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US Regulators Overreach to Protect US Dollar Supremacy with TON Decision, Will Bitcoin be next?

If the last two years have revealed anything about our global monetary system, it is that the US Federal Reserve and President Donald Trump really do not want a competitor to the US Dollar.

The value of Bitcoin, the pioneer cryptocurrency born of the 2008/2009 global financial crisis, has risen dramatically since its inception and it even appears to be maturing into a form of digital gold. In addition, market sentiment towards investment in the coin has now evolved from fringe technology users to mainstream enterprises and everyday investors.

While the general consumer public has been getting comfortable with cryptocurrency, there has always appeared to be a very deliberate effort by the US authorities to stifle any maturation that Bitcoin hopes to see. And it’s not just Bitcoin, other digital assets and projects that have even begun posturing to utilize some of their own agency have all been thrown in front of the US Securities and Exchange Commission, and the outcomes seem all but predetermined.

SEC Commissioner Dissents on Bitcoin Double-Standard

In February this year, US Securities and Exchange Commission (SEC) Commissioner Hester Peirce wrote, that “the Commission applies a unique, heightened standard under Exchange Act Section 6(b) to rule filings related to digital assets” which had never been applied to traditional market offerings.

The SEC Commissioner’s dissenting statement came in response to the rejection of Bitwise’s Bitcoin ETF application.

Peirce wrote, “This line of disapprovals leads me to conclude that this Commission is unwilling to approve the listing of any product that would provide access to the market for bitcoin and that no filing will meet the ever-shifting standards that this Commission insists on applying to bitcoin-related products—and only to bitcoin-related products.”

The SEC has rejected all previous bitcoin ETF proposals filed to date.

There Can Be Only One…Telegram Gets the Message

While it tries to keep Bitcoin under wraps, the US Government along with its European Regulator allies has also forced the much-publicized Facebook Libra project to move away from its original plan of a permissionless digital currency towards a coin that would be subject to foreign exchange controls and regulations.

But perhaps the most excessive abuse of power by the US SEC has been the manner in which it recently shot down the Telegram Open Network (TON). It is difficult to see how the US regulators have not over-reached on their ruling and what’s more alarming is the lack of backlash towards the regulators by other sovereign nations who have had their own rights encroached.

Following Telegram abandoning the TON project, the companies CEO Pavel Durov published a long explanation entitled, “What was TON and Why is it Over?” But in summary, Durov explained that the primary reason to abandon the project ultimately came down to the US regulators somehow being able to encroach on the sovereign rights of other nations and dictate where Grams could be distributed for the entire world.

Durov wrote, “Perhaps even more paradoxically, the US court declared that Grams couldn’t be distributed not only in the United States, but globally. Why? Because, it said, a US citizen might find some way of accessing the TON platform after it launched. So, to prevent this, Grams shouldn’t be allowed to be distributed anywhere in the world – even if every other country on the planet seemed to be perfectly fine with TON.”

The Telegram CEO further reiterated that the US courts are exceeding its own jurisdiction and deciding what is best for the rest of the world and believes that they are exploiting their control over the dollar.

Durov stated, “Sadly, the US judge is right about one thing: we, the people outside the US, can vote for our presidents and elect our parliaments, but we are still dependent on the United States when it comes to finance and technology (luckily not coffee). The US can use its control over the dollar and the global financial system to shut down any bank or bank account in the world.”

Trump Plays the Same, but the Game has Changed

With TON basically put down and Libra tamed, it seems only a matter of time before the decision is made to once again re-focus on Bitcoin. Especially, given that the decision will ultimately fall into the hands of US President Donald Trump.

Last year Trump was quoted in an outburst against cryptocurrencies, “We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the world, and it will always stay that way. It is called the United States dollar!”

While Trump’s state-of-play towards digital assets may be the same, perhaps the game has changed.

Following his comments last year, Trump now finds himself having to contend with the COVID market downturn as well as China’s unswerving mission to achieve the world’s first central bank digital currency (CBDC), or DCEP in their case.

Should China be able to achieve a central bank currency first, it could spell the end of US dollar dominance, particularly within those countries involved in the Belt and Road Initiative, a project spearheaded by China to digitalize the old silk road connecting Europe, Asia, and Africa.

And finally, given Trump’s push for negative interest rates, the excessive amounts of money printing stimulus, and a world shifting away from Oil consumerism and consequently the petro-dollar: how strong and stable can the US dollar even remain?

