CRYPTO INDEX SERIES
CIS Gazette 21/Dec/2020 A summary of the weeks news & events in the Crypto/Blockchain world
More Currency, More Player
South Asia's largest bank DBS will launch a digital currency exchange that will allow investors to trade in cryptocurrencies and firms to raise funds through asset tokenisation. The blockchain-based DBS Digital Exchange will allow institutional and accredited investors to access an integrated tokenisation, trading and custody ecosystem for digital assets. It will provide a regulated platform for the issuance and trading of digital tokens backed by financial assets such as shares in unlisted companies, bonds and private equity funds. The service will also enable spot exchanges between four fiat currencies - the Singapore dollar, US dollar, Hong Kong dollar and Japanese yen - and four established cryptocurrencies: Bitcoin, Ether, Bitcoin Cash and XRP. The Singapore Exchange will take a 10 per cent stake in the DBS Digital Exchange.
The bank has received in-principle approval from the Monetary Authority of Singapore for DBS Digital Exchange to operate organised markets for assets such as shares, bonds and private equity funds. Furthermore, DBS joined local blockchain trade-finance network Contour, which digitalises global trade processes such as the creation, exchange, approval and issuance of letters of credit.1
Sweden’s government will start exploring the feasibility of having the country move to a digital currency. The financial markets minister announced that the project will be completed by the end of November in 2022. Sweden is among the first countries in the world to consider introducing a digital currency. Its Central Bank is already running a pilot project with Accenture to introduce an electronic Krona based on the same blockchain technology that underpins digital currencies like Bitcoin. Sweden was selected as the world’s most cashless society, measured as usage as a percentage of gross domestic product.2
The first cryptocurrency index fund has made its debut in OTC markets. Bitwise's large-cap index fund, the Bitwise 10 Index Fund (BITW), is listed on OTCQX and can be traded using brokerage accounts. The fund has $120 million in assets under management and will track the Bitwise 10 Large Cap Crypto Index, which is a market capitalization-weighted index holding 10 of the largest cryptocurrencies, representing 80% of the overall value of crypto markets. The fund was up by 184% in value during 2020. Bitwise has partnered with Coinbase, a leading cryptocurrency exchange, for custody of its assets as well.
Due to the volatile nature of cryptocurrency markets, most investment products are designed for accredited investors, or investors who have a much higher tolerance for risk than retail investors. Such products are often expensive and trade at a premium because they provide access to Bitcoin, a scarce asset whose value has increased in the past couple of months. The fund would like to integrate individuals into the investment pool.3
Market strategists announced that Bitcoin is making progress towards replacing the U.S. dollar as the world’s reserve currency. When the coronavirus pandemic hit, the U.S. dollar was the world’s “reserve currency” and it has been one for 100 years while other previous reserve currencies lasted about 94 years on average.
In response to the Covid-19 lockdowns, USA could print the dollar in limitless quantities without undermining its reserve currency status, allowing the country to keep running large deficits without apparent consequences. U.S. debts to the rest of the world surpassed 50% of its economic output last year, citing that this is “a threshold that often signals a coming crisis,” according to the International Monetary Fund (IMF). The dollar’s reign is likely to end when the rest of the world starts losing confidence that the US can keep paying its bills. That is how dominant currencies fell in the past.
Bitcoin is also starting to make progress on its ambition to replace the dollar as a medium of exchange and mining is likely to continue, even when the pandemic passes. Trusted or not, bitcoin is gaining from widening distrust in the traditional alternatives and mainstream acceptance.4
The price of bitcoin is up 190% in 2020, and hit a new all-time high above $20,000. The surge has mostly been attributed to two factors: institutional investment from Wall Street firms, and public buy-in from PayPal and Square, two very big consumer-facing payment names.
But Visa, a bigger company than the other two combined (by market cap or by revenue), has also quietly warmed to cryptocurrency. Visa’s crypto steps in the past year have likely gone less noticed because they are partnerships, as opposed to the outright solo initiatives from PayPal (which will add bitcoin and other cryptocurrencies to PayPal and Venmo next year) and Square (which added bitcoin to its Cash App in 2018, and this year bought $50 million worth of bitcoin for the company’s balance sheet).
Coinbase, the largest U.S. crypto exchange, will offer a Visa debit card that lets customers spend crypto from their Coinbase accounts and earn crypto rewards. Binance, the largest non-U.S. crypto exchange, is offering a zero-fee Visa debit card that offers cash back rewards based on how much of Binance’s token (BNB) the customer holds. Fold, a bitcoin rewards app, will offer a Visa debit card that offers bitcoin rewards in place of airline miles or cash back. BlockFi, an exchange that offers interest on customers’ crypto holdings, will offer a Visa credit card that gives 1.5% cash back in bitcoin. Coinbase Card already launched in Europe and the U.K. last year and Binance Card started shipping to Europe.
Not all Visa-branded cards are launched through a direct partnership with Visa, since some go through an issuing partner. But all of them require explicit approval from Visa. Visa is actively working with over 25 digital currency companies on a variety of bitcoin-related products and services, cards being just one area. Visa has become the preferred network for digital currency wallets, which are eager to deepen their value to users by making it quicker and easier to spend digital currency worldwide. Visa believes that digital currencies have the potential to extend the value of digital payments to a greater number of people and places. They want to help shape and support the role they play in the future of money. 5
LATEST CIS GAZETTE ISSUES