Kiffmeister’s #Fintech Daily Digest (06/30/2021)*

Bank of Russia forms first digital ruble testing group

The Bank of Russia announced the establishment of the first pilot group for testing the digital ruble, bringing together 12 Russian banks. The Bank also reaffirmed its plans to complete a prototype digital ruble platform by the end of 2021 and roll out testing in January 2022.  

Fake News Alert: Spain Considers National Digital Currency Alternative to Euro – NOT!

According to an article in the Spanish press, the Spanish Socialist Party (PSE), the governing political body in Spain, has proposed creating a national digital currency. According to the PSOE, a national digital currency would allow for more active Spain-specific monetary policy, such as providing a more direct mechanism to injecting liquidity directly into the system. However, this is just a bad interpretation of the actual proposal, which is merely proposing to launch a study group to support the ECB’s central bank digital currency (CBDC) ruminations. (Thanks to David Tercero-Lucas for clarifying this!)

64 Cryptocurrency Firms Have Withdrawn Applications to Operate in UK, FCA Says

A growing number of crypto asset firms are abandoning attempts to register with the UK Financial Conduct Authority (FCA). Crypto-related firms have since January had to register with the FCA before doing business, but just six have registered, with dozens more still being assessed but not yet deemed “fit and proper”. Around 64 have withdrawn their applications.

Only 5% of The World Challenger Banks Are Profitable, Most of Them Are From Asia

Out of the 50 digital challenger banks operating in Asia Pacific (APAC), just ten operators are profitable. These providers are primarily located in China and Japan, indicating that the two nations offer the most mature and developed digital banking landscapes in the region, according to a new analysis by the Boston Consulting Group (BCG).

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Kiffmeister’s #Fintech Daily Digest (06/29/2021)*

Parachute Pants and Central Bank Money

US Fed Vice Chair for Supervision Randal K. Quarles is not a big fan of a digital dollar: “First, the U.S. dollar payment system is very good, and it is getting better. Second, the potential benefits of a Federal Reserve central bank digital currency (CBDC) are unclear. Third, developing a CBDC could pose considerable risks.” 

Salvadorans will not be forced to use the government’s Bitcoin wallet

El Salvador’s citizens will not be forced to use the government-issued Chivo (“Cool”) Bitcoin wallet when the country’s Bitcoin (BTC) law takes effect on September 7. The Chivo wallet will not incur fees or commissions for transfers, and unlike traditional crypto exchanges, it will not take a cut for converting BTC to USD and vice versa, plus, unlike credit cards, there will be no commissions charged to merchants or users. Also, the $30 government BTC handout announced on June 25 would not be convertible into USD, to emphasize the government’s intention to encourage the use of Bitcoin and the Chivo wallet. But any money held in USD or BTC in the Chivo wallet will be able to be withdrawn into USD cash at any time once the government has completed its roll-out of 200 new physical Bitcoin ATM branches. 

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Kiffmeister’s #Fintech Daily Digest (06/28/2021)*

MAS Partners IMF, World Bank and others to launch Global Challenge for Retail CBDC Solutions

The Monetary Authority of Singapore (MAS) launched the Global CBDC Challenge, to seek innovative retail central bank digital currency (CBDC) solutions to enhance payment efficiencies and promote financial inclusion. Partners include the International Monetary Fund, World Bank, and the Organisation for Economic Co-operation and Development. Firms around the world are invited to submit innovative solutions that can address 12 problem statements centered on the CBDC instrument, distribution; and infrastructure.  

Up to 15 finalists will be selected to receive mentorship from industry experts and be given access to the APIX Digital Currency Sandbox for rapid prototyping of digital currency solutions. The Sandbox will offer a comprehensive test and development platform that includes core-banking APIs from APIX, payment APIs from Mojaloop, digital currency APIs from Mastercard, Partior and R3, and more than 100 APIs provided via the APIX marketplace. Finalists will pitch their solutions at November’s Singapore FinTech Festival , and up to three winners will be selected, with each receiving $50,000 in prize money. The deadline for application submissions is July 23.

The Regulatory Screws Continue to Tighten on Binance

Binance stopped its services to clients from Ontario, Canada, following the Ontario Securities Commission’s (OSC) notice to Binance and multiple and crypto exchanges for their violation of the local securities laws. Meanwhile, the firm is facing regulatory troubles in multiple other jurisdictions, including a ban from operating in the United Kingdom imposed by the Financial Conduct Authority, and a warning by Japan’s Financial Services Agency for operating in the country without being registered.  

