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.
The first Bitcoin fund (ETF) has been trading on the New York Stock Exchange for a few days now – undoubtedly a milestone for the industry. The earliest request for a US Bitcoin exchange-traded fund dates back to 2013. However, the application, like the countless others that followed over the years, was rejected by the relevant Securities and Exchange Commission (SEC). The current approval is a testament to the maturity of the new asset class and will henceforth provide institutional investors easier access to the largest cryptocurrency. However, long-term investors should consider the structure of the first Bitcoin ETF with the exchange ticker “BITO”. The price development is reflected by forward contracts, i.e. Bitcoin futures. Due to the associated “rollover transactions”, the investor is exposed to losses over time, which can be avoided with a direct Bitcoin investment.
Non-fungible tokens (NFTs) have become the latest trend in the crypto market. These blockchain tokens come in the form of a non-exchangeable crypto asset that represents ownership of something unique. What makes NFTs a fascinating sector is their large and growing scope of application. This is due to their interoperability across many applications and industries. When it comes to merging the physical with the digital world the field opens all kinds of possibilities. In the third part of the NFT series, Fabian Zbinden takes a look at future-oriented use cases.
The approval of the first U.S. exchange-traded bitcoin fund is a testament to an advanced level of crypto regulation. So-called stablecoins represent a separate class in the field. The fiat-backed tokens are perceived by central banks as “problematic” for the monetary system and repeatedly come under fire from regulators. The first stablecoin issuer, in particular, has had turbulent times. The company behind the largest dollar token theter “USDT” has been repeatedly accused in the past of not being able to show full collateralization of its stablecoin. Now the company has been fined because of “misleading” claims that USDT is fully backed by the U.S. dollar. In fact, the majority of its deposited reserves are in investment products, not cash. Future financial crises would thus have a drastic impact on the collateralization of the stablecoin.
Social media giant Facebook realized early that authorities and central banks are reluctant to relinquish control over currencies to private companies. What was conceived as a currency basket token under the name “Libra” quickly fell foul of regulators. As a reaction, numerous founding members dropped out of the project in the past. After multiple revisions, Libra was eventually abandoned altogether. Instead, a slimmed-down project in the form of individual stablecoins is being pursued under the name “Diem.” But even this project is facing resistance. A handful of U.S. senators called on CEO Mark Zuckerberg to abandon any Stablecoin projects. According to the senators, Facebook’s plans are not compatible with the regulatory environment. They also fear there will be a lapse in consumer protection. Whether a digital payment method from the social media company will ever make it to the market remains to be seen.
In addition: What makes a cryptocurrency valuable? The answer to this question involves a number of potential components. Basically, the question can be broken down to a fundamental market principle: Supply and Demand. Both supply and demand are influenced by the programmatically defined characteristics of a digital asset – the so-called tokenomics. They define the rulebook on monetary policy, the role in the ecosystem, and their value proposition. So when it comes to investment decisions, tokenomics should not be ignored at all. Yves Longchamp provides an overview of four essential components of an ideal token model.