Chasing the hottest trends in crypto, the EU works to rein in stablecoins and DeFi
In cryptoland, the fall tends to be regulators’ open season. As unprecedented as it’s been, 2020 is no exception to this trend. Tensions are high on both sides of the Atlantic: As markets were still processing the news of the United States Commodity Futures Trading Commission cracking down on derivatives exchange platform BitMEX, the Financial Conduct Authority, the British financial watchdog, moved to ban retail investors from using cryptocurrency derivatives altogether.
The densely packed news cycle has somewhat muffled the impact of another regulatory bomb that dropped a week earlier and is bound to have major lasting effects on the global financial system: The European Union’s proposed legislation for crypto-asset markets.
The far-reaching framework, designed to bestow regulatory clarity upon digital finance businesses serving residents of the European Economic Area, is bound to be especially consequential for two interconnected domains of the crypto industry that have dominated the narrative throughout much of 2020: stablecoins and decentralized finance applications. What gives?
Stablecoins as a threat to stability
At the moment, the draft, known as the “Regulation on Markets in Crypto-assets,” or MiCA, exists in the form of a proposal put forth by the European Commission, the EU’s executive branch. It is still bound to go through a rather lengthy legislative process before it becomes law, meaning that it might take months and even years before the new rules kick in.
The text makes it apparent that stablecoins, which are also called “asset-referenced tokens” and “e-money tokens” in the document, have been squarely at the top of European lawmakers’ minds: MiCA singles out this asset class and affords it a bespoke regulatory framework.
Under the proposed law, stablecoin issuers will have to be incorporated as a legal entity in one of the EU member states. Other requirements include provisions related to capital, investor rights, custody of assets, information disclosure and governance arrangements.
Albert Isola, the minister for digital and financial services of Gibraltar, explained to Cointelegraph that the reason for the European Commission’s heightened attention to stablecoins is the authority’s concern for the Eurozone’s financial stability:
Stablecoins are widely considered to potentially bring significant benefits as a digital method of payment, providing for greater financial inclusion and a more efficient method of transferring funds. They are also viewed as a potential risk to financial stability and integrity and could dilute the effectiveness of monetary policy. It would appear logical that the European Union may not welcome an entity other than the European Central Bank issuing Euro in an electronic format.
Isola mentioned that “disruptors,” such as the prospective stablecoin Libra, have the potential to significantly decentralize the control of currencies.
Seamus Donoghue, vice president for sales and business development at digital finance infrastructure provider Metaco, cited the impressive growth of the stablecoin market in recent months as a prerequisite for regulatory attention, which he called a “positive response”:
The USDC stablecoin’s market cap alone has grown 250% in 2020 from $520 million to $1.86 billion, with a significant acceleration in growth over the last two months. Bank regulators have no doubt also observed that although the asset class in the context of the traditional payments space remains relatively small, it has the potential to have a huge impact on regulated banks and payments incumbents.
The specter of Libra
Illustrating the depth of the top EU officials’ concern over preserving the union’s monetary sovereignty is the fact that, earlier in September, “finance ministers of Germany, France, Italy, Spain and the Netherlands issued a joint statement outlining that stablecoin operations in the European Union should be halted until legal, regulatory and oversight challenges had been addressed,” said Konstantin Richter, CEO and founder of the blockchain infrastructure company Blockdaemon.
Richter added that some of the more visible figures in European financial policy, such as the German minister of finance, Olaf Scholz, have advocated for the introduction of the regulatory framework.
Most experts who talked to Cointelegraph mentioned Facebook-backed stablecoin Libra as the point of departure in the EC’s thinking about the dangers and opportunities that asset-referenced tokens present.
MiCA opens with an explanatory memo that discusses how the crypto asset market is still too “modest in size” to pose a serious threat to financial stability; however, things can change, the framers admit, with the advent of “global stablecoins, which seek wider adoption by incorporating features aimed at stabilizing their value and by exploiting the network effects derived from the firms promoting these assets.” There has been a single stablecoin project to this date falling into the scope of this description: Libra.
