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University of Cambridge: Crypto Asset Users Have Skyrocketed to 101 Million Globally

In its 3rd Global Cryptoasset Benchmarking Study, The University of Cambridge found that the estimated number of cryptoasset users stood at 101 million worldwide.

This is nearly three times the number of crypto investors recorded in 2018, which was estimated to be around 35 million.

The growing appetite for crypto

The report by the Cambridge Centre for Alternative Finance researchers highlights the growing inclination towards cryptoassets like Bitcoin. This observation correlates with a recent study by Glassnode, an on-chain market analytics firm, which disclosed that the amount of Bitcoin wallets transferring funds to crypto exchanges has doubled since the beginning of the year.

Glassnode acknowledged that this trend highlighted an increase in the number of people investing in Bitcoin due to the sharp devaluation of the U.S. Dollar, caused by the coronavirus (COVID-19) pandemic.

The Cambridge study depicts the exponential growth of crypto users in a span of two years. The researchers noted:

“An updated estimate of the number of cryptoasset users indicates a total of up to 101 million unique users across 191 million accounts opened at service providers in Q3 2020. In 2018, the number of identity-verified cryptoasset users stood at about 35 million globally.”

They added:

“This 189% increase in users may be explained by both a rise in the number of accounts (which increased by 37%), as well as a greater share of accounts being systematically linked to an individual’s identity, allowing us to increase our estimate of minimum user numbers associated with accounts on each service provider.”

Findings are in line with other studies

The Cambridge researchers asserted that regardless of methodological limitations, their findings corresponded with those of other studies. They stated:

“Other recent consumer research also highlights an increase in cryptoasset ownership. A study commissioned by the UK financial regulator estimated an increase of 78%.”

When it comes to service providers, those operating from Europe and North America recorded the highest user activity, with the median firm having 40% of active cryptoasset users.

Russian Prime Minister Calls for Civilized Approach to Crypto Regulation

During a Russian government strategy meeting to stem the spread of COVID-19, Mikhail Mishustin, the Russian prime minister, delved into the issue of cryptocurrencies and digital assets and asserted the need to advance regulation of this market in a civilized manner.

Protecting the rights of cryptoasset owners

The prime minister alluded to the fact that cryptocurrency was a new instrument with a constantly growing public and crypto asset owners had to be protected. He acknowledged:

“Another solution concerns cryptocurrencies. This is a relatively new instrument, interest in which is constantly growing, and the Government plans to direct the development of this market in a civilized way so that the owners of such assets can protect their rights and interests, and the creation of shadow schemes would be difficult.”

These calls show the Russian administration’s commitment to curb the rise of crypto scams or shadow schemes as they have been detrimental in this sector. For instance, a study by leading blockchain tracking and analytics provider Whale Alert disclosed that scammers had been on a stealing spree as they made away with Bitcoin worth $24 million in the first half of 2020.

Amending the tax code

The prime minister also highlighted the need to amend the tax code so that crypto assets could be recognized as property. This will be a plus to owners because they will get court intervention if they fall prey to unlawful activities. He noted:

“Let’s make a number of changes to the Tax Code. Digital financial assets will be recognized as property, and their owners will be able to count on legal protection in the event of any illegal actions, as well as to defend their property rights in court.”

The status of cryptocurrencies in Russia has been embroidered in a back and forth tussle based on contradicting statements. For instance, in September, Anatoly Aksakov, the head of the nation’s Financial Market Committee, showed his intention to block cryptocurrencies because they were difficult to regulate. It, therefore, remains to be seen how things will shape up based on these positive remarks made by the Russian prime minister pertaining to crypto assets.

Stablecoins Could Threaten Monetary Sovereignty and Financial Stability, Says ECB’s Christine Lagarde

Christine Lagarde, the president of the European Central Bank (ECB), has stipulated that innovations like distributed ledger technology (DLT) and blockchain present both new opportunities and risks for the future of money. She highlighted that stablecoins could pose serious dangers, which could threaten monetary sovereignty and financial stability.

Cryptoassets are highly speculative and volatile

Lagarde threw criticism at crypto-assets for not being in a position to maintain a stable value because they are highly speculative, illiquid, and volatile. As a result, they do not adhere to the full functions of money.

The ECB president said in a statement on Nov 30, that stablecoins have the potential of driving additional innovation in payments and be integrated into trade, social media, and other platforms. Lagarde cautioned:

“If widely adopted, they could threaten financial stability and monetary sovereignty. For instance, if the issuer cannot guarantee a fixed value or if they are perceived as being incapable of absorbing losses, a run could occur.”

By using stablecoins as a store of value, Lagarde believes this could trigger a paradigm shift of bank deposits to these digital assets. This could distort the transmission of monetary policy and banks’ operations.

The rollout of a Digital Euro

Lagarde also delved into the issue of the digital euro, viewing it as a game-changer in the modern era. She noted:

“A digital euro would complement cash and ensure that consumers continue to have unrestricted access to central bank money in a form that meets their evolving digital payment needs.”

The ECB president acknowledged that the issuance of a digital euro could be pivotal in ensuring the continued access to monetary sovereignty and central bank money.

