BTC Felt Like A “Somewhat Frothy Market,” says Fed Chair Noting Stablecoins “Growing Really Fast”

While worried about that, the Fed is promising “powerful support” through monetary policy. Jerome Powell also called for “appropriate regulation” of stablecoins and getting the digital dollar right, rather than fast, because the US is “not in danger of losing” the reserve currency status.

On the second day of the testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Federal Reserve Chair Jerome Powell further elaborated on the state of financial markets and commented on the cryptocurrency market.

“Financial conditions are highly accommodative,” said Powell while noting that this is how people are getting things financed like SPACs.

“We see Bitcoin going up in value and down in value… At times it felt like a somewhat frothy market. You do worry about that,” he said, adding, but at the same time, “we’re very focused on the real economy.”

Here, their focus is on maximum employment and price, and financial stability.

“We’ve got a long way to go. So we want to be careful about tending to our main mandate while we also think about financial stability issues.”

“Growing Incredibly Fast”

According to Powell, cryptocurrencies have surely tried but failed to become a viable payment method.

“With cryptocurrencies, it’s not that they didn’t aspire to be a payment mechanism, it’s that they’ve completely failed to become one, except for people who desire anonymity, of course, for whatever reason,” he told Sen. Cynthia Lummis of Wyoming.

The question, he said, is really about stablecoins, which he compared to bank deposits or money-market funds, saying they’re growing incredibly fast but without appropriate regulation.

“It’s growing really fast – we really ought to have appropriate regulation. And today we don’t.”

Following this, the US House of Representatives, the lower house of the U.S. Congress, has proposed a bill to change securities to define and include digital assets as “investment contract assets.”

Congressman Tom Emmer of Minnesota along with Reps. Darren Soto and Ro Khanna introduced the bipartisan bill, called the Securities Clarity Act.

Digital Dollar

Talking about a central bank digital currency (CBDC), Powell told the Senate Banking Committee on Thursday that he hasn’t made up his mind about a digital dollar yet.

“I am legitimately undecided on whether the benefits outweigh the costs or vice versa,” said Powell when asked to clarify his positions on a CBDC.

If the Fed were to issue its own digital fiat, “we would want very broad support in society and in Congress, and ideally, that would take the form of authorizing legislation as opposed to a very careful reading of ambiguous law,” he added.

Powell said the focus with a CBDC is to get it right because the US is the reserve currency with no “good competitor,” as such,

“We’re not in danger of losing it. Certainly not to China which doesn’t have an open capital account.”

Not concerned about competition, the real concern is about getting this right as a CBDC has its benefits and risks, he said.

“It’s quite specific to the institutional context of each country. And I want to get it right. We are the reserve currency. We have a first mover advantage by virtue of that. So I think it’s way more important to get it right than it is to do it fast.”

Stimulus to Continue

Besides crypto and stablecoins, and the digital dollar, Powell acknowledged that inflation had seen a “big uptick, bigger than many expected, bigger certainly than I expected,” but added that inflation may slow in “in six months or so,” as it is tied to the “shock going through the system associated with the reopening of the economy.”

Now, the Fed is trying to understand if this will pass fairly quickly or if they would need to act.

“One way or another, we’re not going to be going into a period of high inflation for a long period of time, because of course, we have tools to address that.”

As for tapering, Powell told the Committee that there is still an “elevated level” of employment and the economy still has “a long way to go.” Also, the purchases have been contributing to the housing market’s strength.

As such, the Fed “will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete,” he said.

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Author: AnTy

Fed Promises to Keep Monetary Policy Loose; Interest Rate Near Zero & Inflation Above 2%

Fed Promises to Keep Monetary Policy Loose; Interest Rate Near Zero & Inflation Above 2%

The dovish tone from the Fed is pushing the USD down, which has been falling throughout this month while the risk-on environment is good for both stocks and bitcoin.

“The economy is beginning to move ahead with real momentum,” Jerome Powell, Federal Reserve chair, told reporters Wednesday after the central bank held interest rates near zero and kept bond purchases at $120 billion a month.

Powell reiterated that it is not the time to discuss scaling back asset purchase. “When the time comes for us to talk about talking about it, we’ll do that. But that time is not now,” not until there is more than one great job report, he said.