Mattia Rattaggi, board chairman at FICAS AG — a Swiss-based crypto investment management firm — opined that stablecoins are the application of blockchain technology with the highest probability of big impact — something regulators are well aware of:
Stablecoins have grasped the attention of regulators over 12 months ago with the presentation of project Libra by Facebook and have since been closely monitored by the public and regulators around the world. Regulators are realizing that stablecoins are bound to increase efficiency in the payment system — particularly the international one — and promote financial inclusion.
Further hedging against the potential disruption of the Eurozone’s monetary stability, the MiCA proposal specifies even stricter compliance requirements for issuers of asset-referenced tokens deemed “significant.” The significance criteria include the size of the customer base, market cap, volume of transactions, and even “significance of the issuers’ cross-border activities and the interconnectedness with the financial system.”
Bad news for DeFi?
Stablecoins largely power another sprawling domain of crypto financial activity: a diverse array of applications and protocols that exist under the umbrella of decentralized finance. Given the stringency of the proposed requirements around asset-referenced tokens, it is plain to see how complicated things can get if, say, the bulk of liquidity locked in a certain decentralized protocol is denominated in a stablecoin that is not compliant by the MiCA standards.
Another major source of uncertainty is the requirement for all crypto-asset service providers, or CASPs, seeking authorization to operate in the EU to be legal entities with an office in one of the member states. Whether the European authorities will treat individual DeFi apps as CASPs remains an open (and central) question, but if this is the case, developer teams maintaining DeFi protocols might be forced to come up with workarounds that will stretch the notion of “decentralized” incredibly thin.
In their response to the proposed regulation, members of the International Association for Trusted Blockchain Applications expressed their concern that MiCA could effectively bar European residents from participating in DeFi markets.
Martin Worner, the chief operating officer and vice president of blockchain tooling provider Confio, believes that compliance issues could be resolved by implementing on-chain governance mechanisms tailored to specific jurisdictions’ regulatory frameworks:
[This could be] achieved within a self-sovereign framework where the institutions can develop compliant DeFi instruments, which work within their jurisdictions. Just as there are rules about businesses in different jurisdictions and how they do cross-border transfers, the same would apply on the blockchain.
Elsa Madrolle, international general manager at blockchain security company CoolBitX, told Cointelegraph that by the time MiCA becomes law, the DeFi landscape will have likely changed, much as the ICO landscape changed rapidly after the initial boom. By that time, “it will be quite clear what is required of DeFi projects to operate in the EU or seek out EU customers.”
Madrolle thinks that at that point, DeFi projects will fall into one of two categories — regulated and unregulated — and the big question will be whether the rest of the world will align itself with the European framework.
Nathan Catania, a partner at XReg Consulting — a regulatory and policy firm that has recently published a breakdown of the proposed regulatory framework — is hopeful that it is possible for regulators to reconcile MiCA requirements with not regulating DeFi out of existence. Catania said:
I believe that a project which is sufficiently decentralized and does not provide the service on a professional basis to a third party cannot be considered a CASP and there is still room for DeFi projects to exist.
Today, many DeFi protocols are far from being fully decentralized. The battles over how much decentralization is good enough are still ideological and are primarily fought inside the crypto bubble. It looks like the day when regulators join this debate will come, but with some very tangible implications for crypto businesses.
Record fundamentals and a $12K pump: 5 Bitcoin price tips this week
Bitcoin (BTC) starts a new week in familiar territory as markets move into the United States’ 2020 elections — where could it go next?
Cointelegraph takes a look at five factors that could influence BTC price action in the week ahead.
The U.S. is the firm focal point when it comes to macro markets this week. The Nov. 3 elections promise to set the mood as it becomes more apparent which side will control the White House.
Analysts have warned that a Democrat win would dent the dollar, the long-term prospects for which are already shaky. Donald Trump’s reelection, however, would not be enough to keep the greenback out of danger, Goldman Sachs said last week.
By extension, calls are coming for safe-haven gold to make serious progress upwards after November — regardless of the election outcome. For others, however, it is Bitcoin that will profit more impressively.
