What is Government cryptocurrency? Will it trend in 2022?

Governments around the world are embracing cryptocurrencies despite the volatility that comes with such new technology which has left traditional economists and traditional banks worried. For example, the Australian government recently announced that they are exploring the idea of a government backed digital currency and a set of new regulations to cover digital currency trading---both ideas are expected to be finalized in 2022.

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What is a Government cryptocurrency?

The term central bank digital currency (CBDC), also known as government back cryptocurrency, refers to the virtual form of a fiat currency. A CBDC is a digital token of a country's official currency. As such, it is issued and regulated by the nation's monetary authority or central bank. With little difference to its old-fashion peer, they are backed by the full faith and credit of the issuing government.

The main reason that CBDCs has attracted attention from governments worldwide is that the digital form of currency can simplify the implementation of monetary and fiscal policy while promoting financial inclusion by bringing the unbanked into the financial system. Moreover, these digital currencies can also minimize the effort and processes for some government functions, such as distributing government-issued benefits and collecting taxes.

From the user’s perspective, the prominent merit of retail CBDCs, which the Australian government is considering, is its capability to eliminate the intermediary risk and costs as a digital currency can be directly transferred from the central bank to individuals. Hence, citizens will be free from the concern that the banking institutions might become illiquid and sink depositor funds.

Will CBDC become a main trend in Crypto?

Technically, CBDC should still be categorized as currency more than a crypto. It is not meant to replace hard cash but coexists as an additional form of currency, serving similar functions like payment and store of value. What sets it apart from real cryptocurrency such as Bitcoin is that it’s still a centralized form of currency, meaning the central bank still controls data and overlooks the transaction process.

Also notable is that CBDCs are not meant to be interchangeable with the national currency of a country or region, making them more locally specialized rather than an investment asset for global interest.

Bitcoin technical analysis

After a volatile year and many all-time-high moments, the world's most popular digital currency scaled back substantially towards the end of 2021. The price of Bitcoin has dropped 30% from its high just five weeks ago and traded at $48189.90 by the time of writing.

The fade of Bitcoin Group SE bull started early this month when the global market was first struck by the Omicron variant. Later, when other risk markets were recovering, the International Monetary Fund (IMF) declared cryptocurrencies a financial risk and pushed world governments to impose tighter regulation as the technological tidal wave takes hold. The later move triggered a massive selloff and sank the king of cypto to its lowest level to under $48,000 for the first time in ten weeks.

From a technical standpoint, some near-term support is probable as the price has been wandering around $47,488 for a while. The Relative Strength Index has transitioned into oversold levels just above 30, if the RSI managed to bounce off the 30 level while more buyers are invited, Bitcoin should retrace to between the 38.2% Fibonacci retracement and September high around $51,787.

However, the US Federal Reserve Open Market Committee (FOMC) meeting later this week may bring a new hit to the cryptocurrencies as the market expects the central bank to accelerate the taper and bring rate hike forward, which could hold back the appetite for speculative assets including equities and cryptocurrencies. In that case, we might see Bitcoin further down to retest $40,824.

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