Crypto weekly update
9. March 2023  • clock 3 min •  Daniel Mitrovsky

Is El Salvador Profiting From Bitcoin Adoption? – Cryptocurrency Market Overview (24.2. – 9.3.)

Over the past two weeks, the total market capitalisation exceeded €941 billion. The decrease in market capitalisation over a 14-day period is 9.51%. The price of Bitcoin has fallen by 10.8% over the last 14 days to a current value of over €20,500. Bitcoin’s dominance is currently around 42.1%.

Source: Coinmarketcap

Is El Salvador Profiting From Bitcoin Adoption?

El Salvador’s president and main political leader, Nayib Bukele, outlined in a recent interview the most important benefits that the adoption of bitcoin as the country’s legal tender has brought to his nation.

Perhaps the most significant industry that has been affected by the adoption of Bitcoin as a legal tender is tourism. The Latin American country has reportedly become much more attractive to travellers, boosting tourism by approximately 95%.

“We have increased tourism by 95%, and that’s in part because of bitcoin. There’s a lot of bitcoiners that want to go to the country where bitcoin is legal tender,” president Bukele said in an interview.

El Salvador’s Tourism Minister Morena Valdez said almost a year ago that the local tourism industry grew by 30% in the first three months after Bitcoin was adopted. She explained that the country as a tourist destination has become very popular with Americans, who accounted for 60% of all visitors.

In addition, Bukele said in his speech that El Salvador has received “a lot of new private investment” since it proceeded to adopt Bitcoin. According to him, one of the most significant benefits of the initiative is the “rebranding” of the country’s legacy. The small Central American state was primarily known as one of the most violent places in the world, reaching a peak of 103 killings per 100,000 residents a few years ago. According to Bukele, this is changing markedly as locals become increasingly accustomed to tourists and can see that tourists bring capital to the country.

Bukele also criticised the actions of many central banks, including the U.S. Federal Reserve, accusing them of devaluing people’s wealth and wiping out their savings. In his view, consumers in the Western world have already realised that dealing with centralised financial institutions is not worthwhile and will soon reorient towards the DeFi sector.

Bukele praised Bitcoin for its global distribution and potential to fix economic inequity, claiming it is even popular in countries where the authorities have previously prohibited it. Source

Silvergate in Trouble

The U.S. bank Silvergate, which works or has worked until recently with major players from the world of cryptocurrencies, including Coinbase, Paxos and Microstrategy, is probably the best-known provider of banking services for crypto companies.

However, Silvergate has been shaken at its foundations over the past week after announcing a delay in the release of a comprehensive 10-K report to the U.S. Securities and Exchange Commission (SEC). That document contains far more detail than the company’s annual report, which is sent to shareholders before the annual meeting to elect the company’s directors.

At the time, the bank said it was evaluating the impact of market volatility and several major bankruptcies in the cryptocurrency world in 2022 on its ability to continue as a going concern over the next 12 months. This immediately raised questions among investors about the bank’s future and its relationship with crypto companies. In response, Silvergate’s shares fell more than 50% on the New York Stock Exchange on March 2, with Bitcoin itself plunging more than 5% following the news.

Within 24 hours of the news, Coinbase, Circle, Bitstamp, Galaxy Digital, and Paxos all announced restrictions or outright cancellations of their cooperation with Silvergate.

According to the latest news, regulators in the United States are actively negotiating with Silvergate to find ways to help the bank and save it from possible bankruptcy. Citing people involved, Bloomberg reported on Tuesday that Federal Deposit Insurance Corporation (FDIC) officials are discussing ways to save the company with executives. The FDIC is an independent U.S. government agency tasked with overseeing financial institutions’ safety, soundness and consumer protection.

The Fumbi team will be actively monitoring the situation surrounding Silvergate and will keep you informed of the latest news in this case on a regular basis. Source

Spot ETFs on the Horizon?

U.S. federal appeals court judges convened this Tuesday for a hearing in the case over the rejection of a spot bitcoin ETF fund. The judges were determining whether the U.S. Securities and Exchange Commission (SEC) was justified in denying Grayscale Investment’s application for a spot-traded fund, as the agency had previously approved futures ETFs.

The SEC rejected Grayscale Investment’s application to convert its flagship spot Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF) last June, arguing the proposal did not meet anti-fraud and investor protection standards.