Image via Shutterstock

Turkey Leveraging Blockchain to Break US Dollar and SWIFT Dominance

In an effort to break economic ties with the United States and escape the US Dollar dominance of the global markets, Turkey is adopting blockchain and cryptocurrency at a greatly accelerated rate.

As Turkey’s economy teeters on the edge of a potential recession, the people and the government in the nation are seeking alternative solutions in Bitcoin, cryptocurrency, and blockchain.

The Turkish people are looking to Bitcoin and cryptocurrency as a path to financial autonomy, while the Turkish Government is accelerating blockchain and cryptocurrency services development to pull the nation out of the path of the coming recession.

According to a recent article by Forbes, Bitcoin, and cryptocurrency adoption is on the rise in Turkey as the nation’s economy hits a state of free fall. Turkey’s financial reserves have been depleted and there is rising economic tension with the US—sending the Turkish Lira to the lowest level in its history.

Turkey has dramatically increased resources directed towards the development of blockchain infrastructure and cryptocurrency technology to save the economy from recession. Along with experimenting with a Central Bank Digital Currency (CBDC), Turkey is investing in blockchain research, encouraging youth education into blockchain tech and giving more support to tech startups—all in an attempt to save the economy without relying on external resources and the United States’ support.

Breaking Turkish Dependency on Swift systems

Turkey’s interest in blockchain and a fast transacting CBDC is due to their reliance on SWIFT remittance.

Emre Aksoy, a strategic advisor to Turkish government bodies on crypto adoption and regulation told Forbes, “The Turkish government are trying to figure out alternatives to the SWIFT system. This is public knowledge.”

More than 10,000 financial institutions and corporations in over 200 countries use the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) to execute international money transfers, making it an integral part of global cross‑border banking transactions. Aksoy explained, “3-4% of all countries’ GDP is being wasted on transaction costs and banking intermediaries. Cryptocurrency technology will cut these costs and reduce our reliance and dependency on other nations. Turkey now has a real shot at saving its economy.

As a consequence of Turkey’s reliance on SWIFT for remittance, the government is creating large scale blockchain infrastructure and developing their own central bank digital currency.

Blockchain-based systems hold a unique advantage over SWIFT which is a centralized service, while a blockchain is decentralized. This matters significantly because, in the case of SWIFT, you must rely on centralized financial institutions for every payment or transaction, which means that all transactions incur higher fees as the money must first be sent through the centralized system and then on to the recipient. In addition, as each transaction must be verified by the central authority, SWIFT payments can take days. Blockchain potentially enables safer, faster, and cheaper transactions.

In addition, the Turkish government is exploring CBDCs while also investigating potential membership of the Russian version of SWIFT, known as SPFS. New tech like blockchain and cryptocurrencies naturally are being looked at simultaneously. Despite traditionally having strong ties to the United States, the government is now showing some real aggression—making it known that there are other ways for them to do business. Turkey now realizes the strategic significance of their country in the global market and are making a stand against the US influence on their sovereignty.

Aksoy shared his belief that blockchain and cryptocurrency can help both the government and the Turkish people find a united path forward, one which can be mutually beneficial. He said, “This isn’t a quick make money scheme. It has the potential to protect the people and the wealth of the nation if implemented and welcomed with open arms.”

Turkey’s Population is Ready for Crypto

Over the last year, relations between the US and Turkey have dropped to an all-time low. Although the two countries have been NATO allies for nearly 70 years, that partnership has greatly deteriorated mainly over security concerns and the impact of the Syrian War.

A 2019 survey conducted by the Pew Research Center showed 73% of Turks had a negative view of the United States, with only 20% having a positive view, the lowest among countries polled. The same study also showed only 11% of Turks had confidence in the current US leader, President Donald Trump, with 84% having no confidence in him.

Moving away from SWIFT and the US dollar is the most effective and potent way for Turkey to destabilize the United States’ influence in the region and the population are ready. Turkey has evolved into a thriving crypto-friendly nation and a theater of commerce for exchanges and blockchain businesses.

Turkey has a young population with a median age of around 30 years, so adoption of new tech is higher than most of Europe. More than 90 percent of adults have a smartphone and mobile internet users are north of 50 million. As such, Turkey’s population is a part of the rapidly growing cryptocurrency adoption.

In a recent interview with Ciara Sun, Head of Global Business Development & Partnerships at Huobi Group, was amazed at the rate of adoption and potential for cryptocurrency to thrive. Sun remarked, “We are 100% confident in Turkey—Turkey is a really great market. I was really surprised to discover that 20% of the population owns cryptocurrency, and the Lira is the fifth most popular fiat currency for crypto pairing in the world.”

