Transparent stablecoins? Conclusion of Tether vs. NYAG raises new questions

Though the Tether settlement may help bring in more transparency, experts believe that state-centric bans may not be the way out.

A long-standing legal drama finally found resolution on Feb. 23, with the New York Attorney General’s office announcing that it had come to a settlement with cryptocurrency exchange Bitfinex after a 22-month inquiry into whether the company had been trying to cover up its losses — touted to be worth $850 million — by misrepresenting the degree to which its Tether (USDT) reserves were backed by fiat collateral.

According to the terms of the announced settlement, which now marks an end to the inquiry that was initiated by the NYAG back in Q1 2019, Bitfinex and Tether will pay the government body a fixed sum of $18.5 million but will not be required to admit to any wrongdoing. That being said, the settlement clearly states that henceforth, Bitfinex and Tether can no longer service customers in the state of New York.

Furthermore, over the course of the next 24 months, Bitfinex and Tether will be required to provide the NYAG with quarterly reports of their current reserve status and duly account for any transactions taking place between the two companies. Not only that, but the firms will also be required to provide public reports for the specific composition of their cash and non-cash reserves.

On the subject, NY Attorney General Letitia James said that both Bitfinex and Tether had covered up their losses and deceived their customers by overstating their reserves. When asked about this most recent development, Stuart Hoegner, general counsel at Tether, replied to Cointelegraph with a non-committal answer, stating:

“We are pleased to have reached a settlement of legal proceedings with the New York Attorney General’s Office and to have put this matter behind us. We look forward to continuing to lead our industry and serve our customers.”

Does a New York exclusive ban even make sense?

To gain a better legal perspective of the situation, Cointelegraph spoke with Josh Lawler, partner at Zuber Lawler — a law firm with expertise in crypto and blockchain technology. In his view, the lawsuit, and particularly the nature of the settlement in which Tether and Bitfinex agreed to cease actions, underscore the confusion inherent in the regulation of digital assets in the United States.

Additionally, the agreement by Bitfinex and Tether to prohibit the use of its products and services by New York persons and entities seems on paper to be nearly impossible to accomplish, with Lawler opining:

“Are they saying that no one with a New York nexus can own or trade Tether? Tether is traded on virtually every cryptocurrency exchange in existence. Even if Tether could restrict the use of Tether tokens by New Yorkers, is that really a good idea? Do we now have a world in which every state can pick off particular distributed ledger projects from functioning within their jurisdiction?”

Lastly, even though the deal between Bitfinex/Tether and the NYAG has come in the form of a settlement — i.e., it is not subject to an appeal or federal scrutiny under the commerce clause — state-centric bans may further add to the existing regulatory uncertainty.

Added transparency is always a good thing

With regulators now asking Tether and Bitfinex to be more forthcoming about their monetary dealings and issuing an arguably small fine on them, it seems as though an increasing number of firms dealing with USDT will now have to pull up their socks and get their account books in order. Joel Edgerton, chief operating officer for cryptocurrency exchange bitFlyer USA, told Cointelegraph:

“The key point in this settlement is not the elimination of the lawsuit, but the increased commitment to transparency. The risk from USDT still exists, but increased transparency should cement its lead in transaction volumes.”

In a somewhat similar vein, Tim Byun, global government relations officer at OK Group — the parent company behind cryptocurrency exchange OKCoin — believes that the settlement can be looked at as a win-win scenario not only for NY OAG and Tether/Bitfinex but also for the cryptocurrency industry as a whole, alluding to the fact that that the 17-page settlement revealed no mention of Bitcoin (BTC) being manipulated via the use of USDT.

Lastly, Sam Bankman-Fried, chief executive officer for cryptocurrency exchange FTX, also believes that the settlement, by and large, has been a good development for the industry, especially from a transparency perspective, adding:

“Like many settlements, this one had a messy outcome, but the high-level takeaway here is that they found no evidence to support the heaviest accusations against Tether — no evidence of market manipulation or unbounded unbacked printing.”

Will scrutiny of stablecoins increase?