The dollar’s strength remains on the radar of Bitcoiners thanks to the inverse correlation between BTC/USD and the U.S. dollar currency index (DXY). Despite this correlation becoming less apparent in recent weeks, a sudden weakening of USD has the potential to be a boon for the largest cryptocurrency.
U.S. dollar currency index 6-month chart. Source: TradingView
Not only elections, meanwhile, but what comes before is a topic of interest. Specifically, fresh hints have come over a Coronavirus stimulus deal being done before polling day.
Should this occur, several trillion dollars of liquidity will add to the burgeoning U.S. debt pile, with Americans seeing perks such as another $1,200 stimulus check.
In Europe, the picture revolves around the European Central Bank’s (ECB) own response to the Coronavirus, which continues to tighten its grip across the continent.
Speaking to French newspaper Le Monde on Monday, ECB president Christine Lagarde said that more financial tools were left to be deployed to support the eurozone if necessary. In addition, the ECB’s $878 billion recovery fund should become a permanent feature.
The bank’s Coronavirus stimulus program amounted to €1.5 trillion in asset purchases.
“The options in our toolbox have not been exhausted,” she said.
“If more has to be done, we will do more. On taking up my position, I was told that there was nothing left for me to do, that everything had been done. But that was clearly not the case!”
The potential for instability in the eurozone is compounded by Brexit, which is increasingly heading towards the “no deal” walk out of the bloc by the United Kingdom.
When prime minister Boris Johnson announced the likely outcome of the process last week, however, markets barely reacted to the news.
Bitcoin stayed practically rangebound over the weekend, with only a brief spike above $11,500 contrasting the flat activity.
Despite this, on a technical level, signs of record strength continue pouring in this month. The difficulty, which provides an estimate of miner competition and network security, is now back at all-time highs.
Two days ago, the latest readjustment saw difficulty increase by a larger-than-expected 3.5%.
At the same time, the hash rate also climbed to a new average all-time high on Monday. At press time, the estimated computing power dedicated to mining stood at 146 exahashes per second (EH/s).
As Cointelegraph often reports, the popular theory that price follows hash rate remains firmly in force as miners are more bullish than ever on Bitcoin as a long-term investment prospect.
Bitcoin 7-day average hash rate 1-month chart
For Cointelegraph Markets analyst Michaël van de Poppe, a pivotal price transformation for Bitcoin is becoming more and more plausible.
In his latest video update on Sunday, he highlighted that several years of weekly closes below the significant resistance level of $12,000 should soon come to an end.
Since the start of the bear market in early 2018, $12,000 has formed a rejection point for the weekly chart, but consolidation below cannot last forever, Van de Poppe argued.
“It’s very likely that we’re going to make a rally towards the area of $16,000 to $17,000 as that’s the obvious level and the final hurdle for Bitcoin to start breaking all-time highs,” he summarized.
Such a move would be followed by another consolidation period which could well be longer in duration than the current one. Nonetheless, if a bull market materializes, it will be Bitcoin-fuelled.
“The main driver of the next bull market will still be Bitcoin,” Van de Poppe added, recommending that viewers make an effort to accumulate BTC even in the $16,000 range.
“$11,400 is still a very cheap price per Bitcoin,” he added in a tweet.
BTC/USD 7-day price chart. Source: Coin360
In line with gradually increasing price strength comes investors sentiment, which according to one indicator is getting greedier.
In its latest market reading, the Crypto Fear & Greed Index is back in “greed” territory, having edged up from “neutral” over the past week.
This suggests that sentiment among Bitcoin investors is anticipating a bullish advance, but there’s a caveat — if price increases too fast, “greed” will become “extreme greed,” under which circumstances the Index says a correction is much more likely.
Crypto Fear & Greed Index as of Oct. 19. Source: Alternative.me
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Huobi partners with Banxa to expand fiat services
One of many world’s largest digital currency exchanges, Huobi World, is increasing fiat choices for its customers within the European Union, the U.Okay. and Australia. Huobi partnered with Banxa, a fiat-to-digital forex cost service, to permit its customers to purchase digital currencies with their nationwide currencies.