Digital Dollars—A Two Tier CBDC Design to Maintain US Currency Dominance

The inception of cryptocurrencies like Bitcoin, which was essentially built to potentially destabilize and displace the central source of power for our governments—their control over traditional financial systems and monetary issuance—has been a growing concern to the United States. But governments around the world became truly mobilized when Facebook announced the Libra project, drawing the wrath of regulators worldwide who could not allow a platform with two billion users to transact out of sovereign monetary control.

For the United States, contending decentralized digital currency is a particularly pressing issue as their global monetary dominance was already under threat due to China’s expansion and internationalization of the Yuan in its Belt and Road Initiative. In the same vein, China is not about to have its plans usurped by a decentralized currency either, and since last year, one of the hottest developments in the cryptocurrency space has been the mission of Central Banks to develop their own, centrally controlled digital currency. These assets are called Central Bank Digital Currency (CBDC) or, in China’s case, Digital Currency Electronic Payment (DCEP). Ultimately these are digital Dollars or digital Yuan, and being the first to achieve dominance in this space will dictate the new rules of global trade.

The Digital Dollar Project

The Digital Dollar Project (DDP) is the focus of the Digital Dollar Foundation and advocates the need for a CBDC. In their recently released whitepaper, the DDP stipulates that it aims for the US dollar to maintain its global dominance but further warns that the work needs to begin immediately. The DPP also calls for public-private collaboration, including the preservation of the current two-tier system for the spread and distribution of a digital retail dollar.

Source: Digital Dollar Project

But how far along is a US Digital Dollar? The development was a common subject during the recent House Finance Committee hearings held over two sessions. The first session was held on June 11 and featured former CFTC Chair and current Director of the DDP, Christopher Giancarlo. The second session was held on June 17, with Fed Chairman Jerome Powell taking center stage of the discussion on the potential infrastructure of the digital dollar.

Keeping the Power—Two-Tier System

Like cash, the DDP argues that the Digital Dollar should be issued by the Federal Reserve and distributed through commercial banks to the American public. Per the whitepaper, “This US CBDC issued by the Federal Reserve System would enjoy the full faith and credit of the US government, represent the third format of central bank money, and be fully fungible with Federal Reserve notes (banknotes or cash) and reserves.”

As described above, according to the DDP, the main advantage of a CBDC like the digital dollar is the fact that it is a liability of the Fed which (despite all economic logic) still holds the best credit rating—hence using a CBDC would be like using cash distributed through a two-tiered system.

Source: Digital Dollar Whitepaper

In the Two Tier system proposal, the Federal Reserve would be responsible for creating the digital dollars—technical design, anti-counterfeit controls—and then distribute them to the first tier, the commercial banks, which distributes the CBDC to the public.

Public-Private Development

In the second congressional hearing, Federal Reserve Chair Jerome Powell clearly opposed some of the initiatives of the Digital Dollar Project—specifically the need for the digital dollar or a CBDC to be developed through a private-public partnership.

Powell clearly expressed that neither he nor the Federal Reserve was interested in such a collaboration. He said, “The private sector is not involved in creating the money supply. That’s something that the central bank does.” He added, “I don’t really think the public would welcome the idea that private employees who are not accountable solely to the public good would be responsible for something this important.”

From Powell’s statements, it is doubtful that the Fed will ever allow direct private sector involvement in the design and build of the digital dollar infrastructure.

The US Must be First

Within the DDP whitepaper and across the two hearings, there has been a call for haste in CBDC development, citing China’s determination to complete their own DCEP first as well as the reports that the Digital Yuan is actively tested across mainland China.

The whitepaper states that the US will lose their competitive edge and may not be able to create a system that has their values of freedom and democracy at heart if they are forced to conform their development to the soon to be completed CBDC infrastructures of other nations around the world.

Billionaire Investor Ray Dalio Bearish on Cash Says Central Banks Drive Economy

Billionaire investor Ray Dalio, the Founder and CIO of Bridgewater Associates, asserted that since the 2008 Financial Crisis, the behavior of central banks like the Federal Reserve demonstrates that capital markets are no longer free.

Ray Dalio believes that the Federal Reserve no longer operates within the traditional economic system and is now the market maker. He also expressed that the traditional valuation of cash has been thrown out the window and will make the US dollar less attractive as a reserve currency.

Central Banks Drive Capital Markets

In an interview with Bloomberg, Dalio argued that capital markets are no longer free as they are now driven by the shifting priorities of central banks to own assets they buy and sell.