Even though stablecoins have been under the regulatory scanner for some time now — since they claimed to be pegged to various fiat assets in a 1-1 ratio — it stands to reason that added pressure from government agencies may be present when it comes to the transparency side of things from here on out.

Another line of thinking may be that governments all over the world will now look to curtail the use of stablecoins, such as USDT, especially as a number of central banks are coming around to the idea of creating their very own fiat-backed digital currencies. As a result, governments may want to push their citizens to use their centralized offerings instead of stablecoins.

Related: Many pieces of the Diem puzzle still missing as launch gets delayed

On the subject, Byun noted: “Stablecoin is just one type of cryptocurrency or ‘convertible virtual currency,’ and therefore, stablecoins and the stablecoin market will continue to attract scrutiny and mandated examinations from regulators.” That said, Byun believes that whether it’s Bitcoin, Ether (ETH) or Tether, crypto investors generally understand that investing in crypto remains a high-risk activity and that they “must practice caveat emptor” at all times.

Does Tether impact institutional adoption?

Another pertinent question worth exploring is whether or not the settlement may have an adverse impact on the institutional investment currently coming into this space. In Lawler’s opinion, the decision is not going to slow down adoption even in the slightest. “Institutions are not principally focused on Tether. There are other stable coins, and Bitfinex is all but irrelevant to them,” he added.

Similarly, it could even happen that the ongoing reporting requirements set by the NYAG for Bitfinex and Tether may end up bolstering institutional confidence in Tether — a sentiment that some of Tether’s most vocal and consistent critics also seem to agree with.

That being said, a lot of speculation around Tether’s fiat reserves continues to linger on; for example, Tether Ltd.’s finances are handled by Bahamas-based Deltec bank. In this regard, one anonymous report claimed that “from January 2020 to September 2020, the amount of all foreign currencies held by all domestic banks in the Bahamas increased by only $600 million,” up to $5.3 billion. Meanwhile, the total volume of issued USDT soared by a whopping $5.4 billion, up to around $10 billion.

As Tether states on its website USDT is covered by fiat and other assets, so such investigations cannot be conclusive. However, what both NYAG and the anonymous authors of the report agree upon is that Tether needs to be more forthcoming about its financial status. With that in mind, Tether’s commitment toward transparency and revealing its reserves to a regulator seems like a step in the right direction.

Transparent stablecoins? Conclusion of Tether vs. NYAG raises new questions

Though the Tether settlement may help bring in more transparency, experts believe that state-centric bans may not be the way out.

A long-standing legal drama finally found resolution on Feb. 23, with the New York Attorney General’s office announcing that it had come to a settlement with cryptocurrency exchange Bitfinex after a 22-month inquiry into whether the company had been trying to cover up its losses — touted to be worth $850 million — by misrepresenting the degree to which its Tether (USDT) reserves were backed by fiat collateral.

According to the terms of the announced settlement, which now marks an end to the inquiry that was initiated by the NYAG back in Q1 2019, Bitfinex and Tether will pay the government body a fixed sum of $18.5 million but will not be required to admit to any wrongdoing. That being said, the settlement clearly states that henceforth, Bitfinex and Tether can no longer service customers in the state of New York.

Furthermore, over the course of the next 24 months, Bitfinex and Tether will be required to provide the NYAG with quarterly reports of their current reserve status and duly account for any transactions taking place between the two companies. Not only that, but the firms will also be required to provide public reports for the specific composition of their cash and non-cash reserves.

On the subject, NY Attorney General Letitia James said that both Bitfinex and Tether had covered up their losses and deceived their customers by overstating their reserves. When asked about this most recent development, Stuart Hoegner, general counsel at Tether, replied to Cointelegraph with a non-committal answer, stating:

“We are pleased to have reached a settlement of legal proceedings with the New York Attorney General’s Office and to have put this matter behind us. We look forward to continuing to lead our industry and serve our customers.”

Does a New York exclusive ban even make sense?

To gain a better legal perspective of the situation, Cointelegraph spoke with Josh Lawler, partner at Zuber Lawler — a law firm with expertise in crypto and blockchain technology. In his view, the lawsuit, and particularly the nature of the settlement in which Tether and Bitfinex agreed to cease actions, underscore the confusion inherent in the regulation of digital assets in the United States.

