On Thursday

Fungible assets are items that we use and typically can exchange for other assets e.g., cash, land, shares etc, whereas a non-fungible asset is unique, rare and non-divisible, a good example being a ticket for a concert or a ticket to fly to Hong Kong first class. The Non-Fungible Tokens (NFT) Report (a copy of which you can get here) has been released by L’Atelier, a subsidiary of BNP Paribas. The report reveals that the NFT market grew to over $250million in 2020, a four-fold increase compared to the previous year.

However, what is more noteworthy is the posting on Twitter from Nadya Ivanova, COO of L’Atelier:
 


Ivanova then proceeded to state, “People that we see currently are actually truly profiting from non-fungible tokens…the sector represents a unique and emerging opportunity for banking products in the long-term, say in the next 10-15 years.” Clearly NFTs are beginning to attract more and more attention, and while individual prices of some NFTs are rising it is very difficult to know the exact size of the total NFT market. The reason for this is every NFT is a unique Digital Asset, so essentially each NFT has its own market and there is no centralised exchange which holds data about all the NFTs being traded. An NFT is created using Blockchain technology and links the token to a unique Digital Asset. The asset could be a piece of digital art, such as the one Christies is selling (see below) or some virtual land in a virtual universe (Decentraland) or the rewards you have earnt playing digital game, or a physical asset such as wine, a pair of Nike sneakers, a Louis Vuitton handbag etc. There are almost limitless possibilities which can be used to link to an NFT, but each NFT is unique. Therefore, since there is only ever one NFT, each token is essentially its own market, so it is hard to be sure of the actual size of the NFT market (although it is possible to see the turnover and price appreciation on websites such as Coingeko, Coinmarketcap or NonFungible.com).
The six largest NFTs



Source: Coinmarketcap.com
  
For the first time, Christies auction house in New York is selling a pure digital piece of artwork from an artist, Mike Wicklemann (otherwise known as Beeple), who has over 1.8 million followers on Instagram and has worked with singers including Ariana Grande, Justin Bieber and Kate Perry, and also global brands such as Nike and luxury goods firm, Louis Vuitton. Beeple has sold over $9 million of art including ‘Tom Hanks Beats the Shit out of Coronavirus’ which sold for £107,000. 
 

Tom Hanks Beats the Shit out of Coronavirus



Source: Beeple-crap.com
Furthermore, the person who will bid the most at the Christies auction for a pure digital form of artwork called ‘The First 5,000 days of 2022’ (described by Christies in its promotional material as, “…the first purely digital artwork (NFT) to be offered at a traditional auction house, with its authenticity assured thanks to blockchain technology”) will receive a NFT certificate.

As mentioned earlier, NFTs for its enthusiastic supporters offer the ability to digitise the ownership of tangible and intangible assets. As we see data from individuals, cars, buildings etc being monetised for the personal benefit of the general public (as opposed to being used by corporate giants such as Alibaba, Amazon, Facebook, Google, Tencent, NFTs could enable this to happen faster using the infrastructure that some of the various digital exchanges have created. However, there are reasons to be cautious - almost all NFTs are recorded on the Ethereum and the cost...

Today

There continues to be great speculation as to how much higher the prices of crypto assets, in particular Bitcoin, can rise. There exists a growing number of people concerned about the current economic back drop and some argue that this has helped drive crypto prices higher. Bitcoin, by some, is referred to as ‘Digital Gold’ and JP Morgan, the biggest bank in the world outside of China, claims that the price of Bitcoin could reach $146,000. In part, Bitcoin’s recent price increase has been fuelled by institutions buying cryptos in the belief that the decline in the US$ will continue as America gears up to pump another $1.5 trillion into its COVID-19-ravaged economy. 



Comparison of household savings 2014 - 2020



Source: OECD Database (2013-2017) and OECD Economic Outlook, Volume 2020 Issue 2 (2018-2020)

Consultancy Oxford Economics calculates “that over the course of the crisis, U.S. households saved $1.6 trillion more than they would have done. HSBC estimates that households in the eurozone and U.K. saved €470 billion (3.9% of GDP) and £170 billion (7.7% of GDP) more in 2020 than they did in 2019, setting up each region for a major spending boom once the virus is suppressed” - undoubtedly resultant from those working during the last year who have been unable to shop, eat out or go on vacation.
 

The prices of crude oil and copper keep rising


                               Source: Macrotrends                                                       Source: Macrotrends
Seemingly, commodity markets are expecting a sharp rebound in consumer spending and economic activity if copper prices are anything to go by as they have risen by 65% in the last year. Furthermore, there is the potential for trillions of $, £ Yen and € worth of consumer spending given many people have been saving due to not being able to go out due to COVID-19 restrictions. This together with the ongoing massive fiscal stimulus from governments in 2021.Will this result in an upswing of asset prices, not only for commodities, but also rising inflation economies in general? If this is the case (and it leads to rising interest rates), this could be a disaster for those holding ‘so-called’ low risk bonds and could well trigger the end of a 10 year + bull market equities?

Another cause for concern is in Europe where, at the end of 2020, Germany’s Bundesbank was owed €1,136 Billion (an increase of 26% in just 12 months) by the European Central Bank (ECB). Given the perilous state of Portugal, Italy, Greece and Spain’s (PIGS) economies, for how much longer will the prudent Germans allow the southern PIGS to simply continue printing money? The combined debt of the PIGS is $1.18 billion, which makes one wonder if we are to return to the possibility of a hard Euro for the north European countries and a soft Euro for the rest of those countries that use the Euro? Indeed, cracks in the Euro are already apparent. In May 2020, German courts ruled that Germany’s Bundesbank would only support the EBC provided the ECB only no more than 33% of any one member’s debt. The Germans have insisted that asset purchases be allocated according to a member state’s shares in the ECB. The three biggest contributors are Italy 13% and France 16%, with Germany being the largest at 21%. The last thing the ECB relishes are rising interest rates as this would wreak havoc on its huge bonding holdings as the ECB has over €4.1 trillion of debt.

The spectre of economic uncertainty and potential for higher inflation (given the massive fiscal stimulus that many economies have...

On Thursday

Invesco DB US Dollar Index Bullish Fund

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Source: etfdb.com



In reality, Stablecoins are a relative description especially when pegged/backed/linked to a fiat currency. Those who have their assets in order to earn money or have expenses to pay in Yen, € or £ would hardly consider the US$ as ‘stable’. Indeed, a chart we have shown several times in Digital Bytes is the value of the US$ against a basket of other global currencies, and clearly demonstrates the downward trend of the US$. Nevertheless, stablecoins continue to attract investors’ attention and are being seen to further grow in value. Moreover, there is an even greater choice of stablecoins which are linked to other currencies and not just the US$, with examples in the last few months being: in the UK, London Block Exchange’s £-backed stablecoin; in Switzerland, Sygnum’s CHF stablecoin; in Japan, GOMO’s Yen stablecoin and in Germany, Bankhaus von der Heydt’s (one of the oldest banks in Europe) € stablecoin. According to Cryposlate, the value of stablecoins now stands at $153billion, the largest one notably still being Tether having seen its growth increase from $4.2 billion to over $31billion in the last year. While Ethereum remains the predominate Blockchain used for stablecoins there are other Blockchains being employed including Binance Chain, EOS Omni, Qtum, Stellar, Tron and Waves, to name a few.
 
Stablecoins


Source: Crypotslate.com
The growth of stablecoins has arguably been fuelled by a progressive interest in crypto currencies, themselves now valued at over $1.4 trillion. There are notably specific drivers stimulating this growth of stablecoins, such as the advancement of the DeFi sector together with more stablecoin crypto pairs, especially involving USDT (otherwise known as Tether). Increasingly, digital exchanges are now offering crypto pairs in USDT rather than Bitcoin. But Tether, despite offering assurances that its tokens are 100% backed by US$, has never offered evidence. Back in April 2019, the New York Attorney General alleged that iFinex, the parent company operating both Bitfinex and Tether, possibly defrauded cryptocurrency investors by engaging "in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.”

Whilst stablecoins clearly continue to attract investors it is difficult to see how they make money themselves given the current global almost zero interest rates. So why do so many different organisations offer them? Well, stablecoins have created lots of trading/ transactions for digital exchanges, as investors are able to switch from other cryptos into stablecoins rather than selling their cryptos for cash. To date, much of the focus and use cases for stablecoins has been to view them as a payment mechanism, as a way to avoid using banks and in particular avoid the high transaction fees often associated with international remittances. 

However, stablecoins can be seen to be part of the infrastructure required as we witness the ongoing digitisation of other assets and services. By observing more jurisdictions (such as Switzerland, German and Luxembourg) which have now all passed legislation to enable the issuance of securities (equities and bonds) in a digital format i.e. not using paper based systems, these new...

