Crypto Industry Report #43
Balzers (LI), 25 January 2021
This week, our blockchain experts assessed the following headlines:
Our weekly Crypto Industry Report news ticker provides you with the latest information on the global crypto industry – picked and analysed by our blockchain experts.
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CBDC: Europeans expect privacy and security, yet China is leading the way
Central Bank Digital Currencies, or in short CBDCs, seem to have gained center stage recently. Not only has the IMF asked on Twitter whether central bank digital currencies are really money, but central banks around the globe have started tackling the topic more in-depth. The European Central Bank (ECB) has published a report just before year end elaborating on their stance towards a digital Euro. The ECB also has a questionnaire running on the concept of a digital Euro that, received a record level of public feedback – mainly indicating that privacy, security, and pan-European reach rank the highest.
The ECB’s neighbor, the Swiss National Bank, has made a move on their side. Following the results of recent findings, the SNB registered more than a dozen trademarks with the Swiss Federal Patent Office. Among these are “e-franc” or “digital Swiss franc”. This move can serve as a hint that the Swiss central bank is serious about going down the central bank digital currency route.
The fastest mover among all major central banks is the People’s Bank of China. Their digital Yuan project is picking up speed with pilot tests happening across many different regions. In the province of Shenzhen for example, 100’000 local citizens received a total of USD 31 million digital Yuan for free via lottery and these can now be used for conversion into cash through ATMs on a test basis. By pushing to the forefront when it comes to central bank digital currency, China is hoping to gain critical competitive advantages in the rising digital economy.
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Will exchanges run out of Bitcoin?
Bitcoin’s prime feature may well be the invention of digital scarcity. In a sense, this breakthrough can be compared to the discovery of the printing press in the 15th century but with the opposite effect. While the printing press allowed to scale information beyond its physical limitation, Bitcoin has made it possible for abstract, virtual bits of information to be truly limited. The true impact of digital scarcity can currently only be intuited.
While it’s impossible to predict the future, we already see Bitcoin’s digital scarcity affecting the here and now. Because of its absolute scarcity, Bitcoin is the first store of value in history, whose supply is entirely unaffected by increases in demand. From this perspective, there is hardly any better store of value – an idea that seems to resonate with people evermore.
Bitcoin’s recent push to new all-time highs has thus been accompanied by major crypto exchanges seeing their total stock of Bitcoin units plummet. Over the last couple of months the amount of Bitcoin on exchange wallets has dwindled, possibly being stored away on cold storage wallets with investors having a long-time investment horizon. Interestingly this trend has been going on for several months already.
Could exchanges run out of Bitcoin at some point? While this seems unlikely, a Bitcoin shortage is no fantasy. In a message to its clients, multi-asset brokerage company eToro has issued a warning that crypto trading may become limited due to 'unprecedented demand'.
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Fighting Coronavirus with crypto
Curbing the Coronavirus is currently a top priority for every government around the world. One possibility to handle the virus is through contact tracing in order to break the chain of transmission. A major challenge that remains with this: People are only reluctantly adopting the use of such tracing technologies as they fear their personal data and privacy are not treated with utmost caution.
Public blockchains have been hailed as a solution for this very concern. And indeed, some of them have already been actively used with the purpose of anchoring data on the blockchain to guarantee the immutability of Corona tests taken so far. As such, the results are not stored directly on the blockchain, but only hashes (digital fingerprints). With this digital signature, a laboratory can check a Corona test for its authenticity.
Another blockchain Corona app is being used on Jeju Island, a southern island in South Korea. Through the app people visiting the island need to set up fingerprint authentication or a PIN code that will be sorted on a blockchain network. This data is kept private unless a COVID-19 case is discovered and the respective person has to be informed.
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Crypto Market Update
Just in time for the beginning of 2021, crypto markets got off to a pretty good start. While Bitcoin had its all-time high already in December 2020, it went on to climb up all the way to over USD 40’000 by January 10. Since then trading vigor seemed to have cooled off a bit with Bitcoin currently consolidating around USD 36k.
This new year rally is said to be about one common denominator: Institutional investors have been buying Bitcoin – whether it be hedge funds, publicly-traded companies, or traditional insurers. As digital asset manager Grayscale Investments has noted, interest from pension funds is increasing as well. With the crypto assets market capitalization breaking through USD 1 Trillion, the phenomenon becomes ever harder to ignore, even for institutional actors.
Bitcoin’s price movement has also had an impact on other crypto assets. Ether saw its price rise and set a new all-time high as well – corroborating its position as crypto’s second largest asset. With Ether futures scheduled to launch on February 8, general sentiment is very good as this will give institutional investors a broader set of tools to gain exposure to Ether. Behind the two undefeated champions BTC and ETH, Polkadot’s native network token has taken fourth place in the overall crypto asset ranking, flipping XRP as Ripple investors concerned over SEC’s lawsuit are jumping ship.
Quite an astonishing price run has been performed by several DeFi protocols. US banking regulator OCC has given country banks and financial providers green light to settle transactions on stablecoins and even act as validator nodes on public blockchains. With this approval, it is believed that more and more banks will dabble with DeFi applications of all sorts. While further regulatory clarity is needed, it is a first start to the future blending of traditional banks and decentralized finance.
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Our weekly Crypto Industry Report news ticker provides you with the latest information on the global crypto industry – picked and analysed by our blockchain experts.
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