Additionally, the agreement by Bitfinex and Tether to prohibit the use of its products and services by New York persons and entities seems on paper to be nearly impossible to accomplish, with Lawler opining:

“Are they saying that no one with a New York nexus can own or trade Tether? Tether is traded on virtually every cryptocurrency exchange in existence. Even if Tether could restrict the use of Tether tokens by New Yorkers, is that really a good idea? Do we now have a world in which every state can pick off particular distributed ledger projects from functioning within their jurisdiction?”

Lastly, even though the deal between Bitfinex/Tether and the NYAG has come in the form of a settlement — i.e., it is not subject to an appeal or federal scrutiny under the commerce clause — state-centric bans may further add to the existing regulatory uncertainty.

Added transparency is always a good thing

With regulators now asking Tether and Bitfinex to be more forthcoming about their monetary dealings and issuing an arguably small fine on them, it seems as though an increasing number of firms dealing with USDT will now have to pull up their socks and get their account books in order. Joel Edgerton, chief operating officer for cryptocurrency exchange bitFlyer USA, told Cointelegraph:

“The key point in this settlement is not the elimination of the lawsuit, but the increased commitment to transparency. The risk from USDT still exists, but increased transparency should cement its lead in transaction volumes.”

In a somewhat similar vein, Tim Byun, global government relations officer at OK Group — the parent company behind cryptocurrency exchange OKCoin — believes that the settlement can be looked at as a win-win scenario not only for NY OAG and Tether/Bitfinex but also for the cryptocurrency industry as a whole, alluding to the fact that that the 17-page settlement revealed no mention of Bitcoin (BTC) being manipulated via the use of USDT.

Lastly, Sam Bankman-Fried, chief executive officer for cryptocurrency exchange FTX, also believes that the settlement, by and large, has been a good development for the industry, especially from a transparency perspective, adding:

“Like many settlements, this one had a messy outcome, but the high-level takeaway here is that they found no evidence to support the heaviest accusations against Tether — no evidence of market manipulation or unbounded unbacked printing.”

Will scrutiny of stablecoins increase?

Even though stablecoins have been under the regulatory scanner for some time now — since they claimed to be pegged to various fiat assets in a 1-1 ratio — it stands to reason that added pressure from government agencies may be present when it comes to the transparency side of things from here on out.

Another line of thinking may be that governments all over the world will now look to curtail the use of stablecoins, such as USDT, especially as a number of central banks are coming around to the idea of creating their very own fiat-backed digital currencies. As a result, governments may want to push their citizens to use their centralized offerings instead of stablecoins.

Related: Many pieces of the Diem puzzle still missing as launch gets delayed

On the subject, Byun noted: “Stablecoin is just one type of cryptocurrency or ‘convertible virtual currency,’ and therefore, stablecoins and the stablecoin market will continue to attract scrutiny and mandated examinations from regulators.” That said, Byun believes that whether it’s Bitcoin, Ether (ETH) or Tether, crypto investors generally understand that investing in crypto remains a high-risk activity and that they “must practice caveat emptor” at all times.

Does Tether impact institutional adoption?

Another pertinent question worth exploring is whether or not the settlement may have an adverse impact on the institutional investment currently coming into this space. In Lawler’s opinion, the decision is not going to slow down adoption even in the slightest. “Institutions are not principally focused on Tether. There are other stable coins, and Bitfinex is all but irrelevant to them,” he added.

Similarly, it could even happen that the ongoing reporting requirements set by the NYAG for Bitfinex and Tether may end up bolstering institutional confidence in Tether — a sentiment that some of Tether’s most vocal and consistent critics also seem to agree with.

That being said, a lot of speculation around Tether’s fiat reserves continues to linger on; for example, Tether Ltd.’s finances are handled by Bahamas-based Deltec bank. In this regard, one anonymous report claimed that “from January 2020 to September 2020, the amount of all foreign currencies held by all domestic banks in the Bahamas increased by only $600 million,” up to $5.3 billion. Meanwhile, the total volume of issued USDT soared by a whopping $5.4 billion, up to around $10 billion.

