Risk-on Assets Rally on Priced-in Tapering, But Aggressive Rate Hikes Would Be “Extremely Bearish”

The US Federal Reserve has announced that it will soon begin reducing the speed of its monthly bond purchases.

Tapering will start “later this month,” said the policymaking Federal Open Market Committee (FOMC) in its post-meeting statement. Under this process, monthly purchases will be reduced by $15 billion – from the current $120 billion a month that the Fed is currently buying.

The move came “in light of the substantial further progress the economy has made toward the Committee’s goals since last December,” it added.

As for raising the interest rate from near zero, the FOMC voted a unanimous no on that one. Fed Chairman Jerome Powell said he wants to see the labor market “heal further” before taking that action.

“We don’t think it’s time yet to raise interest rates,” Powell said. “There is still ground to cover” before the Fed reaches its economic goals.

The paring of bond purchases is expected to conclude around July 2022 on its current schedule, and the central bank officials do not envision a rate hike before that.

Meanwhile, the Fed altered its view on inflation slightly, acknowledging that price increases are rapid but maintaining that it is “transitory” still.

“Inflation is elevated, largely reflecting factors that are expected to be transitory,” the statement said, attributing this jump to supply and demand imbalances driven by the pandemic and the reopening of the economy.

Powell said he expects inflation to remain elevated “well into next year” but said as supply chain bottlenecks abate and growth moves up, inflation will decline, which will support “continued gains in economic activity and employment.”

The Bank of England is now set to meet on Thursday, and the market expects the central bank to hike rates in the face of surging inflation.

Market Reacts Positively

While the Fed is ready for its first step towards pulling back on the massive amount of help it had been providing markets and the economy since last year, it was already priced in as we saw in the markets reaching for fresh highs.

“Fortunately, the taper has long been priced in. Aggressive hikes, though, if they were to materialize, that’d be extremely bearish. And yes, the Fed will hike,” commented trader and economist Alex Kruger.

Global stocks traded at new record-high levels while the US Treasury yields and the dollar edged down.

Much like the traditional market, crypto rallied. The total market cap went on to hit $2.89 trillion as Ether made a new all-time high at $4,675.

“Ethereum has been the clear winner of the Layer-1s for what we believe will be a substantial shift in a potentially prolonged market sentiment uplift. Ethereum will also continue to play a major role in the NFT and metaverse ecosystem build-out,” said Ryan Rabaglia, global head of trading at digital asset platform OSL.

Other notable gainers in the past 24 hours include AMP (20%), HOT (17%), ENG (16%), OMG (13%), EGLD (12%), AXS (11%), AVAX (9%), and SOL (5%).

Altcoins are hitting new highs while Bitcoin is trading at $61,600, 8% away from its $67k peak last month.

In response to the Fed’s tapering, Bitcoin’s first reaction was a drop to $61,135 from $62,600, only to reverse the move to hit $63,470.

“The correlation of crypto versus equities and risk-on sentiments is high,” said Danny Chong, CEO of decentralized asset tracking platform Tranchess.

“Everyone is expecting a bull run with the absence of negative news. To decide the depth of the move, one should ask what can bring it down?”

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Author: AnTy

Nebraska Passes a Crypto Banking Bill

While at the Federal level, regulators can’t seem to wrap their heads around Bitcoin and crypto, still, on the state level, significant strides have been made towards the adoption of cryptocurrencies.

As we reported, Wyoming, Miami, Kentucky, and many other states have taken big steps towards providing a friendly regulatory environment for crypto activities and business to grow.

Nebraska is the latest one whose unicameral state legislature has passed a bill to create a state bank charter for digital asset depository institutions, similar to Wyoming’s special purpose depository institutions such as Kraken Financial and Avati Financial.

Bill 649, which is now headed to Nebraska Gov. Pete Ricketts, would create a charter that will provide institutions with places to custody their crypto assets,

“When the bill was introduced in January, there was a distance between the banking industry and the digital asset deposit institutions’ proponents,” said state Sen. Matt Williams, chairperson of the legislature’s Banking, Commerce and Insurance Committee. “It was 18 weeks of constant negotiations,” with the largest disagreement about using the word “bank.”

