Crypto weekly update
21. May 2019  • clock 3 min •  Boris Hasko

The Bank of France has taken an interest in stablecoins – Crypto weekly update

Every week brings you a recap of the most valuable crypto-news from fields of Technology, Legal & Politics, Business, and Media. So stay tuned and buckle up for some good reading.

Sunday, May 19 — most of the top 20 cryptocurrencies are rebounding to report moderate to notable gains on the day by press time. Bitcoin (BTC) has pushed to just below the $8,000 mark again. The market rebound comes after a sharp correction on May 17 that followed almost a week of massive growth. Bitcoin is about eight percent up on the day, trading at $7,928 at press time, according to CoinMarketCap. Looking at its weekly chart, the coin is up close to 11%.

I. Technology

ConsenSys has teamed up with LVMH brands including Louis Vuitton and Christian Dior and Microsoft to build a blockchain-powered platform that allows consumers to verify the authenticity of luxury goods, according to a news release on May 16. The consortium says the system, known as Aura, is designed to “serve the entire luxury industry with powerful product tracking and tracing services.” LVMH brands are already involved in the project — and discussions are underway to extend Aura to other high-end names within the group. The news release added: “AURA makes it possible for consumers to access the product history and proof of authenticity of luxury goods — from raw materials to the point of sale, all the way to second-hand markets.” The technology sees unique information about every product stored on a shared ledger. Customers are then able to use a brand’s official app to obtain a certificate offering details about its provenance. According to the group, Aura — which is based on the Ethereum blockchain and utilizes Microsoft Azure — will also offer ethical and environmental information, instructions for product care and warranty services. The team behind Aura hope it will eventually be used by rival luxury brands too, enabling them to offer a tailor-made service or strengthen customer loyalty. Ken Timsit, managing director of ConsenSys Solutions, added: “AURA is a ground-breaking innovation for the luxury industry. ConsenSys is proud to contribute and to work with LVMH on an initiative that will serve the entire luxury industry, protecting the interests, integrity, and privacy of each brand.” Reports that AURA was in the works first emerged in March. High-end brands are increasingly turning to blockchain to confirm the provenance of their products. Recently, reports suggested that premium liquor brand Ailsa Bay was planning to release a scotch whiskey tracked with a blockchain-based system.

II. Legal & Politics

Venezuela and Russia Discuss Mutual Trades in Petro and Russian Ruble. Venezuela is considering to close mutual trade settlements with Russia using the ruble, Russian government-backed TV channel RT reports on May 17. Venezuela’s representative to the United Nations in Geneva Jorge Valero said they are also discussing uses for the state-owned Petro (PTR) cryptocurrency. Valero reportedly revealed that Venezuelan authorities are now working with Russia to find opportunities for eliminating the use of the United States dollar in trade deals between the two countries. As such, the two countries’ authorities are purportedly mulling the use of the Russian ruble, as well as Venezuela’s oil-backed Petro digital currency, a controversial project that was first launched in February 2018. Amid the economic collapse in Venezuela that is worsened amid new U.S. sanctions, as well as the ongoing presidential crisis, Valero also expressed his hopes of getting Russian support in restructuring Venezuela’s foreign debt. The Venezuelan Petro, which was designed to combat poverty and hyperinflation, was criticized by global experts for lacking global exposure. Some also questioned whether the coin was actually backed with Venezuelan oil, as reported by Cointelegraph. Following the launch of the coin, U.S. President Donald Trump banned American citizens from purchasing Petro in March 2018. Recently, the U.S. Treasury Department added Moscow-based bank Evrofinance Mosnarbank to its sanctions list due to an allegation that the bank represented a “primary international financial institution willing to finance” Petro. In the statement, the Treasury described the Petro as a failed project attempted to help Venezuela avoid U.S. financial sanctions. In April, an adviser to the President of Russia proposed to adopt a digital currency in Crimea to attract investors and avoid sanctions.

