Mad Crypto: Libra was just the cherry on top of this rally

This post first appeared in Frank Chaparro’s weekly column “Mad Crypto,” which is sent to Genesis members’ inbox every Monday morning. 

Pundits and media professionals often struggle to pinpoint the Holy Grail behind each bitcoin price increase. And the 17.2% increase this past week to around $11,000, its highest point in over 15 months, is no different.

Naturally, Facebook's Libra announcement is alluded to at the bottom of many "price posts" out there (such as this one from the Financial Times). 

But as our friend Lionel Laurent at Bloomberg News points out in his Sunday morning column, readers would be unwise to attribute bitcoin's bullish run over the past week solely to Mark Zuckerberg's plan to gatecrash the digital currency market with a stablecoin-like token backed by giants such as PayPal, Uber, and Visa. 

While I don't agree with Laurent's takedown of bitcoin, he does raise a good question: What exactly has changed between early 2018's price collapse and this year's resurgence?

For one, a number of efforts to help scale bitcoin to make it less "slow, cumbersome and costly" — to use Laurent's words — have seen progress in 2019. Things like Segwit implementation and batching have played a role in making bitcoin transactions less costly. The Lightning Network has seen notable growth over the past year, surpassing 2,800 nodes and a total network capacity of $2 million. 

It's also unfair to rule out bitcoin as a proper store of value simply because of its price. Gold, which is widely viewed as a proper safe-haven asset by the world's portfolio managers, has seen its own ups and downs — drawing down 40% from its highs in late 2011. 

Chart from Markets Insider

As for merchant participation, Laurent is wrong to dismiss developments such as AT&T accepting bitcoin via Bitpay as a step in the right direction for the industry. Let's not forget that not too long ago, merchants wouldn't have considered touching it with a ten foot pole. 

At the same time, the sentiment on Wall Street has been quietly changing. Bakkt, as The Block previously reported, is set to begin testing of its futures product in July. And it is working on the release of its own app, Bakkt Pay, which will allow consumers to spend cryptocurrency at retailers, joining the likes of Flexa and other providers that allow you to spend crypto. Meanwhile, action on bitcoin futures-trading platform CME is heating up. The Chicago-based venture exchange said on Twitter that open interest for its product spiked to an all-time high of 5,311 contracts, worth approximately $246 million. Elsewhere, firms like Galaxy Digital have begun writing options for counter-parties; largely institutions looking to hedge risk in the underlying spot market. Finally, firms like trading shop GSR, market-maker B2C2 and hedge fund BlockTower Capital have either released a derivative product or plan to.

Even money managers, who have been the most reticent to enter the market for digital currencies, are dipping their toes in, The Block has learned. Fidelity is looking to onboard large traditional asset managers onto its custody platform. D.E. Shaw, the $50 billion hedge fund, was in discussions with a cryptocurrency exchange last year to trade on its platform. 

If I were to guess, I'd echo Ripple in thanking Facebook for the latest boost in the market - but I wouldn't stop there. Even Facebook couldn't have rallied the troops alone. We must remember summer 2019 offers a much-changed ecosystem from last year. And the price has been creeping up for some time. Let's see if this time, it lasts - perhaps then, we can get the party poppers out for Zuckerberg.