Crypto Industry Report #45
Balzers (LI), 25 February 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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Only a matter of time
The first-ever Bitcoin ETFs have officially launched going by the name Purpose Bitcoin ETF and Evolve Bitcoin ETF. While these two vehicles trade on Toronto’s Stock Exchange (TXE) in Canada, a country where assets in ETFs total only about $215 billion, the launch of the two exchange traded funds has stirred up quit some interest all over the Western hemisphere. Excitement was also evidenced by the well over $100 million shares traded on its first day and a total dollar inflow of 421 million after just two days.
After the first two ETFs being approved in North America, the main question remains: Will the US regulator follow suit and give the green light for a Bitcoin ETF in the biggest and most liquid markets for passive investing? With greater and greater recognition by Wall Street titans like Paul Tudor Jones and Stan Druckenmiller as well as star fund managers like Ray Dalio warming up to the crypto asset, chances are that a US Bitcoin ETF will be approved sooner than later.
So far, the SEC has abstained from approving a Bitcoin ETF because of worries that this market is particularly prone to insufficient liquidity and price manipulation. As the industry is progressing and more and more obstacles have been removed, the US regulator seems to be running out of arguments against an ETF. This is also echoed by SEC commissioner Hester Peirce, when she says that “we’re ready for an exchange-traded product.” With Gary Gensler, former chairman of the Commodity Futures Trading Commission (CFTC) being nominated as the new SEC chairman, Bitcoin proponents have cheered as many consider him to be crypto-friendly.
Other than that, there’s good reason to speculate that demand for a Bitcoin ETF would likely exist. As Bitcoin has seen its meteoric ascent during the first two months of this year, the crypto ecosystem’s most popular investment product GBTC, Grayscale’s Bitcoin Trust, has experienced major inflows. Total assets have soared to more than $27 billion from $2.8 billion just a year earlier.
Because crypto markets are still in their infancy, access options are still unevenly distributed mainly because of differing regulation and restrictions. Instruments like ETFs would certainly open up the markets an promote greater and more evenly balanced accessibility. Although Gensler built a reputation as a “tough regulator”, the new head of the SEC has described crypto as a “catalyst for change and innovation” in the past. It remains to be seen, what influence he will have on Blockchain regulation going forward.
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Digital twins on the blockchain
The crypto world is never shy of a new hype. This time around it is NFTs that are provoking a whirl of excitement. NFT stands for non-fungible token. Crypto assets like bitcoin or ether are considered to be fungible since the very units of each asset are generally interchangeably with one another. One bitcoin can usually be exchanged for any other bitcoin making it still one bitcoin.
As the name suggests, with NFTs this sort of fungibility is not available. A non-fungible token has the following characteristics: No two NFTs are identical as they carry uniqueness. Also, they are provably scarce, indivisible, verifiable as well as indestructible. All of this is true because all NFT data is stored on the blockchain via smart contracts. Since NFTs are cryptographic tokens after all, they can be self-sovereignly controlled just as it is the case with other crypto assets.
At this point in time, NFTs in the form of digital art, digital collectibles or virtual land have gained quite some traction. While a digital collectible in the form of a CryptoKitty was sold for 600 ETH already back in 2017, this record was smashed by the sale of virtual property that was traded for 888 ETH, making this the largest NFT transaction so far.
NFTs that completely reside in the digital space harbor great potential. A promising use case is seen with in-game items. Thanks to the advent of blockchain technology and the rise of NFTs, gamers can become immutable owners of unique in-game assets like swords, armors or trophies, giving them more independence from game providers.
But innovation and transformative effects will also spill over into the real world. Things like real estate, cars and other real-world collectibles can be put onto the blockchain. As a consequence, every real-world asset would have a digital twin residing on a blockchain in the form of a unique NFT. This would bring these assets into the digital world, potentially making them more liquid and available as collateral for digital lending protocols. NFTs of single components could also be combined with other NFTs, which then represent a final, assembled product. This way, a high level of control and transparency spanning the entire value chain can be ensured.
Already today, there are active use cases in which NFTs are used to represent real-life value across the entire supply chain. For example, such tokenization can mitigate capital lockup in specific industries such as shipping and intercontinental goods transportation. The NFT market, be it digital only or tied to the real world, will grow with more and more new uses cases being unlocked along its growth path.