The Bank of France has taken an interest in stablecoins, as indicated by the bank’s governor Francois Villeroy de Galhau in a Bloomberg report on May 14. Villeroy has said that the bank is “observing with great interest” growing networks that allow members to exchange stablecoins for tokenized securities, goods, and services. He makes a point to distinguish stablecoins from cryptocurrency tokens at large, however, saying that stablecoins “are quite different from speculative assets like bitcoins, and more promising.” Villeroy has been an outspoken critic of bitcoin, in particular, notably making the following statement at a 2017 conference in Beijing, China: “We need to be clear: Bitcoin is in no way a currency or even a cryptocurrency. It is a speculative asset. Its value and extreme volatility have no economic basis, and they are nobody’s responsibility. The Bank of France reminds those investing in bitcoin that they do so entirely at their own risk.” Mario Draghi, the President of the European Central Bank (ECB) — of which Villeroy is a governing council member — has recently echoed these sentiments, saying that cryptocurrency is not a currency, but rather a risky asset. Draghi points to the lack of backing for tokens such as bitcoin, rhetorically asking, “Who is behind the cryptocurrencies?” Unlike bitcoin, stablecoins are designed such that their value is always tied directly to some asset, such as gold, or are stabilized by an algorithm. A number of stablecoins have their value pegged to fiat currencies, such as TrustTokens’ line of fiat-backed coins, which include TrueUSD (U.S. dollars), TrueGBP (British pounds), TrueAUD (Australian dollars) and TrueCAD (Canadian dollars).

III. Media

The U.S. Securities and Exchange Commission (SEC) is currently reviewing three bitcoin exchange-traded funds (ETFs), one of which was filed last week to track the prices of two cryptocurrencies. An SEC commissioner said at the Consensus conference on Monday that the time is right for a bitcoin ETF, as the commission is due to make a decision on one of them next week. At the Consensus 2019 conference in New York on Monday, SEC Commissioner Hester Peirce, also known as “crypto mom,” discussed the regulatory environment for bitcoin ETFs. Expressing her dissatisfaction with the current law, she asserted that the SEC should do more to provide a regulatory framework for cryptocurrency including rules around the safe harbor. Decrypt quoted her as saying: “I thought the time was right a year ago — even longer than that … My first chance to comment on it was a year ago … Certainly, the time is right, but there are still questions floating around the SEC that need to be answered as much as possible by you all”. Peirce then encouraged the audience to write to the SEC to help them understand the market. One issue she noted was market manipulation, which “is a concern that people keep raising at the SEC,” she shared. “Other issues like custody issues [also] come up a lot.” Her comments at Consensus echo her speech at the Securities Enforcement Forum which took place on May 9. “The problem is that the securities laws do not cease to operate as a new industry develops,” she explained. “Consequently, individuals and companies in the industry must comply with our securities laws or risk becoming the subject of an enforcement action. It is, therefore, our duty as a regulator to provide the public with clear guidance as to how people can comply with our law. We have not yet fulfilled this duty.” The commissioner additionally described: “It is not the SEC’s overzealous action that has stifled the crypto industry, but its unwillingness to take meaningful action at all”.

U.S. financial news and opinion broadcaster Max Keiser is a textbook hodler. For the host of the Keiser Report on RT to dispose of the bitcoin he has been accumulating since 2011, his price target of $100,000 will have to be achieved first. Speaking to Kitco News, Keiser said that since acquiring his first bitcoin eight years ago, he had not sold any of it. According to the broadcaster, this is “because my price target is $100,000 and beyond.” This is not the first time Keiser has stated that bitcoin will reach $100,000. In his view, this price target will be realized as bitcoin transitions from being a “store-of-value commodity thing to a medium of exchange to a unit of account.” Regarding bitcoin’s recent rally, Keiser explained that it was triggered by the U.S. Federal Reserve signaling more quantitative easing. This, according to Keiser, was a message that the Fed had not learned from its past mistakes. It would, therefore, would print more dollars without any “accountability,” further debasing the reserve fiat currency. As a result of the Fed’s intent, wealthy investors sought refuge in bitcoin, igniting the crypto market’s meteoric ascent. The financial news and opinion broadcaster also suggested that the recent #DropGold campaign by Grayscale Investments may have contributed to bitcoin’s recent price rally. Gold now faces competition, according to Keiser.
Despite his anti-gold stance, Keiser disclosed that “I own a lot of gold.” He also owns silver which he estimates to be in the range of around 35,000 ounces. Keiser, incidentally, downplayed the role of the Chinese in driving the price of the cryptocurrency up. Recently, some analysts hypothesized that as a result of the U.S.-China trade war, Chinese citizens have been turning to bitcoin to get their money out of China. Asked whether he was invested in other cryptocurrencies, Keiser revealed he was a bitcoin purist. According to Keiser, altcoins don’t possess any unique feature that is not found in bitcoin: “There is nothing those coins can do that bitcoin can’t do now or will be able to do soon.” In the future, Keiser predicted that bitcoin would continue to reign supreme. Already, according to the broadcaster, the flagship cryptocurrency is “cannibalizing those coins, it’s eating their lunch.” The broadcaster’s interest in the cryptocurrency started after a guest on his show, Jon Matonis, told him about it. That was back in May 2011 (video below; interview starts at 13:00). In the 1990s Keiser had also experimented with a virtual currency known as Hollywood Dollar. Among the factors that Keiser believes will drive the price of bitcoin higher is growing institutional interest. “Bitcoin is making the institutional play now, and there is going to be a mass fear of missing out… or FOMO is going to jump to the institutional level and they have got the big bucks, and now we are going to see some big moves.” While stating that bitcoin was making cross-border transactions cheaper and more efficient, Keiser also indicated that this was a threat to nation-states as they are currently constituted. He predicted that politicians would not be able to stop this, as it is impossible to regulate cryptocurrencies. Regarding the recent call by U.S. Rep. Brad Sherman to “shut down cryptocurrencies because it is interfering with the dollar being the hegemonic force in the world,” Keiser had four words for the Californian: “huge advertisement for bitcoin.”