On Tuesday

The asset management industry has undergone massive changes in the last few years, becoming more sophisticated in terms of the products and services that it offers as fund managers seek out new assets to manage and new ways of managing existing assets. As the wealth of many individuals has grown over the last 70 years so has the responsibility to provide for your own pensions arrangements as opposed to relying on the state - both of which have fuelled the growth in savings and the fund management industry.

Historically, individuals gained exposure to equity markets by investing directly into equities and it was not until 1774 that a Dutch man named Abraham van Ketwich created the first ‘mutual’ fund. This was called Eendragt Maakt Magt, meaning "unity creates strength,” and was comprised of a selection of government bonds and plantation loans in the West Indies. Foreign and Colonial Government Trust was launched in London in 1868 as an investment trust i.e. a closed-end fund, which is still traded on the London Stock Exchange. It was not until 1929 that the Wellington fund (now part of Vanguard) was launched, becoming the first mutual fund to own stocks and bonds. Indeed, it was Jack Bogle at Vanguard who invented the first ‘Index Fund’ in 1975, which was the start of the tussle to attract funds under management between passive and active fund managers.

Distribution of open-end funds globally between 2011-2020 by trading strategy

Source: Statitsia.com

The demand for index funds from investors has grown steadily as more capital has been allocated to exchange traded funds (ETFs) and passively managed funds (PMFs) globally (which now accounts for 31% funds according to data from Statista). Index funds, with their lower management fees and not being reliant on individual fund managers, are now becoming more popular for those also looking to gain exposure to cryptocurrencies. Recently, German-based MV Index solutions (MVI) and CryptoCompare announced they have over $1billion in assets with fund managers who are using their various crypto indices. MVI claims, “The demand for index services has been global with products launching in markets across America, Europe and Asia”. Also in Europe, Swiss crypto investment manager FiCAS AG launched its cryptocurrency exchange-traded product (ETP) in June 2020 and has now received permission to market its ETP (similar to an ETF) on a pan-European basis.

Interestingly, the Asian Times claims that the total assets in crypto assets to be $6billion by the end of 2020 and, given the stella returns in the crypto asset class in recent months and the almost zero interest rates on bank deposits, it is understandable why cryptos have been attracting investors’ attention.

Digital Assets which trade 24/7 are ideally suited to funds that use mathematical algorithmic models, with trading being executed by computers automatically. It is almost impossible for humans to keep up to date and efficiently trade across what is believed to be over 1,100 digital asset exchanges globally. We have even seen Vanguard using Blockchain technology to improve benchmark tracking and reduce the cost of managing some of its index funds which Vanguard.

But as well as Crypto funds there is a growing range of DeFi tokens which have very similar features to funds such as the DeFi Pulse Index token, with over $62 million of assets offering exposure to range of DeFi tokens. These DeFi tokens are a new way for investors to access asset managers and styles of trading, which historically had been the preserve of only the very wealthy. DeFi tokens trade 24/7 and are accessible on-line directly, without the...

2 Weeks Ago

There are a number of countries, according the Library of Congress in the US, which have banned cryptocurrencies, together with a number of jurisdictions where cryptos face an ‘implicit ban’. 

Legal Status of Crypto currencies globally


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Source: Library of congress



It is somewhat ironic that there is a proposal to ban cryptocurrencies in India, yet at the same time the government is actively engaged in exploring how to launch its own Central Bank Digital Currency (CDBC). It would be a shame if the government were to ban cryptos since we are seeing considerable innovation in India in the FinTech/ DeFi sectors. If we are to see closer economic trading terms between the UK and India, due to Brexit (given India’s strong FinTech sector expertise and London’s position as a financial centre), it could be very beneficial for both countries. All that is needed is clear guidance and regulation to ensure innovation is able to flourish whilst protecting the public’s interests.

But then the Indians are not alone as, according the Library of Congress, as the Chinese have an implicit ban on crypto currencies, they are in the process of rolling out their own CBDC. It is known that at the end of January 2021 China announced further trials of its CBDC, giving away $5million to residents in Suzhou. Once again, whilst money has been given away there have been ‘strings attached,’ since it can only be spent in outlets defined by the government and, again, beneficiaries are required to ‘use it or lose it’ as the digital money is only valid over the Chinese New Year, 10th Feb - 26th Feb. For years governments worldwide have tried to restrict trade and ban certain goods so whilst, in theory, this ought to be achievable for physical goods such as guns, drugs and alcohol, banning goods clearly have proved to be very difficult to implement. 

Dark net sales of illegal drugs has grown 



Source: UNODC

According to data from the UN, the world trade of those buying illegal drugs over the ‘dark net’ has been expanding. In some countries, such as Russia, over 85% of those surveyed in 2020 claimed they had used the dark net to source drugs. Therefore, how, in our increasingly digital economy, will governments fair in a battle to ban cryptocurrencies which are not constrained by geographic boarders. Indeed, we are already seeing signs of this as regulators, such as the SEC, actively pursue firms and individuals which have allegedly broken security regulations in the US via Initial Coin Offerings (ICOs). Given that the SEC is now not simply targeting firms but the directors (such as the case with Ripple Labs), this is leading to others establishing enterprises in a more clandestine manner. Is the threat of regulation and arbitrary sanctions forcing people to be less transparent? The following statement from Before CoinMarket Cap (BCMC) is not the type of assertion that a regulator or government would be happy to see: "We have assembled a team of professionals who are always glad to help you. Unfortunately, the government of our country has not yet decided on its attitude towards crypto currencies and ICOs, so we cannot declare ourselves in open forum, but this does not prevent us from working in real time....


On the face of it, Bitcoin and Ethereum continue to go from strength to strength. In January 2021, the number of Bitcoin addresses that received or sent this cryptocurrency reached an all-time high and was over 22.3 million. During January, the price of Bitcoin hit a high of over $41,000 as demand from institutions drove the price higher, resultant from hedge fund managers (and even quoted companies) disclosing they had or intended to invest into Bitcoin. Indeed, during this first month of the year, Larry Fink, CEO of Blackrock (the world’s biggest fund manager with in excess of $8 trillion of assets), endorsed Bitcoin by saying Bitcoin: “had caught the attention and could largely replace gold but warned of its growing popularity that has a real impact on the US dollar”. Interestingly, according some reports, nearly 10.7 million Bitcoins (which equates to almost 60% of all Bitcoins created to date) did not move last year. 




Performance of Ethereum

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Source: Coingecko.com

Ethereum’s price has also been driven higher, having risen by over 670% in the last year alone, and the number of individual Ethereum wallets has grown from 34million at the beginning of 2020 to over 51million at the end of 2020. So, ostensibly Bitcoin and Ethereum’s success and adoption is growing. However, there is a significant problem faced by both these Blockchains which could well prove to be their Achilles heel - not only are these Blockchains slow to process and record transactions but the cost to process a transaction comes at a high price.

 


Cost to process a transaction on the Bitcoin Blockchain

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Source: ycharts.com


In the last year, the cost to process a transaction on the Bitcoin Blockchain has risen from an average Bitcoin transaction fee (BAFT) of 0.85 to over 18.9 BAFT . This means that for low value items potentially the cost to record an entry could be greater than the value of the transaction. Meanwhile, the cost to process a transaction on the Ethereum Blockchain has also risen from 11 to over 233 although, in June 2020, ‘gas fees’ hit a massive 709!


Average Ethereum Gas price

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Source: ycharts.com


In order to process a transaction on the Ethereum Blockchain one has to pay ‘gas fees’ which are, in effect, the payment made to the miners for getting them to cover the computing of the transaction and have it added to the Ethereum Blockchain. The amount of money being spent on Gas fees is significant - just look at the fees as of 10th February 2020 in the last 24 hours just the top 5 biggest accounts and they generated over $11.7 million of fees on the Ethereum Blockchain 

 


Top largest users of ETH gas fees in 24 hours


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Source: Etherscan.com


However, whilst this is good, if you own ETH gas and you have seen the price increase significantly again (such as Bitcoin), it means that it is expensive to post a transaction on the Ethereum Blockchain. As an example, to buy a $500 of a DeFi token only in this last week, the cost to execute this one transaction was $107 i.e., over 20% of the value.

Aside from this, there are alternative Blockchains that can be used and it would appear these alternatives are gaining in popularity since they have all seen their prices appreciate strongly in the last month. Here is a small selection of firms which run their own Blockchain with the % representing the amount their tokens have increased in value  from 11th January to 10th  February 2021: Chainlink (72%), Near Protocol (111%), Polkadot (162%), Stratx (105%) and Waves (57%).