As such, unlike Wyoming SPDI banks, the Nebraska bill would require crypto-related institutions to use “digital assets” before “bank.”

Additionally, Nebraska’s digital asset banks won’t be allowed to accept fiat deposits. They also have a minimum reserve capital requirement of $10 billion.

Both Wyoming and Nebraska’s digital asset banks cannot lend in fiat and are required to hold 100 of its assets in reserves. Digital asset banks in Nebraska are allowed to apply for access to the Federal Reserve’s payments system.

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Author: AnTy

PayPal Partner Paxos Obtains Federal Bank Charter from OCC

PayPal Partner Paxos Obtains Federal Bank Charter from OCC

Paxos is the latest company to obtain preliminary conditional approval from the U.S. Office of the Comptroller of the Currency (OCC) to establish a de novo National Trust Bank.

This is the third such charter issued by the OCC, the top banking regulator, to a crypto native company. Previously Visa-backed custody firm Anchorage and trading and lending firm Protego received the first federal bank charter earlier this year.

It was under the leadership of Brian Brooks, who is now set to become the new CEO of Binance.US, that the OCC took several crypto-forward decisions, including banks now allowed to provide crypto services and use stablecoins to facilitate payment activities.

Paxos is the one powering the payment giant PayPal’s crypto service that enables its US users to buy, hold, and sell cryptocurrencies directly from their PayPal digital wallet. Now, PayPal-owned Venmo as well.

Besides its crypto brokerage service, Paxos also has its own stablecoin PAX. Along with its very own Paxos Standard (PAX), through its partnership with crypto exchange Binance and Huobi, Paxos custodies all the dollar reserves backing each unit of BUSD and HUSD stablecoins.

By obtaining this charter, Paxos becomes the first crypto-native company to receive preliminary conditional approval for a de novo national Trust Bank charter. It will also retain its NYDFS-regulated Trust company and reads the official announcement.

In December last year, the company shared that they are seeking a National Trust Bank Charter.

Paxos is now both a nationally and state-regulated bank.

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Author: AnTy

MIT & Boston Federal Reserve Look to Reveal Two Digital Dollar Pilots by July 2021

MIT & Boston Federal Reserve Look to Reveal Two Digital Dollar Pilots by July 2021

The Federal Reserve Bank of Boston and researchers from the Massachusetts Institute of Technology (MIT) are making giant strides in their digital dollar program, according to a Bloomberg report.

Boston Fed To Launch Digital Dollar Prototypes

Researchers from both institutions are reportedly preparing to launch prototypes of two central bank digital currencies (CBDCs) platforms as early as July 2021.

The prototypes would store, move, and settle digital dollar transactions providing ease and convenience for an already crypto-acclimatized population, says James Cunha of the Boston Fed.

Cunha, who declined to state whether any of the prototype platforms would be based on a distributed ledger technology (DLT), said that the financial agency would not delay making their research findings public. Cunha added,

“We think it’s important that we not wait for the policy debate because then we’ll be a year or so behind. This will take significant outreach to the industry and serious debate.”

Apex banks like the People’s Bank of China (PBoc) are reportedly ahead of the pack. The Asian giant, which has been steadily exploring CBDC use cases, has conducted pilot tests in 2021 and would likely see a more distributed approach in the coming year.

Other countries like the Latin American nation, the Commonwealth of the Bahamas, have launched a digital version of their fiat currency called the “Sand Dollar” in 2020.

European nations like the UK are currently researching the technology and monitoring economic impact while others like the Swiss have postponed the program till the following year.

Big Tech Looks To Cash In On CBDCs

But amid all the mixed reactions, CBDCs seems to have gained more fans in the rapidly-growing digital economy. Federal Reserve boss Jerome Powell admitted as much in a recent virtual conference featuring central banks worldwide. In his closing comments, Powell said CBDCs would not outrightly replace the more traditional dollars but would be integrated into the extant payment systems and other forms of money.

But even as the world is slowly coming to grasp what many has described as a “shaking up” of the financial system, some others think a digital dollar may be unnecessary.