Bitcoin is on a tear as the price of the flagship cryptocurrency has gone supersonic in 2019. It is widely believed that bitcoin’s remarkable rally is a result of booming institutional interest in the cryptocurrency, as investors are looking for alternative asset classes to park their funds at a time when the stock market is in turmoil and the global economy is on edge. But it looks like institutional buying isn’t the only catalyst driving bitcoin’s price. The Chinese are reportedly piling into bitcoin, believing it to be a safe investment at a time when the yuan is taking a hit thanks to the U.S.-China trade war.
The Chinese government has a hostile approach toward bitcoin, delivering blow after blow to the cryptocurrency industry in general. From shuttering exchanges to outlawing ICOs and considering a ban on mining activities, the Chinese government has made it clear that it doesn’t love crypto. But the Chinese people are counting on bitcoin a time when the yuan is crumbling under the pressure of the trade war. The Chinese yuan slipped to its lowest level in the last six months earlier this week after the country announced countermeasures against Trump’s tariffs. The yuan suffered its steepest single-day drop since last July after China announced that it will impose tariffs in the range of 5% to 25% on $60 billion worth of U.S. goods. Analysts believe that the Chinese are dumping the yuan in favor of BTC. According to David Cheetham, the chief market analyst at trading platform XTB cited in Yahoo Finance: “Rather than investors seeking out inherently risky assets as safe havens, a more likely explanation is the recent drop in the Chinese yuan and the expectation of a further depreciation when Beijing seeks to make exports more attractive in response to the latest round of U.S. tariffs.” The Chinese government has stringent measures in place to prevent the dumping of yuan, limiting the yuan’s outflow to just $50,000 a year. But bitcoin gives them a way to circumvent that limit despite a ban on cryptocurrency exchanges, with the help of over-the-counter dealers and peer-to-peer exchanges such as LocalBitcoins. According to Philippe Bekhazi, CEO of crypto trading firm XBTO cited in Forbes: “I’ve talked to a bunch of traders on the ground in Hong Kong. There’s a booming business in stablecoins because people are getting money out of China and Hong Kong.” Not surprisingly, weekly bitcoin volumes on LocalBitcoins have spiked. In March, China was the fifth-largest country in terms of bitcoin volumes on the peer-to-peer platform. What’s more, a closer look indicates that Chinese bitcoin buying on LocalBitcoins has gathered pace in recent weeks.

IV. Business

The world’s largest options and futures exchange, Chicago Mercantile Exchange & Chicago Board of Trade (CME Group) and its bitcoin futures contracts saw an all-time high on May 13. According to CME’s records, the exchange recorded 33,700 contracts on Monday which represented a notional value of around 168,000 BTC ($1.35 billion). CME Group’s bitcoin futures contracts soared on Monday at the same time that crypto spot markets saw record volumes. Over the last few months, more interest has been aimed at cryptocurrency derivative products. For instance, during the second week of April, bitcoin cash (BCH) futures started rising significantly prior to recent BCH price appreciation. Crypto Facilities and executive Sui Chung detailed how BCH contracts in March saw close to $50 million in volume. During the same week on April 4, CME group saw its first record of roughly 22,500 BTC future contracts. On May 13, the options and futures exchange announced: “CME Bitcoin futures reached an all-time record high of 33.7K contracts on May 13 (168K equivalent bitcoin), up nearly 50% from the last record of 22.5K contracts on April 4. See how market participants are using BTC to manage uncertainty”. The options and futures exchange also saw a large uptick in BTC futures volumes in February. Despite the increased trade volume, the derivative markets providers reported a net income loss of 17% for Q1 on May 1. BTC contracts, however, are pretty high on May 14 as well with 22,234 contracts as the day’s volume is nearing the April 4 record. The news also follows an announcement from the Intercontinental Exchange and its Bakkt Bitcoin Daily Futures Contract products. Bakkt CEO Kelly Loeffler updated the public on Monday in regard to the physically delivered bitcoin futures contracts that have been delayed month after month. According to Loeffler, user acceptance testing for the bitcoin futures custody and trading is planned for July but Bakkt could get approval from the Commodity Futures Trading Commission (CFTC) within the next 10 days.

