What has been happening around Blockchain Technology and Cryptocurrencies this week? The most relevant local and international developments as well as appealing background reports in a pointed and compact way in retrospect in our weekly review.
Bitcoin is gaining popularity as an alternative investment to diversify portfolios. Here, the focus is strongly on its programmed scarcity, which leads to inflation protection. Other utilities of the cryptocurrency, such as cross-border peer-to-peer payments and easier transfer of value for unbanked people, have tended to take a back seat in the first world. This week, the South American country of El Salvador decided to take advantage of those very features. The small state passed a law that promotes Bitcoin to a currency equal to the U.S. dollar. With the cryptocurrency as legal tender, El Salvador hopes to increase the economic inclusion of its unbanked population - currently around 70% - as well as more efficient domestic and international payments. Reactions to the landmark decision were mixed. On the one hand, various representatives of South American countries expressed their support, while on the other, organizations such as the International Monetary Fund (IMF) were critical. The Bank for International Settlements (BIS) speaks of an interesting experiment.
China secured a spot in the headlines a few weeks ago for their crackdown on cryptocurrencies. Specifically, stricter rules were to be introduced for bitcoin mining as well as financial services involving crypto assets. The approach appears to be part of a larger plan by the Chinese government. A few days ago, search queries for crypto exchanges on China's Google equivalent "Baidu" were censored for the first time. Furthermore, the Twitter-like social media platform "Weibo" blocked quite a few accounts related to the crypto space. There was no official statement on the action for the time being. China's plans regarding cryptocurrencies thus remain cloudy, spiked with a dismissive note.
While regulatory frameworks for cryptocurrencies such as Bitcoin and Ethereum have emerged over the years in the Western Hemisphere, the Decentralized Finance (DeFi) subsector remains largely unregulated. U.S. Commodity Futures Trading Commission (CFTC) Commissioner Dan M. Berkovitz has now taken notice of the uprising sector. The dynamically growing sector needs to be scrutinized more closely, as it is slowly becoming an unregulated competitor to established financial markets, Berkovitz stated. The CFTC commissioner particularly identified decentralized derivatives markets as a cause for concern. There is a possibility that these specific products are illegal under U.S. law.
In Switzerland, a certain maturation process of the blockchain industry can be seen. Thanks to politics and regulation, the necessary legal certainty for a flourishing ecosystem around blockchain and cryptocurrencies was created early on. Thus, the term "Crypto Valley" was coined in reference to "Silicon Valley". In the meantime, the ecosystem has expanded into various industries and geographically, the Crypto Valley has also grown far beyond the area of Zug. In the last two months, quite a bit has happened once again.The banking regulator FINMA approved a marketplace for digital assets, the world's largest insurance company accepts Bitcoin as a means of payment in Switzerland, a Crypto Valley startup received an international award, and the local ecosystem's leading venture capitalist closed a $13 million funding round.
In addition: One of the biggest applications in the field of decentralized finance (DeFi) is Yearn Finance. The decentralized asset management protocol was created for passive yield generation. Through various investment strategies, users of the protocol can earn returns on their digital assets with little effort. With double digit interest rates, the protocol offers attractive returns. Yves Longchamp examines the history of the project as well as its potential in the current market environment.
Selected articles in the weekly review:
El Salvador promotes Bitcoin to an official currency.
The Chinese government continues to crack down on the crypto space.
U.S. regulators tackle DeFi for the first time.
A recap of whats happening in the Crypto Valley.
A closer look at the largest decentralized asset management protocol on the Ethereum blockchain.
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