Despite the conspicuous lack of price action in the markets, crypto demand is growing more than ever. Recently, we’ve watched the struggle of both the private and government sectors to stay ahead of the game, each in their own ways.
Crypto developments in the private sector
As usual, the private sector is barreling ahead to satisfy the markets. The latest announcement that Fidelity Digital Assets will add another 100 employees to its team, a 70% increase, is perhaps the best example of this. Tom Jessop, president of the branch, said that they’re trying to expand their services to offer daily trading for multiple cryptocurrencies. Ether has been a key point of interest from their customers.
Jessop added that institutional demand for cryptocurrencies is rising rapidly and has already expanded to retirement advisers and corporations that want to hold crypto on their balance sheets.
This year, the crypto sector raised $17 billion in venture capital, almost as much as all previous years combined. Not to be left behind, Grayscale’s Digital Large Cap Fund (GDLC) obtained a license from the U.S. Securities and Exchange Commission, which seems to corroborate the SEC’s previous statements against over-regulating crypto.
Grayscale’s fund is interesting. It’s a sort of cryptocurrency index fund that holds a basket of various coins representing about 70% of the total crypto market cap. Specifically, GDLC owns bitcoin, ether, cardano (ADA), bitcoin cash (BCH), litecoin (LTC) and chainlink (LINK). The fund rebalances regularly to match the overall composition of the crypto market. This might be an option for investors who aren’t interested in holding their crypto directly and willing to pay the 2.5% annual fee. Considering GDLC trades at an average of 32% over its net asset value implies there are a lot of investors ready and willing to buy, even at a steep markup.
And all this action in the private sector has been getting attention.
Governments waking up, smelling the FOMO
Overall, governments have been quick to notice cryptocurrencies, but slow to implement coherent policies. That seems to be changing.
A recent report from the Bank for International Settlements encouraged central banks to investigate issuing their own digital currencies sooner rather than later. Why? To improve interoperability by taking advantage of updated technologies and reduce the friction of cross-border payments. (The BIS report didn’t explicitly say, “And to avoid becoming totally obsolete,” but we read that sentiment as strongly implied.)
Even though the BIS is pushing for sovereign CBDCs in every nation, they also seemed to take issue with private sector developments. Can you smell the FOMO?
Maybe the BIS isn’t alone… Federal Reserve Chair Jerome Powell recently answered some questions about stablecoins before the House of Representatives. While Powell said stablecoins work well in non-crisis times, he wanted a clearer regulatory framework on them.
Strangely, Powell seemed to downplay the importance of the open crypto market. Based on his testimony, if the Fed issued a digital dollar, the whole world might decide to dump bitcoin overnight.
Paraguay disagrees. After much hype on behalf of Senator Fernando Silva Facetti, the country issued an all-inclusive crypto regulatory framework on July 14 that focused on crypto mining. Anyone will be able to mine cryptocurrencies in Paraguay with a state-issued license. Paraguay even took the step to require crypto exchanges to inform users their digital assets are not backed by Paraguay’s central bank.
While the Paraguay legislation is essentially the opposite of El Salvador’s, its intended purpose is very similar. Facetti said she wanted to make Paraguay “a hub for the crypto investors of the world and subsequently to be placed among the ones on the cutting edge of digital technology.”
Seems like some central banks want to get in on the crypto adoption rush. But simply saying, “now we have a digital dollar” isn’t going to cut it. (We already have digital dollars. That’s what bank accounts and ACH payments and credit cards are.) Let’s hope any CDBC plans that see daylight include all the benefits of cryptocurrencies, including anonymity, distributed ledgers, anti-inflationary policies and next-generation payment systems.
That’s probably too much to hope for. The right path for central bank crypto adoption might be more like Paraguay’s and El Salvador’s approach. Instead of saying, “We’ll make a crypto that works the way we want it to,” central banks could simply let the market decide which cryptocurrency meets their own citizens’ needs best.
So the stage is set for a clash of ideas. Better to mold a new cryptocurrency from scratch? Or better to let the free market decide which direction is right? Either way, the future for cryptocurrency seems brighter than ever.
