What has been happening around Blockchain Technology and Cryptocurrencies this week? The most relevant local and international developments as well as appealing background reports in a pointed and compact weekly review.
The largest hedge fund in the world, Bridgewater Associates, recently attested Bitcoin several attractive features. This is especially noteworthy given that founder Rai Dalio once described the cryptocurrency as a “bubble”. Nowadays, a portfolio of traditional assets no longer offers the diversification it used to. In fact, many government bonds no longer provide the returns they once generated. As a general rule, the ultimate goal of a well-diversified portfolio is to maximize returns while protecting against large market swings. Bridgewater argues that Bitcoin’s attractiveness is on the rise in light of the current global macro environment, making the digital currency an effective fit for a diversified portfolio. However, despite the increasing activity in the sector, many institutional players are still unsure how best to utilize digital assets and their ecosystem. Financial institutions that embrace the topic now will be well positioned to take a leadership role in the industry.
Traditional exchanges are responding to the growing demand for digital assets and are expanding the range of tradable instruments accordingly. Back in September 2019, Bakkt, a subsidiary of the Intercontinental Exchange (ICE) Group introduced bitcoin futures in the United States. ICE Group is among the largest exchange operators in the world. Exactly two years later, the leading European derivatives exchange EUREX is following suit. On September 13, the launch of a “Bitcoin ETN Futures” will create the first regulated market for Bitcoin-related derivatives in Europe. The underlying Bitcoin ETN (ETN=exchange traded note) is fully collateralized by Bitcoin and also redeemable against Bitcoin. The new futures contract will be traded in euros and physically delivered in bitcoin ETNs. Meanwhile, Deutsche Börse has already expanded its crypto ETN offerings by adding Ethereum, Bitcoin Cash and Litecoin ETNs on Xetra.
The regulatory environment in the US has not always favored the crypto industry. The $1 trillion infrastructure package with its accompanying infrastructure bill has caused a stir because of its monumental position. The comprehensive bill is the first which directly addresses cryptocurrencies. The relevant part of the infrastructure bill impacting the crypto industry is a provision that would impose stricter government regulation on digital assets. The new regulations would significantly expand the number of cryptocurrency participants that are required to report to the Internal Revenue Service (IRS). Within the crypto community, there is concern that the wording could result in software developers and blockchain transaction validators being classified as crypto brokers. The 27th of September will be a defining moment for cryptocurrencies in the United States.
Originally founded as a fun cryptocurrency, the coin with a dog’s head as its brand is making a serious comeback lately. Created by Billy Markus, an IBM programmer, and Jackson Palmer, an Adobe programmer, the “fun and friendly Internet currency” DOGE was intended as a parody of Bitcoin. With prominent backers including Elon Musk and Vitalik Buterin, the cryptocurrency is among the top 10 largest coins by market cap with a capitalization of nearly $40 billion. After six years of standstill, the foundation was reactivated in August and will henceforth focus on supporting the ecosystem. The team’s plans are nothing less than to establish Dogecoin as a viable and recognized payment method.
In addition: The Bitcoin network is transparent. Every network participant can observe in real time how many Bitcoins exist and to which addresses they are being sent. If a market participant transfers Bitcoins worth several million of dollars, this does not go unseen. Quite a few companies focus on the analysis of so-called “on-chain” transactions. But do large Bitcoin transfers have an impact on its price? One study shows that size and presumed motives of Bitcoin transactions are part of Bitcoin’s market structure. Market participants appear to observe movements and adjust their behavior accordingly. The final settlement of transactions plays a special role, because the confirmation of Bitcoin transactions occurs “only” every ten minutes on average.
Selected articles in the weekly review:
Big participants of the traditional finance industry are warming up towards digital assets.
The introduction of “Bitcoin ETN Futures” creates the first regulated market for Bitcoin-related derivatives in Europe.
The U.S. Infrastructure bill directly addresses cryptocurrencies for the first time.
Founded as a fun cryptocurrency, Dogecoin is attracting significant attention in 2021.
Market participants observe large bitcoin transactions and adjust their behavior accordingly.
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