Value – cash vs crypto
With some managers predicting a decline in the value of cash and correlated inflation, digital asset players see an increasingly important role for crypto in society. Below we set out some extracts from an interview with Ray Dalio and an update on measures being considered by the Bank of England
Bank of England consideration of role of private cryptocurrencies in the future of money
On 7 April 2020, during a BoE webinar, it was announced that BoE analysts are working on the U.K.’s central bank digital currency (CBDC) initiative and that there is a possibility that private companies could play a much larger part in the issuance and distribution of money. The BoE has previously stated that bitcoin and other similar cryptocurrencies do not meet the necessary criteria to be considered money; however CBDC analyst Ben Dyson commented that it may be possible for an improved technology to be created which better fulfills the qualities of money. By way of example, there have been proposals from large technology firms to build payments systems and crypto-assets that could function more as stable money. The BoE stated that it might introduce new risks into the monetary system and that private currencies could work alongside any future CBDC initiative if they offered real utility.
Founder of world’s largest hedge fund doubles down on ‘cash is trash’ argument, warning of debt-fueled inflation
Marketwatch quoted Ray Dalio as saying:
“I believe that increasingly there will be questions by bondholders who are receiving negative real and nominal interest rates, while there is a lot of printing of money, about whether the debt assets they are holding are good storeholds of wealth. I believe that cash, which is non-interest-bearing money, will not be the safest asset to hold”.
During a question-and-answer session on social-media platform Reddit, the founder of hedge fund Bridgewater Associates underscored a point that he has made in the past, but one that has more resonance with the impact of COVID-19. In January 2020, in an interview with CNBC, Dalio made a similar call, saying “cash is trash”. Dalio defended his skepticism toward cash by reference to the 1930-1945 period. He stated “interest rates have hit 0% and printing money and buying financial assets doesn’t get the money and credit to go where policy makers want it to go, so the central government borrows a lot and the central bank prints a lot of money and creates a lot of credit to buy this debt, which the central government spends to target what they want to save.”. Marketwatch comments, to Dalio’s point, the Federal Reserve unleashed a virtually limitless bond-buying program and an array of new facilities to help ease market pressures and cut federal-funds rates to a range of 0% and 0.25%. Meanwhile, President Donald Trump signed a more than $2 trillion relief package for workers and companies affected by COVID-19 into law on March 27. Dalio commented,
“I think that the [low-inflation] paradigm that we are in will most likely end when a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better and b) simultaneously, the large need for money to fund liabilities will contribute to the ‘big squeeze,…at that point, there won’t be enough money to meet the needs for it, so there will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increase,”. Dalio warned of the grave implications of this dynamic: “these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots.”
IOSCO publishes report on global stablecoins
Global stablecoin initiatives may, depending on their structure, present features that are typical of regulated securities or other regulated financial instruments or services. The IOSCO paper identifies possible implications that global stablecoin proposals could have for securities market regulators.
The report includes some background to the genesis and development of the paper, together with an overview of different stablecoin and a hypothetical case study then explores how existing IOSCO Principles and Standards could apply to global stablecoin. Finally, the paper undertakes an assessment of the broader implications for securities regulators. In parallel, together with the CPMI, IOSCO has carried out a separate preliminary analysis on the application of the CPMI-IOSCO Principles for Financial Market Infrastructures (PFMI). The CPMI-IOSCO Analysis concludes that the PFMI apply to global stablecoin arrangements where such arrangements perform systemically important payment system functions or other FMI functions that are systemically important; and could therefore apply to the Hypothetical Case Study. IOSCO has established a Stablecoin Working Group within its Fintech Network to consider and evaluate global stablecoin proposals from securities market regulators’ perspectives. This report is IOSCO’s first published contribution to the ongoing public debate at international organisations and standard-setting bodies on global stablecoin proposals. IOSCO states that the Stablecoin Working Group will continue to assess key issues arising from the analysis in this paper and emerging stablecoin proposals. IOSCO encourages a globally coordinated cross-sector response to the international regulatory challenges posed by global stablecoin proposals.
BaFin provides information on licence applications
The German regulator, BaFin, has published its guidelines on applications for authorisation for crypto custody business. Since the implementation of the fifth Anti-Money Laundering Directive on 1 January 2020, in Germany many tokens and coins now come under the definition of crypto assets. BaFin explains that, the safekeeping, administration and securing of crypto assets as crypto depository service is now a financial service subject to authorisation. As a result the provision of crypto depository service must apply for a licence.
Applications can be submitted until 30 November 2020.
Italian Bitcoin-funded Coronavirus Medical Centre
According to Crypto News, a successful bitcoin funded campaign to build and equip a coronavirus-fighting medical facility near Rome, run jointly by the Italian Red Cross, has completed and the medical centre is now open. The campaign saw what the Italian Red Cross has called a “second-level Advanced Medical Post for pre-triage” created in Castel Gandolfo, a town 25km from Rome, by the Italian Red Cross’ Colli Albani Committee. An initial campaign – co-run by blockchain-powered donations platform Helperbit – to construct the “purchase the core infrastructure and medical equipment” for “COVID-19 pre-triage,” and provide medical staff with personal protective gear met and exceeded its original USD 11,000 target. <h2 id=”heading-5″>A second target of BTC 4.1024 (around USD 30,000) was then set, which would provide the funds needed to add the capacity to host emergency operations – and fit the center with life-saving equipment, including a defibrillator and diagnostics monitors. That second target’s deadline expired on April 9, and saw a total of BTC 5.0192 (around USD 36,776) raised, 32% over target for the total. In a Helperbit blog post, Bruno Pietrosanti, The Italian Red Cross’ Colli Albani Committee president, extended his thanks to the crypto community, stating: “We are happy to have turned the received donations into a tangible aid and we are excited to have received so much help from the Bitcoin community.” A total of 158 donors gave BTC funds, per campaign data, with individual and corporate donations ranging in size from fractions of a bitcoin to a one-off anonymous injection of BTC 2.6406 (around USD 19,352).
Dutch Brokerage Launches Crypto Trading for the Euro Market
On 8 April 2020 BUX, a brokerage platform based in Amsterdam, issued a statement announced that it has launched “BUX Crypto” a digital assets trading platform.
Earlier in 2020, BUX acquired the defunct crypto exchange, Blockport, which declared bankruptcy in a court in Amsterdam in 2019. Coindesk commented that “the acquisition has paved the way for the brokerage platform to begin offering cryptocurrencies to European traders, pending regulatory approval by the Dutch central bank, De Nederlandsche Bank.”
Nick Bortot, CEO and founder at BUX is quoted by Coindesk as saying, “We see BUX Crypto as a natural extension of our current lineup … for even the newest investor to get into the financial markets,”
The new platform will allow traders to buy and sell bitcoin (BTC), ether (ETH), XRP (XRP), bitcoin cash (BCH), litecoin (LTC) and BUX Tokens (BUX) using euros.
Claire practises financial services law with a focus on regulatory issues, cryptocurrencies and tokens, trading and brokerage documentation and advising both existing and start-up funds and fund managers.
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