In a statement to Congress, the American Bankers Association said that introducing a “Fedcoin” (another name for CBDCs in the US) could bring unintended consequences. To the body, these digital caricatures could threaten the banking system’s stability, and there is no guarantee of it bringing about greater financial inclusion.

This position is one that most legacy financial institutions are taking- calling CBDCs a “costly solution” to a problem that does not exist. But digital payments companies like Visa and MasterCard are already on the treadmill to ensure their platforms get listed to provide these services.

Visa’s North America Chief Oliver Jenkyn said they are in conversations with regulatory agencies on how a potential CBDC would be designed. According to Jenkyn, these conversations would be backed by actions.

These actions were brought to the fore when VISA proposed that CBDC transactions could be validated without an internet connection in its whitepaper.

ViSA is not alone in the CBDC race, with embattled US blockchain firm Ripple Labs also launching a private version of its XRP Ledger (XRPL) protocol specifically for issuance and maintenance of CBDCs.

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Author: Jimmy Aki

Bitcoin and MMT Critic Janet Yellen Picked as Treasury Secretary by Biden

President-elect Joe Biden has chosen former Federal Reserve Chairwoman Janet Yellen to become the next Treasury Secretary. Yellen, an economist, if confirmed by the Senate, will become the first woman to hold the position.

This holds meaning for the crypto market as Jake Chervinksy, a General Counsel at Compound Finance, said,

“This is the single most important decision for the next four years of US crypto policy. The next Treasury Secretary will have enormous influence on whether the right to financial privacy is upheld or sacrificed to mass surveillance & forced custodianship.”

For Wall Street, it could be good news as just last month she said the US needs to “continue extraordinary fiscal support.”

Yellen had been at the forefront of policy-making for three decades, which means nobody knows the Fed better than her. Not only will she be a great Treasury Secretary, but she will also help the government achieve its objective of increased coordination between monetary and fiscal policy, said crypto trader and economist Alex Kruger.

But not only Yellen is not a fan of MMT, having said that its proponents are “confused,” but she is not really a bitcoin proponent either.

Back in December 2017, at the height of the bull run, she called Bitcoin a “highly speculative asset.”

“Bitcoin, at this time, plays a very small role in the payment system. It is not a stable source of value, and it does not constitute legal tender,” she said at the time, adding that while the Fed is researching it, “I think to my mind, limited benefits from introducing it, a limited need for it and some substantial concerns.”

During Yellen’s testimony before the House Financial Services Committee in July 2017, someone photobombed her with the “Buy Bitcoin” sign.

Yellen-buy-bitcoin

In Oct. 2018, while explaining why BTC is not a useful form of currency, Yellen shared that she received “a gift of bitcoins.” Raz Suprovici, the founder of the bitcoin gifting service Biterica, had sent 0.0031642 BTC, worth about $20 at that time, which has now increased to roughly $60, to Yellen to make her understand it better.

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Author: AnTy

The Fed & ECB Are ‘Committed’ to CBDC But ‘Not Racing to be First’

Jerome Powell, Chairman of the Federal Reserve, reaffirmed this week that he is committed to evaluating the costs and benefits of the digital dollar.

“Here at the Fed and in the US, we are committed to thoughtfully and carefully evaluating the potential costs and benefits of a central bank digital currency,” said Powell during his speech at a virtual conference hosted by the European Central Bank.

He further shared that the Fed has been actually actively participating with other central banks on this, adding: “We feel that’s been a very productive collaboration.”

While the central bank head clearly specified his commitment to a central bank digital currency (CBDC) being a matter of when not if, at the same time, a digital dollar isn’t coming anytime soon.

“We haven’t made a decision to issue a CBDC, and we think there’s quite a lot of work yet to be done as we engage with public constituencies here in the US and around the world,” said Powell dashing any hopes of the US competing with China’s digital yuan which already had a series of pilot tests last month.

Because the US Dollar is “the world’s principal reserve’s currency,” Powell said they would approach the question of a digital dollar with “great care” and “it’s critical that we really get it right as opposed to trying to be the first.”

The main focus for the Fed is on how a digitized version of currency could improve what is “already a safe, effective, and dynamic payments system,”’ said Powell. He further added that in the US, there is still a “strong demand for cash.”