As for the concerns around inflation due to the Fed’s aggressive support, Powell said though prices are likely to rise amidst surging demand, it is just,

“An episode of one-time price increases as the economy re-opens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation.”

The central bank is interested in keeping the inflation above the 2% target and only when it was to move “persistently and materially above 2%” that threatens to move longer-term inflation materially above 2% that the Fed will use its tools to bring it down to mandate consistent levels, he said.

“Markets are having a hard time digesting this.”

“The Fed is saying, ‘I hear you. Inflation is going to be above 2% for a while, but I am trying to tell you we are not going to do anything about it.”

Michael Gapen Chief U.S. Economist at Barclays Plc

President Joe Biden, meanwhile, is all set to unveil a $1.8 trillion plan after a $2.25 trillion infrastructure proposal and the $1.9 trillion pandemic relief package was signed into law last month. This time to expand educational opportunities and child care.

“I took away that not even any preliminary discussion of a change in policy is imminent.”

“He gave a spirited defense of the Fed’s view on inflation and employment. They are very happy with the course they are on and not likely to change it soon.”

Carl Tannenbaum Chief Economist at Northern Trust in Chicago

How’s the Market Feeling…

This opens the doors for the continuation of a risk-on environment, which means investors are willing to enter into higher-risk investments like Bitcoin and stocks, wrote Deutsche Bank in a report published this week.

S&P 500 jumped to a record high in part bolstered by Fed’s same dovish tone and in part the ongoing tech earnings report. However, the promise of keeping the monetary policy loose is not turning out good for the dollar.

The USD index has been going down throughout this month and is currently near 90.6, while gold is still around $1,780 per ounce.

As for Bitcoin, it is hovering around $54k, which is giving altcoins a perfect chance to run higher.

Amidst this, the White House released a slew of tax increases in its “The American Families Plan,” as per which top personal income tax rate is raised from 37% to 39.6% for all taxable income north of about $550,000 for individuals and about $650,000 for married couples.

The top individual tax gain rate on long-term capital gains and dividends would be increased from 23.4% to 43.4%.

It is also proposing to give the IRS the authority to regulate paid tax preparers. They would get an annual report on the money deposited and withdrawn from every bank account in America.

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Author: AnTy

Stablecoins Facilitated $1 Trillion in Transaction Volume in Q1 2021

Stablecoins Facilitated $1 Trillion in Transaction Volume in Q1 2021

Stablecoin monetary base is also growing, on track to hit $100 billion after more than doubling so far this year.

Total stablecoin supply has nearly hit $80 billion. Starting the year just under $29 billion, these cryptos or fiat pegged stablecoins added about 33.33 billion to its supply in Q1 of 2021.

USDT remains the dominant stablecoin with a $51.86 billion market cap while doing 3.4x of bitcoin volume at over $68 billion, as per Messari. This week, the largest US exchange Coinbase announced support for Ethereum-based USDT.

Although USDT is still the king, its dominance is gradually decreasing over time.

USDC, BUSD, and DAI were the quarter’s biggest winners, growing their share to 17%, 6%, and 5%, respectively.

With a market cap of $10.85, USDC comes in second place, doing only a fraction of USDT’s volume at $2.3 billion.

Binance’s BUSD is also gaining momentum, as it records almost $10 billion in volume while having a market cap of $5.25 billion. DAI is a $3.58 billion market cap stablecoin handling $560 million in volume.

Overall, stablecoins facilitated $1 trillion in transaction volume in Q1 2021, which is more than the previous four quarters combined, noted Ryan Watkins, a researcher at Messari.

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Stablecoins had an incredible quarter, with their monetary base continuing to rise at an accelerating pace in line with the growing adoption.

This adoption is for a number of reasons including stablecoins being easy to accept as payments. These programmable digital currencies “allows developers to trivially build with them and deploy applications with global distribution.”

Moreover, they run on global public infrastructure that operates 24/7/365 while offering users stronger autonomy, privacy, and interoperability qualities than existing payments solutions which require KYC and often restrict access, said Watkins.