Dalio told Bloomberg that capital markets, “Are driven by central banks not only their actions but their desire to be an owner of those assets. Their priorities about that ownership when they buy and when they sell are not the same as the classic free-market allocations,” leading the billionaire to conclude that, “The capital markets are not free.

The billionaire highlighted that the Fed’s behavior has changed from putting money on deposit for banks to borrow and lend out—which fuels the traditional credit system and creates fair competition for financial assets—to asset ownership. Consequently, Dalio asserts that the economy and markets are primarily driven by the ownership of assets by central banks.

US Dollar as a Reserve Currency?

Dalio explained that the Feds transition to market maker and the current capital market environment was a consequence of the 2008 Global Financial Crisis. He did concede that without the Fed taking on this role large parts of the US economy would have failed.

In the interview, Dalio also highlighted his concerns for the US dollar as a reserve currency as the flood of cash clearly indicates that the traditional method of valuation no longer applies to cash.

Dalio has been known to be bearish on cash as a reserve currency but still believes cryptocurrencies like Bitcoin are too volatile to be considered as an alternative. He also previously noted that reserve currencies go through cycles and that, just as the British pound was the world’s reserve currency before the US dollar, so too the dollar is now facing reserve status challenges by China.

US Federal Regulator Says Banks Can Offer Cryptocurrency Custody Services to Customers

The United States Office of the Comptroller of the Currency (OCC) issued a public letter on July 22, clarifying that federal savings associations and national banks have the legal right to take custody of crypto-assets. The OCC is an independent bureau within the US Department of The Treasury and was established to supervise, regulate, and charter all federal saving associations and national banks in the US.

Cryptocurrency Meets Institutional Banking

The OCC has issued a landmark announcement for the cryptocurrency industry by confirming that all federal saving associations and national banks are allowed to offer cryptocurrency custody services for customers.

With the letter, federal savings associations and national banks have been made aware that they can freely hold cryptocurrency assets for customers, whether it is holding keys or offering other custody or protective services. The letter clarifies the stance by the OCC that bank custody services, which have been known to include holding digital assets, can extend to cryptographic keys and other cryptocurrency-related assets.

Chief Counsel and Senior Deputy Comptroller at the Office of The Comptroller of The Currency (OCC) wrote the letter as a response to an unnamed bank, which had sought the opinion.

The letter reaffirms the position of the OCC that national banks can offer permissible banking services to any lawful business they choose, including cryptocurrency businesses, provided that they comply with applicable law and effectively manage the risks.

In the letter, the regulator explained the rationale for its decision, saying that cryptocurrency users desire safe custody for their crypto assets from recognized institutions such as banks. The OCC also justified that banks providing custody storage could be a significant benefit for market participants such as investment advisers and fund managers who need third-party asset custodianship.

As part of the letter, the OCC said that state and national banks and federal savings associations have long provided custody and safekeeping services, including both electronic assets and physical objects. The regulator stated that the OCC has especially recognized the significance of digital assets and the role that banks play in providing safekeeping for such assets since 1998.

The Acting Comptroller of The Currency at the OCC, Brian Brooks, also stated that regulators strive to ensure that banks offer financial services that meet the current needs of their customers. He said that banks could continue providing cutting-edge custody services like safe deposit boxes and vault storage to safeguard customers’ valuable assets, including cryptocurrencies. Brooks is the former chief legal officer of Coinbase cryptocurrency exchange, who took office at the OCC less than two months ago.

The OCC said that its approval does not limit banks to a specific type of cryptocurrency custody. Financial institutions can, therefore, hold digital assets and store copies of their customers’ private keys in secure cold storage facilities.

Expanding Cryptocurrency Custody Matters

The latest announcement is seen as a significant boon for cryptocurrency in the US. The move has allowed federal savings associations and national banks to further embrace cryptocurrency and develop related services without previously-vague guidance. The announcement would thus enable an increasing number of banks and financial institutions to launch crypto custodial services. These solutions give institutional and retail investors peace of mind that their digital assets are insured, secure, and under the care of a trusted third-party, thus freeing them from responsibility for safeguarding their crypto assets.

Goldman Sachs Warns Inflation Threatens US Dollar’s Role as Global Reserve Currency

Goldman Sachs investment bank has said that the US dollar risks losing its position as the world’s global reserve currency, as revealed by the recent surge in gold prices. Goldman Sachs analysts wrote in a note to clients that gold would be the currency of the last resort, especially in the current environment where governments are debasing their fiat currencies.

Gold’s Rally Highlighting Global Economy Concerns

The record high in gold prices is raising questions regarding the US dollar’s future as the world’s reserve currency. The prices of gold raised much attention as the asset climbed to $1,931 an ounce, the highest settlement in history.

