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As the conventional work week ends, Bitcoin's value has suffered a minor setback. The US Federal Reserve may hike its benchmark fed funds rate due to the unexpected rise of the January PCE Price Index, the Fed's preferred inflation indicator, to 5.4%. This increase was higher than the anticipated rate of 5.0%. The PCE Price report showed that inflation remained high and, following its release, the odds of a 50 basis point rate hike at the Fed's next policy meeting in March rose.
This news caused risk markets to turn lower, with Bitcoin dropping to $23,130 as of writing, near its lowest level of the week. Inflation had been trending downward in late 2022, but this report suggests that this trend has reversed, calling into question Fed Chair Jay Powell's observation of a disinflation trend in January.
Amidst the inflation troubles, several powerful financial bodies have spoken out against crypto today. However, despite the regulatory uncertainty, a new L2 protocol was born, launched by one of the largest crypto firms in the world. Here is today’s brief.
1 - Coinbase, the leading US-based cryptocurrency exchange, announced the launch of its Ethereum layer-2 network called Base. According to the company, Base will be the new home for Coinbase's on-chain products and an open ecosystem for millions of new decentralized applications. Coinbase senior engineer, Jesse Pollak, said that Base had been live on testnet since the start of February, and mainnet will launch in the next few months.
The network aims to make transactions faster and cheaper than Ethereum by processing batches of transactions on a separate chain and then to send receipts back to the mainnet. Unlike other layer-2 networks, Base will not launch a network token, with Coinbase preferring to rely on building great products to drive activity. Coinbase will gradually transition into a role where it contributes to Base, providing services and products built on top of it.
2 - The International Monetary Fund (IMF) has issued a nine-point plan on how countries should approach cryptocurrencies, advising against granting them legal tender status. In a paper titled "Elements of Effective Policies for Crypto Assets," the IMF Executive Board offered guidance to its member countries on developing appropriate policies in response to cryptocurrencies.
The top recommendation is to safeguard monetary sovereignty and stability by not granting crypto assets official currency or legal tender status. The IMF has also suggested guarding against excessive capital flows, adopting clear tax rules, and enforcing oversight requirements for all crypto market participants.
3 - The Federal Reserve warned banks about the risks of dealing with cryptocurrency and related assets. The agencies highlighted the volatility of the cryptocurrency market, the risk of bank runs, and periods of stress and customer panic due to market events, media reports, and uncertainty.
The warning also advised banks to be vigilant about crypto companies that inaccurately represent their deposit insurance status. The agency stressed that existing risk management principles should be applied and that dealing in crypto does not require an entirely separate slate of controls from traditional finance.
4 - The Montana State Senate has passed a bill protecting crypto miners from possible actions against the industry. The proposed law prevents discriminatory utility rates for miners, protects at-home mining, and stipulates that crypto used as payment will not be subject to additional taxes.
It also prevents local governments from retroactively using zoning laws to shut down active operations. The bill will now go to the state's House for approval. The new law may affect a 2020 Missoula County zoning ordinance that required all bitcoin miners to buy or build renewable energy assets equivalent to their energy consumption. The bill was drafted with the help of the bitcoin advocacy group Satoshi Action Fund.
5 - Phoenix Community Capital, a cryptocurrency investment firm backed by UK politicians, including MPs, Lords, and a former Premier League footballer, appears to have vanished. The news has left around 8,000 investors with losses potentially totaling tens of thousands of pounds each.