Proposed Bitcoin Capital Requirement For Banks: Too Low And Would Leave Banks Vulnerable

The Basel Committee on Banking Supervision (BCBS) recently proposed Basel III capital requirements for banks holding cryptoassets. According to Caitlin Long, the proposal treats stablecoins prudently, rightly suggesting they can more or less fit into the existing Basel framework. But the proposed treatment of Group 2 crypto-assets — those that have no issuer, such as bitcoin — completely misses the biggest risk: settlement risk for the banks handling the bitcoin. Traditional banks are simply not set up operationally or technologically to hold on-balance sheet assets, such as bitcoin, that settle in minutes with irreversibility. Bitcoin has no operational fault tolerance. 

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Kiffmeister’s #Fintech Daily Digest (06/25/2021)*

Palestinian Monetary Authority Eyes Digital Currency Launch

The Palestinian Monetary Authority is reportedly studying the possible issuance of a central bank digital currency (CBDC). Bound by 1990s accords with Israel, Palestine does not have a currency of its own. Instead, the Israeli shekel serves as the de facto currency, alongside the Jordanian dinar and the U.S. dollar. Palestinian banks are prohibited from making large cross-border cash transfers — including to Israel — and are often forced to borrow money to cover remittances. It is hoped that a Palestinian CBDC may address that issue. 

El Salvador is handing out up to $117 million in Bitcoin to its citizens

El Salvador will be giving out $30 in bitcoin to any of its adult citizens who download the Chivo e-wallet and go through the facial recognition process. On June 8, El Salvador approved its bitcoin bill, stating the cryptocurrency will become legal tender in the country on September 7. It also committed to providing exchange services for merchants, while also requiring that they accept bitcoin. Although the latter requirement is controversial, it is claimed that it would be discriminatory if businesses weren’t forced to accept bitcoin because the unbanked wouldn’t necessarily have another means of payment. 

Winklevosses Buy Offsets to Cut Their Bitcoin Carbon Footprint

Gemini Trust purchased about $4 million in credits to help offset the carbon emissions footprint of the Bitcoin it holds in custody. The firm made a donation in that amount to Climate Vault. The nonprofit purchased the permits, which will prevent more than 341,000 metric tons of carbon from entering the atmosphere. Gemini plans to continue to offset its carbon footprint until only renewable energy is used in securing the Bitcoin network. 

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Kiffmeister’s #Fintech Daily Digest (06/24/2021)*

El Salvador’s U.S. Bitcoin Partner Lacks Key Licenses

To carry out its plan to make Bitcoin legal tender, El Salvador will rely on partners like Zap Solutions, whose digital wallet Strike is already being used by some Salvadorans. Although Strike has the technology to help El Salvador embrace Bitcoin, it appears not to have the US money transmitter licenses needed to make it useful for sending remittances from the United States. This could make many cash and crypto transfers to El Salvador using Strike potentially illegal.

The latest victim of the global chip shortage: Your bank card

The Smart Payment Association (SPA) has warned that the bottlenecks that are currently hitting the production of semiconductors is trickling down to some payment card manufacturers, who are facing difficulties securing the components they need to produce the items. With the shortage showing no sign of ending for another year at least, this could cause some major issues for consumers. “If the situation does not improve, there are going to be millions of cards missing and this will have a direct impact on consumers worldwide who will not be able to get a bank card or the renewal of their bank card. Without a card, you cannot pay in store, nor online, nor withdraw cash.”  

What Is and Isn’t a Central Bank Digital Currency?

I’ve set out my definition of what is and isn’t a retail central bank digital currency (CBDC) in a new post. It may be obvious to most, but you’d be surprised how many people misspecify various privately- and sovereign-issued crypto as CBDC. My current definition, borrowed from the BIS is a “broadly available general purpose digital payment instrument, denominated in the jurisdiction’s unit of account, that is a direct liability of the jurisdiction’s monetary authority.” A suggestion has been made to add: “subject to the same rules and regulations as imposed on the jurisdiction’s other units of account.” More comments welcome!

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (06/23/2021)*

What Is and Isn’t a Central Bank Digital Currency?

I’ve set out my definition of what is and isn’t a retail central bank digital currency (CBDC) in a new post. It may be obvious to most, but you’d be surprised how many people misspecify various privately- and sovereign-issued crypto as CBDC. Comments welcome!

Rwanda researching on central bank digital currency

The National Bank of Rwanda is reportedly studying the possibilities of issuing CBDC. According to John Karamuka, the Director of Payment Systems at the central bank,  their assessment and study is looking at economic, financial and technology aspects related to CBDC as well as the operationalization model, taking into account the local context. “The study is also analyzing the implication of the CBDC on monetary policy and financial stability.” 