In the stablecoin realm, Facebook’s fiat-backed project, Diem Association is aiming to launch a pilot with a single stablecoin pegged with USD later this year. First proposed in June 2019 with the name libra, the project has received opposition from regulators around the world.

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Author: AnTy

French Central Bank Settles $2.4 Million Simulated Monetary Shares in CBDC Pilot

French Central Bank Settles $2.4 Million Simulated Monetary Shares in CBDC Pilot

Banque de France has announced that it successfully settled €2 million (US$2.43 million) worth of simulated monetary shares on a private blockchain network as part of its CBDC pilot. The central bank, which has previously expressed openness to the idea of CBDCs, said that the pilot began on Dec 17 with the support of private players in the financial market. French Central Bank Settles $2.4 Million Simulated Monetary Shares in CBDC Pilot

According to the announcement, Banque de France collaborated with a U.K blockchain startup dubbed SETL, which provided the blockchain infrastructure and CBDC stablecoin. Other notable partners include DXC, OFI AM, GROUPAMA AM, CITIGROUP, CACEIS, and IZNES.

With the conversation on CBDCs starting on a high note this year, the Central Bank of France is among the global monetary authorities moving relatively fast in research and development. The bank had requested CBDC use case proposals as early as March 2020; they are now set to continue with more pilot experiments within the course of this year. It is also quite noteworthy that France is among the countries that are willing to partake in a digital Euro pilot, should one be rolled out soon.

Meanwhile, other jurisdictions, including the U.S, are now taking a keen interest in the potential of a CBDC based monetary ecosystem. Last week, the Fed reserve Chair Jerome Powel said in an interview that developing CBDCs is of ‘high priority’ in the fight against ‘bad private-sector money.’ China is also forging ahead with its CBDC pilot and recently rolled out the pioneer digital yuan ATMs in the region of Shenzen. These developments concur with the BIS findings last year, where it noted increased activity in CBDCs.

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Author: Edwin Munyui

PBOC Planning Technical Pilot Testing of Digital Renminbi (e-CNY) for Cross-Border Payments

The central bank of China and Hong Kong Monetary Authority is now discussing the technical pilot testing of digital renminbi for cross-border payments, said HKMA on Friday. The launch date for e-CNY hasn’t been set yet.

Sharing the recent development in the cross-border payment area, Eddie Yue, the chief executive of Hong Kong’s central banking institution wrote,

“The HKMA and the Digital Currency Institute of People’s Bank of China are discussing the technical pilot testing of using e-CNY, the digital renminbi issued by the PBOC, for making cross-border payments, and are making the corresponding technical preparations.”

He further notes that with renminbi already in use in Hong Kong and e-CNY being the same as cash in circulation, “it will bring even greater convenience to Hong Kong and Mainland tourists.”

This development was shared in HKMA’s article on “A New Trend for Fintech – Cross-border Payment,” where it talks about the share of e-payment in Hong Kong being one of the highest among the world’s developed economies.

While the domestic payment service has become highly digitized, development in cross-border payments is lagging behind globally.

For this, HKMA launched a joint research project with the Bank of Thailand last year to address the various cross-border payment issues by using central bank digital currencies (CBDC) and a blockchain platform. Yue noted,

“The research project has entered its second stage, including exploring specific business applications as well as the operability and scalability of the platform to allow the participation of three or more CBDCs.”

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Author: AnTy

Federal Reserve Chairman Jerome Powell to Speak About Digital Currencies Today

As part of a panel on “Cross-Border Payments—A Vision for the Future,” at the International Monetary Fund’s (IMF) annual meeting, Federal Reserve Chairman Jerome Powell will speak about digital currencies Monday.

The panel will start at 8 a.m. ET on Oct. 19.

During this virtual event, while discussing the potential solutions to enhance the cross-border payments, the “benefits and risks” of digital currencies and their macro-financial implications will also be covered.

“On Monday, Jay Powell gives his input on central bank digital currencies at the IMF talk listed above. Central Bank digital currencies are coming, and they will change everything… They are coming under stealth of X-border payments but it means so much more…” said former hedge fund manager Raoul Pal, CEO of Real Vision Group.

It is, however, not mentioned if Powell would be sharing his thoughts on a digital dollar.