As Tether states on its website USDT is covered by fiat and other assets, so such investigations cannot be conclusive. However, what both NYAG and the anonymous authors of the report agree upon is that Tether needs to be more forthcoming about its financial status. With that in mind, Tether’s commitment toward transparency and revealing its reserves to a regulator seems like a step in the right direction.

The United Arab Emirates chase crypto and blockchain adoption

UAE regulators are looking to develop a comprehensive crypto governance framework as part of its 2021 business agenda.

For a long time, the United Arab Emirates has been one of the most progressive crypto countries in the world. For example, government-owned licensing firm Kiklabb allows clients to pay for their visa and trade license fees via various digital assets to the Dubai Financial Services Authority, which announced its decision to work on a holistic crypto regulatory framework as part of its 2021 business plan.

In fact, as a result of Dubai’s crypto-friendly policies, Ripple, a firm that has recently been in murky waters with the United States Securities and Exchange Commission, announced its decision to open an office in the region. Furthermore, the UAE and Saudi Arabia are reportedly working on a joint central bank digital currency research initiative that has been dubbed “Project Aber.”

Commenting on why the UAE is fast becoming the destination of choice for some crypto/blockchain startups, Mazdak Rafaty, managing partner for Ludwar International Consulting FZC, told Cointelegraph:

“If you ask anyone from the tech and startup sector anywhere in the world about the speed of regulations of the authorities, you will get the same answer: ‘It could definitely be faster.’ However, UAE has always been a pioneer in the adoption of new technologies and building support regulatory frameworks for their development.”

He further opined that blockchain as a novel disruptive tech was recognized very early by UAE regulators, as a result of which many governmental organizations were instructed not only to facilitate its development but actually utilize its advantages within a comprehensive e-government strategy.

Lastly, Rafaty added that while blockchain adoption was swift, cryptocurrencies definitely took more time to understand, utilize and regulate. Even in terms of crypto adoption, Abu Dhabi was one of the first regions to introduce a well-thought-out framework for exchanges and different types of tokens back in 2018.

The UAE already has the base

At a time when many countries are still struggling to formulate comprehensive strategies to adopt crypto-enabled technologies in a streamlined fashion — with some even looking to implement blanket bans — the UAE is seemingly laying the foundation for a digital ecosystem.

Providing his insights on the subject, Mohammed Abbas, co-host of the Dubai Global Blockchain Congress, told Cointelegraph that many projects, such as decentralized ride-sharing platform Drife and blockchain-based fantasy sports ecosystem DeFi Eleven, have been able to attract interest from the private offices of UAE’s Royal Families as well as other big-name players, such as San Francisco-based VCs like the Draper Walled Garden, adding:

“In a bid to set the pace and become a leader in blockchain technology, UAE launched Blockchain Strategy 2021 — pursuant to which 50% of government transactions will have been conducted using blockchain technology by 2021. This, in turn, will further attract talent and spur innovation in this region.”

Similarly, on the subject, Marwan Alzarouni, CEO of Dubai Blockchain Center, opined that the UAE — Dubai, in particular — has always been forward-thinking and fast-moving when it comes to any futuristic technology, with cryptocurrencies and blockchain being no different.

He highlighted that Dubai launched its “Blockchain Strategy 2020” in 2016 and is already achieving its goals. Alzarouni further pointed out that when it comes to cryptocurrency regulations, the UAE Securities and Commodities Authority issued its regulation in 2020, which was swiftly followed by the country’s central bank revealing the Stored Value Facilities regulation, which seeks to provide clarity as to how crypto and other digital assets may be used as a stored value when purchasing various goods and services.

The aforementioned regulations are quite in-depth and seem to help to position the UAE as a leader in the cryptocurrency adoption space. Not only that, but it also stands to provide a solid foundation for startups and investors in the UAE with the right and safe environment in which to operate.

The UAE regulatory difference

Elucidating his thoughts on why the UAE regulatory landscape is different than most other nations today, Abbas pointed out that the Know Your Customer, Anti-Money Laundering and Counter-Terrorist Financing laws that are currently in place in the region are progressive when compared to those of other “global financial hubs.”

