Cryptocurrencies Can’t Be Stopped! 0 214

The acceptance and trading activity in cryptocurrencies cannot be stopped. Trading activity in ETFs, futures contracts and standard cash trades have exploded and continue to gain traction. In comparison, 24-hour trading volume is down from the peaks seen in the spring of 2021, trading volumes in October and November up significantly year over year. The increasing importance of the products used to speculate on the direction of cryptocurrencies shows that interest in this alternative is rising.

Cryptocurrency Volume Peaks

Crypto trading had several peaks and valleys during 2021. In total, volumes during the year were up compared to the trading volumes experienced in 2020. According to Statista, the global trading volumes of cryptocurrencies were higher at the beginning of 2021 than in September and October. No individual month saw more trading volume than May. The all-time high in trading 24-hour spot trading volume was on May 19, 2021. This date experienced a record high of over 500 billion U.S. dollars. Most of the gains were due to speculation around Dogecoin. The rise in trading volume was followed by a sharp decline as  China banned crypto services.

Ethereum Volume Rises With Market Capitalization

Ethereum is attempting to break out to all-time highs, and its gains are coming in tandem with higher trading activity. The currency volume of nearly 29 billion is almost 50% higher than the 3-month average volume of 24-hour spot trading on the second-largest cryptocurrency by market capitalization. This run-up in trading volume compares to Bitcoin, where the current spot 24-hour trading volume is equal to the 3-month average of the trading volume. The market capitalization of Ethereum is 555.5 as of early December 2021, making Ethereum the second-largest market capitalization of all the cryptocurrencies traded.

Futures Contracts are Experiencing More Activity

The introduction of the micro Bitcoin futures contracts has assisted in adding to cryptocurrency trading volume. Bitcoin mini futures trading contract volume surged higher at the beginning of November and then stabilized during the month’s balance. The Bitcoin micro futures contract is 0.1 bitcoin compared to the specification of the Bitcoin futures contract, which is equal to 5-bitcoin. The micro futures contract is financially settled. The average volume of the micro futures contract during November 2021 hit a high of nearly 45,000 contracts and had open interest above 65,000 contracts. These figures compared to the Bitcoin futures contract listed on the Chicago Mercantile Exchange (CME) that average approximately 20,000 contracts and had an open interest average during November of  14,000 contracts.

First Bitcoin ETF in the United States, Added Activity

In October 2021, VanEck launched the first Bitcoin ETF, which helped bring acceptance to the cryptocurrency asset class. The ETF was approved in October by the U.S. Securities and Exchange Commission. The issue for crypto traders is that the new VanEck Bitcoin Strategy ETF tracks the movements of Bitcoin by monitoring the actions of the Bitcoin futures contracts that are accessible on the CME. This ETF cannot hold any digital coins through a wallet with an address. Instead, it can only have Bitcoin futures contracts. According to the investment description of the ETF, the fund does not hold any digital assets directly. Despite these drawbacks, the ETF has brought the opportunity for many institutional investors who could not invest in products listed on futures exchanges or OTC exchanges like the Grayscale Bitcoin Investment Trust.

Is Crypto an Asset or a Currency?

It appears that more people see cryptocurrency as an asset that can store wealth than a currency as of late 2021. The introduction of futures contracts, digital wallets, and ETFs shows that the United States has welcomed cryptocurrencies as an asset class. Some countries like El Salvador have introduced Bitcoin as the official currency of the country. In China, Bitcoin mining no longer exists as the government has cracked down on the use of Bitcoin as a currency or an investment asset. While there is some evidence that Chinese Bitcoin miners have relocated to different regions outside the reach of the Chinese government, the upshot is that the Chinese government does not want to advocate Bitcoin as a currency or an asset. The Chinese government believes that approximately 10% of the crypto trading in China before the ban is still working in China.

The Bottom Line

The upshot is that crypto trading activity is accelerating, but some pockets of the globe have yet to embrace cryptocurrencies. The introduction of futures contracts and exchange-traded funds shows that Bitcoin and cryptocurrencies represent a new store of value viewed as an asset class. Volumes have accelerated, which shows that more cryptocurrencies are changing hands. On December 6, 2021, the CME is expected to launch a micro Ether, further increasing the acceptance of crypto trading. This new futures contract will open the door for an Ether ETF based on the futures contract’s movements. The increased acceptance shows that cryptocurrencies cannot be stopped!