3 Weeks Ago

The size of global trade of goods and services is estimated to be $19 trillion. Commodities  account for approximately $4.4 trillion of this trade comprising of 40% energy (oil, gas), 30%  base and industrial metals (gold, silver, steel) and 30% agricultural and soft commodities  (i.e. items that are grown - coffee, corn, livestock). The size and complex nature of global  trade means there are many challenges and inefficiencies that occur when moving  commodities around the world. A lack of transparency and the reliance often on paper based, analogue procedures that were developed years ago are increasingly being  challenged as the world economy digitises. 



A combination of technology is enabling new data to be created and shared in a way that, only a few years ago, was almost confined to science fiction. For example, Internet of Things  (IoT), AI, Cloud computing and Blockchain technology are now facilitating the tracking of  ships, planes, trucks (and the commodities they carry) in real-time. This greater  transparency and the capacity to be able to offer provenance for the end user  subsequentially can lead to more ESG-compliant business practices. For instance, cobalt is a  key commodity needed to make electric car batteries, with Ford and IBM now using a Blockchain-powered platform to ensure that child labour is not being used in the production  of cobalt. Another example of how Blockchain technology is being used in the commodity  sector exists in Africa where the Nigerian commodities exchange AFEX has created an app,  Warehouse Receipt Checks. AFEX is looking to reduce fraudulent receipts being created in warehouses by encrypting the data and storing it on a Blockchain-powered platform, enabling banks and other lenders to verify if a warehouse receipt has been previously  financed. This process ought to mean it will be easier, especially for smaller farmers to be  granted loans and access credit since there is greater transparency (and thus more trust) as  to what commodity is where, at any one time.  
However, AFEX is no stranger to engaging with Blockchain technology as, in 2018, Sterling  Bank and a company called Binkabi, an Africa-focused blockchain start-up, also launched a  Blockchain-powered commodity finance service. Furthermore, in the Caribbean, Blockchain  technology has been harnessed by Agriledger to increase by 750% the amount of money  farmers in Haiti receives for their mangos. To further and guarantee the market viability and  access of the Fresh Fruit Value Chain in Haiti, the government has opened a tender for  Mobile Units that can be used for all the processing. The units will be owned by the farmers  and create greater opportunities for commerce.  
Likewise, producers of other soft commodities such as sugar, coffee and wheat, to name  just a few, are also using Blockchain technology to weed out inefficient practices. Without  doubt this news is encouraging since, according to the publication, Packaging News, “food  waste is evident across the entire supply chain with 1.6 billion tonnes of food being lost or  wasted worth a staggering $1.2 trillion”. Therefore, with the use of Blockchain technology, once produce can be tracked along its supply chains inefficiencies can be more easily  identified and action taken to cut waste.. 
However, Blockchain technology is not only being adopted for soft commodities. Vakt is an  organisation which has investors such as ARAMCO, BP, Chevron, Shell and Total and Vakt and has been used successfully in the North Sea to improve the logistics, financing and  trading of oil. The creation of one data base with the ability to be shared by those parties using the Vakt platform (whilst maintaining privacy of each transaction) has allowed the removal of a central data base, whereby reducing the risk...

The accepted stance taken by many regulators is that they do not regulate technology but  regulate those who use technology and the outcomes and actions that result from it. However, Nick Cook, Director of Innovation at the FCA in the UK, has raised the question:  “Should we talk solely in terms of ‘outcomes’ while remaining ‘agnostic’, or can we show a  preference for certain technologies? Can we remain ‘technology-neutral’ in a world where  technology is so embedded in the delivery of financial services and so fundamental a driver  of consumer outcomes?”. Interestingly, Cook also continued in the same speech to say, “It  seems untenable for regulators and central banks to not have an opinion on technology  given it is so embedded in the markets we regulate”. 



It is not simply within financial services that regulating tech is being discussed. In Europe there has been considerable discussion about how to regulate Artificial Intelligence (AI) as  the Europeans look to take a lead on regulating this wide-ranging branch of computer  science and address the challenges around protection, liability and discrimination.  Unsurprisingly, this inevitably leads to the question of ‘algorithmic accountability’ - i.e should companies which operate AI platforms be held liable for the results of their  algorithms? Furthermore, another challenge arising is that even some of the brightest  ‘techies’ cannot foresee the potential consequences of what they have created. A prime example of this occurred when Facebook was required to shut down its project AI on its  smart speakers when its internet bots (computer software applications) were discovered to  be ‘talking to each other’ in a language not understood by the programmers. Interestingly, Musk, who is a massive fan of new technology and innovation is very circumspect about AI, claiming: “AI is a rare case where we need to be proactive in regulation instead of reactive  because if we’re reactive in AI regulation it’s too late,” adding that, ‘AI is the biggest risk we  face as a civilisation”. 
When it comes to Blockchain and Digital Assets there are clearly some challenges and  questions that have emerged which will need addressing, such as: 
• Data security and access 
A public Blockchain, such as Bitcoin: once a record has been created it is not possible  to amend or delete that data, therefore potentially directly contravening the General  Data Protection Regulations (GDPR) which became law across Europe on 25th May  2018. GDPR states that one has a “right to be forgotten”, but how can your  information be removed from a Blockchain that is immutable? 
• DeFi 
Software developers, such as Andre Cronje, are creating products and services that  are available on DeFi platforms, and then accessible globally. Only in December 2020  Cronje released his ‘yCredit’ protocol, having already created various other DeFi  applications - Deriswap, Keep3r Network, StableCredit, and yInsure.Finance. These  various software tools have been released but the users will have no redress to Cronje as he is not regulated. Often the buyers of these DeFi tokens will reside in jurisdictions far away from wherever Cronje inhabits.  
• Cryptos - unregulated assets 
To date, many cryptocurrencies have not been regulated so how do you regulate the  likes of Bitcoin which, allegedly, was invented by someone called Satoshi Nakamoto  whose whereabouts is unknown. But how long Bitcoin will remain unregulated is up  
for debate as the head of the European Bank, Christine Lagarde, is now “calling for  Bitcoin’s ‘funny business’ to be regulated”? 
The need for regulations in other areas that are likely to use this Blockchain technology will also need to be considered - such as driverless cars. A ‘heady cocktail’ of technology including AI, Big Data, Blockchain, Internet of Things (IoT), Machine Learning, to name  just a few, are likely to be the backbone of driverless cars. Indeed, Google’s driverless  vehicles have already covered over 20 million miles...

4 Weeks Ago

One of the ways regulators try and protect ‘less sophisticated investors’ is to only allow High Net Worth (HNW) or professional investors to access certain types of funds. The use of options and futures (derivatives) by an asset manager to reduce a fund’s exposure to the stock market or a particular equity (under the guise of ‘efficient portfolio management’ practices) has been permitted by fund managers for years.



Historically, very few retail funds have used derivatives, leaving these more exotic financial tools to the ‘Hedgees’ i.e., hedge fund managers. They use futures and options for gaining exposure across a wide variety of assets to hedge their funds from market volatility, as a means to get exposure to an asset in a cheaper format or to gear/leverage their fund. However, most jurisdictions believe that if you have lots of money (i.e., an HNW investor) you can invest in the alternative funds such as hedge funds. Not only can an HNW investors afford the high minimum initial investment for these funds, but HNW investors are presumed to be more sophisticated, or have better access for obtaining appropriate professional advice before investing. 

Meanwhile, the DeFi sector would appear to be disbanding the arbitrary restrictions that regulators have historically imposed, enabling investors to allocate relatively small sums of capital to investment strategies - which may be the same, or very similar, to a hedge fund manager. An example of this is
ByteTree which has built a sophisticated range of trading algorithms to manage its’ Bitcoin and general fund (focused on trading Bitcoin) and has a minimum investment of $100,000. Alternatively, it is possible via TokenSets to invest a much smaller sum and gain exposure to ByteTree’s trading. To invest, all that is required is a phone number, an Ethereum wallet and an email - no KYC and no AML so extremely easy, but also potentially open to abuse.


TokenSet’s ByteTree performance v Bitcoin


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Source: TokensSet (the vertical lines on the chart above indicate when BTYE token was rebalanced)


Whilst the TokenSet’s fund is not exactly the same as the ByteTree’s fund, it is a way to access the latter’s fund managers. Given the performance against Bitcoin, it is easy to see why Byetree’s fund management skills are gaining so much interest. However, when investing via TokenSets there is no requirement to complete KYC or AML procedures, so ‘super easy’, but also potentially open to abuse.