A panel of judges in the District of Columbia Court of Appeals in Washington pressed the SEC on Grayscale’s argument that, because the regulator previously approved certain surveillance agreements to prevent fraud in bitcoin futures-based ETFs, the same setup should also be satisfactory for Grayscale’s spot fund, since both spot and futures funds rely on bitcoin’s price.

In response, SEC representative Emily Parise said that these things could not be compared because the oversight mechanisms are not identical. In fact, spot crypto markets, which underlie the asset in Grayscale’s proposed Bitcoin ETF, are “broken and unregulated,” according to the SEC, unlike the CME, which is regulated by the U.S. Commodity Futures Trading Commission (CFTC).

Grayscale’s general counsel Donald Verrilli Jr. said in court that a spot bitcoin ETF could better protect investors because it will give them the benefit of oversight under surveillance agreements entered into with the CME, where bitcoin futures are traded.

The case’s outcome could either vindicate the SEC’s posture or pave the way for other companies to offer spot bitcoin exchange-traded funds (ETFs) if the judges rule in favour of Grayscale. The decision is expected to come down in the second or third quarter of this year. We will be actively monitoring the situation. Source

Kraken Plans to Launch Its Own Bank

One of the most stable and popular crypto exchanges, Kraken, is moving forward with plans to launch its own bank, despite a challenging regulatory environment and the recent closure of its staking services to U.S. clients.

“Kraken Bank is very much on track to launch very soon,” Kraken’s chief legal officer Marco Santori told The Block’s Frank Chaparro on The Scoop podcast. The birth of a bank originating from the crypto sector could be a glimmer of hope for the crypto industry, which is still recovering from the widespread fallout caused by the FTX crash.

There have been several law enforcement actions over the past few weeks, and there is growing uncertainty on the regulatory front in the U.S.. SEC chairman Gary Gensler said last month that the settlement with Kraken, which included the cancellation of U.S. staking and a $30 million fine, should “put everyone on notice in this marketplace.”

Santori declined to discuss the SEC settlement in detail but said that staking had been a small percentage of Kraken’s revenue. Kraken neither admits nor denies any of the allegations in the complaint.“It’s really indicative of a pretty unfortunate situation here stateside. We’ve got a regulatory environment that is essentially forcing users off to use offshore exchanges,” said Santori. Source

The Fed Will Continue to Raise Rates

Federal Reserve (Fed) will have to raise interest rates higher than expected in response to tenacious inflation or a still strong labour market.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” the US central bank chief said in a speech before the Senate Banking Committee.

According to him, if the data continues to suggest that faster tightening is needed, the Fed is ready to increase the pace of rate hikes. The renewed hawkish rhetoric was significantly compounded by inflation data in January, which fell short of the expectations of experts as well as the Fed itself.

Senators responded to Powell’s speech with a barrage of questions, criticising whether the Fed had correctly diagnosed the inflation problem and whether it was possible to tame price pressures without significantly damaging economic growth and the labour market. Senator Elizabeth Warren of Massachusetts even accused the Fed of “gambling with people’s lives” by raising rates, which according to the central bank’s latest forecasts, could lead to unemployment rising by more than one percentage point.

Everything thus points to Fed officials raising the central bank’s key interest rate by more than 0.25% at their upcoming meeting on 21-22 March. The Fed’s base rate is currently in a range of 4.50%-4.75%. Back in December, Fed officials said that the ceiling for the base rate could be between 5% and 5.25%. However, investors are now expecting that the top rates may move roughly half a percentage point higher. Source

Interesting Fact: Up to 89% of Investors Trust Centralised Custodians

A January survey by Paxos found that as many as 89% of respondents still trust crypto-related financial services intermediaries who also hold client funds in their custody – despite several collapses and bankruptcies in the past year.

The survey, released on March 7 by popular crypto company Paxos and conducted on January 5-6, sought to determine how the crypto winter and crashes in the cryptocurrency world in 2022 have impacted consumer behaviour and trust in the crypto ecosystem.

The survey found that of those that heard and followed the FTX saga, more than half (57%) of respondents either planned to buy more crypto or simply do nothing as a result of the news. The survey also showed that as many as 89% of those surveyed still trust intermediaries such as crypto banks, crypto exchanges or various mobile crypto apps that hold funds on behalf of clients.

In addition, the survey found a growing desire among consumers to be able to purchase Bitcoin or other cryptocurrencies from the comfort of their homes or banks. As many as 75% of respondents said they would be very likely to purchase cryptocurrencies if their traditional bank offered such services. This indicator shows a 12 percent increase in user interest from last year. Source

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Daniel Mitrovsky


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