In this issue
- Britain: Crypto kingdom
- Waves: Surf’s up
- China: More e-money
From the Editor’s Desk
Cryptocurrencies are often described by their detractors as “a bubble.” Crypto markets can certainly be volatile, but we’re less inclined to think of crypto as a bubble than a balloon — if you squeeze one part of it, another part will pop out.
That dynamic has been very much in evidence in recent times as governments once thought to be crypto-friendly (such as Singapore’s) or at least somewhat crypto-tolerant (India, despite central bank intransigence and years of rumblings among the political class) put pressure on the industry.
Just this week, Singapore’s government passed a law that will tighten regulation for the cryptocurrency industry, the latest in a series of measures aimed at ensuring retail investors are kept out of the market.
Also this week, a lawmaker from the upper house of India’s parliament who is also a former deputy chief minister of the state of Bihar told Forkast that the government wanted to “make life hell” for people investing in crypto, calling for the country’s 30% tax on crypto-related capital gains to be jacked up to 50%.
Meanwhile, the European Parliament blotted its crypto copybook last Friday by voting in favor of a plan to track all crypto transactions, alarming privacy advocates and many others besides.
Against this backdrop, an announcement by Britain’s government that it intends to make the country a crypto hub is to be cheered. Starting with a detailed plan to regulate stablecoins as payments — the first such plan to emerge in a major Western economy — the U.K. appears to have joined the likes of Dubai and other jurisdictions likely to be on the right side of crypto history as they embrace financial innovation instead of rejecting it.
Yet amid that good news, it serves us to remember that even if a balloon can change its shape under pressure, if it’s squeezed too hard, it will eventually burst.
Until the next time,
Founder and Editor-in-Chief
1. Crypto kingdom
By the numbers: Royal Mint — over 5,000% increase in Google search volume.
The British government has announced measures to regulate stablecoins for payments as it plans to become a global hub for cryptocurrencies. The U.K. now joins a heated race among countries to build the next generation of regional crypto hubs.
- The government introduced plans to develop a “financial market infrastructure sandbox” for experimental and innovative projects to attract investment.
- The U.K. is establishing what it calls a “Cryptoasset Engagement Group” to enhance collaboration with the crypto industry.
- The Royal Mint, the state-owned entity responsible for producing physical fiat coins, has been tasked with minting a non-fungible token (NFT) that will serve as an emblem for the government’s crypto drive.
- The international crypto hub contest is changing as jurisdictions previously regarded as likely destinations for the industry reorient themselves. Singapore, for instance, is now positioning itself as a country that supports crypto’s institutional players but frowns upon retail trading. Hong Kong has regulations pending that may ban trading for investors with less than about US$1 million in investments.
- The U.K.’s crypto ecosystem is not expected to become a free-for-all “Wild West.” Its finance watchdog recently sounded alarms over Binance’s potential risk to consumers, after the exchange re-entered the British market through its payments arm Bifinity.
- Some of the world’s biggest crypto firms, including Binance, FTX, Crypto.com and Bybit have recently made moves on Dubai, a leading candidate to become a global crypto hub.
Forkast.Insights | What does it mean?
The British government wants to make the U.K. a hub for crypto, but its actions up until this week’s announcement have suggested otherwise.
Although it has signaled its intention to bring stablecoins within the regulatory remit of financial regulation, it has simultaneously left U.K.-based crypto companies hanging. The Financial Conduct Authority (FCA) had set a deadline of March 31 for all crypto companies to register with it, but failed to process all the applications in time, forcing it to extend the deadline. Many interpreted this as heel-dragging and left.
Wirex, a cryptocurrency debit card provider, and B2C2, one of the world’s largest liquidity providers, have both withdrawn their applications, choosing to move operations to entities outside of the FCA’s control. Others have done the same. This represents a problem not only for lawmakers in the U.K., but also elsewhere.
Crypto companies are a fickle bunch. If conditions aren’t favorable, they will move to jurisdictions that suit their needs. They’re not burdened by the same factors that other industries have to contend with: access to skilled labor, transport links and economies of scale.
Although some stay and work through the various regulatory hurdles, progress tends to be slow and cumbersome. The longer governments flip-flop over what to do with crypto, the less chance they have to get the balance right between the stick and the carrot.
2. Stormy waters
By the numbers: USDN depeg — over 5,000% increase in Google search volume.
