Crypto Industry Report #53

+++ A global DeFi coalition standing up for crypto +++

+++ Crypto exchanges draw more scrutiny from regulators +++

+++ CBDC: We are in the great experimentation phase +++

+++ Is Bitcoin greener than any country out there? +++

+++ Market Update: Has the crypto market hit a bottom? +++  

A global DeFi coalition standing up for crypto 

Regulators all around the globe one things seems to be clear: The world of decentralised finance, short DeFi, will need further regulation. The Financial Action Task Force (FATF) is agreeing with this and has recently announced that the intergovernmental organisation sees more and more national regulators living up to its regulatory task. According to a recent publication, 58 out of 128 jurisdictions have adopted the FATF’s revised standards with the rest yet to act on the recommendations.

In order to make sure that the intergovernmental regulatory body stays up-to-date when it comes to DeFi’s rapid and innovative development a global DeFi coalition has formed and advised the regulator body to strive for an enhanced level of cooperation with the crypto industry. This newly formed global DeFi coalition is comprised of lobbyist groups from all over the world representing more than 350 crypto companies globally.

With six guiding principles, the coalition calls upon the FATF to wise choose its recommendation concerning DeFi regulation. For one thing, regulation imposed on business should be related to its business model. What might seem obvious is particularly relevant to DeFi protocols which help clients process transactions but have at no access to a client’s asset at any point in time. Also, service providers within DeFi should be allowed to collaborate when identifying clients. As some DeFi services are comprised of many independent actors, this approach seems like a must to continuously provide the seamless customer experience DeFi protocols offer. And last but not least: Regulators should also recognise the reduced risk of public transactions and take heed of the fact that public DeFi transactions are transparent when proposing with further regulation.

So, while the guiding principles put forth by the global DeFi coalition suggest that industry experts might be a little concerning about the way FATF is approaching DeFi, positive regulatory news is coming out of Wyoming. In this US state, decentralised autonomous organisations have officially been granted legal status. More specifically, a DAO called the American CryptoFed DAO is now the first legally recognised DAO in the US. As DAOs are on the uprise, this is certainly a relevant development.

Crypto exchanges draw more scrutiny from regulators

Crypto trading has reached regulated exchanges. This is a fact and has recently been shown by Robinhood. The fintech, which has grown famous because of zero-commission trading has revealed in its most recent filing to go public that revenue from cryptocurrency transactions went from 4 percent for the last three months of 2020 to 12 percent of its total revenue in the first three months of 2021.

Besides Robinhood, crypto assets can be purchased and sold with PayPal, Square or eToro – all of them dubbed official regulated entities. As a matter of fact though, there are still a lot of crypto exchanges that are considered loosely regulated by traditional standards. This is also why, SEC’s chairman Gary Gensler has indicated that lawmakers should increasingly make sure that investor protection rules are applied to all crypto exchanges.

That the screws are being tightened is currently felt by the world’s largest crypto exchange Binance. UK’s regulator ordered Binance to cease all of its activity in the country. Thailand's financial watchdog filed a criminal complaint against Binance on Friday for operating a crypto asset business without a license. And even in the Cayman Islands, where the biggest cryptocurrency exchange has been incorporated since 2018, regulators have issued a warning that Binance has not been officially authorised to run its crypto exchange business.

All of these critical stances on Binance go to show that a further push towards more regulation within the crypto exchange industry is well on its way. On the flip side, there is also positive news surrounding crypto exchanges. Coinbase, which is following a more regulated approach has received a custody license from BaFin, the German financial regulator. This way, the US crypto exchange can lawfully continue serving the German market.

CBDC: We are in the great experimentation phase

Vietnam has recently joined the pack of Southeast Asian countries experimenting with central bank digital currencies. As is reported by several news outlets in Vietnam, the Vietnamese government has instructed the State Bank of Vietnam to pilot a national CBDC supposedly based on blockchain technology. As of now it is not yet clear, what sort of blockchain, private or public, is being tried.

The question of whether CBDCs should be built on top of blockchain technology is hotly debated among central banks. Some seem to be looking into blockchain-based version. For example, the Bank of Israel is said to be testing a digital shekel on Ethereum. While it is assumed that most probably a private version of Ethereum is used, the bank is at least experimenting with Ethereum’s tech. Another test of settling tokenised securities was recently done by the Bank of France explicitly stating that Ethereum’s public blockchain infrastructure was used.