Bank of Israel Testing Ethereum Tech in Digital Shekel Trial

Bank of Israel Deputy Governor Andrew Abir reportedly said that Israel has conducted a pilot test of a digital shekel. However, a more recent Bloomberg report implies that it’s actually an Ethereum-based proof of concept test.  

CBDCs: an opportunity for the monetary system

A Bank for International Settlements (BIS) paper examines how CBDCs can contribute to an open, safe and competitive monetary system that supports innovation and serves the public interest. Like the latest generation of instant retail payment systems, retail CBDCs could ensure open payment platforms and a competitive level playing field that is conducive to innovation. The ultimate benefits of adopting a new payment technology will depend on the competitive structure of the underlying payment system and data governance arrangements. The same technology that can encourage a virtuous circle of greater access, lower costs and better services might equally induce a vicious circle of data silos, market power and anti-competitive practices. CBDCs and open platforms are the most conducive to a virtuous circle. CBDCs built on digital identification could improve cross-border payments, and limit the risks of currency substitution. Multi-CBDC arrangements could surmount the hurdles of sharing digital IDs across borders, but will require international cooperation. 

Strike Dumps Tether, Set To Partner With Banks for El Salvador Remittances

Strike CEO Jack Mallers revealed that the firm would be integrating with the top five banks and two biggest cashpoint distributors in El Salvador. He said the cashpoint stores would enable people to exchange cash for balances on a mobile app like Strike and vice versa. The integrations would remove the need for USDT because Strike would be able to hold customers’ balances at the banks. It would also give them more places to cash out those balances for fiat currencies. The original plan was to hold recipient funds in USDT due to Strike’s limited banking options at the time. 

Bitcoin’s Money-Printing Machine Breaks Down as Futures Fall

The bitcoin futures basis trade, in which a trader would buy bitcoin in the spot market today and sell long-dated futures, locking in the discrepancy between the two prices, has collapsed along with crypto prices. Hedge funds piled into the trade, which could previously reliably produce double-digit annual gains. Even better, the arbitrage was virtually risk-free, given that CME Group Inc. is the counterparty. However, the trade existed because long-dated futures were more expensive than shorter-dated ones, given that Bitcoin is inherently scarce and theoretically should rise — a structure known as contango. 

Bitcoin Transactions Continue to Decline

Amidst the weak price action, the activity in the cryptocurrency market is also dying down. The number of transactions in blockchain per day has been dropping throughout 2021, ever since they hit 392k on January 7. The all-time high was made in December 2017 at 478.96k, and in early May 2019, per day transactions came close but only hit 441.85k. However, Layer 2 solution Lightning Network is seeing an increase in Bitcoin capacity, the number of nodes, and the number of channels — all three making new all-time highs. 

Goldman Begins Trading on JPMorgan’s Repo Blockchain Network

Goldman Sachs has joined the blockchain-based network created by JPMorgan Chase for repurchase agreements that use smart contracts and a digitized version of the U.S. dollar. On June 17 it swapped a tokenized version of a U.S. Treasury bond for JPMCoin, JPMorgan’s internal representation of a digital dollar. The digitized upgrade provides same-day settlement ability using smart contracts on an Ethereum-based blockchain that allow cash and Treasuries to be returned instantaneously. 

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (06/22/2021)*

What Is and Isn’t a Central Bank Digital Currency?

I’ve set out my definition of what is and isn’t a retail central bank digital currency (CBDC) in a new post. It may be obvious to most, but you’d be surprised how many people misspecify various privately- and sovereign-issued crypto as CBDC. Comments welcome!

Stablecoin inflows to exchanges dip as traders watch Bitcoin from the sidelines

USDT issuance has begun to stagnate while the circulating supply of USDC continues. There has also been an increase in USDC deposited onto exchanges while the amount of USDT has declined. This is significant because Tether printing has historically been the impetus for major market moves, but its continued legal challenges and questions regarding assets held in reserve have made holding the token more of a liability as regulators increasingly crackdown on the cryptocurrency market. 

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (06/21/2021)*

China’s PBOC Orders Alipay, Banks Not to Assist Crypto Business

The People’s Bank of China (PBOC) summoned Alipay and several major domestic to reiterate its prohibition on the provision of services linked to trading of virtual currencies, such as providing payment channels for crypto exchanges and over-the-counter platforms. Shortly after the PBOC’s statement, the ICBC, ABC, CBC and AliPay all issued a similar notice, stating that if any users were found dealing with crypto transactions, they would terminate the relevant customer accounts and would report the issue to the relevant authorities.  