But caution is required, as a $500 investment would incur a ‘listing fee’ of $107, i.e., 20%. When asked about the listing fee, TokenSets stated that it is the cost of accessing the Ethereum network. The listing fee so is high due to the current demand to use the Ethereum Blockchain. Such a high fixed fee will no doubt act as a deterrent for smaller investors - so will this potentially give comfort to regulators?

One of the most common questions we get asked when giving presentations is ‘Are companies really using Blockchain technology?’. To be honest, this was one of the reasons that Digital Bytes came to be in March 2018, as back then most of the engagement with Blockchain technology (apart from cryptocurrencies) was about exploring proof of works - thus how this technology could be used. However, as we have commented before, the driving force for greater adoption of Blockchain technology is no longer the ’cyberpunks and techy geeks’ but is now very much being driven by governments and global corporations. Here are just a few examples:



Alibaba - one of the largest holders of Blockchain technology patents globally, using this technology in supply chain logistics, financial services and the fight against counterfeit food.

Ernst & Young - is actively involved in the development of the Baseline Protocol, which uses the Ethereum Blockchain to record business data. Baseline Protocol is being used to share business data among multiple stakeholders and by companies such as Coke One North America and SAP.

IBM - Hyperledger Fabric is one of the keyways in which ‘Big Blues’ is rolling out Blockchain technology to its clients. IBM’s Food Trust network is used by household names such as such as Nestlé, Dole, Walmart and olive oil giant, CHO. IBM has also been very active in the shipping sector, working closely with Maersk’s TradeLens platform to digitise the movement of global shipping logistics and supply chains. 

Hedera Hashgraph - developed in 2016 and designed to offer secure applications in real-time. Hedera Hashgraph has an impressive range of global corporations that own and govern  the organisation have just announced that U.S-based AVC Global subsidiary Medical Value Chain will be offering a track-and-trace platform for global pharmaceutical supplies to Bahrain. 


The Hedera Governing Council



Source: Hedera Hashgraph.com

IconLoop - South Korea is very active in the use and development of Blockchain technology. IconLoop has applications using Blockchain-powered platforms in banking, healthcare and government sectors as well as using the technology for driving licenses, which it is currently developing.

JPMorgan - the biggest bank in the United States has gone on to create the JPM Coin, despite its CEO being verbally disinterested in Bitcoin. JPMorgan is a member of a blockchain consortium comprising of 130+ banks called the Interbank Information Network, using technology to improve compliance monitoring and controls whilst reducing the time it takes to process payments. 

Oracle and Microsoft - these two global-technology ‘titans’ both sell cloud computing services offering blockchain-as-a-service attracting companies such as GE Aviation, Singapore Airlines, Indian Oil, Nigeria Customs, Starbucks, JP Morgan.

PayPal - as one of the largest online payments systems, it has accepted Bitcoin for years and now offers a service to institutions enabling them to hold cryptocurrencies as part of their treasury reserves. PayPal has recently stated that “it was looking for a way to understand how to leverage blockchain to better serve merchants and users.”

Salesforce - Salesforce Blockchain offers an additional facility to Salesforce’s customer relationship management system (CRM) which already has 150,000+ clients. Lamborghini is using the Salesforce Blockchain-powered platform to prove the heritage of its cars. This proof of provenance can substantially increase the value of a Lamborghini.

Visa - five years ago, Visa invested in a blockchain start-up called Chain, then proceeded to develop ‘Visa B2B Connect’ with Chain as a fast and secure way to 

process business-to-business payments around the world. Visa also offers a number of crypto debit cards such as Binance, Coinbase, Baanx and Revolut.

World Economic Forum - of all the supernational organisations, the World Economic Forum is one of the most active and has established the Global Blockchain Council, helping with the adoption of Blockchain technology for...

A Month Ago

Blockchain technology, as many people know, offers the ability to create a highly secure data base whereby information can be shared on a permissioned basis. This means it is possible to share information with whom you wish, and for how long. For example, at a doctor’s appointment where access to your medical records is needed or at an interview for a new job, you could authorise the involved parties access to the relevant information for as long as they required it. Such a solution could prove to be a judicious way of preserving confidentiality of your data as well as helping to comply with GDPR regulations since your personal information could be retrieved by you, when you wished; and being digital, would be ideal for our increasing on-line lifestyles.



Furthermore, Blockchain technology is being used by governments as a means to do away with paper records. In Australia, the government is looking to remove the requirement for cheques, paper signatures and the need to place notices in newspapers, as outlined in its recent Treasury consultation paper, thus opening a way to use Blockchain technology instead. After all, the practice of posting a notification in the London Gazette, which dates back to 1665, as there are various Laws, Acts, Rules, Orders and Government decisions that require to be published. At least the Gazette is now published on-line; so, if you have the urge to check to see if you are in the New Year’s Honours List, you know where to go! Meanwhile in Germany, there will no longer be the requirement to issue securities in a paper-based format with the German’s authorities now allowing certain debt instruments to be issued digitally on a Blockchain-based register. This is also due to be the case in Switzerland as the Swiss have legislation coming into force on 1st Feb 2021 enabling shares, bonds and other securities to be issued electronically, thus  removing the need for paper-based documentation.
Post this last year’s global pandemic, a digital solution to your identity (combined with your COVID-19 vaccination details) may well be the only way for permitted travel to certain countries in 2021, such as Australia. The International Air Transport Association (IATA), the lobby group of the world’s airlines, stated it would launch a digital health travel pass early next year 2021 which would include a passenger’s COVID-19 vaccination data. The World Economic Forum has developed an app called CommonPass, not using Blockchain technology but relying, instead, on Amazon Web Services. Another solution called AOKpass is being built by SOS, (the??) world's largest medical and travel security services firm, based in Singapore. SOS has partnered with the International Chamber of Commerce which, itself, is using Blockchain technology.  

 
How AOKpass works



Source:SOS.com


Notably, another coalition involving Microsoft, Oracle and Salesforce is working on a digital COVID-19 vaccination passport that will encrypt data regarding an individual’s vaccination history, the proposal being that it will be downloadable onto a mobile phone. Those without a mobile phone can print off a QR code to prove they have been inoculated. As yet, it is unclear whether this cohort is using Blockchain technology but, in December 2020,  Salesforce was reported to have been working with IBM in creating a digital passport that did use a Blockchain-powered platform. It is hoped that these digital proofs of vaccination will enable people to travel, attend international sports events and concerts etc with less concern. However, will we see people being banned/deported if they do not have their data available?

One wonders that if corporations such as those mentioned above are able to gain access to government records such as health records, then why not passport details or driving licences so doing away with more paper-based documents? One of the irritations when dealing with any official/regulated entity is the requirement to prove who you...

This is a key theme in Digital Bytes frequently being asked about by readers. Digital currencies have the potential to offer governments a new tool with which to control their economies, help to engage with the unbanked/financially excluded as well as offering the ability of faster and cheaper payments for corporations and individuals.

The Chinese are continuing to roll out their own Central Bank Digital Currency (CBDC). They are once again giving away money, but it can only be spent in those shops determined by the government and with the stipulation to be used by a certain date i.e. not saved - unlike in the UK where on one hand governments have been handing out cash only for UK households to pay down their debts. During the first COVID-19 pandemic lockdown, UK consumers paid off £7.4 billion of debts  The Chinese are also trying to reduce their reliance, together with many of world’s other economies, on the US$. Qian Jun, the chief economist of China’s ICBC International Bank, believes that if we were to see the launch of Facebook’s Libra (now called Diem) or a digital US$ it would further increase dependence on the $. “If Digital Currency Electronic Payment, (DCEP) can seize this historical opportunity and combine it with the ‘Belt and Road’ construction and global value chain reconstruction, it will promote the internationalization of the RMB and the ‘network effect’”. Said Qian Jun.
Meanwhile a subsidiary of Alibaba (which along with Tencent dominates the on-line payments landscape in China) has carried out tests on its mobile app with the Chinese CBDC in Shanghai so, seemingly, it will not be long before China’s CBDC will be launched nationwide.

An estimation by the International Monetary Fund (IMF) is that over 1.7 billion people globally are unbanked. Even in the US, it is calculated that over 8.4 million households do not have a bank account. Within the Hispanic community there are as many as 17% of households un-banked, which makes it complicated and time consuming to give these citizens the financial support they need as a result of COVID-19. A digital currency signifies that money can be distributed and, more importantly for the finances of a country, taxes can be collected digitally since people are increasingly using their mobile devices to pay for goods and services. In terms of saving money, the Diem Association claims it costs 7% to make international payments, taking up to five working days. Compare this to a digital currency where payments are almost instant, and the costs are measured in cents and pence.