Other panelists include Agustín Carstens, general manager of the Bank for International Settlements (BIS); Ahmed Abdulkarim Alkholifey Governor of the Saudi Arabian Monetary Authority; and Nor Shamsiah, governor of Bank Negara Malaysia with IMF Managing Director Kristalina Georgieva as the moderator.

You can watch live here:

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Author: AnTy

Russia’s Central Bank Joins the CBDC Bandwagon; Issues Consultative Paper on Digital Ruble Consideration

Russia’s Central Bank is the latest monetary authority to issue a CBDC consultative paper amidst the ongoing craze; the bank confirmed its interest in issuing a digital ruble, noting that it can operate alongside cash or non-cash forms of money that already exist in the country. This development comes barely a week since the BIS and 7 major central banks published a report highlighting the key principles that should guide CBDCs at least for now.

According to the consultative paper released on Oct 3, a digital ruble will require Russia’s central bank to develop advanced payment ecosystems. Consequently, the bank intends this digital asset to carry along the properties of money, given its prospective fundamentals as part of the state-backed legal tender in circulation. The paper further notes that the digital ruble will be instrumental in making payments seamless based on its underlying architecture.

In terms of a macroeconomic and political outlook, the bank also plans to curb capital outflow with its prospectus digital ruble,

“The national digital currency will also limit the risk of reallocation of funds into foreign digital currencies, contributing to macroeconomic and financial stability.”

Notably, the digital ruble will be accessible to all Russian economy agents, including government agencies, businesses, financial market stakeholders, and private citizens. These digital assets will be storable on mobile devices and e-wallets, with the holders having an option to use their CBDC tokens both online and offline. The digital ruble’s main functions, as per the paper, will include a medium of exchange, a unit of account, and a store of value.

Given the ongoing CBDC momentum, Russia’s debut at the party further suggests that monetary authorities are taking more interest in the evolving digital currency space. China is currently the most progressive jurisdiction; the digital yuan pilot has been ongoing for some months with scaling recently done to prominent cities. The EU also filed for a ‘digital euro’ trademark as it gears up to join the CBDC bandwagon in preparation for the paradigm shift to digital ecosystems.

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Author: Edwin Munyui

Estonia’s Central Bank is the Latest to Launch a CBDC Research Initiative

Estonia’s Central Bank, Eesti Pank, is the latest monetary authority to debut research into the potential of CBDCs within its jurisdiction. The bank announced on October 2 that it had launched a research program that will look further into the building and deploying a CBDC for Estonians. This development comes barely a week since the EU moved to trademark ‘digital euro’ as the region embarks on broader CBDC research.

According to the Eesti Pank announcement, they will collaborate with tech firms Guardtime and SW7 group towards the CBDC initiative. Notably, Estonia is one of the blockchain-advanced countries and currently leverages the Keyless Signature Infrastructure (KSI) blockchain to provide its netizens e-government services.

The research will now look into whether the KSI ecosystem can run an Eesti Pank backed CBDC. Also, possible electronic payment solutions that can be integrated with Estonia’s e-ID and e-government portals. However, there are no specifications on which particular technology is limited or should be used in the newly launched Eesti Pank CBDC research project.

It will be rolled in several phases, with the timeline set at around two years. The initial phase of Estonia’s CBDC research project will pay attention to building a scalable, secure, and practical ecosystem that is up to standard in terms of holding digital assets. Concurrently, the research is expected to feature resilience, privacy, security, and speed. Eesti Pank’s head of Payment Systems, Rainer Olt, has expressed optimism on this milestone;

“Over the years, Estonia has developed unique know-how to maintain secure, private, and efficient e-government. Estonia’s unique wealth of experience provides a good impetus to launch a project with technology companies SW7 and Guardtime to explore technological opportunities.”

With Estonia joining the CBDC bandwagon, progress in this area seems inevitable despite a slack by leading economies like the U.S. The last few months have been particularly eventful; in fact, China may have already taken an early lead with the launch of a digital yuan pilot. This PBoC backed CBDC is dubbed DC/EP’ and has been a topic of debate given its potential of disrupting the dollar and euro in global trading markets. Although, it’s still in the early stages, and only so much can be predicted given the rate of development in crypto.

