The Digital Asset Landscape April 2021
courtesy of trademakers
The month of April started on a high note as the Mayor of Miami stated his intention to transform Miami into a “clean energy” bitcoin mining hub. Even though he intends for there to be hydrogen-powered and solar technology to be added in the future, he intends for the city to be a mining hub for Bitcoin as it harnesses the city’s nuclear power capabilities. According to Suarez, he feels uneasy about 90% of mining to be done outside the United States. In February, the mayor had proposed for employees to have the option of getting paid in bitcoin, city commissioners had voted that a proper study should be made into the use of digital currencies before their implementation. Meanwhile, outside the United States, the Dubai Financial Services Authority (DFSA) proposed regulation of security tokens and derivatives. However, before taking any action in this regard, they have asked for feedback and give a 30day period for those with opinions to comment. Some changes include allowing direct access to members like retail clients to security tokens trade facilities. For now, there are no proposals for other tokens like exchange tokens and utility tokens, but the agency has promised to include them for later this year.
SEC AT IT AGAIN
Meanwhile, in a battle between LBRY Credits (LBC) and the U.S. Securities Exchange Commission, due to the alleged sale of unregistered securities. Court documents show that LBRY is accused of selling unregistered securities worth millions of dollars to investors since 2016. According to the SEC, LBRY had sold these securities in the form of LBRY Credits (LBC), and investors were made to understand that the funds were to be used to build its product and fund the business. These tokens were “sold as investment contracts in exchange for U.S. dollars and other non-monetary contributions.” LBRY is an open-sourced protocol that allows participants to post content without fear freely. Part of the evidence implicating LBRY was a tweet made by Grant Gulovsen, a digital asset lawyer, alleging the enlistment of a vendor to act as a market maker (or MM) and paying the sum of 40 million LBC. The SEC has been on a regular lookout for digital asset companies whose operations were outside the securities law of the U.S. by selling unregistered products to “vulnerable” investors. Among these is Block. One, Telegram, and Ripple.
Former SEC Chairman had stated that though bitcoin was a non-security, it still had to be regulated. Although he was “speaking as a citizen” while he was in office, he was always hot on the tail of fraudulent and unregistered ICOs. In his time in office, the SEC sued Ripple Labs and refused the approval of applications for any BTC exchange-traded funds. Clayton has stated that direct and indirect regulations had a part to play in what would drive the desired direction s digital assets. Meanwhile, Ethereum made an all-time-high after gaining a 5% increase in price, which was maintained for five days. Trading as high as $2,074 and surpassing its previous high. After Visa facilitated digital currency-based settlements on the Ethereum blockchain network, the digital asset experienced an 18% increase. The price increase of Ethereum this year is nearly triple its former price. So far, the growth rate of the digital currency has become astonishing enough for billionaire investor Mark Cuban to call it “the closest we have to a true currency.” The popular opinion indicates that Ethereum has outperformed Bitcoin in every way to date. Whether this is true is yet to be decided.
To meet the popular demand for the Ripple digital asset, they acquired a significant stake in the Asia-based cross-border payment specialist Tranglo. Ripple had stated that the purpose of the acquisition was to expand its RippleNet On-demand Liquidity Services. Ripple said that the payment landscape in Southeast Asia is highly fragmented. Each country has its payment infrastructure but lacks a standard integration for cross-border payments in the region. Tranglo stated that their partnership with Ripple was “…to provide On-Demand Liquidity to new markets…” this statement was made by Tranglo CEO Jackey Lee in a piece of news where he added that they aim to provide equitable and accessible financial services to the masses.
In the U.K., Her Majesty’s Revenue and Customs (HMRC) updated its guidance on the taxation of digital assets. The released guidance is almost identical to that on mining, but their separation paves the way for divergence in the future. This is the first guidance released by HMRC that describes in detail how to treat staking for taxation. This new guidance consolidates the previous separate guidance applicable to individuals and businesses into one manual. The new guidance states that tax on staking activities by any company will depend on what such actions amount to; an example is if it amounts to a taxable trade. However, regarding individuals, the HMRC has said that digital assets kept by individuals or businesses and then sold at a later time will be subject to Corporation Tax and Capital Gains Tax on Chargeable Gains. With this new guidance, it has become clear that fewer individuals and businesses would feign ignorance when they fail to adhere to the tax laws.