While the incident influenced the crowd to expect $2,000 an ounce soon, Goldman Sach forecast expecting $2,300 an ounce within the next 12 months. The investment bank also lifted its silver outlook from $22 to $30.

According to Goldman analysts, there are many factors pushing the gold price higher, including fear of increasing political uncertainty, rising concerns involving another spike in COVID-19 infections in the country, increasing government debt, rising inflation, and concerns that the US dollar is seeing a new downtrend to the Chinese Yuan. The analysts said that the debt building up as a result of the coronavirus epidemic may lead to debasement fears.

The analysts see the potential for higher inflation as governments debase their fiat currencies to deal with rising debt. Debasement risk is increasing as a result of the rising debt built up by policymakers seeking to combat the economic impact of the coronavirus.

While gold is not the best hedge against inflation compared to other commodities such as base metals and oil, the analysts stated that it is the best asset in the current environment since it appears that inflation would be driven by currency debasement.

The idea that the U.S dollar may one day be seen as less of a safe-haven currency jeopardizes its status as the world’s reserve currency, a role that has given the U.S financial system a great advantage in the global financial markets for several decades.

Gold is seen as a safe commodity because it is in limited supply and regarded to have inherent value. This implies that fears of inflations as well as other economic turbulence such as the COVID-19 recession could drive up the demand for gold.

The analysts stated that inflation risks remain low today. However, a confluence of factors coming together could push inflation up in the future. Among such factors include record-low interest rates, which are new steps taken by the Federal Reserve to expand its balance sheet and rising debt.

The End of the U.S Dollar’s Global Dominance?

Several observers believe that the world is witnessing the start of the end of the dollar’s role as the world’s reserve currency. There are a number of interrelated factors that support this view like the soaring U.S trade deficit, Americans not saving enough, and others. The current trends are putting the U.S dollar’s role as the world’s dominant currency at risk.

The dollar’s share of the global reserve is declining, while the Chinese yuan and the euro are becoming more popular. Both market volatility and politics can be blamed for the dollar’s loss of market share. Some central banks actively resorted to diversify their reserves to move away from the dollar’s dominance because of actions of the U.S. But it is too early to say that it is the beginning of the end of the dollar as the world’s reserve currency.

Billionaire Investor Mike Novogratz Refuses to Lose Faith in Bitcoin

On Monday, 14th September 2020, during an interview on CNBC’s “Squawk Box,” Mike Novogratz, the CEO and founder of crypto-focused merchant bank Galaxy Digital asset management company talked about why he still loves cryptocurrencies as a hard asset despite a pause in the latest crypto market rally.

Novogratz has long been an advocate for Bitcoin and sees it as digital gold. During the interview, he took the opportunity to profess his love for Bitcoin. He said: “I don’t see our deficits miraculously collapsing. I still have a big Gold position. I still love cryptocurrency as hard assets. I think being short the dollar still makes a whole lot of sense.”

The Biggest Threat Facing Bitcoin

Last Friday, the US Department of The Treasury announced that the country’s deficit surpassed $3 trillion for the first time in history. It is projected to hit $3.3 trillion by the end of this budget year.

The U.S federal deficit hit $3 trillion due to aggressive fiscal and monetary stimulus. The U.S federal reserve resorted to printing more money in order to deal with a huge fiscal deficit. Novogratz once described “Money growing on trees” as the biggest threat to the world’s largest cryptocurrency. In other words, the biggest threat that any government could pose to Bitcoin is to decide to launch a budget surplus, therefore undermining one of the main value propositions of the world’s largest cryptocurrency.

When the government began printing money to facilitate a trillion-dollar stimulus package, investors such as Paul Tudor Jones begin turning to the scarce cryptocurrency to hedge against inflation.

While Bitcoin’s rally in August was partially attributed to the weakening U.S Dollar Index (DXY), the most current pause also coincided with the recent greenback’s temporary revival.

Novogratz stated that he prefers Bitcoin under this current financial situation, describing it as an “amazing environment” to buy the leading cryptocurrency. With “money growing on trees”, “another possible trillion-dollar stimulus package”, and “global money printing orgy”, Novogratz says that this is the year for bitcoin.

Investing in Cryptocurrencies

The billionaire investor Mike Novogratz thinks that global investors should hold Bitcoins in their portfolios. In his recent advice last month, he said that investors should watch Bitcoin and gold. He is a well-known investor and a famous hedge fund manager. He is a big believer in cryptocurrencies, and in 2017, he told the press that 20% of his net worth was in Bitcoin and Ethereum. He is also known for his price predictions. In 2017 December, Novogratz predicted the bear market prices and continues making price predictions.