Her praises for the digital euro comes at a time when the German Finance Minister, Olaf Scholz, recently called for speedy interventions in the rollout of this digital currency because it can be an ideal instrument to fill the void triggered by a high demand for digital money from businesses and consumers in Europe.

Ernst & Young’s Blockchain Technology to Create NFTs for Award-Winning Italian Film

A blockchain-as-a-service dubbed EY OpsChain under big-four accounting and auditing firm Ernst & Young will create non-fungible tokens (NFTs) for the award-winning Italian film La Leggenda Di Kaspar Hauser.

Per the announcement:

“EY teams worked with CinTech to design a disruptive business vision for the entertainment industry to help filmmakers reach new audience and drive additional revenue streams.”

CinTech, an Italian-based blockchain startup, tasks to create 62 NFTs using EY OpsChain for the 22 main scenes of the Italian film.

Non-fungible tokens’ ownership is pegged on their uniqueness. Therefore, NFTs are different from typical crypto tokens because of fungibility. Fungible tokens can be exchanged for another, whereas NFTs cannot be based on their finite nature.

Giuseppe Perrone, EY’s blockchain leader, noted:

“We are proud to support a new and innovative way of driving value for the film industry. It demonstrates the tremendous potential to leverage blockchain and truly exhibits how the technology can provide benefits across various sectors.”

Conversely, CinTech founders acknowledged:

“With this initiative, we are showcasing how digital content or assets can innovate business models by creating new revenue streams and financing sources.”

NFTs have emerged as a booming sector in the crypto ecosystem. For instance, Coca-Cola recently announced the launch of NFT collectables in the form of virtual wearables that were to be used to celebrate International Friendship Day.

Furthermore, Stoner Cats, an adult animated short series sold as NFTs, recently clogged the Ethereum network making hourly fees surged to $2.53 million because of high demand.

On the other hand, OpenSea, a popular marketplace, processed $95 million worth of NFT transactions in two days compared to the cumulative volume of $21 million recorded in the entirety of 2020.

The platform’s co-founder & CEO, Devin Finzer, acknowledged that the NFT boom was insane, given that it represented a unique application of blockchain technology.

The Bank Of Canada Stresses Stablecoin Regulation When Legislation Is Presented

Following the failure of the Canadian government to contemplate legislation, experts from a central bank have penned a letter in which they assert that regulation is necessary in order to realize the advantages of fiat-referenced cryptocurrency assets.On December 19th, members of the Bank of Canada’s staff published an analytical report on stablecoins, often known as fiat-referenced cryptocurrency assets.In addition to a discussion of the processes that may be used to create and distribute stablecoins, as well as a rundown of the possible dangers and advantages associated with using them, the writers of the letter voiced their support for more regulation of the cryptocurrency asset.Between the beginning of 2020 and the middle of 2022, the worldwide market for crypto assets that are referred to fiat currencies expanded 30-fold, reaching a total value of $161 billion in U.S. dollars.According to the note, their primary use is on platforms that facilitate cryptocurrency trading; but, they might have a broad range of other applications as well, particularly when combined with smart contracts.Especially in an economy that is becoming more digitized, the introduction of these cryptoassets might bring higher levels of efficiency and competitiveness to the payment services industry. On the other hand, if there were no protections in place, they may present substantial threats to the integrity of the financial system Due to the high concentration of these coins and holders, any changes that occur to them might have a disproportionately large effect on the economy as a whole.According to the paper, even though there has been advice provided by international standards-setting groups about the regulation of fiat-referenced cryptoassets, most current regulatory systems, in Canada and overseas, are not at present suitable for purpose.The message was probably most fascinating when seen in light of the current regulatory climate around cryptocurrencies in Canada.In February, the Encouraging the Growth of the Cryptoasset Sector Act, also known as Bill C-249, was presented into the House of Commons of Canada.The crypto community in Canada was generally on board with the measure, but it ended up being politically controversial and was ultimately put to rest after its second reading.

UK Embraces Crypto Innovation with Groundbreaking Financial Services Act

The UK government has taken a bold step forward in the financial services sector, embracing the dynamic world of cryptocurrency and blockchain technology with the passing of the Financial Services and Markets Act 2023.

The newly assented act, which is central to the government’s vision to cultivate an open, sustainable, and technologically advanced financial services industry, introduces provisions to regulate cryptoassets, supporting their safe adoption within the UK. The move signals the nation’s readiness to adapt to emerging technologies and harness the transformative potential of digital assets.

The act also pioneers the establishment of ‘sandboxes’ which will facilitate the use of new technologies like blockchain in financial markets. This move is set to encourage innovation and growth in the UK economy while bolstering the country’s competitiveness as a global financial centre.

Moreover, the legislation gives the UK control over its financial services rulebook, setting a path for regulatory adjustments tailored to its markets. A crucial element of the Act is the removal of unnecessary restrictions on wholesale markets, a move in line with the Wholesale Markets Review’s key outcomes.

