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 weekly review.
For an extended period of time, regulatory actions in the United States regarding cryptocurrencies were perceived as hesitant. The wait-and-see attitude of the authorities had also slowed down the adoption of the technology. This circumstance had largely kept traditional financial services providers away from the field. In recent months, a strong turnaround has become evident. With increasing regulatory clarity, an accelerated entry of traditional financial institutions into the area is becoming apparent. Driven by increased customer demand, well-known U.S. banks are now opening crypto trading desks and offering their customers investment opportunities in the digital asset class. In the meantime, an infrastructure is in place that may soon provide millions of bank customers access to digital assets. The rapid expansion of banking institutions into the area, is exemplified by the formation of a new consortium of major U.S. banks. The collaboration is expected to ensure the establishment of a fully comprehensive trading and custody platform for cryptocurrencies for interbank trading.
The forming mindset shift of major U.S. banks toward cryptoassets is well illustrated by the investment bank JPMorgan. In 2017, the bank was still completely out of touch with the burgeoning digital asset class. CEO Jamie Dimon even threatened employees with dismissal if they were trading cryptocurrencies. Dimon also liked to draw Bitcoin comparisons to fraud schemes and "tulip speculation bubbles". In 2020, the bank's research team took a close look at the largest digital currency and summarized their findings in a report. The authors acknowledged Bitcoin's long history and qualified its longevity as a serious investment option. In December 2020, analysts at the bank expressed the belief that cryptocurrencies will soon find their way into the portfolios of pension funds and insurance companies. This week, JPMorgan became the first major U.S. bank to decide to give its entire wealth management clientele access to crypto products. Competing U.S. banks already introduced similar services, but have so far limited them to high-net-worth clientele.
The regulation of cryptocurrencies has advanced considerably in recent years. The classification and handling of Bitcoin & Co. are now clearly ruled in various jurisdictions. A separate class in the field is represented by the so-called stablecoins. These fiat-backed tokens are perceived by central banks as "problematic" for the monetary system. In a research paper of nearly 50 pages, the Federal Reserve is now proposing tougher regulation of this category. According to the report, money is seen as a state matter and accordingly stablecoins are considered to be a type of token that needs to be "tamed". This view is also shared by the European Central Bank (ECB).
From a regulatory point of view, Circle, the issuer of the second largest stablecoin "USDC", is considered to be in a well-situated position. The payment technology provider is expanding at a remarkable pace. In March 2021, the company announced a partnership with credit card giant Visa, which will allow integration of the USDC token into the payment network of the credit card provider. Competitor Mastercard didn't take long to follow suit, entering into a similar collaboration with Circle this week. An integration of Stablecoins into the infrastructure of the card company will allow direct purchases in the future and make the digital currency compatible with traditional platforms. A so far rather cumbersome conversion of blockchain assets into fiat money can thus be bypassed going forward. The developments demonstrate that necessary bridges between the two financial worlds are gradually emerging.
In addition: Since the crypto markets collapsed in May, many of the largest digital currencies are more than 50% off their all-time highs. The sell-off surprised quite a few market participants and has already led to predictions of an emerging multi-year bear market. In turbulent times, it is well worth reviewing fundamental data. Yves Longchamp analyzes metrics of the largest crypto projects in the areas of payments, smart contract platforms, and decentralized finance (DeFi). According to Longchamp, innovation in the industry can no longer be ignored, and the fact that digital assets move in rapid cycles is of no surprise.
Selected articles in the weekly review:
Established U.S. banks are pushing deep into the digital assets industry.
The major bank enables all wealth management clients to invest in cryptocurrencies.
The central bank expressed criticism towards stablecoins and proposes tougher regulation.
Another credit card giant is looking to integrate the stablecoin "USDC" into its infrastructure.
After the market slump in May, it is worth taking a look at the fundamentals.
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