The market capitalisation of Tether



Source: Coingecko.com

The amount of money being invested in stablecoins continues to increase with the largest stablecoin, Tether (which is pegged to the US$), now being capitalised at over $24 billion. Worldwide, other governments apart from China are waking up to the potential offered by digital currencies. In the UK, we have seen Her Majesty’s Treasury (HMT) issue a consultative paper looking at crypto assets and stablecoins. HMT is considering the introduction of a new category of regulated tokens to be known as ‘stable tokens’, i.e. tokens backed by a fiat currency. The Treasury is also looking at introducing regulation for those organisations involved in the creation and managing of this type of asset. Indeed, according to Christiane Lagarde, former Managing Director of the IMF and now head...

It is somewhat ironic that cryptos such as Bitcoin and Ethereum were initially championed as a means to make payments globally, without the need to use third parties such as banks. Unfortunately, nefarious actors quickly sized the opportunity to move money digitally -quickly and cheaply - and potentially most importantly, anonymously, by-passing many of the existing KYC/AML checks that banks and regulators had established to reduce the economic impact of the shadow economy - terrorist funding, money laundering etc.

 


The likes of the notorious Silk Road website, which offered illegal drugs, guns and pornography, quickly adopted the use of cryptos as a form of payment. The US FBI unearthed the Silk Road website and shut it down in October 2013, seizing its stash of Bitcoin and, for a while, making the US government the largest holder of Bitcoins. Operators such as Plus Token, which was alleged to be a Ponzi scheme and moved $100 billion of cryptocurrencies, used crypto currencies as their chosen ransom payment. Indeed other organisations that have resorted to blackmailing and carried out cyber-attacks (such as the DDoS demanding Bitcoin as a payment). Thus, it was easy to see why cryptocurrencies were held with a high degree of suspicion and distrust.


However, in 2020, we bore witness to more and more governments beginning to embrace cryptocurrencies and offering legal clarification and regulation. Somewhat ironically, we have seen regulation to be the driving force for crypto adoption with legal certainty and regulatory clarity in various jurisdictions encouraging individuals, asset managers and multinational corporations to buy cryptocurrencies. Countries such as Japan, Singapore, Switzerland and South Korea have all passed legislation, now procuring established and thriving crypto-trading communities. In the USA, the SEC has been cracking down on ICOs, such as Telegram, forcing it to hand back $1.24billion. Presently, the government agency has a court date to bring action against Ripple for its alleged $1.3billion breach of security regulations. However, the U.S. Commodity Futures Trading Commission has confirmed Bitcoin and Ether are both classified as commodities, leading the way for quoted companies such as MicroStrategy and life assurance firms, such as Massachusetts Life, to buy Bitcoin as part of their portfolio - with some asset managers doing the same.



Should crypto currencies be considered as legal tender? - September 2020


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Source: RUSI-ACAMS


In effect, regulations are being seen, once again, as a driving force behind the use of cryptos not to circumvent the law but being bought since there is now legal clarity to do so. Conceivably, given the recent strong performance of Bitcoin in the last few months, there will be more interest in this asset class, and we will witness an increase in the acceptability of cryptos in various jurisdictions globally.
The recent surge in the price of Bitcoin will no doubt be spurring on those who have access to cheap sources of electricity since Bitcoin mining requires a huge amount of electricity. Every ten minutes 6.25 Bitcoins are created which, at $41,000, handsomely rewards the successful miner over $256,000. However, as to be expected, alongside these potential profits we are seeing much confusion globally and some unexpected consequences.

There is a hidden story about Bitcoin mining. A ‘hash’ a term used to refer to an algorithm which converts an input of letters and numbers into an encrypted output (hence crypto). These are, in effect, the building blocks of a number of cryptocurrencies including Bitcoin. According to the Cambridge Centre for Alternative Finance, research has revealed that 76% of ‘hashers’ use renewable energy. Miners also use renewable energy to power their activities, with hydropower being the number one source at 62%. However, the 76% (above) refers to the share of hashers who use renewable energy as part of the production of Bitcoins. Indeed, it estimates that only 39% of hashing’s total energy consumption comes from hydroelectricity, coal (38%) and natural gas (36%). The Chinese, with over 60% of Bitcoin capacity, have used renewable energy for much of their Bitcoin production. In China's rainy season (June to October) 'green' powered provinces such as Sichuan and Xinjiang have hydropower plants capable of providing cheap electricity prices for Bitcoin mining operations. The location of Bitcoin mining is often driven by other factors. For example, in Russia, Gazprom is now selling surplus cheap gas to Bitcoin miners whilst the Venezuelans, as a way to get around international sanctions, are mining Bitcoin as a way to generate much-needed foreign reserves.
Global distribution of Bitcoin mining capacity


Source: BitOda.com

There would appear to be a close correlation between where Bitcoin is mined and cold weather, with places such as Canada, Russia, Kazakhstan and Iceland all appearing to have notable Bitcoin mining facilities. As reported by Forbes, Bitcoin mining is being seen potentially as a way to create jobs in the heartlands of America. An example of this is a US- based firm called Core Scientific which runs Bitcoin mining rigs for UK-listed Argo Blockchain PLC (whose share price has risen a massive 981% since BTC prices have doubled in the last month). In December, Argo mined 96 BTC which, at $20,000 at the beginning of December, were worth $1.9million - but at a price of $41,000, would be worth $3.9million! However, heed caution, as Argo PLC is a small cap stock thus may prove to be very illiquid stock to trade. According to the IAG Business School at Pontifical Catholic University of Rio de Janeiro, Bitcoin mining can also be used to reduce the risk of fluctuations in the price of electricity for those looking to build renewable energy facilities. Renewable energy can 


provide an alternative source of income when electricity prices are low by diverting electricity to produce Bitcoin, as opposed to selling it at wholesale prices on a country’s national electricity grid.

Ultimately, how and who produces Bitcoins is not straight forward. Undeniably, the amount of electricity Bitcoin uses due to its method of mining/production is considerable, since Proof of Works (PoW) does require significant computing power. This is one reason why other cryptocurrencies, such as Ethereum, are moving away from PoW to Proof of Stake (PoS) which uses a lot less energy. If interested, please see here for four key differences...

The global daily trading value on the world's digital exchanges is between US$50 billion to US$100 billion and this is set to grow if we are going to have greater institutional interest in digital assets. In a recent survey carried out by Crypto Research Report and Cointelegraph Consulting, based on 55 asset managers who, alone, have over €719 billion of assets under management, it found that 61% of wealthy Europeans already have, or plan to have, exposure to digital assets. It is not just individuals but corporations which are also investing in digital assets. In the last few weeks we have seen Microstrategy (a NASDFAQ-listed company) announce that it has raised $650 million to invest into Bitcoin. Furthermore, the 169-year old Massachusetts Mutual Life insurance company in the US has confirmed its investment of $100 million into Bitcoin. Given this sort of demand from banks and asset managers clients, it explains why we are seeing a need for the building of more infrastructure to make it easier for other institutions in various global jurisdictions to be able to invest in digital assets. Indeed, JP Morgan claims institutional demand for Bitcoin could grow to be as much as $600 billion, nearly a 80% increase from the current $355 billion of Bitcoin’s current capitalisation.

Based in Singapore, South East Asia’s biggest bank (DBS), has announced the launch of a
Digital Exchange, backed by the bank, offering institutions and HNWs access to be able to trade and provide custody services for digital assets and digital currencies. DBS Bank will also be offering the ability for companies to raise capital via tokenisation (STOs), as well as offering a listing service for these new tokenised digital assets. The Singapore Exchange will own 10% of this new digital exchange, which has been given (in principle) approval by the Monetary Authority of Singapore as an ‘approved exchange’. This type of status is vital if institutions are to engage and start trading assets on DBS’s new digital exchange. The exchange will offer trading in cryptos (such as BTC, ETH, XRP and Bitcoin cash) as well as tokenising unlisted companies, bonds and private equity funds, so providing liquidity and hopefully greater price transparency for these existing asset classes.
 

DBS Digital Exchange



Source: DBS.com

Earlier this year, Northern Trust used Blockchain technology to issue BondbloX, a bond using the Monetary Authority of Singapore’s Sandbox as Singapore is desperately positioning itself to be the digital centre in Asia.