Andrew Griffith, Economic Secretary to the Treasury, said, “This landmark piece of legislation gives us control of our financial services rulebook, so it supports UK businesses and consumers and drives growth.”

Additionally, the Act includes provisions to facilitate the implementation of the Edinburgh Reforms, aimed at making the UK one of the most dynamic and competitive financial service hubs worldwide.

This move follows the UK’s separation from the EU and represents an opportunity for the nation to tailor its financial regulations to local market needs, cultivating a more fertile environment for financial innovation, including the burgeoning crypto sector.

As the world grapples with the implications and possibilities of digital currencies and blockchain technology, the UK’s latest legislation symbolises a clear strategic position to become a global leader in the cryptoasset space.

With this Act, the UK also expects to unlock approximately £100 billion for productive investment, emphasising the government’s belief in the potential of innovative technologies to stimulate economic growth.

The crypto-friendly approach of the Financial Services and Markets Act 2023 is likely to attract a host of blockchain and crypto businesses to the country, reaffirming the UK’s position as a global fintech hub and leading the way in crypto regulation and innovation.

BIS Survey: 93% of Central Banks Engaged in CBDCs, 15 Retail and 9 Wholesale CBDCs Expected by 2030

The Bank for International Settlements (BIS) has released a survey revealing that 93% of central banks are now engaged in some form of Central Bank Digital Currency (CBDC) work, with retail CBDCs taking the lead over wholesale CBDCs.

The survey, which gathered responses from 86 central banks, shows that over half of these institutions are not just exploring CBDCs but are conducting concrete experiments or working on pilots. The progress in retail CBDCs is more advanced, with almost a quarter of central banks piloting a retail CBDC.

The BIS survey also highlights the perceived value of CBDCs. More than 80% of central banks see potential benefits in having both a retail CBDC and a fast payment system (FPS). The unique properties and additional features that a retail CBDC can offer are seen as key advantages.

The emergence of cryptoassets and stablecoins has been a significant influence, accelerating CBDC work for nearly 60% of the respondent central banks. However, the survey also notes that stablecoins and other cryptoassets are rarely used for payments outside the crypto ecosystem.

The survey suggests that by 2030, we could see 15 retail and nine wholesale CBDCs in public circulation. This projection reflects the growing interest in digital currencies by central banks worldwide.

In terms of motivation, central banks in emerging market and developing economies (EMDEs) are more likely to be driven by financial inclusion-related motivations in their CBDC work. On the other hand, the desire to enhance cross-border payments primarily drives the work on wholesale CBDCs.

Currently, four central banks have issued a live retail CBDC: The Bahamas, the Eastern Caribbean, Jamaica, and Nigeria. This development marks a significant milestone in the global adoption of CBDCs.

The BIS survey provides a comprehensive overview of the current state of CBDC development and offers valuable insights into the future trajectory of digital currencies. As the exploration and experimentation with CBDCs continue, their role in the global financial system is set to become increasingly significant.

Financial Stability Risks from Cryptoassets in Emerging Market Economies Highlighted by BIS

The Bank for International Settlements (BIS), in partnership with the Consultative Group of Directors of Financial Stability (CGDFS), unveiled a detailed report on August 22, named “Financial stability risks from crypto assets in emerging market economies.” This research, spearheaded by BIS-affiliated central banks from nations such as Argentina, Brazil, Canada, Chile, Colombia, Mexico, Peru, and the United States, explores the possible repercussions of cryptoassets on the financial stability of emerging market economies (EMEs).

The report underscores the rapid evolution of digital finance and the swift growth of cryptoassets. While these assets have been promoted as low-cost payment solutions and alternatives for accessing the financial system, especially in countries with high inflation or exchange rate volatility, they have also “amplified financial risks” in less developed economies. The study specifically points out the “illusory appeal” of cryptocurrencies like Bitcoin as quick solutions to financial challenges in emerging markets.

Furthermore, the BIS report identifies various risks associated with cryptoassets, including market, liquidity, credit, operational, bank disintermediation, and capital flow risks. One significant concern highlighted is the potential for price volatility to propagate into market risk through direct holdings of cryptoassets by institutions or households. As the price of these assets fluctuates, holders face the risk of incurring substantial losses.

The study also touches upon the potential risks associated with Bitcoin exchange-traded funds (ETFs) in emerging markets. Such products can lower entry barriers for less sophisticated investors, increasing their exposure. The authors of the study caution that Bitcoin ETF investors might not own any crypto assets but could still face significant losses when Bitcoin’s price drops.

Additionally, the BIS advocates a cautious approach to crypto regulation. While some jurisdictions, like China, have opted for outright bans, others have sought to manage the industry through regulation. The BIS emphasizes the importance of not reacting in an “excessively prohibitive manner” as it could push crypto activities underground. Instead, the institution suggests a balanced approach, urging local regulators to adopt selective bans, containment, and regulation of specific crypto assets.

In conclusion, while the BIS and other reports highlight the potential risks associated with cryptoassets in EMEs, they also acknowledge the potential of the underlying technology. The challenge for regulators and policymakers will be to channel this innovation in socially useful directions while safeguarding financial stability.