Earlier this week, Fed had released a “Central Bank Digital Currency: A Literature Review,” where it talked about exploring the intrinsic features of CBDC as a means of payment and store of value.

Another report this week came from Deutsche Bank in which it said that in the long term, “central bank digital currencies will replace cash.” But advanced economies need to overcome the challenges of low interest rates and privacy first to succeed.

The bank also said that while the EU has been talking about the need for a digital transformation, its efforts have been disappointing.

During the event, Christine Lagarde, President of the European Central Bank, also mirrored Powell’s sentiments saying they are “not racing to be first.”

But maintained that if it is going to facilitate cross-border payments and contribute to better monetary sovereignty, then “I think we should explore it.”

Her “hunch” is that it will come, but it will not be a substitute for cash rather be a “complement” to it.

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Author: AnTy

FinCEN’s Updated Travel Rule Proposal for Crypto Open to Public Comment

Last week, the Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve invited comments on the proposed rule that would change the recordkeeping and travel rule regulations under the Bank Secrecy Act.

Under the current rules, financial situations must collect information related to funds transfers and transmittals of funds over $3,000. The information to be collected includes the name and address of the transmitter, the amount of the payment, its execution date, any payment instructions from the originator, and the beneficiary’s bank or recipient’s financial institution’s identity.

But as per the amendment, this limit is lowered to $250 for international transactions while the threshold for domestic transactions remains unchanged. This applies to transactions involving “convertible virtual currencies” (CVC) and “digital assets with legal tender status.” It further proposes to clarify the meaning of “money.”

The official report notices that “public use of CVCs has grown significantly in recent years.” Estimated transactions in Bitcoin alone were about $366 billion in 2019 and $312 billion in 2020 through August.

It further stated that malign actors have been using them for all sorts of illegal activities.

The proposed modifications will help them gain information in criminal, tax, or regulatory investigations and protect against international terrorism.

“FinCEN is aware that the CVC industry is working on developing systems and processes to achieve full compliance with the Travel Rule as applied to virtual currency transactions as a result of the distinctive characteristics of CVCs.”

They “welcome” comments on these efforts that will be accepted only for 30 days.

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Author: AnTy

Fed Reveals Details About Digital Cash ‘Without The Anonymity Of Physical Currency’

Federal Reserve Bank of Cleveland President Loretta Mester revealed that each American would receive digital dollars directly. She said,

“Legislation has proposed that each American have an account at the Fed in which digital dollars could be deposited, as liabilities of the Federal Reserve Banks, which could be used for emergency payments.”

This was revealed on Wednesday when Mester delivered a speech to the Chicago Payment Symposium titled “Payments and the Pandemic,” in which she talked about “Central Bank Digital Currencies.”

Here she wrote about how during the pandemic, CBDCs have gained traction around the world (China, Bahamas, Brazil, Bermuda, South Korea, Russia, UK, France, Thailand, Japan, and many more).

Fed Digital Cash

Other proposals include creating digital cash — which is just like the physical currency issued by central banks but in digital form and “potentially, without the anonymity of physical currency.”

Digital cash wouldn’t require the involvement of commercial banks as they would be directly issued to the users’ digital wallets with central-bank-facilitated transfer and redemption services.

However, the demand for and use of such instruments is to be further considered, she said, adding the potential risks and policy issues surrounding CBDC also needs to be better understood and costs and benefits evaluated.

Mester also said that the Fed has been researching about issuing CBDC for some time, and already the technology lab of the Board of Governors has been testing the benefits and tradeoffs of distributed ledger platforms.

While the Federal Reserve Bank of Boston is working with MIT on different technologies for the CBDC, the New York Fed has collaborated with BIS to understand the relevance of fintech for central banks.

Although the authorities have been doing all the research, she said it “does not signal any decision” by the Fed to adopt such currency as they need to first better understand the issues related to financial stability, market structure, security, privacy, and monetary policy.

Metser concluded her speech by saying that the payment system, which is a critical part of the US infrastructure, must remain modern, resilient, and able to adapt to changing customer needs as they evolve.