Meanwhile in Europe, a company called Zodia Custody (based in London) has been established as a JV with between Standard Chartered and Northern Trust and will be their new digital asset custody service. It is expected that Zodia will be launched in 2021 and will be focusing initially on offering custody services for those who wish to use a third party to hold their crypto currencies. In Barcelona, a company called Brickken is launching a digital assets platform targeting those start-ups and small businesses looking to raise up to €150,000. Brickken offers a full tokenisation service so is able to help firms wishing to raise capital, done either via a utility token or a security one. Once the tokens have been issued Brickken lists them on its platform, enabling third parties to buy, sell and trade them. Under EU laws, Brickken is required to carry out full KYC and AML checks and will, initially, only be able to list those tokens it has listed. However, this appears to be a new way for smaller firms to raise the often much-needed capital thus enabling them to transition from an idea to a revenue-generating business. According to Statista, there are just over 15,000 companies in Spain which employ 50-249 people, but there are 2.6 million companies employing less than 10 people in Spain, so Brickken has a large market to target.

In Switzerland, the second biggest bank in Spain, BVVA, has announced it is preparing to launch a trading and custody service for digital assets, initially targeted at Bitcoin. The Swiss Stock Exchange, SIX, and the custody firm, Custodigit, are launching a service to help banks and their clients obtain access to cryptos. According to a website called Bitcoin Treasuries there are currently 15 publicly traded companies which hold Bitcoin. Also in Europe, the Bourse Exchange in Stuttgart (Germany’s second largest stock exchange) has confirmed its cryptocurrency trading...

BNY Mellon comented: “Fifteen hundred years after inventing the banknote, China is now attempting to take money truly into the digital age. However, the rest of the world is still not sure whether it would like to follow suit”. 

The gradual roll out of China’s Central Bank Digital Currency (CBDC) continues as JD.Com, the on-line shopping portal in China, has confirmed that it will be accepting China’s new digital yuan as payment (but only for some of the goods it sells on its platform). This ought to come as no surprise that JD.Com has been selected as potentially Tencent’s WeChat Pay and Alibaba’s Alipay are the two biggest threats the Chinese government faces for its own CBDC to be adopted. Alibaba and Tencent have been fined by the Chinese government for anti-monopolistic behaviour in reference to acquisitions each firm carried out a few years ago. Is this a sign of things to come as the Chinese government flexes its legislative powers over firms in the fintech sector, since it will want to ensure the digital Yuan is a success?



 

Alipay and Tencent’s grip on digital payments in China


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Source: TechCrunch.com


Furthermore, the Chinese government has already initiated promotion of its CBDC, having given away the equivalent of $30 of its new digital currency to 50,000 citizens, randomly selecting those who reside in the city of Shenzhen. The government is also giving away another $30 to 100,000 of its citizens, but this time to those living in Suzhou. In the last ‘giveaway’, people had 4 days to use or lose their $30, so presumably this second ‘freebee’ will have similar restrictions. According to Pakistan’s Technology Times ,the use of China’s digital yuan is gathering momentum as, in just the last month, “more than 2 billion yuan had been spent using China’s digital currency so far in 4 million separate transactions”.


A digital currency offers governments a completely new tool, if only to monitor what is being spent by whom and where, which, if nothing else, helps the authorities (in their battle against tax evasion) tackle the shadow economy that plagues so many nations. Since interest rates are almost zero, it is hard for central bankers and governments to stimulate their economies. However, by using a digital currency, governments can be very focused and subsequentially program a digital currency to be spent on exclusively specified goods (even down to only being allowed to be used according to certain postcodes). BNY Mellon, arguably the biggest provider of custody services globally, has recently pronounced that “the Chinese gave us bank notes, now they are showing us how to use a CBDC. The question is, which is the next major currency to be digitised?”

As 2020 draws to a close our thoughts naturally start to focus on the year ahead and everything it may hold, so here are a few topics to ponder over for 2021:


  1. ESG (Environmental Social Corporate Governance) - Blockchain is likely to play a greater role in storing and the sharing of data as to how organisations need and, indeed, are becoming more mindful, putting ESG at the core of their business strategy. As an example, Topl has built a Blockchain-powered platform which assists organisations to show the link between ESG and financial performance.



Nudge Economics - as climate change receives increasing focus there is the potential for Digital Assets to play a greater role in rewarding citizens and organisations for changing their behaviour in an effort to reduce global carbon emissions. With the success of both Plastic Bank and SC Johnson (which paid people to collect plastic) we are likely to see more initiatives like these in 2021.
 
Greater institutional adoption of Digital Assets - much of the infrastructure required over the last few years is now in place: exchanges to trade Digital Assets, availability of custody services and banking facilities, the ability for regulated companies to purchase the required insurance and we are increasingly seeing greater legal clarity in many jurisdictions. In December 2020, Reuters reported the S&P Dow Jones would be launching a crypto index off the back of institutional demand for this asset class.

CBDC (Central Bank Digital Currencies) - the Chinese launched their CBDC in 2020 and expect to see other governments follow suit since cash is used less and less as payments increasingly turn digital. Whether we see Diem (formerly Libra)/Novi (formerly Calibra) become the global payment choice for billions of Facebook devotees or not remains a distinct possibility, much to the chagrin of central bankers.

Blockchains become scalable - one of the criticisms surrounding Blockchain technology is that it is not able to handle large volumes of data. 2021 could be the year when this is no longer the case. 

Stock market turbulence - are we to see equity markets stumble as we enter the eleventh year of a roaring bull market due to debt ridden, COVID-19 ravaged economies? As a comment from Charles Schwab recently pointed out, “..it has been 11 years since we've had an extended bear market, anyone under the age of 30 really hasn't lived through that.” As ever, market crash investors are likely to shun equites for a while and look at alternative investments, many of which will potentially be offered in a digital format.

Data democratisation - global bemouths such as Alibaba, Amazon, Facebook, Google and Tencent have monetised our personal browsing and spending data and, in doing so, have accumulated vast fortunes. Digital Assets offer the potential for the data we create by using  our cars, buildings etc to be monetised for us individually, and not to be used by global corporations. Expect to see more initiatives (such as UCL’s smart cities project) look at how technologies such as Artificial Intelligence and Blockchain technology are creating smart cities.

Omnipresent SEC - even though the ICO ‘brouhaha’ was in 2017/18, we are likely to see the US Security Exchange Commission (SEC) continue to pursue organisations it believes issued securities under the guise of an Initial Coin Offering (ICO). In June 2020, Telegram cancelled its ICO and returned $1.2 billion to its original investors as well as paying the SEC a $18million fine. Earlier in December the SEC was seen to be taking action against Ripple and some of its executives regarding its £1.3billion ICO, claiming it had...

Given the dramatic rise of Bitcoin (BTC) from its lows of just over $5,000 on 17th March 2020, to over $28,800 on 30th December 2020, there has been considerable interest in the ‘Big Daddy’ of cryptos.

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Source: CoinGeko



Whilst Digital Bytes is not authorised to offer financial advice (nor was it established back in March 2018 to focus on the ‘ups and downs’ of cryptos), the topic of digital currencies is what we receive the most questions on and is the most popular of all our social media postings. There is, without doubt, much uncertainty as we approach 2021 what with massive corporate and government debts. Yet equity markets are still riding high, despite the economic outlook of a weakening US$, rising unemployment figures and the global repercussions from the impact of COVID-19. It is therefore no surprise that BTC is hitting new highs as we see more and more corporations investing in BTC as part of their treasury management, believing that BTC represents a diversification of risk from a potential declining US$. The demand for BTC from individuals and corporations helps to explain the 8- fold rise in the size of assets in the Greyscale Bitcoin Investment trust.

Greyscale Bitcoin Investment Trust

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Source: TCharts.com


It has been a great year for those managers at Greyscale who have been charging 3% p.a. simply to hold BTC for Greyscale’s investors, although they have magnanimously agreed to reduce their management fee to 2.55% which, based on the value of the fund on the 30th December 2020 OF $16.1billion it will generate over $400million in management fees p.a.!!! 

The reality is that no one knows for sure when to buy or sell any assets unless they have inside or price sensitive information. However, there is a tried and proven way to obtain this access, especially to an asset whose price is as volatile i.e. ‘zig zags’/ go up and down as much as BTC has done in the last 10 +years. 


Results of regular savings into Bitcoin

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Source: DCABTC.com


The secret is easy - regular savings every week or every month. Simply allocate say the same amount every week, buying more BTC when the price falls and less when its price rises. By having followed this simple strategy over the last three years and saved $10 every week, the $1,570 saved would now be worth $5,737 a rise of 265 %. As to whether it is too late to buy BTC, who knows, but one thing is for sure - the price of BTC seems not to be linked to traditional economic activity. Therefore, if you are looking to diversify your investments then maybe 2021 is the year to do something about it?

2 Months Ago


There is growing evidence that governments and corporations are taking climate change more seriously. Furthermore, with Jo Biden now set to be the next president of the USA and being a strong supporter of climate change initiatives, there is likely to be greater pressure to see significant reductions in the world’s carbon footprint.


