The increasing institutional demand as well as a certain clarity in regulatory terms have a price support for Bitcoin (Bitcoin 49,576.00 + 0.46%). For a long time, current investors and potential investors believed that they could stock up on lower prices. Now they seem to have realized that this is not the case – and are reaching for it. If the Bitcoin price stays above $ 50,000, the chances are good that new highs will be recorded by the end of the year.
Wells Fargo and JPMorgan want to launch their own Bitcoin trusts. The Grayscale Bitcoin Trust is too successful for banks not to want their share of it. VanEck and ProShares apply for Ethereum ETFs with synthetic replication via regulated futures. Galaxy Digital is launching a new institutional fund with a focus on DeFi – a sign that investors are continuing to expand their exposure in the crypto sector.
New Bloomberg Index
Coinbase launches a partnership with Mitsubishi UFJ (MUFG 5.45 + 0.46%) Financial Group (MUFG) to bring the trading platform to Japan. This wasn’t the only positive news that boosted the Bitcoin price in the past few days. Coinbase CEO Brian Armstrong tweeted: “We recently received Board approval to purchase over $ 500M worth of cryptocurrencies on our balance sheet to supplement our existing holdings. And we will invest 10% of all profits in cryptocurrencies in the future. I expect that proportion will continue to increase over time as the crypto industry matures. “
Hedge funds throw themselves on DeFi returns with the MetaMasks institutional solution. Coinbase takes the DeFi exposure on its own balance sheet, and Bloomberg is launching a DeFi index in collaboration with Galaxy Digital – the Bloomberg Galaxy DeFi Index (DEFI).
SEC chief Gary Gensler reminded the crypto industry that DeFi projects are not immune to regulation. The crypto industry knows that regulation is positive for adaptation. It is welcomed because it gives more legal certainty. This can also be seen in the price development of Bitcoin and other cryptos during the negotiations on American infrastructure legislation.
Efficient access thanks to stablecoins
Stablecoins are digital currencies whose value is linked to that of another asset, usually the dollar. Stablecoins offer efficient access to crypto markets, facilitate trading and the operation of decentralized applications, enable borrowing and lending, allow payments and processing and offer many advantages over fiat currencies such as speed, cost efficiency, transparency and programmability.
The issuers earn from the transaction fees and the interest income on the assets. Hence, they try to increase both the outstanding volume and the returns on the assets.
The latter is an incentive to back the stablecoins with high-yield and risky assets instead of cash. It started out as dollars in bank accounts, but recent revelations show that this is no longer the case.
Transparency from Tether
For example, Tether, by far the largest issuer, now publishes quarterly reports that show that its USDT stablecoin is mainly driven by corporate bonds (49%) and US treasury bills (24%). ) is secured.
This has caused concern for some users, given the high proportion of commercial paper with a relatively low rating and long maturity compared to first-class money market funds. The situation is similar with other issuers such as Circle and Paxos, although their coverage ratio is higher than with USDT.
Settled with NY Attorney General
Originally, Tether claimed to have backed the stablecoin one-to-one with traditional, reserve currencies, but later expanded that description to include loans to third parties and affiliates.
The New York State Attorney General is investigating Tether and Bitfinex on allegations of shifting hundreds of millions of dollars to cover up a loss of $ 850 million in customer and corporate funds. During the investigation, it became known that only 74% of the stablecoin was covered by reserves at the time.
Tether agreed to cease operations in New York, publish quarterly reports on reserves for the next two years, and pay a fine of $ 18 million without admitting or denying the wrongdoing. The controversy has seen USDT market share drop from 84% a year ago to 58% today.
Run on stablecoins unlikely
A stablecoin is involved in three quarters of all crypto transactions, which is why a run on an issuer would have catastrophic effects on the ecosystem. This scenario is to be assessed as unlikely for various reasons.
Banks in most countries are subject to strict regulation, can borrow directly from their central bank and offer accounts with state deposit protection. At the same time, however, the modern banking system corresponds to a minimum reserve system (Fractional Reserve Banking), which is based on much riskier assets than with Tether. This makes the balance sheets of stablecoin issuers appear more secure from these aspects.
Regulators focus on stablecoins
It is unlikely that all holders of a particular stablecoin will redeem it at the same time. Even then, there are some safeguards like Tether’s Terms of Service that allow the company to delay withdrawals and withdraw in assets rather than cash.
In addition, the issuers are trying to build trust: Circle wants to become a national bank for digital currencies regulated by the US Federal Reserve. Tether has increased the disclosure level in its most recent certificate of reserves.
Stricter regulations have also been proposed, such as the Stable Act in the USA and the Mica Regulation in the EU. Regulators now seem to be focusing on stablecoins, especially in the US.
The author’s opinion does not have to agree with that of the editorial team.