Month: November 2020

Kiffmeister’s #Fintech Daily Digest (11/21/2020)

~ kiffmeister

Bitcoin Shortage?

According to analysis by crypto fund Pantera Capital, the recent crypto-asset rally has likely been driven by an influx of retail investors buying Bitcoin. The main trigger is the October launch of PayPal’s new service that enables customers to buy, sell, and hold crypto-assets directly from their PayPal accounts. According to Pantera’s projections, PayPal users alone may soon acquire more Bitcoin than there are being mined. Square launched similar capabilities in its cash app in June 2019, but it only gives access to Bitcoin, whereas PayPal’s offering supports Bitcoin, Ethereum, Bitcoin Cash, and Litecoin.  

Bitcoin Is the Biggest Big Short

Bitcoin’s core value lies in its decentralized governance design being divorced from the political system, a feature no other asset of its size and liquidity can claim, perhaps with the exception of gold. If people lose confidence in their government’s capacity to sustain the trusted, social covenant on which fiat money is founded, the value of that money collapses, resulting in hyperinflation. Because of its depoliticized status, bitcoin gains in value in that environment. So if you’re long bitcoin, you are positioned to benefit if the system of governance on which the entire world depends for security and well-being collapses. 

US Government to Use USDC Stablecoin to Bypass Venezuela’s Maduro

Circle, which along with Coinbase issues the USDC stablecoin, is coordinating with the US government and Latin America crypto exchange Airtm to route aid for Venezuelan healthcare workers through the Latin American country’s government in exile. The US Treasury and Federal Reserve releases seized funds to the exiled government’s account at a US bank. The exiled government then uses those funds to mint USDC. The USDC is then sent to Airtm Once the USDC stablecoins hit Airtm wallets, they go to Venezuela healthcare workers in the form of AirUSD, Airtm’s own fiat-backed stablecoin. Recipients can then withdraw at banks, send the funds, or spend them online. 

Update: JP Koning wonders whether this is just hype as USDC wasn’t really necessary to execute this transaction.

Argentina and Brazil Get Their Own Stellar Stablecoins

Settle Network and Stellar are issuing two stablecoins in Latin America. The ARST is tied to the Argentine peso (ARS), while the BRLT is tied to the Brazilian real (BRL). The new stablecoins allow users to virtually send ARS and convert them to BRL in a matter of seconds, opening a new possibilities for international remittances and cross border payments. 

$3 billion blockchain bond sale delayed ‘until further notice‘

The listing of China Construction Bank’s blockchain-based debt issuance bonds, first reported on November 11, has been delayed “at the request of the issuer” until further notice, according to a Friday statement from Fusang Exchange where they were due to be traded.

Private Bank Money vs Central Bank Money: A Historical Lesson for CBDC Introduction

In this paper, a unique event is studied: the opening of Bank of Canada in 1935, the central bank note issuance monopoly and its impact on the note issuing chartered banks. Between 1935-1950, Canadian chartered banks had to gradually withdraw their notes from circulation. In a difference-in-differences analysis, it shows that chartered banks constrained by new issuance limits experienced higher volatility of return-on-equity in the short run and lower Z-scores and return-on-assets in the longer horizon, suggesting that note issuance was an important source of revenue for private banks and allowed them to smooth the profits. The effect on lending is either non-significant or ambiguous. This study of central bank cash implementation can offer lessons for the current debates on a new form of central bank money – central bank digital currencies – and their potential impacts on commercial banks.

Kiffmeister’s #Fintech Daily Digest (11/20/2020)

~ kiffmeister

Global Bitcoin Futures Reach Six-Month High Above $50 Billion

The global Bitcoin futures market has hit a six-month high of $52 billion, according to data on Coinalyze.net. On October 18, 2020, the market total was at $4.5 billion, before increasing to $30 billion and $38 billion on October 21 and November 5 respectively. The share of this futures market is dominated by crypto exchange Binance, which holds a total of $16.1 billion worth of Bitcoin futures. In second place is crypto exchange Huobi’s futures platform HuobiDM, with a total share worth $12.7 billion. [BTW it looks to me like this doesn’t include the contracts that trade on the CME.]

Japan’s Banking Giant MUFG Plans to Launch Blockchain Payment Network in 2021

Mitsubishi UFJ Financial Group will launch its high-speed blockchain payment network with the U.S.-based tech firm Akamai in 2021. The Global Open Network (GO-NET) will integrate payment terminals from Seiko with the bank’s credit card company in February. GO-NET can reportedly process 100,000 transactions per second (tps), compared to VISA’s 70,000, and the platform can be expanded to reach as high as 10 million tps for small payments. GO-NET expects the payment services to be fully functional across Japan by the summer of 2022. 

Fintech and big tech credit markets around the world

Credit markets around the world are undergoing a transformation. Fintech and big tech firms are providing more lending to households and small businesses. Using a new BIS database, this column estimates that fintech credit flows reached $223 billion in 2019, while big tech credit reached $572 billion. Both forms of credit are larger where there is greater (unmet) demand for credit and where economic and institutional factors favour the supply of such lending. The Covid-19 pandemic represents an important test for these new business models. 

Seizing the Opportunities from Digital Finance

According to Bank of England Chief Economist Andy Haldane: “In principle, separating safe payments and risky lending activities could lead to a closer alignment of risk and duration on the balance sheets of those institutions offering these services. We would move closer to a bifurcated intermediation model of narrow banking for payments (money backed by safe assets) and limited purpose banking for lending (risky assets backed by capital-uncertain liabilities). In principle, this would reduce, at source, the intrinsic instabilities of the traditional banking model. Of course, there could be costs as well as benefits from such a functional separation, including the possibility of reduced credit provision due to reduced levels of liquidity and maturity-transformation, that need to be worked through. At the very least, however, these longer-term potential stability benefits of a very different functional model of intermediation need to be evaluated and weighed. And, so far at least, they have largely been ignored in discussion of the case for digital currencies.” 

Kiffmeister’s #Fintech Daily Digest (11/19/2020)

~ kiffmeister

Top Japanese banks, companies to test private digital currency next year

More than 30 major Japanese firms, including banks such as MUFG, Sumitomo Mitsui and Mizuho, are reportedly set to trial a common, private digital currency next year to improve payments. Other group members include NTT, Accenture, Daiwa Securities, and Nomura. Observers of the initiative include government agencies of the country, such as the Bank of Japan and the Financial Services. Agency. 

CME bitcoin futures cross $1 billion in open interest — a new all-time high

CME Group’s cash-settled bitcoin futures have hit an all-time high open interest of $1 billion. CME launched its bitcoin futures in December 2017, and it is currently the only regulated cash-settled offering in the U.S. Earlier this year, CME also began trading in bitcoin options. Aggregate open interest in the bitcoin options market is also growing, touching $3.8 billion recently. 

Bitcoin Whales’ Ownership Concentration Is Rising During Rally

There’s nothing widespread about Bitcoin ownership. A few large holders commonly referred to as whales continue to own most Bitcoin. About 2% of the anonymous ownership accounts that can be tracked on the cryptocurrency’s blockchain control 95% of the digital asset, according to Flipside Crypto. A further breakdown shows that whales own 92.4% of the 2%, while crypto exchanges account for nearly 7%. 

OKEx to resume withdrawals next week with promises of 100% reserves

OKEx is finally resuming withdrawals of customer assets after weeks of waiting. The exchange first suspended withdrawals on October 16. Full customer withdrawals will resume on or before November 27. OKEx will conduct security checks to resume hot wallet operations and ensure that user funds are safe. OKEx claims that user funds are covered by 100% reserves and therefore “can be withdrawn without any restrictions after withdrawals are reopened.” 

Nearly 25,000 Bitcoin Address Were Created in Just One Hour

Nearly 25,000 new Bitcoin (BTC) addresses were created in just one hour on November 18, 2020 — a level that was last seen in January 2018 (just after Bitcoin reached its all-time high of $20,000 the previous month) .According to Glassnode data, the 24-hour moving average of new Bitcoin addresses hit 24,807. This shows that, on average, that many addresses were created on the blockchain for each of the last 24 hours. For some of the hours, it would have been even higher. 

Netherlands Forces ‘Far-reaching’ Measures on Bitcoin Exchanges

De Nederlandsche Bank (DNB) has imposed a new set of requirements on Netherlands-based, crypto-asset companies that want to officially register. Among other things, the Sanction Act has forced local firms to monitor their customers’ withdrawals and even ask for screenshots of their wallets. 

Fintech Sees Strong Growth in South East Asia as COVID-19 Skyrockets Digital Adoption

Southeast Asia’s digital economy has remained strong and, adding 40 million people into the online space this year, as usage of digital financial services has jumped significantly, according to the e-Conomy SEA 2020 report by Google, Temasek and Bain & Company. Usage of mobile banking apps rose across all Southeast Asian markets with Vietnam, the Philippines and Indonesia recording the strongest growth rates in monthly active users. Online remittances jumped by nearly 2x, and digital remittances app downloads players such as TransferWise surged 1.3x. 

Kiffmeister’s #Fintech Daily Digest (11/18/2020)

~ kiffmeister

Fintech in Europe: Promises and Threats

This IMF paper finds that fintech companies’ reach and development in Europe are lower than in other regions but are on the rise. The low penetration can be partly explained by the high preexisting banking presence and financial inclusion, strict regulation and, in some countries, a strong preference for cash-based transactions. But fintech lending and payment tools are growing rapidly. While start-ups are pursuing platform-based approaches under minimal regulation, there is a clear trend for fintech companies to acquire balance sheets and, relatedly, banking licenses as they expand. Meanwhile, competition is pushing many traditional banks to adopt fintech instruments, either in-house or by acquisition, thereby causing them to increasingly resemble balanced sheet-based fintech companies. 

As DeFi Grows, Investors Look to Polkadot to Be the Next Ethereum

The price of Ether (ETH) is up 266% this year – twice as much as that of bitcoin (BTC). But a lot of digital-asset investors are hedging their bets, buying tokens associated with upstart blockchains that could potentially grab market share from the Ethereum network, often referred to as a “world computer” due to its versatility and programmability. One such token is dot (DOT), of the Polkadot blockchain, whose co-founder Gavin Wood was a co-founder of Ethereum. At the heart of Polkadot is the concept of “parachains,” which are blockchains that can run higher transaction throughput than Ethereum. 

South Africa ditches paper cheques

The South African Reserve Bank (SARB), Financial Sector Conduct Authority (FSCA), Payments Association of South Africa (PASA) and the Banking Association South Africa (BASA) are jointly communicating to the public that the issuing and the acceptance/collection of cheques will cease, effective from 31 December 2020. 

Kiffmeister’s #Fintech Daily Digest (11/17/2020)

~ kiffmeister

Custodian Anchorage Seeks Charter From Crypto-Friendly US Bank Regulator OCC

Digital asset custodian Anchorage is seeking a national charter from the U.S. Office of the Comptroller of the Currency (OCC). A banking charter would give Anchorage the clear authority to act as a “qualified custodian” for institutional investors under Securities and Exchange Commission (SEC) rules. Most crypto custody firms in the U.S. have trust company licenses, but the SEC has signaled that it is unsure whether such entities, regulated at the state level and less stringently than banks, make the cut as qualified custodians.

Hacker steals $2 million from DeFi crypto-asset service Akropolis

Crypto-asset borrowing and lending service Akropolis says a hacker used a “flash loan” attack against its platform and stole roughly $2 million worth of Dai USD stablecoins. Flash loan attacks have become common against crypto-asset services running DeFi platforms that allow users to borrow or loan using crypto-assets, speculate on price variations, and earn interest on crypto-asset savings-like accounts. Flash loan attacks take place when hackers loan funds from a DeFi platform but then use exploits in the platform code to escape the loan mechanism and get away with the funds. 

Brazil launches ‘Pix’ instant payments system, Whatsapp to enter ‘soon‘

The Central Bank of Brazil launched its instant payments platform Pix on November 16. Pix allows consumers and companies to make money transfers 24/7 without requiring debit or credit cards through a Pix alias or a QR Code. It is also free of charge for individuals. Central bank president Roberto Campos Neto said the central bank is in talks with Bigtech players such as Google and Facebook about entering the Brazilian payments services market, and that WhatsApp will start doing P2P soon. 

Kyrgyzstan’s central bank developing draft law for cryptocurrency industry

The National Bank of the Kyrgyz Republic is developing a draft law that would regulate crypto-asset exchanges. The bank will accept proposals for the draft law until November 27, after which they will be published on the official register by December 4.  

Kiffmeister’s #Fintech Daily Digest (11/16/2020)

~ kiffmeister

Bitcoin Is Trading At Its Highest Since 2018

“Bitcoin prices have experienced some newsworthy gains today, climbing to their loftiest value in more than two years. The world’s most prominent digital currency reached $16,786.89 this afternoon. At this point, it was trading at its highest price since January 2018 and had climbed more than 333% since hitting a 2020 low below $3,900 in March. When explaining these latest gains, analysts pointed to several factors as helping fuel continued upside in bitcoin…”

Fidelity Addresses Persisting Bitcoin Criticisms

Fidelity recently took on six “persistent” criticisms, including Bitcoin’s volatility, environmental wastefulness and illicit activity usage. A main point was that “Bitcoin makes deliberate trade-offs, such as limited and expensive capacity, to offer core properties such as decentralization and immutability. Given its high settlement assurances, Bitcoin optimizes its limited capacity for settling transactions that aren’t well served by traditional rails.” Addressing Bitcoin volatility, the article posits that “true price discovery accompanied by volatility might be preferable to artificial stability if it results in distorted markets that may break down without intervention.” 

Kiffmeister’s #Fintech Daily Digest (11/15/2020)

~ kiffmeister

What is and what is not central bank digital currency?

It’s a quiet Fintech news day so I thought I’d address some questions that come up frequently on my tabulation of jurisdictions where central banks and other monetary authorities are exploring retail central bank digital currency (CBDC) issuance. First I stick with the definition of retail CBDC that we used in our recent working paper:

A retail CBDC is a widely accessible digital representation of a sovereign currency that is issued by, and a liability of, a jurisdiction’s central bank or monetary authority, and be legal tender.

Hence I tabulate only jurisdictions where it is the central bank doing the exploration. I don’t include jurisdictions where the government is gum flapping about it. Also, I tabulate “jurisdictions” as opposed to countries, to account for regional monetary authorities. So, for example, I include the Euro Area rather than list all of the Euro Area central banks that might be exploring retail CBDC issuance.

Also, I don’t include wholesale CBDC (W-CBDC), which is limited to a set of predefined user groups, typically banks and members of national payment systems, whereas a retail CBDC is widely accessible to the public. See the WEF Bank Digital Currency Toolkit for a broader analysis of CBDC that includes W-CBDC. The BIS has also published a paper with an extensive discussion of W-CBDC.

Two other popular questions concern the Marshall Islands SOV and Cambodia’s Project Bakong, neither of which are CBDCs. The SOV fails my CBDC litmus test because it is not issued by a central bank, as the Marshall Islands doesn’t have a central bank (it uses the U.S. dollar as its legal tender). The SOV will essentially be an initial coin offering that is issued by the national government.

Cambodia’s Project Bakong has been touted by the WEF as a “quasi” CBDC, but it is actually a blockchain-based interbank retail payment system that is run by the central bank. It does not run on digital tokens issued by, or on the balance sheet of, the central bank. According to the white paper, participating banks have Bakong settlement accounts at the central bank in which they hold user funds, so it is arguably a synthetic CBDC, but that’s a whole other story.

Kiffmeister’s #Fintech Daily Digest (11/14/2020)

~ kiffmeister

BoE’s Cunliffe: Not our job to protect banks against digital currencies

Bank of England Deputy Governor Jon Cunliffe reportedly said it was not his job to protect banks from the impact of future digital currencies, which could dramatically reduce households’ willingness to hold money in traditional bank accounts. “Our job is not to protect bank business models,” Cunliffe said at an online seminar. “Banks will have to adjust. Our job is to ensure that if bank business models change, we manage the financial and macro-economic consequences of that.” 

Early Warning completes Zelle integration with The Clearing House RTP network

Early Warning Services, LLC. (EWS), the owner and operator of the Zelle Network, and The Clearing House (TCH), the operator of the RTP network, today announced that financial institutions (FIs) can now settle Zelle payments over the RTP network, the real-time payment system in the United States. PNC Bank and U.S. Bank have successfully completed a pilot of the integration, transmitting money using Zelle over the RTP network. Additional FIs will integrate the two networks and start testing later this year. 

Kiffmeister’s #Fintech Daily Digest (11/13/2020)

~ kiffmeister

Bitcoin Is Now the 20th Biggest Asset by Market Cap

With a market cap of nearly $300 billion, Bitcoin is now the 20th most valuable asset by market cap, according to AssetDash. Bitcoin pipped home improvement retailer Home Depot to take the 20th position, and already beat out Verizon and PayPal. Still yet to conquer are payments companies Mastercard (18th) and Visa (11th). Bitcoin hit 20th position after its price boomed to $16,117, a more than $5,000 increase since the start of October.

Russian Finance Ministry Gets Tough on Cryptocurrencies

The Ministry of Finance of the Russian Federation has proposed legislation that would require citizens to report ownership of crypto-assets to the tax authorities. If the citizens fail to declare digital assets transactions worth $586,000 or more, they can face imprisonment of up to three years. Russian citizens have to report these transactions to the tax authorities at least twice every three years. The Ministry mentioned that the first time to report the ownership of crypto assets should not be later than 30 April 2022.  

Payments Canada selects Mastercard’s Vocalink as the clearing and settlement solution provider for Canada’s new real-time payments system

Payments Canada selected Mastercard’s Vocalink as the clearing and settlement solution provider for the country’s new Real-Time Rail (RTR). Operated by Payments Canada and regulated by the Bank of Canada, the RTR will allow Canadians to initiate payments and receive irrevocable funds in seconds, 24/7/365. Underpinned by the ISO 20022 data standard, the system will support payment information travelling with every payment and act as a platform for innovation, enabling the introduction of new and enhanced payment products and experiences. The RTR is expected to launch in 2022. 

Kiffmeister’s #Fintech Daily Digest (11/12/2020)

~ kiffmeister

Retail CBDC Remuneration: The Sign Matters

This Banque de France paper lists the main options central banks would be faced with when defining their policies regarding the remuneration of retail central bank digital currency (CBDC). It assesses qualitatively the impacts of the choices made on the likely areas of interest for central banks, showing that whether the policy rate and/or the rate on CBDC is positive or null or strictly negative matters. Eventually, the two main policies that stand out are to issue a “banknote-like” CBDC, i.e. not to remunerate it, or to do so following a rule derived from the central bank’s interest rate policy for excess reserves. 

Turkish Central Bank set to launch new retail payment system

Central Bank of the Republic of Turkey will launch a pilot of a new retail payment system on December 18, 2020. The Instant and Continuous Transfer of Funds (FAST) system will allow fund holders to transfer money between their accounts at different banks within seconds on a 24/7 basis. The Easy Addressing System, which facilitates payments by using information like phone or ID numbers and e-mail addresses, will also be made available to all fund holders.  

OCC is too caught up in crypto under former Coinbase exec, congresspeople say

Acting Comptroller of the Currency Brian Brooks received a letter from multiple members of Congress expressing concerns over his crypto-heavy leadership. The letter references the Office of the Comptroller of the Currency’s (OCC’s) “recent unilateral actions in the digital financial activities space, including interpretive letters on cryptocurrency custody, stablecoins, and its announced plans to start offering special purpose ‘payments’ charters.”