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Author: Edwin Munyui

Cryptocurrency ‘Could Be The Next Step In The Evolution Of Money,’ Says IMF

In its latest crypto shilling video, the International Monetary Fund (IMF) clubbed every cryptocurrency in one bundle with the focus on payments.

It doesn’t differentiate bitcoin from others, combining certain properties of the largest digital asset with other cryptos.

“It sounds like they’re gaslighting the general populace to prepare them for an IMF coin,” commented Samson Mow, CSO at Blockstream on the explainer.

Talking about the “special currency” that solve the problems presented by the traditional system, where the payment is processed by a bank or credit card company that takes a cut of the transaction, is time-consuming and expensive, and needs to be trusted with our sensitive data, cryptos are secure and based on the science of cryptography, IMF explains.

They remove the middleman and broadcast the transaction to the entire network, recording it in a permanent way meaning “it’s almost impossible to fool the system,” states the video covering “What are cryptocurrencies?”

With cryptos, transactions are faster, but they can’t process large amounts quickly yet, and even those people who don’t have bank accounts can buy or sell goods and participate in the global economy, it explains.

But the international organization was back to chanting the risk of transactions in most cryptocurrencies being anonymous with some even being untraceable, making it “easier for bad guys to make payments without being noticed.”

And of course, if you lose your password you lose all your money. “If someone can help you recover your money, it’s not your money,” counters Mow.

Not to forget, they are still “highly volatile,” (but not more so than stock markets are currently thanks to the central bank and government). And they are also not even widely accepted, reminded the IMF. IMF states,

“But if we counter the risks, then this new technology or some variation of it can completely change the way we sell, buy, save, invest, and pay our bills.”

What’s not covered is Bitcoin is already there, becoming a new investment class and increasingly becoming a part of the portfolios, that has been attributed to be an inflation hedge and a store of value.

Crypto “could be the next step in the evolution of money,” concludes the video.

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Author: AnTy

BIS and HKMA Launch ‘TechChallenge’ Seeking Trade Finance Innovations; DLT & IoT Included

The BIS Innovation Hub (BISIH) has partnered with the Hong Kong Monetary Authority to hold a trade finance digitization competition to spur innovative solutions for the sector, especially in Asia. BIS announced on August 3 that global innovators are invited to submit their applications by the end of the month, after which successful participants will be invited to develop full prototypes in a sandbox environment throughout 2021.

Research conducted by the HKMA before embarking on the ‘Tech challenge’ revealed that over 70% of stakeholders in traditional financial institutions believe that most global trade finance needs are yet to be addressed. Notably, the Asian Development Bank (ADB) has, in the past, presented similar facts, highlighting a $1.5 trillion global trade finance gap.

With such stakes in play, the BIS and HKMA have since taken the initiative to find solutions for this potential market. Other prominent stakeholders backing this project include the People’s Bank of China (PBOC), International Institute of Finance (IIF), and International Chamber of Commerce (ICC).

Blockchain and DLT Highly Considered

Interestingly blockchain, which is among the latest emerging tech featured, has been regarded as a solution to some of the problem statements tabled by BIS and HKMA. For starters, distributed ledgers can be instrumental in connecting ‘digital islands’; this is where tech becomes akin to specific jurisdictions, or is limited such that every party runs its centralized platform.

The BIS now suggests that blockchain can be used for linking global trade finance platforms for better communication, hence connecting the digital islands from the point of trust and verifiability.

In addition, blockchain can also be considered in delivering efficient B2B or B2C ecosystems for SME’s to thrive. According to the explainer materials by the BIS, novel tech such as Artificial Intelligence (AI), Machine Learning (ML), and IoT will further complement efforts towards the SME environment.

Finally, innovative solutions in line with onboarding emerging markets were featured in the BIS and HKMA problem statement. On this one, decentralization, which most actors approach with an open infrastructure perspective, could assist in the integration of developing markets through seamless interface connections. The organizers highlighted,

“To leverage the diversity of innovation and digitization underway on this topic globally, solution providers are free to suggest any technology approaches they consider suitable to address one or more of the problem statements, including decentralized approaches based on blockchain/ Distributed Ledger Technologies (DLT).”

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Author: Edwin Munyui