Meitu increased its total holding
The Second Week of April welcomed the case of Meitu, the Chinese application developer that increased its total holding of the digital coin to over 940 coins. This was after it successfully purchased an additional 175.6 BTC for $10 million. The company listed on the Hong Kong Stock Exchange had adopted a digital currency investment plan earlier this month and seemed to be putting it into action. As of this report, they held over 940 BTC and 31,000 ETH through similar investment on both digital assets. In the same Week, the Bank of Japan (BOJ) announced the possibility of laying out “common rules” around central bank digital currencies (CBDCs). According to the BOJ’s payment and settlement department Kazushige Kamiyama, the rules would serve as a foundation for efficiently making payments across borders. In the statement, he said that the rules would be more beneficial to countries with similar economic structures, just as the BOJ has made contact with six other major central banks. Among the seven other banks mentioned to be part of the collaboration are the European Central bank and the United States Federal Reserve.
Russia With Love!
The Bank of Russia announced a concept for digital rubles, which has been under severe contemplation since the year 2020. According to the report, the project will be ready by December of this year. The digital ruble will be a combination of centralized control by the Bank of Russia and a distributed ledger technology. Although they are yet to choose a DLT platform, all discussions on this aspect suggest that they are likely to build one of their own using open-source code. One of their intentions is to allow the settlement of transactions with smart contracts programmed on their platform upon fulfilling certain conditions.
The digital ruble uses a concept similar to that of the digital yuan, and digital wallets will be opened for commercial banks by the Bank of Russia. They will be given digital rubles in exchange for the fiat currency they have with regulators in their corresponding accounts. Also, in the bankruptcy of any bank, its digital ruble account opened for its clients will remain open and operate through other banks and financial institutions on the network. In the U.S., a default judgment was ruled against a Nevada corporation and an Australian citizen residing in the U.S. for a misappropriation scheme and a digital currency fraud. David Gilbert Saffron, the operator of Circle Society, was charged by the Commodity and Futures Trading Commission with the misappropriation of investor funds, registration violations, and fraudulent solicitation. His fraudulent solicitation of funds was from the participation of at least 14 individuals in an investment pool operated by the firm. Making false claims about his ability to trade and a guarantee of about 300%, he used the diverted funds to pay other participants just as a Ponzi scheme would.
Are digital currencies unsuitable for investors?
The chairman of the Monetary Authority of Singapore (MAS), Tharman Shanmugaratnam, had in the second Week said that digital currencies were unsuitable for investors. According to Shanmugaratnam, the digital asset market in Singapore is small when compared to shares and bonds. On the Singapore Exchange, the combined daily trading volume of BTC, ETH, and XRP was only 2% of its securities. Prime Minister Lee Hsien Loong was caught up in a token scam on Bitclout, a blockchain social media platform. In a photo shared by Prime Minister Loong on Facebook, about 27.3955 tokens were created for the account and priced at $357.85 per token.
Prime Minister Long urged citizens to “remain vigilant when dealing with (digital currency) platforms.” warning that when dealing with unregulated firms, they will not be protected by laws administered by MAS. With many central banks looking to digitize their currencies like China, the threat to the position of most greenbacks is nearly nonexistent. The digitization of central bank currencies may increase ‘the C3’, which is the command, control, and communication of money flow, and help fix issues like tax evasion. Therefore, the urgency of central bank digitization is yet to be seen, and while Federal officials in the U.S. might be studying it, they are not likely to make the first move.
Florida is starting to love Digital Currency
Florida has joined the list of states where the purchase of bitcoin has become a little easier. In a press statement released during the second Week, Coinme, a bitcoin ATM company, announced its expansion to about 300 locations, including Miami, Jacksonville, Tampa, and Orlando. In the statement, residents in these locations can now purchase bitcoin while going about their regular activities and make withdrawals through coins-to-cash converter Coinstar kiosks placed at select stores like Fresco y Mas, Winn Dixie, Harveys, and some others.
This move Coinme is part of their partnership with Coinstar in 2019 to allow shoppers at specific locations to buy bitcoin for cash. Already set up in over 40 states in the U.S., Coinstar’s change-counting machines can be located at gas stations, supermarkets, and convenience stores. With these machines, customers can convert their loose change into cash or gift cards to make donations to select charities.
In the Third Week, CI Global Asset Management and Purpose Investment were approved to launch an exchange-traded fund (ETF) in Canada. According to the announcement, the ETH will be in cold storage under the sub-custody of Gemini and the fund administration of CIBC Mellon Global Securities. Purpose manages the Purpose Ether ETF while Ether Capital Corporation consults. The CI Galaxy Ethereum ETF is set to be launched on April 20 on the Toronto Stock Exchange (TSX) under management by CI Global Asset Management at a charge of 0.4% for management.