Standard Chartered Research Head Sees Depreciating US Dollar as Perfect Storm for Emerging Assets

The United States dollar is facing significant depreciation following the US elections according to Standard Chartered Bank’s Head of Research. In theory, as the dollar loses purchasing power the price of Bitcoin and crypto assets should rise comparatively but how fast will depend on the winner of the presidential election.

Speaking on CNBC’s Squawkbox on Oct.21, Standard Chartered’s Head of Research Eric Robertsen said he believed the outcome of the November elections in the United States would determine the speed at which the US dollar will depreciate.

The top research analyst warned that the dollar is very vulnerable to significant depreciation as key fundamentals continue to indicate a downtrend.

Robertsen said:

“You have the twin deficits in the US getting worse, you have the trade balance at the worst in 15 years.”

The major bank research head said that while dollar depreciation is clearly on its way, a win for President Donald Trump would create a messy path to the “end result” while a win for Joe Biden would most likely create a much clearer and pronounced path to loss of purchasing power for the greenback.

At the time of writing the dollar index which track the US dollar against peers sits at 92.71, marking a 3% decrease for the year to date.

Blue Wave Makes Bitcoin Boom Faster

Standard Chartered analyst, outlined how he views the depreciation trend for the dollar over the next few years.

According to Robertsen, an election outcome where Joe Biden defeats Donald Trump in the presidential race and Democrats win a majority in both chambers of Congress would create the perfect storm for global and emerging-market assets.

Robertsen asserted that the main driver of the dollar’s appreciation has been US assets outperforming the MSCI Emerging Markets equity index. Over the last ten years, the S&P 500 has outperformed this index by 100 percentage points.

The Standard Chartered bank researcher said a reversal of that trend is likely, he said:

“Either because of global trade or a change in the United States’ domestic economic agenda—and combined with the fact that the US no longer has an interest rate advantage over its G-10 peers, I think you can make a very compelling case for a multi-year dollar depreciation.”

Bitcoin investors continue to bet that the continued flood of government and central bank spending to fight the pandemic-caused economic slowdown will eventually lead to high inflation, which would also be beneficial for cryptocurrencies as the US dollar would lose purchasing power and send BTC’s price surging.

Robertsen’s prediction of a trend reversal in the next few years bodes well for this theory and should create the perfect storm for global and emerging market assets like cryptocurrencies and Bitcoin.

On Oct 20. Economist Stephen Roach also forecast a huge 35% decline of the US dollar by the end of 2021.

The Bitcoin price is currently on a bull charge and sits at $12,837.34. BTC price recent price action appears to be driven by increased institutional adoption of Bitcoin as a reserve asset, news of PayPal integrating cryptocurrency into its services, and the optimism and uncertainty towards a new round of US coronavirus stimulus.

Kraken CEO: Drive behind Bitcoin and Tech Stock Adoption in 2020 Linked to Risk of Holding USD

Much like other leaders in the crypto industry, Kraken CEO and co-founder Jesse Powell believes that Bitcoin is a major game-changer and will continue to be one.

Bitcoin as digital gold

Bitcoin’s narrative has changed over the years. With the increased institutional adoption that has backed Bitcoin this year, BTC has slowly made its way into mainstream investments. One of the most revolutionary moves of 2020 may be corporations like MicroStrategy, Square, and Grayscale that have chosen to invest in Bitcoin, as traditionally, it has been associated with high risk due to its volatility.

Perspectives on Bitcoin have greatly shifted in 2020. In an interview with Bloomberg, Kraken CEO Jesse Powell explained why. He said that with the rise in inflation and the depreciation of the US dollar this year, triggered by stimulus printing, many investors have flocked to other stores of value to secure their assets. This has been what has ignited Bitcoin and tech stocks’ bullish momentum on the market. Powell explained:

“Holding the dollar seems like a risky process compared to something like Bitcoin, which is finite, predictable, and an even better store of value than gold.”

Powell associated this with the fact that investors no longer trusted national currencies and the dollar as a store of value, rather than the fact that the stock market and Bitcoin were correlated – on the contrary. Powell attributed the growth of Bitcoin and tech stocks this year to investors seeing them as better stores of value than the dollar.

