions of bitcoiners out there and the many thousands of businesses that accept bitcoin and the hundreds of exchanges that will give you dollars for your bitcoin, is that enough?

Bitcoin needs to service billions of bitcoiners and millions of businesses. And where will those who had no bitcoin before hyperinflation get their bitcoin? Will the exchanges even survive the sudden onset of hyperinflation? Maybe they will. Maybe people will broadly begin accepting bitcoin for payment for goods and services. Maybe some will sell their possessions for bitcoin. Who knows?

The point is that right now bitcoin wouldnt save us from sudden global hyperinflation. The ecosystem is simply not built out enough. We need more bitcoiners, more businesses that accept bitcoin, more bitcoin companies, more Lightning Network companies (to handle the increased transaction volumes) and more distributed mining.

How many more bitcoiners do we need? How many BTCPay Servers do we need to set up so companies can transact bitcoin? How many Lightning channels do we need to open? How many ASICs should be mining bitcoin? How many more developers?

More. We simply need more everything in bitcoin.

Hyperbitcoinization is the term used to describe a post-government-controlled-money world where bitcoin is the main global currency. Bitcoiners want hyperbitcoinization to improve money. "Fix the money, fix the world."

But if we are thrust into hyperbitcoinization before the ecosystem is ready then we might not be in a position to actually use bitcoin even if it could save us.

Read the original:
A Sudden Onset of Hyperinflation: What Will Happen to Bitcoin? - CoinDesk

While Bitcoins price has recovered since its March lows, topping out near $28,900, the crisis that caused the initial dip still poses concerns for the market.

The closure of Silvergates SEN and Signatures Signet network in early March has exposed the crypto market to low liquidity risks.

Liquidity is king, an adage in trading circles, is an apt way to describe its importance. It describes a market's ability to facilitate conversion between an asset to fiat currency.

Poor liquidity around an asset leads to market inefficiencies where traders lose money due to events like thin order books, slippage, and larger spreads. It can also cause serious volatility and deter sophisticated investors from placing trades.

Kaikos head of research Clara Medalie told Decrypt that the current situation is pretty dangerous and could manifest in massive price volatility in both directions.

"A drop in liquidity certainly helps traders to the upside, but there is always eventually a downside, said Medalie. The moment buy pressure subsides, anything can happen to price."

The liquidity crisis first manifested with a $200 million drop in 1% market depth after Silvergates SEN network was closed, as identified in Kaikos latest research note.

The 1% market depth is calculated by summing the bids and asks within 1% of the mid-price for the top 10 cryptocurrencies. If the market depth is sufficient and order books are crowded around the market price, it reduces the volatility in the market.

The market depth for Bitcoin and Ethereum is still down 16.12% and 17.64%, respectively, from their monthly opening levels. Kaiko analyst Conor Ryder wrote that we are currently at our lowest level of liquidity in BTC markets in 10 months, even lower than the aftermath of FTX.

BTC and ETH 1% market depth in March 2023. Source: Kaiko.

The liquidity crunch is also causing inefficiencies such as high slippage and larger spreads. Coinbases BTC-USD pair currently exhibits nearly three times higher slippage than at the start of March.

Slippage refers to the price at which an order is placed and the final price once that order is actually executed. In low liquidity environments, the difference between these two orders can be much larger than usual.

The most liquid pair in the crypto market, the BTC-USDT pair on Binance, also suffered a blow after the exchange ended its zero-free program.

As a result, the pairs liquidity depleted by 70% as market makers moved to greener pastures.

These conditions have deterred market makers and sophisticated day traders from placing trades because of the additional costs incurred due to market inefficiencies, worsening the low-liquidity environment.

The market share of fiat dollars and stablecoins has also drastically shifted, with stablecoin volumes on centralized exchanges rising from a 77% share of volumes to 95% in just over a year.

The trend accelerated swiftly after the closure of crypto banking networks.

Stablecoin market share (blue) in March 2023. Source: Kaiko.

While shifting to stablecoin trading pairs does not create an issue for medium to small-scale investors, it can become a problem for more sophisticated traders.

Medalie explained that USD networks are essential to traders, who are required to settle their traders daily.

"Stablecoins are not ideal from a risk management perspective, especially to settle at the end of the day or week, she said. But if banks close and don't process transactions, then stablecoins are the next best alternative."

Excerpt from:
Bitcoin Liquidity Hits 10-Month Low Amid US Banking Crisis - Decrypt

Introduction

The U.S. dollars reign as the reserve currency of the world could be coming to an end. CryptoSlates latest market report explores the de-dollarization of the world to find what role Bitcoin will play in the global economy.

The U.S. dollar has been the chosen medium for international trade and the global reserve currency for 79 years. The Bretton Woods Agreement of 1944 established gold as the basis for the U.S. dollar and pegged other currencies to the dollars value.

It was the first time in history that a group of nations negotiated a global monetary order, which proved successful in the years following World War II. The system was secured because the U.S. owned over half of the worlds gold reserves.

However, economic recovery in Europe and Japan decreased the U.S.s dominance in global trade. In addition, an overvalued dollar caused by inflation and growing public debt pushed the U.S. to suspend the dollars convertibility into gold in 1971.

As the dollars value was no longer tied to gold, the Federal Reserve was tasked with maintaining the currencys value. The central bank, however, failed to preserve the dollars value and began increasing the money supply, which caused the currency to lose two-thirds of its value in the following decade.