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Author: AnTy

National Banks & FSAs Can Hold Reserves for Stablecoin Issuers: US Federal Banking Regulator & SEC

The Office of the Comptroller of the Currency (OCC) issued new guidance regarding stablecoins on Monday.

“National banks and federal savings associations currently engage in stablecoin-related activities involving billions of dollars each day,” said Acting Comptroller of the Currency Brian P. Brooks.

“This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner.”

As per the letter from the US federal banking regulator, national banks and federal savings associations (FSA) are allowed to hold “reserves” on behalf of their customers who issue stablecoins, and those coins are held in hosted wallets, those controlled by a trusted third party.

This means unhosted wallets, which are controlled by the individual user who owns the cryptos being stored, are not part of this announcement.

The SEC also issued a response to OCC’s guidance, in which it says whether a stablecoin is security will depend on “facts and circumstances determination,” which will require the analysis of the instrument.

The regulator asked the market participants to structure and sell a digital asset in such a way that “it does not constitute a security and implicate the registration, reporting, and other requirements of the federal securities laws.”

Bullish!

Jeremy Allaire, the co-founder and CEO of Circle, which along with Coinbase, has launched its own stablecoins called USD Coin (USDC), called this a “significant progress for the advancement of digital dollar stablecoins in the US financial system.”

This will “help the United States and the US dollar to continue its leadership role in the world economic system,” he said.

According to him, national banks allowing to hold reserves for fiat-backed stablecoins will provide businesses, fintech firms, and banks have “more confidence in building on this innovation.”

In 2020, stablecoins have exploded, currently around $20 billion, with Tether (USDT) accounting for more than $15.5 billion of it and USDC with 500% growth YTD $2.3 billion.

Market participants see it as bullish news, with one trader commenting, “Basically enables a LOT more money to funnel into crypto, if stablecoin providers don’t have to scramble for banks to hold the reserves.”

Related: European Countries Support EU Stablecoin Regulation

Also Read: BoE Gov. Calls for Global Standards for Stablecoins, Instead of Playing Catch Up

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Author: AnTy

US Congressional Members Ask The Govt To Support Blockchain Tech For COVID-19 Relief

  • U.S. Congressmen lobby the federal government to increase support and hasten the integration of blockchain technologies across the economy to ease the effects of the COVID-19 global pandemic.
  • Blockchain technology innovations aimed at improving authorization of individual identity, supply chains, and medical registries.

A letter from lawmakers in Congress addressed to the US. President Donald J. Trump and directors handing the COVID-19 response strategies ask the top federal government executives to look into blockchain technologies as a solution to the pandemic.

According to the lawmakers (all members of the Congressional Blockchain Caucus) urge the use of blockchains to improve the country’s economic interactions, enhance digital identification, manage supply chains and ensure credibility in medical registries and certifications. The letter reads,

“The membership of the Congressional Blockchain Caucus urges your consideration, support, and implementation of utilizing blockchain technology that could greatly mitigate the effects of the Coronavirus.”

The members of the Congressional Blockchain Caucus who presented the letter are Bill Foster, Tom Emmer, David Schweikert, and Darren Soto – who lead the Caucus. Other members include Stephen Lynch, Warren Davidson, Jerry McNerney, Matt Gaetz, and Ro Khanna.

There is a growing need for verification and identity digitization as the world embraces social distancing. According to the statement, blockchains provide digital identity solutions that assist in authentication and verification of individuals, for example, when the U.S. distributed the CARES Package. Furthermore, blockchains offer strong encryption and a secure system hence protecting sensitive users’ data.

Blockchain can also improve the deployment of essential kits and medical equipment – especially during the times of the pandemic. These technologies could enhance the management of supply chains, identification of where supplies originate, transportation, and arrival times, the statement reads.

Additionally, medical registries, certifications, and licenses could all be deployed on a blockchain improving the medical field and professionals in the space. This could help these medical professionals securely and confidentially share critical information and deploy essential services in times of need.

This also points to the financial systems world whereby the U.S. Congress has continually called for more innovative technologies to be implemented to solve slow transactions and payments. In April, members of Congress reintroduced the “Digital dollar Act” to create a network of digital payments and distribute the CARES Act stimulus efficiently.

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Author: Lujan Odera