On the subject, Saeed Al Darmaki, co-founder of Alphabit crypto fund, told Cointelegraph that the UAE has been forward-looking with its adoption of crypto-enabled technologies for a long time, with the Arab powerhouses’ regulatory outlook looking very positive at the moment, adding:

“Regulated crypto exchanges will launch in the next few months. With ESCA regulation, local banks should be more open to crypto transactions on local bank accounts. Incubators and accelerators are supporting crypto companies here now and will continue to do so. The government is very supportive of blockchain technology.”

A similar sentiment is shared by Austin Alexander, managing director for the MENA region of the cryptocurrency exchange Kraken, who believes that to date, the UAE has been among the most proactive locations globally in regulating cryptocurrency. In this regard, he pointed out that Abu Dhabi Global Markets was one of the first regulatory jurisdictions to draft a framework from the ground up specifically for digital asset exchanges, adding:

“No regulations are perfect, and as crypto businesses launch and expand in the UAE, the FSRA or other regulators may come to find that there is room for improvement. That being said, the UAE is clearly establishing itself as one of the world’s most forward-thinking governments in regard to cryptocurrency and innovative industries broadly.”

Are locals supportive?

On the subject of how the local UAE population views the country’s tech-friendly stance, Rafaty opined that most residents have acknowledged the government’s blockchain initiatives. However, he did add that it will be some time before these projects actually start to bear fruit.

Additionally, he also shared that on the crypto side of things, most of his private and professional contacts in UAE are, to some degree, involved and/or invested in various crypto and altcoin offerings thanks in large part to the bullish growth that has happened in the sector over the course of the last few months.

Similarly, Alexander believes that UAE residents and businesses tend to embrace new innovation more enthusiastically than most, and cryptocurrency has been no exception. However, he added that for some time now, UAE residents have had some difficulty investing in digital assets, as there have been few legitimate local gateways for crypto exchange, adding:

“This has delayed adoption and reduced the ability for local businesses to build on the technology. With recent new regulations onshore that will help to further foster innovation, we should soon see access to virtual assets increase markedly. With domestic virtual asset markets in the UAE, which have been the missing piece of the puzzle until now, we should see a massive boom in economic growth surrounding virtual assets.”

Lastly, Abbas believes that local residents and businesses in the UAE have quickly warmed up to the utility of the blockchain ecosystem and have been looking at cryptocurrencies as not just another financial instrument for monetary gains but also as a means to exchange and settle transactions among users operating within this domain.

In his view, the barriers for entry are getting lower by the day and that soon, mainstream retail crypto offerings will flourish within the country. “UAE is probably the only country that has been able to host some of the largest blockchain summits and bring crypto pioneers, think-tanks and investors on a common platform to address the global issues concerning financial inclusion and neo-banking solutions”, Abbas added.

Some of the the interviewees have participated in the Global Blockchain Congress in Dubai on Feb. 9, hosted by Agora.

BNY Mellon’s crypto entrance seeks to bridge generational adoption gap

Can BNY Mellon’s entry into the crypto space provide the fuel Bitcoin needs to pass the $50,000 mark, or is it an insignificant move?

While the naysayers continue to wish for the so-called “Bitcoin bubble” to burst, the premium cryptocurrency continues to scale to new heights, seemingly with each passing day. For example, within the same week of Tesla announcing its foray into the crypto market, Bitcoin (BTC) proceeded to surge by almost $10,000. 

And even though the market subsequently faced a correction, things took a turn for the better as soon as news broke that BNY Mellon, the United States’ oldest private bank, entered the crypto fray, sending the largest digital currency by total market capitalization on an upward trajectory once again.

In this regard, the banking giant, with $2.2 trillion in assets under management and $41.1 trillion in assets under custody and/or administration, announced its decision to hold, transfer and issue Bitcoin and other cryptocurrencies as an asset manager on behalf of its clients, potentially exposing this asset class to an entirely new section of investors.

Another reason for the current momentum could be payments giant Mastercard announcing its decision to allow its user base to use crypto assets across its 30 million merchants. Additionally, on Feb 11, PayPal announced its plans to expand its recently introduced cryptocurrency offering into the United Kingdom market. Not only that, the company’s mobile service subsidiary, Venmo, also revealed that it’s looking to roll out digital asset services to its 29 million users sometime over the next few months.

