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.
A surge of institutional interest in the cryptocurrency Bitcoin is making headlines once again this week. The first company to incorporate Bitcoin into its treasury strategy on a large scale was business intelligence firm MicroStrategy. A few months ago, the company invested $250 million of its cash reserves in the cryptocurrency. According to CEO Michael J. Salor, many assets were considered, however, Bitcoin was seen as the most promising long-term investment. The company impressively underlined this belief this week by issuing $550 million in senior convertible notes - with the sole purpose of acquiring more Bitcoins. Actively incorporating cryptocurrencies into institutional treasury management is new and likely to attract imitators. However, the Nasdaq-listed business intelligence firm's aggressive strategy is unique. On a market capitalization of about $2.7 billion, it is targeting a bitcoin investment of more than $1 billion. Analysts at Citibank reacted promptly to Saylor's latest coup. Because of its "disproportionate" focus on Bitcoin, they downgraded the company's shares from hold to sell.
With Microstrategy and Square, it was mainly companies with business segments directly related to digitalization that stood out in terms of Bitcoin investments. Two months ago, Stone Ridge Asset Management, one of the world's largest asset managers, launched a digital asset custody subsidiary called New York Digital Investment Group (NYDIG). Massive U.S. life insurer Massachusetts Mutual Life Insurance Company (MassMutual), is now acquiring a minority stake in NYDIG while making a $100 million Bitcoin investment for its general investment fund. With this, one of the largest U.S. life insurers joins the ranks of institutional Bitcoin investors. An interesting development.
In the "Crypto Nation" of Switzerland, home of the Crypto Valley, the blockchain ecosystem is also seeing a notable expansion of services around digital assets. This week, the Swiss stock exchange SIX took a stake in a joint venture of Swisscom and the Swiss "crypto bank" Sygnum. The joint venture, called Custodigit, aims to provide institutional market participants with easy access to digital assets. Provided the Swiss Financial Market Supervisory Authority (FINMA) approves the project, initial services will be launched in early 2021 and expanded later in the year.
Even though many people only focus on cryptocurrencies and their price movements, blockchain technology offers multi-layered and far-reaching opportunities. In the traditional financial sector in particular, simpler and more efficient processes are possible thanks to the technology. Tokenization represents one variant of this. This generally refers to the representation of an asset on the blockchain. Tokenization can open up new worlds, especially for illiquid assets such as real estate, private equity, art or commodities. Thanks to the divisibility, global transferability and low transaction costs of tokens, even small retail investors get access to "non-bankable assets". Digital asset specialist Sygnum Bank announced last week it would launch a token issuance and trading platform. Ralph Hamers, the new managing director of UBS Group AG, also commented on the topic. He sees "almost unlimited potential" in the technology and says we haven't even "scratched the surface of what it's capable of."
Also: Regulatory requirements in dealing with the new digital assets are the cornerstone for a broad adoption and round off the current weekly review. Cryptocurrencies such as Bitcoin have experienced initial legal certainty in various jurisdictions, particularly in the last two years. For example, German and U.S. banks are now allowed to hold and trade digital assets for their customers. The integration of cryptocurrencies into the services of major payment providers such as Paypal also shows that the necessary legal foundations have been created. With recognition as a digital asset and legitimate means of payment, a potential "Bitcoin ban" is becoming increasingly unlikely. This is also reflected in a statement issued at the meeting of the G7 finance ministers together with the heads of the International Monetary Fund (IMF), the Financial Stability Board (FSB) and the World Bank. They primarily call for uniform regulation of cryptocurrencies. Privately issued stablecoins are examined more critically in this context. A few weeks ago, Christine Lagarde, President of the European Central Bank (ECB), also spoke out on the matter. She does not see cryptocurrencies such as Bitcoin as a threat to the monetary stability and sovereignty of the EU. Lagarde emphasized that private stablecoins that are usually pegged to a fiat currency are perceived as a threat to financial stability. Accordingly, the introduction of a digital central bank currency (CBDC) is prioritized.
Selected articles in the weekly review:
Business intelligence firm MicroStrategy is expanding its bitcoin strategy. It is issuing $550 million in senior convertible notes for the sole purpose of acquiring more Bitcoins.
As the first major insurance company MassMutual invests $100 million in Bitcoin and is also taking a stake in a digital asset custody specialist.
The Swiss stock exchange SIX is joining a joint venture of Swisscom and Sygnum to offer institutional investors access to digital assets.
Tokenization can open entirely new worlds. This is also recognized by Ralph Hamers, the most recent CEO of the UBS Group, who speaks of "almost unlimited potential" of the technology.
Cryptocurrencies such as Bitcoin are no longer perceived as a threat thanks to increasing regulation. This is also demonstrated by a statement from the finance ministers of the G7 countries. However, privately issued stablecoins are increasingly attracting the attention of the monetary authorities.
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