With this, the Galaxy Digital Asset Management is to serve as a sub-advisor. According to reports, the approval is a little over two months after Purpose Bitcoin ETC, which had 10,064 BTC in its First Week of trading, was approved. And in the U.S., the approval for the bitcoin ETF has been piling up with hopes for a change in the attitude of the regulatory agency towards the investment product. Many believe that bitcoin getting a lot of attention is because it was the first primary digital currency, and Ethereum’s ether represents a new economic ecosystem. According to the founder and CEO of Purpose Investment, the launch of this first ETF allows investors to access this unique ecosystem and the opportunities that come with it.
COAL PLANTS PLAY INTO BITCOIN MINING
During the Week, also, bitcoin miners in the Xinjiang region of China were handicapped as the region experienced disruptions in its coal plants. This handicap cause as many as 35 exhausts to be clipped from the Bitcoin system’s global hash rate. The shutdown came after mining accidents in the Xinjiang, Shanxi, and Guizhou provinces. The mining accidents have left nearly a dozen dead and about 21 people trapped. These regions, which have been hot spots for bitcoin miners in China, reportedly supply cheap hydro energy. This incident causes a slight delay in block time for the next couple of weeks or less. During this third Week, Celo added Dick Parsons, the former Citigroup Chairman as the first member of its external board. Celo, which is built on the Ethereum blockchain, is a proof-of-stake with the design to support tokenized assets and stablecoins, using phone numbers as a way to secure the public keys of its users. This move, according to them, is to also cater to the many without access to financial tools and services. Many believe that the addition of Parsons to the group is an enormous advantage to Celo, given his rich experience and deep understanding of global economics and traditional finance.
Meanwhile, there has been a dismissal of the possibility of the digital yuan from China undermining the status of the U.S. dollar as the reserve currency for the world. This dismissal came from the head of payments for the Bank of Japan (BOJ) Kazushige Kamiyama. The report from Sunday, April 10, about the trouble of the Biden administration of the long-term effects of China’s digital yuan on the status of the dollar indicated that the U.S. officials were increasing efforts to the impact of the digital yuan on trade sanctions. This could be seen from the kickoff of the first phase of the CBDC experiment done by the Bank of Japan. However, there are still some concerns about privacy issues that worry the BOJ. With the many events from the Week centered around Defi and the appointment of board executives, Friday came with the announcement of former Goldman Sachs executive Michael Daffy as the new Chairman of Galaxy Digital. The investment management firm already trading on the Toronto Stock Exchange (TSX) plans a bold move into the U.S. stock market. This move was made in preparation for the firm’s U.S. public stock offering. Reports state that the U.S. exchange listing will be done in the second half of the year.
REPUBLIC OF TURKEY DIGITAL CURRENCY
Another country’s central bank joins the list of digital currency banning central banks. The Central Bank of the Republic of Turkey released a press statement on Friday that it will be restricting the use of digital currencies for payments throughout the country. News of this caused a fall in the price of bitcoin by 2.69% to about $60,868.91 as of the time of the said report. The ban, issued as the “Regulation on the Disuse of Crypto Assets in Payments,” appears not to affect digital trading currencies.
These moves of prohibiting the use of digital currencies by some countries have raised serious concern on the wisdom of investing in digital assets due to the possibility of more countries following suit. The ban by the Central Bank of the Republic of Turkey comes after the Turkish lira faced selling pressure from outside and plunged into foreign exchange markets. This pressure came after Naci Agbal, the nation’s top banker, was fired by President Recep Tayyip Erdogan back in March. The prohibition is targeted explicitly at using digital currencies as payments for goods and services and the provision of electronic money issuance and payment services. Although, many blame the government for its inability to control and effectively monitor volatility, excessive markets, and digital currencies in illegal activities.
Dogecoin, which seemed to be making waves in recent weeks even without much noise, appeared to record a new high on Thursday of the third Week. This new record came after smoked meat stick vendor Slim Jim announced his official dogecoin strategy, which appears to be working. This news also increased the Twitter followers and impressions, which soared to about 35 million images in 25 days after the start of its engagement in Shiba Inu meme coin content in the last quarter. With how the digital currency community is prone to hypes recently, Connolly had given credit to the dogecoin community who, according to him, “played a large part in delivering Slim Jim the ultimate win in Adweek’s March Madness-themed brand face-off earlier this month.” Many believe that with this, doge has managed to stay true to its roots as an objectively ridiculous meme coin. It is also the first hype of the dogecoin recently that is unrelated to Elon Musk’s memes.