What does BNY Mellon’s entry mean for the market?

As per reports, BNY Mellon is looking to manage cryptocurrencies using a platform that is currently in its prototype phase. In this regard, it has also been reported that the system will in addition be capable of handling a wide array of traditional holdings such as Treasurys and stocks.

It also appears as though the financial institution has not outlined which crypto assets it will be providing its custody services for. Furthermore, BNY Mellon has already deployed a team of executives, led by Michael Demissie, to spur the integration of cryptocurrency custody and management into the bank’s existing product suite.

Speaking with Cointelegraph, Hank Holland, founder and managing partner of private equity firm Pegasus Growth Capital and former managing director of Merrill Lynch, opined that as an established, trusted private bank and one of the largest custodians servicing registered investment advisers, BNY’s commitment to custody digital assets is a necessary, predicated step for broader investor acceptance and adoption of BTC and other crypto assets:

“The strategic initiative addresses two important obstacles. First, for the average investor who doesn’t want to manage a private key, BNY’s custody solution provides a familiar ‘on-ramp’ to own BTC. Second, for a financial advisor to recommend an allocation to BTC and digital assets, the investment needs to be on their platform. Thus, enabling them to charge an advisory fee.”

The first exposure for most of BNY’s clients, according to Holland, will be to buy BTC in order to incorporate the asset into their overall strategic allocation outlook. However, initial client purchases may be followed by other investments into an actively managed portfolio of diverse digital assets, as well as borrowing/staking strategies to supplement their regular income streams.

Similarly, Marcos Benítez Rubianes, client relationship manager for Gazprombank, told Cointelegraph that the news confirms the traditional financial system’s overall growing acceptance of Bitcoin — the oldest, most liquid crypto asset — adding:

“We have witnessed a cascade effect since Paypal announced the integration of crypto trading into their platform. Now in 2021; on one side, you have one of the most valuable companies globally, Tesla, acquiring BTC for their balance sheet and, on the other hand, the oldest bank in America, providing Bitcoin services to their clients.”

Additionally, Rubianes is confident that in the near future, more traditional players will embrace Bitcoin as an asset, maybe even as a payment means, especially because their clients will feel the need to stay abreast with the times and will pressure these institutions to provide them with increased crypto exposure.

Is a Bitcoin surge a foregone conclusion?

With Bitcoin now beginning to target the $50,000 threshold, it’s worth delving into the question of whether a rally may be looming on the horizon. On the subject, Antoni Trenchev, co-founder and managing partner of Nexo — a crypto exchange and lending service — told Cointelegraph that it’s one thing when a tech firm like Tesla embraces BTC, but it’s a whole new ball game when the oldest lender in the U.S. does it, adding: “Generational clashes are always fascinating to watch. Banks that follow suit, and many inevitably will, will simply be second.”

Rubianes believes that another surge may be in the cards if more financial incumbents take the step toward integrating crypto. If that happens, he believes that interest in the space could potentially increase tenfold. “Those in the crypto space understand quite clearly that one of the most significant barriers to crypto adoption has been, perhaps ironically, the self-custody part,” he added.

However, not everybody shares this narrative. Alexander Suhobokov, head of fintech at Switzerland-based Dukascopy Bank, told Cointelegraph that even though a gradual integration of the crypto and traditional financial industries is actively ongoing, and banks that don’t get with the times in the next one to two years will face a real risk of losing their competitive edge, it's highly unlikely that this news will have any major impact on BTC:

“There is a much greater chance that BTC’s value will be under harsh pressure as an externality of the regulators’ decisions on USDT. Let’s hope that these possible disturbances wouldn’t derail crypto’s potential.”

So, what should be expected from Bitcoin?

Following BNY’s, Mastercard’s and PayPal’s commitment to exploring the crypto landscape more closely in the near future, Twitter — home to Jack Dorsey, the man behind financial services firm Square — recently confirmed that it is looking to offer its employees the possibility of receiving their salaries in Bitcoin.