Global carbon emissions


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Source: Visual.ly

 



Educating consumers to change behaviour is key in the challenge of reducing the carbon foot print - an initiative that French supermarkets, such as Casino and E.Leclerc, have taken on board by now showing the carbon emissions on food labels for some of the products they sell. Coca Cola is another example of an organisation where carbon emissions are a key priority. It has managed to reduce its carbon emissions by 30% in the last ten years. According to a report from the EU, Blockchain technology is able to help organisations in their efforts to track and then reduce carbon emissions.


The World Bank has reported that 40 countries have entered-into carbon pricing initiatives but since these only account for 22% of global emissions, the potential for this market to grow is substantial. The size of the carbon management market is currently $9 billion and, by 2025, is expected to grow to be worth in excess of $12.2billion. It is, therefore, of no surprise that we are seeing companies entering this sector to offer solutions to trade carbon. One such firm is UPA, which has launched a Digital Asset called UPCO2, a token which enables investors to trade or hold as an investment. Alternatively, UPCO2 tokens can be bought and then destroyed as a way to offset an organisation’s own carbon footprint. Essentially, every UPCO2 token is backed by a Voluntary Carbon Unit, a digital certificate whereby the money is allocated to certified projects which turns greenhouse gas reductions into tradable carbon credits. An example of such certified projects is the prevention of the deforestation of the Amazon, Congo Basin and Indonesian rainforests.


Once again, we see how Blockchain technology is being used to bring greater transparency and trust as firms track and monitor their activities and, in this case, help make better, more informed decisions to assist in the battle against climate change. Having reliable information is also a common challenge in the petrochemical industry where it, too, has turned to implement Blockchain-powered platforms. With companies such as UPA we are seeing how tokenisation not only offers access to a new type of asset, but also personally allows one to make a contribution to reducing the world’s carbon footprint.

The stock markets are well overdue a correction as recently quoted by CNN business but, actually, this is healthy and totally natural since we have seen a series of stock market crashes historically. However, what is different this time is there are potentially investors who may turn to new intangible assets just as the tangible physical assets fall. As has been documented in previous editions of Digital Bytes, history can be a powerful teacher. We can go back quite a few centuries to learn that economic strive and turbulent markets are by no means a rare occurrence. In the 14th century, the Peruzzi and Bardi families from Florence had built a fortune on banking, only to face rack and ruin in 1345. The two families had been supporting King Edward III of England’s as financial backers, helping the ruler pay for wars first against the Scottish, and then the French. The King of England’s debts grew and the afore mentioned Peruzzi and Bardi families were eventually made bankrupt since the English king refused to repay his debts! Subsequentially a vacuum of power was left, to be filled by the Medici’s of Florence in later years.



Fast forward through time and we witness a series of stock market crashes and turbulence up to our current day: 1.Tulip mania- 1630’s


Source: History.com


2. South Sea company bubble and Sir Isaac Newton’s bankruptcy - 1730’s


Source: Business Insider

Arguably one of the world’s finest brains became ensnared in the investment mania which was the South Sea Bubble, personally making a fortune only to hand it all back and losing (what some claim) to be over $4million in today’s money! These were manic times, since the share price of The South Sea Company rose almost 10-fold and in doing so encouraged all manner of crazy investments, including a firm raising money to manufacture a gun to fire square cannon balls!

3. UK Stock Market -1820’s



Source: Investment office.com

The defeat of Napoleon at the Battle of Waterloo in 1815 and the advent of peace across Europe was the precursor to a huge rise in the UK Stock Market, reaching its zenith in 1825. Furthermore, this was to be followed by the London banking crisis and a collapse in prices since, in 1816, income taxes were abolished thus leaving the UK government with little income but massive debts from the Napoleonic Wars.

4.  Wall Street Crash (Dow Jones) - 1920’s



Source: Eureka Report.au

The Wall Street crash in the US ushered-in the 1930’s depression as $billions were ‘wiped off’ equities and stockbrokers on Wall Street in NYC were seen jumping from their offices as losses mounted. However, the market did not fall in a straight line but fell 34%, rallied by as much as 20%, only to continue falling until it had lost over 84% of its value from its peak.

So, what is the relevance of all this? Well, notably, the last of these stock market falls are approximately one hundred years apart: 1630, 1730, 1825 and 1929. Therefore, is it too unreasonable to expect another stock market correction and what is different this time, almost a hundred years on from the last major crash? Points to consider include the fact that the global economy is very different now compared to the past. It is far more interconnected - look at the speed COVID-19 has spread across the globe. International boundaries account for less as people freely live and work where they wish, with an ability to move their money at a whim. Yet more of this globalisation is clearly seen with multinational corporations exploiting favourable tax jurisdictions and low-cost wages, setting up offices and factories in the pursuit of increasing their profit margins. 

But nothing lasts forever, and there arguably now exists an over-concentration of wealth in the hands of a few. We could well be at an inflection point and a time of change. According to Credit Suisse, the world’s richest 1% owns 44% of the world’s wealth. Even more disturbing is that, conversely, 56.6% of the world’s citizens own less than 2% of global wealth. There are individuals such as Bezo (Amazon $113billion), Gates (Microsoft $98billion) and Larry Ellison (Oracle $59billion), to name just a few, who are arguably...

In a recent statement, the CEO of Mastercard claimed that Bitcoin is unable to help those financially excluded/unbanked but Central Bank Digital Currencies (CBDC) potentially could. However, it is arguable as to whether Banga simply trying to advertise for Mastercard since he also stated: “Today, we’re one of the largest patent holders in the space of central bank digital currencies.” In addition to this, the World Bank has estimated there are 1.7 billion people globally unbanked i.e. they do not have access to formal financial service - effectively barring them from managing their finances. In theory, provided you have access to the web it is possible not to have reliance on traditional banks but use digital currencies and/or cryptos instead to make payments.



Unbanked population by region (%)



Source: Findex database, Worldbank

Furthermore, a report from Deloitte has listed a selection of reasons (according to Findex and the World Bank) as to why citizens in certain countries do not have a bank account:

geographic access to financial institutions is limited
insufficient funds to operate a bank account
financial services are too expensive, relative to people’s income
lack of necessary personal documentation (ID, passport etc) to open a bank account
family member already has a bank account
religious reasons
lack of trust towards financial institutions

Another report, commissioned by Amazon, found that, “Digital payments will be a core foundation for extending basic financial inclusion. More than 90% of respondents consider that innovations in digital payments processes were among the most significant areas in which fintech was improving financial inclusion objectives within their own jurisdiction.” One of the key challenges is provision of assistance to SMEs, which are often unable to obtain credit since they are outside the focus of traditional bankers. The World Bank estimates that the credit gap for SMEs globally is $2.6tn! Given the importance of SMEs to the global economy their financial exclusion is a missed opportunity, not just for them, but the world economy as a whole.
 
On the subject of financial exclusion, the SEC in the US is considering allowing ‘gig’ workers to be allowed to be paid up to $75,000 worth of share options over a three-year period. Historically, the people who can qualify to be a member of a tax efficient option scheme are fulltime employees.



Gig work as a source of income in different countries



Source: BCG Future of work

The term ‘gig’ has previously referred to temporary employment embracing freelancers and independent contractors, who are typically self-employed since they often have more than one source of income. Increasingly, so as to be as flexible as possible, companies have relied on gig workers as opposed to offering them full-time positions meaning companies avoid having to pay additional benefits such as pension contributions, healthcare etc. Examples of such firms using gig workers include Uber, Deliveroo, Lyft, AirBnB and Amazon. Since the financial crisis in 2018, according to EY, “the full-time hiring rate among the S&P500 index companies (i.e. the largest companies in the United States) has fallen to 2.7 per cent.
 Meanwhile, temporary workers make up 17% of all employees in US companies”.

A firm known to be using digital currencies to help improve the payment of gig workers is Electroneum’s AnyTask. A gig worker in Asia, India or Latin America can undertake freelance work for someone in Europe, USA or Japan and then be paid using a digital currency called ETN, whereby saving the cost of international banking fees. In other jurisdictions we have seen similar initiatives, the Philippines’s (Coins.ph), in Tunisia their postal service have a partnership with Monetas and DigitUS. While those searching for a Blockchain developer, a copywriter or a translator etc can opt for the platforms that source gig workers such as Upwork or twago. Likewise, there is the digital wallet from Abra which gives gig workers the...

There has been a significant increase in the value of stablecoins in 2020. The total size of the stablecoin market has risen in the last year to now be worth over $26billion with the largest by far being Tether -USDT- which has grown from $4.29 billion to $19.6 billion. Incredibly, Tether is being investigated by the New York State Attorney since Tether has been unable to clarify whether it is, indeed, backed 100% by US$ - yet it keeps growing….