Just 376 People Own 33% of the World’s Ether. A third of the world’s ether (ETH) is owned by just 376 people, according to Chainalysis research published on May 15. Despite controlling a large portion of ETH’s circulating supply, the study found these “whales” are responsible for just 7% of all transaction activity. Chainalysis concluded that while these individuals don’t necessarily have a meaningful impact on ETH’s price, they do contribute to market volatility when big sell-offs are made. These figures could be seen as an improvement compared with 2016, when whales owned 47% of ETH’s circulating supply. According to the team’s report, about 60% of whales hold their assets and do not regularly trade with exchanges. Analysis of activity from 2016 to 2019 also revealed that ether prices tend to follow movements in bitcoin (BTC.) Researchers added: “On average, a 1% increase in bitcoin prices yesterday leads to a 1.1% increase in ether prices today.” Overall, the blockchain analytics company believes that concerns about the impact of whales on market prices may have been overstated, but added: “We cannot rule out the possibility that whales can impact price changes within single days based on outlier events.” Last month, the company’s research revealed that at least 95% of crypto crimes investigated by law enforcement involve BTC. Chainalysis also recently expanded its real-time transaction monitoring tools to cover 10 cryptocurrencies in response to demand from law enforcement agencies.

Bitcoin has converted yet another critic. World-famous investor and emerging markets guru Mark Mobius once called bitcoin a fraud. But in an interview yesterday with Bloomberg he appeared to change his mind, saying it was “alive and well.” “There’s definitely a desire among people around the world to be able to transfer money easily and confidentially. That is really the backing to bitcoin and other currencies of that type. So I believe it’s going to be alive and well.”
The 81-year-old investor, founder of Mobius Capital Partners, struck a harsh tone on cryptocurrencies last year, slamming the cryptocurrency as a fraud. “I think bitcoin is a real fraud, I really do. The first thing I do is ask people ‘can you explain it to me? Who is running it? Who is controlling it?’ And nobody can.” He shrugged off the growing interest in cryptocurrency and likened the movement to a religion. In the 2017 interview below with Reuters, he said bitcoin was only useful for “illicit activites” and that China was right to clamp down on cryptocurrencies. In this 2018 interview with Bloomberg, Mobius said bitcoin “makes tulips look bad,” comparing crypto to the infamous Dutch tulip bubble.
Fast forward to 2019 and Mobius has warmed to the idea that bitcoin is here to stay. A Bloomberg interviewer asked him whether the cryptocurrency had a role to play in emerging markets like Venezuela. He responded positively, saying there’s a role for digital assets in money transfer. However, he confirmed that he owned no BTC himself and isn’t quite ready to open a Coinbase account. “Whether I would invest in it is another question because of the incredible volatility.” The investor, who was once named one of the Top 100 Most Powerful and Influential People, is also worried about high-profile hacks and lack of central organization. Citing the legendary Mt. Gox hack he said: “And at the end of the day, you can’t trace one individual group or organization that will keep track of what’s going on.” Like many traditional investors, there seems to be some gaps in Mobius’ understanding of cryptocurrencies. Despite his conclusions, bitcoin is not confidential and transactions are entirely transparent and traceable on the blockchain. As the crypto winter thaws, traditional investors are beginning to realize that bitcoin won’t die. Having survived the bitcoin bubble, the fundamentals are now stronger than ever. Elsewhere on Wall Street, JP Morgan boss Jamie Dimon made a U-turn on crypto. After slamming bitcoin as a fraud at the height of the bubble, his bank later embracing blockchain technology and launched its own cryptocurrency. The giants of industry are slowly waking up to the transformational power, not just of blockchain, but cryptocurrencies themselves.
As one bitcoin critic warms up to bitcoin, will others follow? Among its harshest dissenters is legendary investor Warren Buffett who called bitcoin “rat poison squared,” a “delusion,” and a “gambling device.” And who can forget bitcoin’s most vitriolic opponent, Nouriel Roubini? The NYU economics professor famously called bitcoin the “mother and father of all bubbles” and said its followers are “arrogant” and “clueless.” I don’t think we’ll see Buffett and Roubini join Mark Mobius in a bitcoin U-turn just yet.

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Boris Hasko


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