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Payment is being disrupted, yet again
The world’s largest payment processor, Mastercard and Visa, have finally done an about-face, announcing that they will both be going into the cryptocurrency business. Mastercard’s change of heart has been initiated by the fact that an ever-growing number of people are using Mastercard’s cards to buy crypto assets, as well as taking advantage of crypto cards to access digital assets. This is why the company will start making select cryptocurrencies available through their network.
At the same time, the company has partnered with the central bank of the Bahamas and Island Pay to offer a Sand Dollar prepaid card that gives people the option to more easily make use of the country’s new digital currency, which is touted to be the world’s first CBDC. While this is only the first real-life example of such a central bank digital currency, Mastercard is actively engaging with several major central banks around the world, to review and potentially help implement their new digital currencies.
Mastercard’s competitor Visa has recently announced their plans as well. As sources have it, the company is willing to work with wallets and exchanges to enable users to purchase cryptocurrencies using their Visa credentials. Cashing out onto a Visa credential to make a fiat purchase at any of the 70 million merchants where Visa is accepted globally shall also be possible in the near future.
In the pursuit of making this happen, Visa has teamed up with peer-to-peer payments technology company Circle that is behind the US stablecoin USDC. Together they are working on making stablecoins more accessible to the general public.
The way we pay is once more undergoing rapid change. The fact that the two payment giants are now getting actively involved with crypto assets confirms the significance of blockchain technology in digital payments.
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Paying taxes: Is bitcoin a currency after all?
In Switzerland, more precisely in the canton of Zug, bitcoin and ether can now be officially used as a money to pay taxes with. Already back in 2016, Zug, as the heart of Switzerland’s crypto valley allowed its local citizens to pay for public services using digital currency. The canton’s website even hosts an explanatory video showing how tax bills can be paid with bitcoin or ether.
With the start of February, parts of the new DLT law have come into action. As of now Switzerland has introduced a new type of digital securities the so called “Uncertified Register Securities”. Additionally, new rules for companies looking to issue shares in a tokenized from are being released. The gradual introduction of the new changes to Swiss law shall attract new investors and entrepreneurs, so the rationale behind the move goes.
While Switzerland is going the way of creating favorable regulation for crypto, other countries have taken a seemingly hostile approach. Recently it was reported that Nigeria’s central bank has blocked banks from offering services to crypto traders and exchanges in the country. The central bank further instructed all banks to identify individuals or entities transacting in cryptocurrency so that their accounts can be shut down. Following the announcement of the cryptocurrency ban, bitcoin was trading at 36% premium in peer-to-peer markets in the African country.
Zug’s move to accept cryptocurrencies for tax payments goes to show how progressive Switzerland’s overall approach to crypto is. As a matter of fact, there is still a debate going on whether bitcoin (and also ether) can and will become generally accepted means of payment. Zug’s announcement certainly has a positive marketing effect but in the case of bitcoin is seems more likely that the assets will establish itself as a digital store of value rather than a payment vehicle. At the same time, such moves, as done by Zug, are important if not necessary to figure out the proper role crypto assets will play in the long-term.
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Crypto Market Update
It was yet another milestone. On the 19th of February, Bitcoin’s market cap crossed $1 trillion for the first time. When contemplating the fact that this ascent has happened in only a little more than 12 years, the achievement seems to be quite astonishing. Nevertheless, at a market capitalization of $1 trillion, Bitcoin is still only 10% of gold’s total value. If Bitcoin is indeed taking its place a digital gold, the crypto assets seems to have a lot more room to grow.
Only a few days later, the price of one bitcoin shot up to over $58,000 making the crypto assets worth more than one kilogram of gold. While gold’s price has been seeing a downtrend during the last few week, bitcoin’s meteoric rise has left many commentators in awe.
Critics were readily rubbing their hands when bitcoin’s price came crashing down going into the last week of February. As longs got liquidated and tech levels were broken, the price tanked an astonishing $10,000 in just one day. The price drop came when treasury secretary Janet Yellen criticized bitcoin yet again, this time making the accusation that bitcoin is inefficient and highly speculative.
While some would agree that bitcoin is inefficient on purpose because it prioritizes on decentralization and censorship resistance, others are quick to point out that Bitcoin does about the same number of transactions if one accounts for batching. Just like Fedwire, Bitcoin is poised to be a new global settlement layer that can power more payments at higher layers. The main difference being that Bitcoin is just less mature at this point.
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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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