The devaluation of the dollar has continued well into the 21st century.

In 2023, the dollars position as the global reserve currency is in jeopardy, And while its dominance over the worldwide market has been shaken in the past, the danger has never been so great.

This report explores the macroeconomic events causing the dollars fragility, the consequences of a weak dollar, and Bitcoins place in a de-dollarizing global economy.

The global financial crisis in 2007 exacerbated the growing trend of de-dollarization. In 2007, China launched the China International Payment System (CIPS), which enabled cross-border payments to be settled in yuan. In 2010, China and Russia signed a bilateral currency swap agreement, allowing them to trade in their own currencies.

In 2014, BRICS countries, which include Brazil, Russia, India, China, and South Africa, created the New Development Bank. The novel financial institution was launched to provide alternative sources of financing for developing countries, reducing their dependence on the dollar. In addition, the E.U. created an SPV to facilitate trade with Iran in euros, bypassing U.S. sanctions on the country.

Last month, China and Russia reaffirmed their 2020 agreement to increase the use of the ruble and yuan for trade. The deal is set to increase the use of the ruble and yuan, which already account for two-thirds of the trade deal payments between the two countries.

Foreign trade isnt the only way countries are looking to ditch the dollar.

U.S. Treasury holdings once considered the safest and most liquid assets in the world, have become a geopolitical hot potato.

Last year, foreign demand for treasuries dropped by around 6%. This represents a notable decrease in demand following two years of aggressive buying after the COVID-19 pandemic.

However, rising interest rates have made these bonds less profitable. Almost every major country sold off its treasury holdings over the last year,

Data from the Federal Reserve showed that foreign holders sold off over $253 billion worth of treasuries in the past year.

While central banks worldwide have been increasing their balance sheets in response to the COVID-19 pandemic, nowhere was this as aggressive and dangerous as in the U.S.

In the four months since the beginning of the pandemic in March 2020, the Federal Reserve increased its balance sheet by over 72%, adding over $3 trillion to its assets.

The aggressive liquidity injection into the financial system proved to be unsuccessful. The quantitative easing spree took less than two years to turn into inflation, with goods and services in the U.S. seeing record growth into 2023. In a country with as much debt as the U.S., inflation can quickly erode the value of government bonds and cause interest rates to soar.

A declining value of government bonds pushes domestic and foreign bondholders to sell off their holdings and even suffer losses to place the capital into more profitable investments.

Foreign holders of U.S. treasuries have sold off their holdings to ditch their dependence on the dollar and turned to other currencies like the yuan and ruble. Domestic holders, on the other hand, moved away from long-term bonds into short-term treasuries, as they provide a better yield that outpaces the growing inflation.

Bitcoin has long been touted as a safe haven asset.

However, it wasnt until a full-blown banking crisis began looming over the U.S. that the global market began noticing.

Bitcoins fixed supply and decentralized infrastructure put its holders in control of their funds. With the ability to independently verify transactions, self-custody coins, and facilitate uncensorable, cross-border transactions, its slowly becoming an asset of choice for many looking to hedge against government interference.

Its volatility seems to be worth the cost for many investors. This is evident in its growing correlation with the markets liquidity. Data analyzed by CryptoSlate showed that Bitcoins price followed the rises and drops in the Federal Reserves net liquidity meaning that a significant chunk of the markets newly injected liquidity keeps flowing to Bitcoin.

Bitcoins role in the global economy will continue to increase as more weaknesses in traditional markets are revealed. However, while its use in developing countries has already been proven, developed markets like the U.S. are yet to see its value.

Continued dollar erosion will push many retail and institutional investors to Bitcoin. However, the assets dominance over the market will depend on the U.S. governments regulatory pressure, as many expect a fierce battle to stifle its spread.

When inflation points the way, all roads indeed lead to Bitcoin. The question is how long the market needs to reach the finish line.

See more here:
De-dollarization: Do all roads eventually lead to Bitcoin? - CryptoSlate

The mining industry is well positioned to participate in a new bitcoin (BTC) cycle, Bernstein said in a research report Thursday.

The broker sees positive catalysts from the largest cryptocurrencys safe haven status, the reward halving due early 2024 and lower energy and equipment costs.

Rising bitcoin prices the largest cryptocurrency by market cap has climbed 70% this year and easing energy and equipment costs bode well for cash generation and the leverage position of miners, the report said. This should help improve gross margins in 2023.

If the bitcoin price continues to rally, Bernstein expects miners production in March and April to exceed their BTC liquidations, leading to a net increase in holdings of the cryptocurrency. This could help the companies debt repayment positions because bitcoin held as treasury assets can be liquidated at better prices to meet debt obligations.

In the medium to long term, the next main catalyst for miners is the halving, the note said. Roughly every four years, the total number of bitcoin that miners can potentially earn is cut by 50%.

Halvings make BTC more scarce by reducing supply, thus leading to prices rising, and this results in more miners joining the network, which increases the hashrate and the network security.

If the 2024 halving follows the same pattern as earlier ones, the BTC mining industry would see lower competitive intensity due to the sectors wipe-out in the bear market of 2022, and higher bitcoin prices, which would deliver improved profitability before additional mining capacity comes online, the report added.

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Bitcoin Mining Industry Is Well Positioned to Participate in a New Cycle: Bernstein - CoinDesk