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 integration of digital assets into existing institutional financial infrastructures can be witnessed on a number of fronts. In the United States in particular, several established financial services providers are now offering services related to digital assets. These include crypto trading, custody and portfolio management solutions. According to investment strategist James Butterfill, the progress of institutional adoption can be measured by three factors: regulation, mass adoption and macro environment. All three fields, without exception, have improved over the past year. The latest drivers of institutional adoption are the recent Bitcoin ETF approvals in the US and a burgeoning fear of an uncontrollable wave of inflation.
The three main banking regulators in the United States are joining forces for a comprehensive crypto regulatory framework. The collaboration is intended to provide financial institutions with solid legal certainty when it comes to dealing with cryptocurrencies and stablecoins. The Federal Deposit Insurance Corporation (FDIC) already acknowledged in May 2021 that there is a need for novel and unique regulatory considerations related to digital assets. The framework is also expected to include the use of cryptocurrencies as collateral as well as accounting standards for digital assets.
In 2020, cyber attacks caused estimated damages in the triple-digit billions. These attacks often involve ransomware. The term ransomware is used to describe malicious software that takes control of systems and data away from the user. The attack mostly encrypts files or threatens to make private data publicly available. In order to escape the evil, the victims are suggested to pay a ransom. These demands usually take the form of cryptocurrencies such as Bitcoin. The problem of ransomware attacks is currently being addressed on an international level. Possible solutions are aimed more in the direction of a necessary upgrade of IT infrastructures than a restriction of cryptocurrencies. The latter only serve as a tool and not as a starting point for criminal cyber business.
Issuing its own digital currency opens up new horizons for central banks in terms of controlling monetary policy. Accordingly, central banks around the globe are looking into the introduction of central bank digital currency, so-called CBDCs. The Swiss National Bank has also been examining potential implications of the digital currency alternative for quite some time. In a recent analysis, the financial institution highlights the benefits and risks of the new technology. A summary on the findings of the SNB and the international progress of CBDCs.
In addition: The price developments of cryptocurrencies is associated with a high volatility. The different forms that digital assets can take also entail specific investment behavior. While investors in the crypto space clearly bring a higher risk tolerance, their decision-making is also different from traditional investment behavior. Pricing in the crypto space often comes solely from the network effect of community-driven projects. The prioritization of financial success fades in favor of the “experience” of being a part of the movement. Investment decisions are not driven by mathematical valuation models at this point. So-called meme coins, similar to NFTs, serve the purpose of provable ownership, which at the same time implies membership of an exclusive community. The recently observed rapid price increase of the Shiba Inu (SHIB) coin can also be attributed to the network effect. An overview of the origins of the “meme coin” and its parent currency Dogecoin.
Selected articles in the weekly review:
Institution adoption of Bitcoin has steadily increased throughout the past year. A deep dive into the 3 most important factors to watch.
An interagency team of U.S. banks regulators will come up with a regulatory roadmap for banks to incorporate cryptocurrencies into their service offerings.
Ransomware is malicious software that takes control of a computer and steals data. Are cryptocurrencies responsible?
The Swiss National Bank (SNB) is investigating the pros and cons of a central bank digital currency based on blockchain.
A behind-the-scenes look at the creation and development of the Dogecoin-inspired meme coin Shiba Inu (SHIB).