Other central banks are more sceptical when it comes using a blockchain when implementing a CBDC. People are asking: Are CBDCs a solution in search of a problem? Prominent representative of Switzerland’s National Bank are opposing the usage of any sort of blockchain in tandem with a CBDC. As alternate member of the governing board at the Swiss National Bank, Thomas Moser, has argued, a CBDC is supposed to be implemented by a central issuer, which is why a distributed technology like blockchain might not be the right design choice after all. A similar view has been put forward at the Reserve Bank of Australia, as they currently see no policy case for a digital Aussie dollar based on blockchain technology just yet.

So, while the question of whether “to blockchain or not to blockchain” has not been settled, it’s a fact of life that 55 central banks around the globe are exploring or have recently explored some sort of retail central bank digital currency. To foster innovation and possibly come to a conclusion regarding the tech used in CBDC, the Monetary Authority of Singapore just launched a global CBDC challenge. The country of Ukraine on the other hand has already passed a new payments law that puts CBDC on par with cash, bank deposits and other electronic payments.

Is Bitcoin greener than any country out there?

There is a consensus among mainstream media that Bitcoin has an energy problem. It has been argued for months that Bitcoin is dirty, producing too much Co2 related energy and is therefore boiling the oceans. When Elon Musk announced that Tesla would no longer accept Bitcoin payments for its cars because he also considered Bitcoin’s energy consumption not to be sustainable enough, many commentators felt vindicated.

Now, a recent study published by the newly formed Bitcoin Mining Council is showing some interesting observations: Bitcoin uses around 0.117% of the world’s total energy production. In comparison, while China uses around 39,361 TWh and the US consumes 26,291 TWh, Bitcoin is estimated to use only 189 TWh a year.

What the study also shows, and this is what most people are interested in: Bitcoin’s global energy power mix is rather sustainable. As the study has found, around 56% of the energy Bitcoin consumes is said to come from sustainable energy sources. This puts the Bitcoin industry at the forefront of sustainable energy usage as for example the EU’s energy power mix is said to be 49.5% sustainable.

As a matter of fact then, Bitcoin’s global energy foot print might actually pretty good after all. Now that China has virtually banned Bitcoin mining, miners are flocking out of China into the wider world. As people argue, this is not only good for the wider decentralisation of the Bitcoin mining network but might also accelerate the movement to an even greener energy consumption of Bitcoin.

Market Update: Has the crypto market hit a bottom?

Bitcoin’s price is currently holding strong within the 30k to 36k range. With the great miner migration currently happening, this seems to be rather remarkable. Just days ago, Bitcoin also experienced its biggest difficulty adjustment, adjusting down 27.94%. If Bitcoin miners turn of their mining hardware and Hashrate therefore leaves the network, Bitcoin’s algorithm adjust the complexity of the its mining puzzle. This way, the protocol makes sure that blocks are continuously added every 10 minutes on average.

As shown by on-chain data, in recent days we have seen miner capitulation. This is the result of miners switching off their mining machines as costs are too high. Such behaviour has historically been correlated with strong bullish market reversals last seen in March 2020 and at the end of the bear market in 2018.
While Bitcoin is still range-bound though, several DeFi tokens have experienced quite an uptick in price. Protocols like Compound, Uniswap, Aave, SushiSwap, Synthetix or Perpetual Swap have seen their tokens gain momentum. At the same time, investors are eyeing at Ether, as the Ethereum Network will undergo its much-awaited London Hard Fork most likely on August 4^th. Notable Ethereum Improvement Proposals (EIPs) like EIP 1559  will be activated.

Some investors are still bearish, thinking that Bitcoin has not seen the worst just yet. JP Morgan’s analysts are particularly worried about Grayscale’s unlock happening mid-July. The world’s biggest Bitcoin fund will start unlocking a whole bunch of its own shares, which are worth around 16’000 Bitcoin. Although many fear that this unlocking process represents downside price risk to Bitcoin, it’s worth noting that no spot Bitcoin but Grayscale trust shares will be unlocked. The effect this is really going to have on the market, is hard to estimate. Hope that crypto prices haven’t seen their top in the next few years comes from a study showing that four out of 10 institutional investors plan to increase their crypto holdings dramatically by 2023.

Our bi-weekly Crypto Industry Report provides you with valuable information on the global crypto industry – picked and analysed by our blockchain experts.




Browse our Crypto Industry Report Archive