The price of WAVES, the native cryptocurrency of layer-1 blockchain network Waves, is down more than 50% from its all-time high set on March 31 as founder Sasha Ivanov accused trading firm Alameda Research of manipulating the crypto’s price.
- Waves is a network that allows users to lock up and stake its native cryptocurrency to mint the ecosystem’s algorithmic stablecoin, USDN.
- Waves recently defied the falling price dynamic of the broader cryptocurrency market, its price having surged as the market has plunged.
- A Twitter user who goes by the identifier “OxHamZ” pointed to activities on the blockchain that suggest the Waves team has been borrowing stablecoins USDC and USDT against USDN on decentralized finance market Vires Finance.
- The borrowed stablecoins were allegedly sent to Binance to purchase Waves coins at the exchange.
- The crypto was sent back to the decentralized finance (DeFi) market to stake WAVES to print more USDN, essentially pumping its prices using borrowed funds.
- OxHamZ noticed the trading activity set to a two-day cycle.
- USDN has lost its peg and is trading at US$0.89 at press time.
- Ivanov has blamed Alameda Research, an accusation that its founder, FTX CEO Sam Bankman-Fried, called an “obv[ious] bullshit conspiracy theory.”
- WAVES was trading at US$29.91 at press time.
Forkast.Insights | What does it mean?
Although crypto has been gaining legitimacy, there are still moments in which spats escalate from mere Twitter fights to currency collapses. The Waves saga is one such example.
At the heart of the story is suspicious trading activity that a Twitter user alleges is a signal that Waves is artificially inflating the price of its token. Waves platform founder Sasha Ivanov says the opposite is true, alleging that someone is actively trying to tank the price to make money by shorting it.
In a Twitter thread, Ivanov alleges he has evidence that Alameda Research, the company that owns FTX, has been borrowing heavily to short the token. At press time, there had been no official response to the allegations. Ivanov, meanwhile, has submitted a proposal that would prevent such activity happening in future by making it short without putting up large amounts of collateral.
If it passes, this will likely curtail trading activity, bringing the token price down further. Although the story has engrossed the industry, it highlights crypto’s Achilles’ heel. The longer it keeps the pace of innovation high, the more likely bad actors or opportunists will discover exploits and use them.
3. Show me the e-money
China’s central bank has selected 11 cities for the third phase of its digital yuan pilot program, expanding the new currency’s use to 23 cities.
- The People’s Bank of China has confirmed Asian Games host city Hangzhou as one of the pilot cities, alongside five other cities in Zhejiang Province.
- The digital yuan, officially known as e-CNY, will also be trialed in Tianjin, Chongqing, Guangzhou, Fuzhou and Xiamen.
- Following e-CNY’s international debut at the Beijing Winter Olympics, China is sticking with sporting events to boast its central bank digital currency (CBDC). In addition to the Asian Games, the Chengdu Summer Universiade will also be a platform for the government to show off e-CNY.
Forkast.Insights | What does it mean?
China’s latest expansion of its e-CNY trials reflect the nation’s ambition to showcase its technology muscle on the retail side. It also represents a tremendous opportunity for Chinese fintech firms. Analysts from Ping An Securities and Huaxi Securities have said in recent research notes that the e-CNY expansion can fuel the growth of Chinese fintech hardware and software companies, especially those that offer e-CNY hard wallets.
However, if the government wants to achieve greater retail adoption of e-CNY, it needs to offer more incentives to lure users away from the already ubiquitous Alipay and WeChat Pay platforms.
E-CNY trials have made some progress over the past year, but adoption of the new currency still pales in comparison with the traditional mobile payment market. At the end of last year, its historical transactions reached 87.57 billion yuan (US$13.76 billion), according to data from the People’s Bank of China — a 154% increase from June.
Meanwhile, for the 12 months of 2021, banks handled mobile payments totaling 526.98 trillion yuan, the central bank said in a report released earlier this month. This means China still has much work to do to foster greater e-CNY adoption.
Just like previous rounds of digital yuan trials, newly added pilot cities are likely to give away free e-CNY to residents. Another way to boost adoption may be to link government services with e-CNY and allow residents to pay their utilities or taxes with it. There’s no doubt that the Chinese government will have to take more measures to keep the momentum going, and make sure the country’s technology infrastructure and data processing are up to the task of handling the large volume of e-CNY transactions that it hopes to achieve.