China to shut down over 90% of its Bitcoin mining capacity after local bans

Many Bitcoin mines in Southwest China’s Sichuan Province – one of China’s largest cryptocurrency mining bases – were reportedly closed as of Sunday, after local authorities ordered a halt to mining in the region on Friday amid an intensified nationwide crackdown against cryptocurrency mining. The ban also means that more than 90 percent of China’s Bitcoin mining capacity is estimated to be shut down, at least for the short term, as regulators in other key mining hubs in China’s north and southwest regions have taken similar harsh steps. 

Banque de France tested digital currency-based securities settlement

On June 18, the Banque de France successfully conducted a central bank digital currency (CBDC) experiment with SEBA Bank, as part of the experimental program launched in March 2020. The CBDC was used to simulate the settlement of listed securities and trigger their delivery in the TARGET2-Securities (T2S) test environment, using T2S’s conditional securities delivery (CoSD) feature. The Banque de France simulated CBDC issuance on a public blockchain, preserving control and confidentiality of transactions using a dedicated smart contract. 

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (06/20/2021)*

Many reasons have been put forward for the recent rather bearish-feeling sentiment in crypto-asset markets. Among them could be falling hash rates in the wake of Chinese government bitcoin mining crackdowns. Or it could be fears that Tether will soon face its “Wile E. Coyote” moment (see below). 

Another bearish scenario could be the continuation of the “unlocking” of Grayscale’s Bitcoin Trust (GBTC) investments. Most institutional investors participate in crypto-asset markets through investment funds like GBTC which has accumulated 3.5% of total bitcoin circulating supply. As publicly traded trusts that report to the U.S. Securities and Exchange Commission (SEC), such trusts relieve investors of concerns about storage, custody and security of their holdings, but there is a catch. 

According to SEC Rule 144, restricted securities issued by an SEC reporting company like GBTC are subject to a minimum holding period of six months. Nevertheless, until mid-February the demand for GBTC was so great that investors were buying the shares at a premium over native asset value (NAV) in the secondary market, and these premia sometimes exceeded 35% late last year, as investors gobbled up GBTC. But now those purchases are entering their unlocking phases. Since mid-April there have been 139,500 GBTC unlockings, and there remains a further 140,000 by mid-July, after which such selling pressure will subside. 

Is Tether a Black Swan?

According to this article by Bernhard Mueller a Tether confidence crisis would likely result in a black swan event and a re-shuffling of the whole crypto market. While there’s a chance that large players would counteract the crisis by buying back large amounts of USDT to restore the peg, or by successfully reassuring the market that all USDT can be redeemed at par, there’s no way to be sure that this will happen, unless you put a whole lot of trust in Tether and its affiliates. The article is worth a read for its detailed analysis of how the Tether-based ecosystem works. 

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (06/18/2021)*

City in Sichuan reportedly orders crypto miners to shut down for investigation

Chinese authorities continue to crack down on crypto-asset mining as a authorities in Ya’an City, a prefecture-level city in the western part of Sichuan province, have reportedly ordered local Bitcoin mining operations to shut down for examination. The latest regulatory crackdown follows a series of reported crypto mining bans in other regions including Yunnan province, another major hydropower-based mining hub. Authorities in Xinjiang, Inner Mongolia and Qinghai have also ordered mining operations to shutter. 

Over 3,000 ATMs in Beijing can now convert digital yuan into cash

The Beijing branch of the Industrial and Commercial Bank of China has reportedly become the first bank to fully enable the digital yuan exchange in the Chinese capital city by setting up more than 3,000 digital currency-compatible ATMs. The Agricultural Bank of China (ABC), another major bank involved in China’s CBDC tests, has also deployed more than 10 ATMs in the Wangfujing area, a major shopping street in Beijing. 

Malaysia and Thailand Announces Cross Border QR Payments

Bank Negara Malaysia and the Bank of Thailand launched a cross-border QR payment linkage between Malaysia and Thailand. Under this first phase, users in Thailand can use their mobile payment applications to scan DuitNow QR codes to make payment to merchants in Malaysia. Under phase two, users in Malaysia will be able to use their mobile payment applications to scan Thai QR codes to make payment to merchants in Thailand. The last phase of the linkage will be expanded to include cross-border remittances. 

Paxos Adds Wedbush Securities in Quest for Same-Day Stock Settlement

Wedbush Securities will begin using blockchain technology to settle certain stock trades, using Paxos on a pilot basis. Paxos recently tested same-day settlement of trades on the blockchain. Paxos currently operates its blockchain-based settlement system under a “no-action” promise from the U.S. Securities and Exchange Commission (SEC). Meanwhile, Paxos is applying to become a clearing agency with the SEC, which would make the cryptocurrency custodian one of just two clearing agencies in the U.S., joining the Depository Trust & Clearing Corporation (DTCC). 

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech