Tethers are the main source of liquidity for unbanked crypto exchanges, which account for most of bitcoin’s trading volume. Currently, there are $18 billion (notional value) worth of tethers sloshing around in the crypto markets. And nobody is quite sure what’s backing them. Due to Tether’s lack of transparency, its failure to provide a promised audit, and the fact that the New York AG is currently probing the firm along with crypto exchange Bitfinex, its sister company, for fraud, a good guess is nothing. Tethers, many suspect, are being minted out of thin air.
Bitcoin’s price surge may be driven as much by a drying up in supply as by an increase in demand. Miners mostly operate using cash and offload their bitcoin holdings onto the market almost daily to fund their expenses, mainly electricity costs, which are to be paid in the local currency. That makes miners constant sellers. However, Chinese miners, who control over 70% of bitcoin’s hashrate, have been facing challenges liquidating their crypto holdings for cash because many are finding their bank accounts and cards frozen as a part of the Chinese government’s nationwide crackdown on telecommunications fraud and money laundering via crypto deals.
An IMF paper analyzes the legal foundations of central bank digital currency (CBDC) under central bank and monetary law. Absent strong legal foundations, the issuance of CBDC poses legal, financial and reputational risks for central banks. While the appropriate design of the legal framework will up to a degree depend on the design features of the CBDC, some general conclusions can be made. First, most central bank laws do not currently authorize the issuance of CBDC to the general public. Second, from a monetary law perspective, it is not evident that “currency” status can be attributed to CBDC. While the central bank law issue can be solved through rather straightforward law reform, the monetary law issue poses fundamental legal policy challenges.
This paper overviews stablecoin stability mechanisms, the current stablecoin market landscape, and the performance of major stablecoins during the 2020 financial market crisis due to the COVID-19 pandemic. Results from this analysis indicate that stablecoins’ performance during the financial crisis and, in particular, the market crash present a direct relation with their specific behavior attributed to different design aspects, including their popularity.
The Office of the Comptroller of the Currency (OCC) has proposed a rule preventing national banks from discriminating against businesses based on factors other than risk. This has ramifications for crypto-asset firms and money services businesses that have trouble accessing banking services. The OCC has compiled reports of independent ATM operators, family planning organizations, private prisons, gun sellers, and money services businesses being locked out of financial services. https://www.occ.treas.gov/news-issuances/federal-register/2020/nr-occ-2020-156a.pdf
The default of Wirecard highlights several problems in the regulation and supervision of Fintech companies, with regulatory holes in investor protection, customer protection, and financial stability. This column argues that since Fintech companies can be very complex, their oversight requires understanding their business model and combining regulation and supervision based on both entities and activities. The global reach of Fintechs also calls for better coordination at the European level and beyond, but the authors do not see the need for new regulatory body to oversee Fintechs in Europe.