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IMF Says Russia and Iran May Use Crypto Mining for Monetizing Energy 0 42

The April 2022Global Financial Stability Report of the IMF has highlighted the consequences of the ongoing Russian invasion of Ukraine. The document said that the role of the US dollar was bound to be affected because of the conflict, as it would lead to the introduction of central bank digital currencies (CBDCs) and the global financial system’s resiliency would also be put to a test. The climate transition goals could also be put at risk because of the priorities associated with energy security. Another issue that would have to be dealt with in the coming years by lawmakers is the ‘cryptoization’ which is likely to occur because emerging markets are experiencing a widespread use of crypto.

IMF cited an increase in crypto trading volumes seen after the introduction of sanctions on Russia to back their statement. This included the financial penalties that had been imposed by Western nations on Russia because of its military invasion. The report said that such cross-border transactions were increasing in the long-term, which means that there would be challenges when it comes to imposing sanctions and managing capital flow. The IMF noted that crypto transactions have increased in both Russia and Ukraine because of the capital restrictions that have been imposed.

However, it is important to note that there has been a fall in liquidity in centralized exchanges where the hryvnia and ruble trading pairs are concerned. Therefore, using crypto exchanges for making large transfers has become rather impractical due to reduced liquidity. But, the IMF admitted that users do have the option of evading some measures via the crypto ecosystem because the identity verification requirements are quite lax in this industry. Hence, the international organization said that blocking new deposits of ruble and freezing crypto assets meant that users could have shifted to non-complying or less transparent crypto platforms and service providers.

Experts at IMF believe that both Russia and Iran could circumvent their respective sanctions via crypto mining. The nations could use their energy resources for generating revenue via crypto mining outside of the traditional financial system. Currently, the countries have a limited share of crypto mining activities, but there is a possibility that it could be increased, considering the size of the mining industry. The IMF quoted estimates showing that almost 11% of the mining revenues of bitcoin could have gone to Russia, which was around $1.4 billion per month, while Iran’s share had been 3%.

Bank of England Says Crypto Assets have Financial Stability Risks 0 81

On Thursday, the Financial Policy Committee of the Bank of England disclosed that they are working on developing a regulatory framework for digital assets. The central bank also made a reference to the sanctions that have been imposed because of the war between Russia and Ukraine in the statements. Bureaucrats and financial regulatory authorities all over the world have become increasingly concerned in recent times that Russia could take advantage of crypto assets to bypass the economic sanctions that have been imposed. The press statement of the BOE said that it was unlikely for crypto assets to provide Russia with a feasible way to get around sanctions at a large scale for now, but there was a possibility they could do so.

Therefore, it is a must to ensure that there are effective public policy frameworksthat can accompany innovation in crypto assets for maintaining the integrity and trust in the financial system. The crypto economy has been highly criticized by some members of the Bank of England for quite a while. Last year in mid-November, Andrew Bailey, the Governor of the Bank of England, had expressed his concerns about the adoption of bitcoin as legal tender in El Salvador. Sir Jon Cunliffe, the deputy governor for financial stability for the central bank, said in the following month that prices of crypto assets could drop to zero.

On Thursday, the report of the FPC talked about financial stability. The committee of the central bank noted that the FPC is assessing the risks to the financial system’s stability and it has concluded that these are currently limited. This is because their size remains limited for now and they are not that connected with the wider financial system. However, the FPC said that if they continue to grow at the same pace, and if they become interconnected with the overall financial system, then these crypto assets could pose a risk to the stability of the financial system.

Since the conflict between Russia and Ukraine began, politicians and lawmakers all over the globe have been discussing, developing, or even proposing laws aimed at regulating and researching digital currencies. The FPC’s statements on Thursday show that the BOE wants to classify crypto assets in the same category as it does traditional financial assets. Not only does the FPC plan on developing a regulatory framework that would govern digital assets, it has also mentioned stablecoins.

The FPC said that a major stablecoin that does not have a reliable deposit guarantee could turn out to be a risk to the UK’s financial system. According to the committee, if they introduce a systemic stablecoin, which is backed through a deposit mad with a commercial bank, it would result in significant risks to the stability of the financial system. All of this talk about crypto has been brought forward because of the Russian-Ukraine conflict and the possibility of the former using cryptocurrencies to evade the tough economic sanctions that have been imposed by Western nations due to its actions.

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