With the partnership, Huobi customers in Australia, the E.U. and the U.Okay. will now be capable of purchase digital currencies on Huobi’s over-the-counter platform by way of cost strategies accessible of their respective areas.
Huobi customers will likely be allowed to buy as much as $20,000 price of digital currencies in AUD, EUR or GBP. They will immediately fund their Huobi accounts by way of financial institution transfers, credit score and debit playing cards and different most well-liked cost strategies, all at zero charges.
For U.Okay. customers, the service will likely be accessible by way of Sooner Funds, an initiative by the nation’s banks to scale back cost time between totally different banks to only a few seconds from the standard three enterprise days. For the bigger E.U. area, the service will likely be accessible by way of the Single Euro Funds Space (SEPA) initiative that seeks to make cross-border transfers sooner and cheaper.
That is the newest transfer by Banxa in its development because it continues to accomplice with main digital forex exchanges to reap the benefits of handy fiat-to-digital forex cost rails. In July 2020, the Australian firm revealed that it was increasing into North American markets. Banxa partnered with U.S. agency Zero Hash for the transfer, with the latter offering the regulatory and technical experience wanted to navigate the U.S. market.
Banxa’s success is partly resulting from its willingness to work with regulators, its founder and non-executive chairman Domenic Carosa revealed throughout CoinGeek Stay. In a panel discussing the future of compliance for digital currency service providers, Carosa referred to as on regulators to get their act collectively and undertake a standard method globally as this could foster higher relations with the trade.
Carosa additionally introduced through the occasion that his firm had built-in Bitcoin SV on all its platforms. BSV is now accessible on the Banxa platform, which makes the unique Bitcoin accessible to lots of the world’s largest exchanges, in addition to on Banxa’s different websites corresponding to Bitcoin.co.uk.
Watch Domenic Carosa on the CoinGeek Stay panel, Digital Forex & World Compliance: Instruments & Ideas for Exchanges, Wallets & Different Service Suppliers.
New to Bitcoin? Try CoinGeek’s Bitcoin for Beginners part, the last word useful resource information to be taught extra about Bitcoin—as initially envisioned by Satoshi Nakamoto—and blockchain.
Bitstamp To Present Crime Insurance coverage for Crypto Asset Security
European crypto agency Bitstamp introduced an extra insurance coverage coverage through a worldwide market to assist safe the digital property of its customers. The insurance coverage coverage comes through Lloyd’s of London.
On Thursday, the crime insurance coverage coverage grew to become accessible to the customers. It safeguards the offline storage accounts or chilly wallets towards direct loss and theft. The deal can be organized by the Llyod’s of London and underwritten by UK crypto specialist dealer Paragon Worldwide Insurance coverage Brokers and Woodruff-Sawyer & Co.
Conventional establishments usually keep away from cryptocurrency and associated merchandise. Nevertheless, Llyod’s of London, one of many oldest insurance coverage companies on the earth, is working to offer digital asset insurance coverage to the customers. Insurance coverage is often scarce for digital property held at custodian exchanges. Nevertheless, the insurance coverage companies are regularly opening as much as the potential for offering chilly storage to the customers.
Crypto wallets have been tender targets for hackers who wish to entry a centralized single level of failure which makes them susceptible to safety points.
Bitstamp is already offering crypto insurance coverage to its customers. It shops 98% of its digital property with BitGo’s chilly storage services. This helps stop towards hacks, lack of keys, and insider theft by workers. BitGo gives as much as $100 million covers for crypto property held of their accounts. With the brand new insurance coverage coverage, Bitstamp will be capable to present an additional layer of safety that gives higher safety to customers in crime-related circumstances like a loss in transit, loss brought on by pc fraud, fund switch associated frauds, worker theft, lack of on-premise property, and loss associated to authorized charges and bills.
World head of enterprise growth at Bitstamp, Miha Grcar commented on the insurance coverage and mentioned, “Introducing an extra crime insurance coverage coverage permits us to increase protection to the property held at Bitstamp and to guard our clients in a big array of eventualities they could discover themselves in.”
BitGo is providing multi-signature expertise wallets to customers which have develop into widespread amongst crypto exchanges who demand enterprise-grade custody companies.
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