Crypto Industry Report #48
Balzers (LI), 8 April 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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Biggest Bitcoin Fund Targets Transformation into ETF
Waiting for a Bitcoin ETF feels a little bit like waiting for Godot. In this world-renowned novel, two characters engage in a variety of discussions and encounters while awaiting a mysterious person by the name of Godot, who never arrives. So far, and herein lie the similarities, bitcoin investors have engaged in various attempts to gain approval from the US Securities and Exchange Commission (SEC). Although market infrastructure has been improving, as indicated in almost every new ETF filing, the quests by various different entities have yet been to no avail.
Now the whole story has taken a new turn. Grayscale, the ecosystem’s top dog digital currency investing firm, has officially announced that they are committed to converting their Bitcoin product (GBTC) into an ETF. As of now, GBTC is a publicly traded-Bitcoin fund with around $38 billion assets under management.
Although the timing of when GBTC will be turned into a Bitcoin ETF is ultimately be driven by the regulatory environment as stated by Grayscale themselves, the company certainly is in a great position to make an exchange traded fund for Bitcoin reality. Since their Bitcoin (GBTC) as well as their ETF fund (ETHE) are currently SEC-reporting companies, they remain in close contact and communication with the US’s regulatory body.
Transforming Grayscale’s funds into ETFs will come at the right time after all. GBTC’s premium might be currently negative, demand for the fund has been high with institutional investors wanting to gain exposure to crypto over the last few months. After Canada and Brazil have already launched Bitcoin ETFs, the US will have to follow suit at some point. Having Grayscale funds turn into ETFs will surely mitigate the potential for any disruption, while making a safe and low-cost Bitcoin investment option available to an even greater number of investors.
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Visa is becoming a layer on top of public blockchain settlement infrastructure
While the Visa network is often touted as a way more efficient payment solution compared to Bitcoin or Ether, the US payment processor has announced to allow the use of a US stablecoin (USDC) to settle transactions on its payment network.
This goes to show that Visa seems to have acknowledged the role that public blockchains like Ethereum are going to play in the future: They are open, global, programmable settlement layers for financial transactions of the future. As such they allow money to be sent and received 24/7 anywhere in the world. They allow for the streaming of money in real time. And they make it possible to verify income and assets on the spot with no strings attached.
Visa taking the step towards such a future has been a logical consequence of increasing customer demand. Because Visa will be offering blockchain-based settlement in stablecoins, life for crypto companies will become a lot more convenient. The ability to settle in USDC will assist crypto native companies in testing radically new business models without relying on conventional fiat in their treasury and settlement workflows.
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Crypto regulation remains a hot topic
In their mandate to protect investors, the US regulator has filed another charge against a blockchain company for conducting an unregistered offering of digital asset securities. Their latest target is LBRY, a company offering a video sharing application. As the complaint by the SEC alleges, LBRY did not file a registration statement for the offering of their token that has been trading on Bittrex after all.
This new case goes to show that the SEC is still committed uncover and put up charges against illegal security issuance. One of the most prominent cases the US regulator was able to nip in the bud was TON, a token that was supposed to launched by the popular messaging app company Telegram Group.
A digital token that was successfully launched and currently boasts a market capitalisation of almost $45 billion is Ripple’s XRP. Recently the token saw a significant price increase, even though the company is not off the hook when it comes to its issues with the SEC concerning having conducted an unregistered security offering themselves. The recent price rally might be because Ripple has won a ruling that will require the SEC to hand over internal documents about Bitcoin and Ethereum and why their tokens are not considered a security by the US regulator. Still, it is not clear if Ripple’s XRP will benefit from any finding therein in the mid-term.
With all this uncertainty with certain projects, what seems to be a given is the fact that new regulation will be coming soon. This is at least what ex-SEC char Jay Clayton has alluded to in a recent appearance.
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The race of CBDCs is accelerating
Stuff is about to get real. This is the case with CBDCs all around the world. While there is one digital central bank currency officially launched in the Bahamas by now, more is to come. Apart from pilot projects being launched in the Caribbean, China is the most prominent country that is also already experimenting with an actual version of a CBDC. As of now, customers of all six state-owned banks can now apply for test versions of the bank’s digital yuan wallet. And China is also experimenting with the programable feature of this new money: In Beijing the digital yuan tested comes with an expiration date to encourage users to spend it quickly.
Other prominent Asian countries are not as far as China but have recently announced that they are pushing their own CBDC agenda further. While the Bank of Thailand has indicated that it will being central bank digital currency tests in 2022, Japan’s central bank has launched a proof of concept to launch a test environment for its own CBDC system.
Such developments truly signal a global effort to develop digital fiat currencies. In the Western hemisphere, the ECB has also been sharing their thoughts on developing a digital euro. While the US central bank has been rather reserved and holding back on any concrete implementation steps, one of the US’s biggest commercial banks has published a report in which in outlined the benefits of a CBDC.
Bank strategists see CBDCs ushering a now era for central bank stimulus efforts as policy tools like stimulus checks, emergency lending programs and other direct “money drops” could be conducted more easily. At the same time, they also mention disadvantages, such as the fact that governments could increasingly obtain data from private individuals through CBDCs, which is not in their interest. It’s interesting to see that such analysis is coming from commercial banks. After all, there are some voice that fear that a straightforward implementation of a CBDC, a so-called retail CBDC, could potentially partly jeopardise commercial bank’s business model.
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Crypto Market Update
The last few days, bitcoin traded well above $65,000. You seem to have missed this? Well, this might be because you are not paying attention to the South Korean crypto market, where bitcoin has been trading at a steep premium up to 20%. It’s called the Kimchi Premium and it describes the spread between bitcoin’s price on South Korean crypto exchanges compared to Western exchanges.
This premium primarily exists for the fact that Korean regulation has made it notoriously difficult for arbitrage trader to enter the South Korean markets. Korean crypto exchanges do not accept foreign clients due to local regulations. At the same time, Korean citizens cannot buy crypto assets at lower prices on global exchanges as they don’t support the Korean won.
Although the premium started to nosedive from an all-time high of 23%, forcing bitcoin’s price down, people are speculating that the return of the South Korean retail trader – as indicated by the rising premium – might have bigger consequences for the short- to mid-term crypto market.
An impact will most likely also be experienced when Coinbase’s shares will officially be launched on Nasdaq Exchange on April 14. In their earning report, the company presented some magnificent numbers. Their active user base grew by 11/% in Q1 of 2021. They also raked in $1.8 billion in revenues, giving them a net income of approximately $730 million to $800 million. This easily makes for a valuation around $100 billion.
For many traditional investors, this makes Coinbase a very attractive buy opportunity. While some fear that Coinbase could steal the show from bitcoin itself, other believe that the “Coinbase effect” could make several coins jump in value. After all, altcoins have been performing rather well compared to BTC. This has led some to speculate that the so-called “alt season” has only just begun.
Proving this point could be the fact that especially older altcoins like IOTA, Tezos or, Tron, sometimes also referred to as dinosaur coins, have seen quite some price appreciation. On the other hand, prices of NFTs have plunged about 70% from their high point in February.
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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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