What happened this week around blockchain and cryptocurrencies? The most relevant local and international events as well as appealing background reports in a pointed and compact weekly review.
Selected articles of the week:
Two weeks ago, BlackRock surprised the industry by submitting an unannounced spot-based Bitcoin ETF. This is notable because the Securities and Exchange Commission (SEC) has consistently refused to approve a Bitcoin fund based on spot markets for years. The application from the world’s largest asset manager seriously challenges this stance. In response, a handful of other providers have re-entered the race. Fund companies such as ARK, WisdomTree, Invesco, VanEck, and Bitwise have submitted new applications to the SEC, and this week the third-largest asset manager, Fidelity, also re-applied. With a high-profile lineup, the pressure on the SEC is mounting. Adding to this is an ongoing lawsuit with Grayscale, where Bloomberg analysts estimate a 70% likelihood of the outcome favoring the crypto conglomerate. A loss for the SEC would mean court-ordered conversion of the Grayscale Bitcoin Trust (GBTC) into a spot ETF. That’s why some market observers speculate that the agency is seriously considering approving the current ETF requests from BlackRock & Co. As of Friday, the SEC has ordered all applicants to submit additional information regarding their Bitcoin ETFs. A decision could be made as early as August.
Another indication of a loosening in SEC regulations is the approval of the first leveraged Bitcoin fund. The product issued by ETF issuer Volatility Shares tracks the double performance of the S&P CME Bitcoin Futures Daily Roll Index. Therefore, the “2x Bitcoin Strategy ETF” is also a fund based on CME futures markets. However, the approval of this product is noteworthy nonetheless. Leveraged products are generally considered riskier for investors, and the “BITX” fund is likely to be one of the most volatile ETFs in the United States. The timing of the fund’s approval is also notable.
Central bank digital currencies (CBDCs) refer to digital money issued by a central bank. CBDCs are primarily designed for use among major banks and promise to enhance the efficiency, security, and transparency of payment systems. As a governmental response to the prevalence of stablecoins in the crypto ecosystem, CBDCs aim to enable faster transactions, reduce counterparty risk, and promote better interoperability between financial institutions at both the national and international levels. This endeavor has caught the interest of the Swiss National Bank (SNB), which plans to launch a digital currency based on “real central bank money” on the SIX Digital Exchange (SDX) as part of a pilot project. The project is expected to commence later this year and aims to showcase the advantages and disadvantages of CBDCs for payment settlement among commercial banks. However, the idea of a retail CBDC for private users has been rejected once again.
Internationally, central banks are also increasingly experimenting with digital representations of their currencies. The Bank for International Settlements (BIS), as an intergovernmental central bank organization, is attempting to coordinate these efforts. In a comprehensive report, the “central bank of central banks” presents a concept for an international CBDC infrastructure. The BIS aims to establish a “Unified Ledger” that serves as the foundation for digital currencies (CBDCs), securities transactions, and digital identities. Encryption technologies would ensure appropriate data protection.
In addition: The multibillion-dollar insolvency cases of the past year revealed the negligent and criminal handling of customer funds by various crypto service providers. This week, the list grew longer due to the situation of US-based crypto custodian Prime Trust. The trust company provides services to several crypto exchanges, digital wallets, broker-dealers, and neobanks. However, according to regulatory authorities in Nevada, Prime Trust is unable to fulfill all customer withdrawals. Significant liabilities on the custodian’s balance sheet have led to a critical deterioration of its liquidity. The regulator estimates the deficit at around $12 million USD, initiating the bankruptcy process for the company.