Why tech stocks and Bitcoin have gone up this year

Both Bitcoin and tech have been widely popular among investors in 2020 for wealth protection, as the Federal Reserve’s plans to mass print money for stimulus relief has resulted in the dollar shooting down in value. Powell said:

“Historically Bitcoin has been uncorrelated to the rest of the stock market. I think what we are seeing now is just that both financial assets are on fire and reacting to the money printing that is happening.”

The Federal Reserve’s decision to continue mass printing money to alleviate the economic wreck caused by COVID-19 has benefitted the cryptocurrency industry as a whole. Currently, a consensus seems to have been established in the White House that the budget for the stimulus relief package will be $900 billion, with $600 direct payments to each eligible citizen. As long as the United States continues to roll out stimulus packages for coronavirus relief, investors will continue to gravitate towards Bitcoin and stocks as a safeguard against inflation.

Powell also disclosed that although Bitcoin has received incredible support this year and will continue to do so, the safe-haven asset will likely continue to undergo volatility until there is an even bigger increase of institutional adoption in the years to come. Only then will Bitcoin’s volatility go down. For now, the world is just warming up to cryptocurrencies and beginning to see the potential behind its technology.

Central Bank Digital Currency (CBDC) Race: 2020 Year in Review

The Central Bank Digital Currency (CBDC) race heated up this year with the need for digital payments and cashless payment systems exacerbated by the coronavirus pandemic and economic disruption. As 2020 comes to a close, we take a look back at the most important developments in CBDC.

Why Develop a CBDC?

Despite being influenced by decentralized cryptocurrencies like Bitcoin, CBDC is more of a reaction to than an embrace of cryptocurrency, which central banks see more as a threat to be managed.

With the immense popularity of Bitcoin and the announcement of the launch of Facebook’s Libra last year, governments have realized the importance of protecting against these threats to the existing banking and traditional finance industry.

One of the major recent motivations for the creation of CBDC was, as mentioned, the planned development of the Facebook-backed currency and blockchain, Libra, which would essentially position Facebook, a private company with 2 billion users, to wield enough power to challenge the central bank.

Governments around the world have long been wary of cryptocurrencies since Bitcoin’s inception due to its ability to circumvent capital controls, and the possibility of its being used for illicit purposes like money laundering. Central banks are also worried that cryptocurrencies could undermine the authority and control of central banks, as there is currently no government-controlled reserve of currencies like Bitcoin, and they would have difficulty regulating such anonymous and decentralized systems.

To maintain control over the production and supply of money, and to prepare in advance for the seemingly inevitable cashless society, countries are now launching experiments to test the workings of CBDC.

Below is an overview of some of the most significant CBDC developments of 2020.

CBDC With Most Impact: China, USA and Europe

Let’s start with the big players. While the race for a functioning CBDC is taking place across more that 80% of the world’s central banks—it goes without saying the coming Digital Dollar, Digital Yuan and Digital Euro will have the most global impact.

1. China

As 2020 wraps up, China remains at the forefront of the race and is expected to become the first major economy to launch a CBDC. Its sovereign digital currency program, dubbed Digital Currency Electronic Payment (DCEP), has launched one of the largest real-world trials in several cities over the last few months. By May 2020, China had already filed more than 120 patent applications for its official digital currency (alternately referred to as digital yuan in this article), more than any other country.

In April 2020, the People’s Bank of China ran digital currency/electronic payment (DC/EP) trials for over 6700 use cases, processing over 1 billion RMB across different provinces in the country.

In the past, the Chinese yuan has struggled to gain traction on an international level, as the government has kept restrictions on the currency, including the prevention of large amounts of capital leaving the country. Morgan Stanley analysts are now predicting that the Chinese yuan will become the third-largest reserve currency in the world, with increased foreign investment.

The DCEP is highly advanced in its design and functionalities, and ties together much larger Chinese goals around the data economy and international finance and with the ongoing Belt and Road expansion of China, there will be huge opportunities to utilize the DCEP and create international adoption.

2. USA

The US dollar is the world’s reserve currency. Controlling the de-facto global currency affords the United States a range of privileges, which includes driving demand for the dollar which sustains the borrowing power of the US and allows them to impose devastating sanctions on other nations. Despite being the nation with the most to lose in the CBDC race, the development of the digital dollar has been painfully slow.

According to Jerome Powell, the Federal Reserve Chair, the United States will not be cutting any corners with its potential central bank digital currency or digital dollar, choosing not to aim to do it first but do it right.

Since August 2020, the US Federal Reserve has been conducting research and experimentation related to distributed ledger technologies and the potential use cases for digital currencies to understand their potential opportunity and risk. While they have been criticized for moving slowly and allowing China to race ahead—the objective of the central bank remains to assess the safety and efficiency of digital currency systems before racing to roll one out.