Not only that, the social media giant’s chief financial officer, Ned Segal, stated that the company is exploring the option of adding BTC to its existing balance sheets. However, he believes that much of this will depend on whether or not enough people are interested in conducting BTC transactions with the tech firm.

Lastly, Daniel Pinto, co-president of major U.S. investment bank JPMorgan Chase, stated in a recent interview that the company too will eventually have to get involved in Bitcoin.“The demand isn’t there yet, but I’m sure it will be at some point,” he added.

Overall, looking at the sentiment surrounding the space, it seems that there is confidence growing surrounding BTCs chances of reaching the all-important $50,000 psychological barrier, especially as the premier cryptocurrency continues to successfully stave off the bearish momentum that sent the digital asset’s value to as low as $46,110 over the course of the last 24 hours. As a result, BTC is once again sitting comfortably at around the $48,000 mark.

Moment of truth? Tesla purchase is the moment Bitcoin has been waiting for

Despite some expected near-term volatility, Tesla’s exploration of the crypto realm will likely help the industry scale up to new heights.

Even though Tesla has made its way into the crypto market recently, it generated an immense amount of publicity surrounding the announcement. On Feb. 8, the car manufacturer caught the crypto world off-guard by committing a cool $1.5 billion into Bitcoin (BTC), as well as announcing that the company will soon be looking to accept payments in crypto. As a result of the news, BTC shot up to as high as $48,000 only to subsequently cool down and settle around the $44,500 region.

In the wake of this development, it has also come to light that the above-stated surge was, in large part, driven by whales who took Tesla’s announcement to be a buy signal. In this regard, as per data available on Binance, whales have been dabbling in “unusually large BTC buy volumes.”

Analysts believe that anytime a major publicly listed company makes its way into the digital asset space, a frenzy begins that creates positive market sentiment around BTC. For example, Filbfilb, a pseudonymous Bitcoin trader, stated that as things stand, an increasing number of companies will now be forced by their shareholders to provide them with some level of crypto exposure.

What does Tesla’s move mean for the industry?

According to Hunter Merghart, head of United States operations for cryptocurrency exchange Bitstamp, told Cointelegraph that while Square paved the way for everyone, Tesla adopting Bitcoin on its balance sheets will be viewed as a watershed moment for the industry, adding:

“The risk in further adoption from both retail and institutions is gone. This will eventually lead to further positive price action, as it does take time for new retail and institutional players to onboard and fund accounts.”

A similar sentiment is shared by Sam Tabar, former managing director for Bank of America Merrill Lynch and co-founder of Fluidity — the firm behind P2P trading platform AirSwap — who believes that this is the moment the crypto industry has been waiting for — i.e., receiving an institutional stamp of approval for Bitcoin from an S&P 500 company.

Also, taking a dig at the naysayers, Tabar highlighted to Cointelegraph that just a few years ago, people would scoff at Bitcoin and crypto in general as being a tool for drug dealers and other miscreants. “Then they would claim that Bitcoin takes too much electricity, but if you compare BTC electricity use versus all the electricity that is used in traditional finance, you’d be quite surprised,” he added.

Lastly, Ben Zhou, CEO of cryptocurrency exchange Bybit, told Cointelegraph that Tesla embracing Bitcoin has reduced carrier risk calculations for corporate treasurers and that he now foresees a small but sustained trickle of corporate adoption, including that of multinationals, the cumulation of which will eventually serve a backstop against significant volatility.

In addition, he also believes that as Bitcoin continues to gain acceptance in the eyes of institutions and corporations, the crypto community may become more incentivized than ever before to drive innovation within this nascent space. For example, Merghart believes that in the near future there will see more multinationals exploring Bitcoin and eventually even other crypto assets through borrowing/lending or faster cross-border payments through stablecoins.

Is more crypto diversification inevitable?

While MicroStrategy, Square and PayPal’s recent moves helped garner a decent amount of traction for crypto, there is no denying that Tesla’s acquisition has been the one that has brought the most attention to the industry in its decade-old existence. For proof, one only needs to look at various mainstream media outlets and how pretty much every news platform has covered the story since it broke.