The top ten biggest stable coins



Source: CoinGeko.com

Facebook’s Libra project was launched June 2018 and originally in its white paper it proposed to create a digital currency that would be backed by basket bank deposits and government bonds denominated in US Dollars, Euros, Yen, and British Pounds. Libra has now announced that it is to rename itself Diem, although it will be keeping the same logo. Although Facebook would still appear to be very much involved, Dahlia Malkhi, the new CTO of Diem is, and has been, Lead Researcher at a subsidiary of Facebook. Novi which is Facebook’s representation on the Libra, sorry on the Diem governance board. According to a report by the Financial Times, Libra is to launch a US dollar-pegged stablecoin, meaning it will launch a digital currency/coin with each one backed by a US dollar. The project, however, still requires approval from the Swiss Financial Market Supervisory Authority FINMA. 

Therefore, a stablecoin with a governance board backed by the likes of Andreessen Horowitz from Silicon Valley, Facebook, TEMASK (Singapore sovereign wealth fund), Shopify (Canadian version of Amazon), Uber, Women in Banking, to name just a few, is sure to prove popular? The reputational damage to the different organisations on the governance board of Libra ought to ensure risks will not be undertaken so that every Libra $ stablecoin will, indeed, be backed by a $ in a bank account somewhere? Consequentially, would Libra not be a safer option than Tether?

The main challenge Facebook’s Libra has been confronted with is a barrage of negativity from different jurisdictions since these countries fear that, with Facebook’s 2.4 billion and WhatsApp 2 billion active monthly users, it means Libra could become very popular, very quickly. If Libra were to become the payment mechanism of choice, it is feared it may undermine various governments’ control over their supply money, and potentially their economies. How justified these fears are is questionable. Libra, if backed 100% by assets such as cash or government bonds, would not be able to create unsecured coins. Ergo, Libra’s ability to influence monetary policy through artificially expanding or contracting its supply would not be possible - a course of action that many of the governments expressing concerns over Libra regularly do with their own currencies. 

Different governments express concerns over Libra



Source: Belfin club

One of the criticisms of digital currencies relying on Blockchain technology is that they are unable to handle large volumes of transactions. However, Libra, instead of relying on a decentralised peer-to-peer network, will rely initially on the Libra Association and those with permission to modify its Blockchain. Nonetheless, a concern is - will this more centralised structure make Libra more vulnerable to cyber-attacks? It is understood that Libra is therefore looking to transition to a more decentralised style of Blockchain so as to minimise the dependency on the Libra Association. Thus far, there are no further details as to when, or how, this change will be implemented.

Meanwhile, Goldman Sachs is predicting that the digital currency already launched by the Chinese will...

In the last year the value of cryptocurrencies as an asset class has more than doubled from $203billion to over £500billion, with the price of BTC increasing from approximately $7,000 to over $17,000. According to research there are now over 100 million Bitcoin wallets, with the number of wallets active each day being typically 1million and the number of wallets holding 100+ Bitcoins reaching over 16,000 in October 2020. However, possibly more interesting is that the ownership or use of crypto is global, as reported by Statista, with citizens from Nigeria, Vietnam, South Africa, Turkey, Peru, Spain and China being more engaged with this asset class than in the US.

How common is crypto? % of respondents who own or use crypto

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Source: Statista.com


Interestingly, it is not only individual citizens who are increasingly turning to cryptocurrencies but institutional asset managers too, with Coinbase reporting that its institutional clients have increased their crypto holding from $6billion to $14billion since April 2020. Firms such as Pendal Group, in Australia, claim to be investing in Bitcoin as an alternative to gold. Highly regarded investors are singing Bitcoin’s praises, including Paul Tudor JonesBill Millerand Stan Druckenmille. The latest institution to express an interest is Guggenheim Partners which manages over $275 billion  and has filed documentation with the SEC to potentially  invest $500 million into Bitcoin.


As with any investment, unless you have a crystal ball, knowing when to buy any asset is difficult to predict so an alternative way is to save a regular amount each month. This concept of regular savings (sometimes referred to as pound cost averaging) is ideal for more volatile assets, i.e those assets whose price ‘zigs and zags’ (goes up and down a lot!) Putting money aside on a regular basis enables one to smooth out these ups and downs, buying more of the assets when prices are low and less when prices are high. By investing $10 a week every week over the last year, your $530 of savings (ignoring fees) would now be worth $1,138, a profit of 114.75%! This can be compared to investing the same amount into gold which would be worth $556 or the US Stock Market (as measured by the Dow Jones index) which would be worth $598.


The result of regular saving into BTC, gold and the US Stock Market (Dow Jones)


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Assumptions- $10 saved per week, no costs

Source: DCABTC.com


Despite some claims, no one knows what will happen to crypto’s prices, but they certainly seem to be gaining more and more demand from private clients and institutions alike. There now exists a range of ways that investors can access cryptocurrencies which are much more user-friendly for private investors, such as debit cards linked to crypto currencies, funds and even bank accounts. As for institutional investors, the challenges around custody and how they physically hold these digital assets are being addressed. A firm called Copper with offices in Hong Kong, London, New York, Moscow and Singapore has a service called Loop that is designed for institutions that need to have a third party custodian to hold its crypto for its clients. While other firms such as Fidelity’s Digital Assets service also offer a custody service The speed of adoption is likely to further gather pace should the price of Bitcoin continue to rise over the next six months as it has in the last six months, especially if there is more stock market volatility as the ravages of COVID-19 are truly understood and priced in!
A 2-minute video on Yellen as potentially the next Treasury Secretary, and what could this mean for both inflation in the US and cryptocurrencies.

Jo Biden is looking to nominate Janet Yellen as the first lady to be Treasury Secretary. This could prove to be a clear sign of a more expansionary ‘hand on the tiller’ of the US economy, as Yellen has been pushing for more cash to be injected in the American economy in the wake of the economic damage wreaked by COVID-19. Will an even bigger increase in the money supply lead to greater inflation? Will this, in turn, result in more people buying and pushing up the price of BTC?



Janet Yellen at a congressional hearing in 2017- bet she wished she had bought BTC! 



Source: YouTube

In the past Yellen has not been a fan of cryptos and made that very clear when she was Fed Chair speaking to the House Financial Services Committee on 13th July 2017. She was ‘photo bombed” by a Bitcoin fan, holding up a message “Buy Bitcoin”, who allegedly was subsequently sent small crypto donations worth the equivalent of 7 Bitcoins. Those 7 Bitcoins would have been worth approximately $16,000 back in the summer of 2017, compared to today’s value of over $131,000. One might suspect Yellen did not take the photo bomber’s suggestion. Or maybe she did since she has said very little in public about cryptos in the last few years! 

One muses that with Yellen’s classic Keynesian economic training she will favour another significant injection of cash into the US economy. Reuters has reported she is “someone who normally favors looser monetary policy to reduce unemployment”. Given the current almost 0% interest rates, it will be interesting to see how supportive Yellen will be towards a US Central Bank Digital Currency (CBDC) so that the US government can, in effect, give money to those most in need. To have a ‘new tool’ to stimulate the economy in a focused manner, as opposed to ‘helicopter cash’ i.e. giving cash to many and additionally having to pay the banks to distribute it for the government. A CBDC would make it possible to make payments incorporating the stipulation for it only to be spent on certain products and services within x weeks as opposed to be being saved, which would seem to have happened earlier this year. The Wall Street Journal reported that the US personal savings rate soared to 33% between Feb-April 2020  so, in effect, the US government increased its indebtedness whilst its citizens repaid theirs. If inflation were to return, then a transaction fee could be levied on those using a CBDC as a method to slow down the circulation/speed of money in the economy. 

Who knows how much Yellen takes counsel from her Nobel-prize winner husband, George Akerlof, who wrote a paper called the ‘Market for Lemons’? In it he says, “If a market has substantial “information-asymmetry” (sellers know a lot more about the good than buyers -e.g. 2nd hand cars), it will come to be dominated by lemons (bad cars)”. Since one of the challenges cryptos face is the perception caused by many of the 5,000+ ill-conceived ICOs which were launched in 2017 and 2018: many, at best, were ‘iffy’ and, at worst, fraudulent. As reported by the publication, Finance Magnet, the SEC has, “since May 22017, with its 4,500 staff, revealed over 2,750 enforcement actions obtained over $14 billion in financial remedies and paid around $565 million to the whistleblowers in the same period.”

It is extremely difficult for ‘Joe Public’ to have a complete understanding of cryptos, let alone the new-fangled DeFi sector and, in turn, make an informed opinion. But times are changing...