Will banks inevitably control the cryptocurrency market?

Central and commercial banks are the top dogs of the world’s largest market by trading volume—the $5-trillion-a-day foreign exchange (FX) market. A closer look at the balance of power in this global industry reveals how banks could manipulate, and even dominate, cryptocurrency in an unregulated market.

Central banks: the power brokers of currency

Central banks are the largest institutions in the FX market and hold reserves of their own fiat currency in addition to foreign currencies for trade and strategic purposes. By controlling domestic monetary and commercial banking policy, central banks exercise broad powers over short, mid, and long-term trends in the currency markets.

When announced by central banks, high-impact news such as interest rate adjustments and inflation reports have significant short-mid-term effects on price-action as they are priced in by market participants, and then go on to impact higher timeframe trends as consumers and businesses react accordingly.

Australian Dollar / US Dollar
Source: Trading View

Can central banks manipulate crypto?

Naturally, Bitcoin and other decentralized, fixed-supply cryptocurrencies exist as an antithesis to such a model of state-level control—famously derided by Satoshi Nakamoto in the creation of the Bitcoin’s genesis block with the comment “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”—operating outside the sphere of central banks, seemingly to their dismay.

BIS Chief on Cryptocurrency: “Stop Trying to Create Money”
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Central banks initially pushed back with abhorrence at Bitcoin and other decentralized cryptocurrencies, at the prospect of a monetary system outside their control, but seem to have turned their attention to other apparent threats in recent months after the announcement of Facebook’s Libra and corporate digital currencies.

While central banks cannot yet manipulate cryptocurrencies as they would their own fiat using interest rate adjustments and more nuanced tactics, they certainly…

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