Bitcoin breaks $41,000 after Biden signs crypto executive order, sentiment remains mixed

Bitcoin has been on a tear, topping $41,000, while Ethereum has gained about 5% in the past 24 hours after U.S. President Joe Biden signed his first executive order on cryptocurrencies. Stocks also rose on Wednesday, while traditional safe-haven assets such as gold and the dollar fell.

President Biden's executive order requires government agencies to explore the possibility of launching a U.S. central bank digital currency and coordinate and consolidate policies on the national crypto framework, the White House said in an announcement on Wednesday.

Many industry leaders likened the executive order, which three times mentioned the risk that Russia could use digital currencies to circumvent sanctions, to a regulatory opportunity as Biden has rarely spoken directly about cryptocurrencies and blockchain during his presidency.

"The approach outlined in the executive order will strengthen America's leadership in the global financial system and safeguard the long-term effectiveness of key national security tools, such as sanctions and the anti-money laundering framework," said National Economic Council Director Brian Deese and National Security Advisor Jake Sullivan.

Senator Elizabeth Warren said Biden was "right to focus on the risks of cryptocurrencies," adding that the U.S. government needed to "put in place strong rules before it's too late."

Wyoming Senator Cynthia Lummis said, “While I agree with the President’s desire to combat money laundering and defend U.S. national security, I think his executive order ignores the fact that the vast majority of digital asset users are law-abiding and are working to make our financial system better. We need thoughtful rules around stablecoins, and I will continue to closely monitor the Fed’s work in this area.”

The Crypto Innovation Council said, “We look forward to working with regulators and policymakers in the coming months to develop smart policies that will solidify the United States’ position as a global leader in crypto innovation. Collaboration is critical.”

Jeremy Allaire, co-founder and CEO of crypto payments company Circle, added: “For those of us in the crypto community, this executive order should be viewed as the biggest opportunity yet to engage with policymakers on important issues. As we all know, the door to policymakers is open, and this is now a national conversation in America.”

The executive order directs federal agencies to better communicate their work in the digital asset space, and it does not lay out specific positions the administration wants agencies to take. Still, the order could lead to additional regulation in the future.

Marcus Sotiriou, an analyst at GlobalBlock, a U.K.-based digital asset brokerage, said, “The executive order looks relatively mild, so it gives the market more clarity. As many investors have positioned themselves for the downside of this event and are sitting on the sidelines, we are seeing many people buying back into Bitcoin, which appears to be a spot-driven rally.”

Edward Moya, an analyst at Oanda, said, "A year ago, Bitcoin holders were afraid of regulation, and now the U.S. government sees the value and long-term prospects of innovation and opportunity. Regulation is seen as beneficial to cryptocurrencies, and a large part of the crypto industry needs to be cleaned up."

Implied volatility in the Bitcoin options market is starting to rise from the extreme lows of the past few days. This could indicate greater volatility in Bitcoin prices outside of the $30,000 to $40,000 price range, especially ahead of the Federal Reserve’s two-day policy meeting on March 15-16.

QCP Capital, a Singapore-based cryptocurrency trading firm, has noticed increased activity in short-term BTC and ETH volatility markets, with heavy demand during the Asian trading day. “We managed to take profits from our long volatility position on March 18th,” QCP wrote in a Telegram announcement. Long volatility is a trading strategy that typically involves buying options to profit from a higher-than-expected rise in realized volatility.

The sentiment among Bitcoin options traders is less pessimistic, as evidenced by the decline in the put/call ratio over the past month. However, the ratio has risen slightly in recent days, suggesting some caution among traders.

Despite the recent price gains, traders remain skeptical. Crypto options and futures exchange Deribit wrote in a blog post that “options buyers are willing to pay higher premiums to hedge their expected price declines.”

However, during times of market tension (such as war), market sentiment can swing wildly.

Deribit wrote, “The impact of the local war and the series of events that followed on the market has shown obvious ‘short-wave’ characteristics: the volatility of options close to the expiration date jumps up and down quickly, while the volatility of options far from the expiration date remains relatively stable.”

Terra's LUNA token rose to $104.58 on Wednesday morning, breaking its previous all-time high of $103.34 set in December last year. Bitpush terminal data showed that LUNA has risen 25% in the past 24 hours. The token has now fallen back to about $99. Since hitting a 2022 low of about $44 in late January, LUNA's price has more than doubled.

Cameron Winklevoss, founder of cryptocurrency trading platform Gemini, wrote on Twitter: “The crypto [executive order] is positive, and calls for a coordinated and comprehensive approach to digital asset policy that supports responsible innovation.”

Winklevoss added: “I applaud this constructive approach to crypto regulation and look forward to working with stakeholders to ensure the United States remains a leader in the crypto space.”