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Crypto plunges as US Fed reviews potential Central Bank Digital Currency

Last updated: 12:16 25 Jan 2022 AEDT, First published: 11:10 25 Jan 2022 AEDT

Crypto plunges as US Fed reviews potential Central Bank Digital Currency

Welcome to the first of our weekly crypto updates with eToro market analyst Simon Peters.

Each week, Peters will assess what is happening in the crypto, blockchain and NFT spaces and, when relevant, what the news means for investors.

Cryptoassets plunge

The cryptoasset market has plunged amid a wider global sell off in growth and tech assets.

Bitcoin (BTC) is now trading at its lowest level since July 2020 and has fallen some 50% from its all-time high (ATH) above $69,000 which it reached in November 2021. 

The world’s largest cryptoasset began the week trading above $42,000 but began falling heavily on Thursday as bond yields in major economies spiked. It is now trading just under the $35,000 level.

Likewise, Ether is now trading around similar levels to July 2020 and has lost some 50% of its value since ATH in November. The cryptoasset began the week above $3,200 but has traded down severely to just under $2,400 now. 

Fed launches CBDC review

The US Federal Reserve has launched a review of a potential Central Bank Digital Currency (CBDC).

The Fed launched a discussion paper looking at the pros and cons of a potential US CBDC. It is now asking for respondents to comment on how the CBDC could improve US domestic payments systems. 

Fed chair Jerome Powell commented: "We look forward to engaging with the public, elected representatives and a broad range of stakeholders as we examine the positives and negatives of a central bank digital currency in the United States."

The Fed wants to look at key issues such as preserving monetary and financial stability within a digital system, how to complement existing payment systems and the privacy of citizens while still retaining the ability to police illegal financial activities.

This announcement is a major step as the US is the largest economy in the world, which would have the potential to transform global finance with the adoption of a CBDC. But it is behind other nations in terms of research, planning and execution of a digital currency.

Twitter launches NFT profile pictures 

Social media network Twitter has launched NFT profile photos for users.

The feature will be instantly recognisable for anyone with an NFT profile picture as instead of a typical round profile photo, the picture frame will instead be hexagonal.

Twitter’s NFT launch will support crypto wallets including Argent, Coinbase Wallet, Ledger Live, MetaMask, Rainbow and Trust Wallet.

To use the feature, users will have to be using an iOS phone and be signed up for the $2.99 Twitter Blue subscription. Twitter Blue offers premium features to customers, including now NFTs and others such as undo tweets.

The premium subscription is still being rolled out and is currently only available in the US, Canada, Australia and New Zealand.

Intel to enter BTC mining 

Computer chipmaker Intel is set to unveil a chip to mine bitcoin.

The so-called ‘Bonanza Mine’ chip will be launched at the International Solid-State Circuits Conference (ISSCC) which begins on February 20. 

This announcement does not mean, however, that Intel will begin mining BTC itself - rather it is now going to produce technology to facilitate mining. 

The firm’s current biggest rival in this market is Bitmain. Demand exists for bitcoin-specific mining chips as normal graphics processing units (GPUs) are not designed to solve complex hashes and as such mine BTC very inefficiently, in both terms of time and energy spent.

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