As the month came to a close, Ethereum mining experiences its first rise in gas limit. The limit, which was raised to nearly 15 million, aims to relieve the congestion experienced during a transaction. This rise in limit met an increased price in the ether by 2.8% at $2,456. With the increased limit, there is bound to be a change in how many operations can be carried out per block. This block space is limited. Hence, the increase in gas fees is due to the increasing amount of on-chain activity on the network. The nature of transactions determines fees, and they can range from a few dollars to some hundreds of dollars. But, because larger blocks require more processing energy, they are likely to split, resulting in orphaned blocks and chain splits. The intention of miners to raise the gas limit from 12.5 million to 15 million has been brewing since the last hard fork experienced by the blockchain. Now miners and traders alike are looking forward to the changes and how much they can benefit from this. Bitcoin had the “first breakdown of widely tracked technical line in six months” as the most prominent digital currency. This was after trading below the 100-day Simple Moving Average at average support of $49,470. The breakdown came after the digital currency had recorded a new high of $64,000. Doge, which has been in the limelight lately, dropped by almost 25%, while some others experienced drawdowns of about 13% to 19% against the 11% drop in bitcoin price.
It is believed that most traders are worried about taxes and other regulations, which is a pressure from the Biden administration. Most of the information was released on Thursday and began affecting the market just before the weekend. Regardless, there is still hope that bitcoin might regain its uptrend in the coming days after dropping by 25% since the debut of Coinbase on Nasdaq on April 14. The Turkey police department on Thursday detained about 62 individuals connected with complaints filed against digital exchange Thodex. This report came from the Anadolu Agency, which stated that the exchange went offline on April 18 after which its CEO Faruk Fatih Ozer went missing. According to the state-controlled news agency Reuter, prosecutors had issued arrest warrants for about 78 individuals while about 62 have been detained so far. A report from the Anadolu Agency stated that help was being sought by the Turkey Ministry of Justice from Interpol in the finding, confining, and returning of Ozer from Albania to Turkey. The exchange announced that it would be undergoing some maintenance from the 18th to April 19, later told that it would be going offline for about five days. This prompted the filing of complaints by its users, who alleged that some hundreds of millions of dollars had been stolen on Thursday. This incident comes right after the Central bank had announced banning the use of digital currencies as a means of payment. There are doubts whether this will affect the thrive of digital assets in the country as even the ban hardly affected it.
KGB GETTING INTO DIGITAL CURRENCY
Unusual Russian millionaire, former KGB officer in the Soviet Union, and Prominent Banker in post-Soviet Russia, Alexander Lebedev, seem to be edging towards the digital asset world. According to Lebedev, his attraction to digital currencies is their ability to bypass the banking industry where he had made his millions. Before now, most of his investments were fiat-funded until his talk about his new digital enterprise, “Smartbank,” which takes advantage of decentralized finance (DeFi). Named billionaire by Forbes back in 2012, he invested in several media companies in Russia and the United Kingdom. Lebedev believes that digital assets should “…eliminate bank structures which facilitate fraud.” On Thursday, the Central Bank of Norway announced its readiness to begin testing technical solutions over the next two years for a central bank digital currency (CBDC). The Norges Bank’s research into CBDCs has been on for four years, and this move shows its confidence in moving on to the next step, which is “technical Testing”. This technical testing, according to them, will involve a more in-depth analysis of the implications of CBDCs on the economy of the country. The Norges Bank Governor Oystein Olson believes that before the issuance of CBDCs can be considered appropriate, additional knowledge would be required.
Although no timeline has been announced for the launch of this CBDC, the bank has stated that it is still some time in the future. Earlier this month, the Bank of Japan announced its plan to begin the first phase of its experiment with CBDC. For the past two months, central banks in several countries have promoted potential experiments on CBDCs. Currently, the country with the most advancement in CBDC is China which has been pioneering with its test on platforms for the trade of the digital yuan along with other fiat currencies. The largest Bitcoin mining hubs in China face severe headwinds from regulators, which is likely to affect hash-rate production and the power to mine bitcoin. According to some estimates, China contributes over 65% of the world’s total bitcoin hash rates. As the most significant contributor to the bitcoin hash rate, China’s regulatory environments are likely to significantly affect the global bitcoin market. On April 10, a coal mining accident that had trapped about 21 miners caused a suspension and conducting of inspections on other coal mines in the region by the Xinjiang government. Inner Mongolia, which is only second to Xinjiang in terms of fire power-based digital mining hub, became the forefront of a nationwide campaign. According to the National Development and Reform Commission (NDRC) in Inner Mongolia on February 28, all digital mining operations in the region would be shut down and eliminated by the end of April. As the new month approaches, traders’ nervousness is apparent and can be seen in the market’s sentiment. Traders and investors are in high hopes, and as they anticipate the coming month, many eyes are on the various digital assets, especially Bitcoin.
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