3. European Union

In an interview in early October 2020, European Central Bank (ECB) Christine Lagarde discussed how the coronavirus pandemic drastically changed the economic landscape worldwide. She broached the topic of a digital euro and announced the central bank’s intentions for it. European Central Bank has been driving forward in their quest for a CBDC, beginning its experiments by recently launching a public consultation system to get a public opinion of the proposed digital euro.

In October 2020, the European Central Bank launched a public consultation and has started experiments to decide whether to create a digital euro for the 19-nation currency club. A digital Euro would be an electronic form of central bank money that is equivalent to euro banknotes and accessible to all citizens and firms.

CBDC For the Rest Of The World

Covering the rest of the world, there have been other significant developments in the CBDC space. Below is a brief list summary of the six other CBDC developments of note.

1. United Kingdom

The Bank of England launched a public consultation and discussion paper on a CBDC for the UK in March 2020. Nearly a year later and the BoE has still not yet made a decision on whether to introduce CBDC and intends to engage widely with stakeholders on the benefits, risks and practicalities with regard to the same. A BoE CBDC would be an innovation in both the form of money provided to the public, and the infrastructure on which payments can be made.

2. Canada

In February 2020, the Bank of Canada completed phase 4 of Project Jasper. In this phase, along with Payments Canada, The Bank has partnered with the Monetary Authority of Singapore and the Bank of England to work on a cross-border, cross-currency settlement system. This collaboration combines Project Jasper and Singapore’s Project Ubin to use DLT to make cross-border payments faster and less expensive. The Bank has pursued a contingent strategy to launch CBDC in order to create a state of sufficient policy and operational readiness.

3. Australia

In November 2020, the Reserve Bank of Australia announced a partnership with leading Australian banks and enterprise-Ethereum blockchain firm ConsenSys, to explore the implications of wholesale CBDC and distributed ledger technology (DLT).

The POC is trialing a CBDC that can be used by wholesale market participants for the funding, settlement and repayment of a tokenized syndicated loan on an Ethereum-based DLT platform. The PoC will be used to explore the implications of ‘atomic’ delivery-versus-payment settlement on a DLT platform as well as other potential programmability and automation features of tokenized CBDC and financial assets.

4. Japan

The Bank of Japan released its approach paper on CBDCs in October 2020. The BoJ is approaching development with a unique focus is on PoCs for offline CBDC payments, which will be resilient against natural calamities.

The BOJ states its objectives as being to ensure that the CBDC has universal access, security, resilience, instant payment capability and interoperability. In its CBDC design, the BoJ aims to avoid excluding some individuals, devices or cards used for transfers and payments, and to provide interoperability and portability of the digital yen.

5. Hong Kong

In early December 2020, Hong Kong Monetary Authority and the Digital Currency Institute of People’s Bank of China launched a technical pilot testing of the use of Digital Yuan for making cross-border payments, and are making the corresponding technical preparations for the same. The status of e-CNY is the same as cash in circulation, it will bring even greater convenience to Hong Kong and Mainland tourists.

6. Singapore

Monetary Authority of Singapore completed Phase 5 of CBDC Project Ubin in July 2020. Phase 5 validated the use of smart contracts on the payments network prototype in cases such as Delivery-versus-Payment (DvP) settlement. Phase 5 sets out to understand the potential efficiency gains for the greater economy through better connectivity and integration.

Bahamas Surprises Everyone With Full-Scale CBDC Roll-Out

With all eyes on China and the United States, the Bahamas surprised the world in October 2020 when the Central Bank of the Bahamas announced the world’s first CBDC—the Sand Dollar—was now available to all citizens of the Bahamas.

The Bahamas is home to nearly 400,000 residents spread across 700 coral islands and the development of the Sand Dollar was viewed as a necessity for financial inclusion across the sparsely populated archipelago.

The world’s first CBDC became available to the residents of the Bahamas at around 10:00 pm UTC, according to an Oct.20 post on Facebook from Project Sand Dollar.

Residents of The Bahamas can trade the CBDC with any merchant on the archipelago leveraging a Central Bank approved e-Wallet on their mobile device with negligible transaction fees, according to the Sand Dollar website. The central bank selected transaction provider NZIA as its technology solutions provider for the rollout of the digital currency. Sand Dollar transfers are made using smartphones, as most of the population, roughly 90%, of the Bahamas citizens have been using mobile phones since 2017.

With 2020 wrapping up, there is no doubt central bank digital currencies will continue to be one of the hottest and most important developments in the digital space.