Stephen Stonberg, chief operating officer for Bittrex Global exchange, told Cointelegraph that he believes that the announcement has and will continue to raise awareness for Bitcoin and the cryptocurrency market in general, adding:

“Other U.S. multinationals might well consider diversification of their asset base through other digital currencies that haven’t seen the same appreciation in value as Bitcoin has in the last few months. For too long, investors have confronted negative-yielding bonds and overvalued equities. Now, digital assets provide a real opportunity to diversify.”

The same outlook is shared by Paolo Ardoino, chief technical officer for digital asset trading platform Bitfinex, who told Cointelegraph that Tesla’s announcement may very well bring “cryptocurrency to a new level” and that there may be “no going back” for the industry from here on out. He continued: “I expect Bitcoin to be added to the balance sheet of many corporations as its quality as a form of digital gold becomes only more relevant.”

Lastly, another company whose name has come up recently in regard to Bitcoin is Apple, especially as the multinational is uniquely positioned as a leader within the domain of consumer technology. Kris Marszalek, CEO of digital currency payments platform Crypto.com, told Cointelegraph that if Apple Pay were to extend its support to crypto, the move would be extremely bullish for the firm.

Furthermore, even Marc Benioff, CEO of American cloud-based software company Salesforce, recently tweeted out a cryptic message that read, “Trust is the currency of the realm,” leading many to speculate that the $200-billion company with almost $10 billion in cash may also be considering or has already invested in Bitcoin.

On the subject of diversification, Marszalek opined: “Our world today is one of zero interest rates and endless debasement of fiat currencies. In order to keep up, institutions will have to look towards alternative stores of value, of which Bitcoin is one of the best.”

Not everyone is buying the “hype”

As the crypto market continues to experience an unparalleled amount of positive traction in recent months, there are also many players from the traditional finance sector who believe that Tesla’s move is just a one-off phenomenon and that people should not expect many other big-name players to follow in the company’s footsteps.

For example, strategists for investment bank JPMorgan Chase, led by Nikolaos Panigirtzoglou, believe that Tesla’s $1.5-billion Bitcoin purchase will not necessarily trigger similar investments, with Panigirtzoglou claiming that BTC’s volatility will still continue to keep mainstream corporate treasurers away from crypto.

Similarly, perennial gold backer Peter Schiff also highlighted the fact that Tesla’s new investment policy allows for the purchase of gold bullion and gold exchange-traded funds, even going as far as suggesting that the company is already offloading its BTC investment as the market responds to the news by pumping its value up.

Lastly, Matvey Voytov, chief marketing officer at Waves Enterprise — an enterprise-grade blockchain platform — told Cointelegraph that it is quite unlikely that other enterprises will blindly follow Tesla, saying: “I expect that most big companies will wait, as there are still solid entry barriers in most countries regarding crypto legislations.” He also believes that investors would prefer to take a safe route to invest since “many corporate finance leaders remember being burned in 2008 by higher-yielding choices.”

Crypto proponents point to quantitative easing

Even though the crypto market continues to face daily volatility swings, from a macro perspective, it’s worth remembering the fact that over the course of the last nine months, central banks all over the world have continued to print their local currencies, leading to the unprecedented dilution of most fiat assets.

Related: Coincidence? Company stocks rise after they buy Bitcoin as a reserve

For example, since the beginning of the COVID-19 pandemic, the United States Federal Reserve has rolled out a number of stimulus packages, with the most recent one being valued at close to $3 trillion. What’s more, the central bank has also vowed to keep printing a total of $120 billion per month for the foreseeable future to help the American economy back on its feet.

Stonberg elucidated that such high levels of quantitative easing “might well lead to multinationals hedging on harder assets, such as limited supply digital assets, gold and silver as a hedge.”

Coincidence? Company stocks rise after they buy Bitcoin as a reserve

The market caps of most companies that bought Bitcoin have increased recently, but is that solely thanks to BTC?

It seems to be the season of giving, and Bitcoin is doing just that, at least for its institutional backers, such as MicroStrategy, Galaxy Digital, Square and Marathon Patent Group, which got in somewhat early on the BTC gravy train.

In this regard, PayPal revealed on Feb. 4 that its fourth-quarter profits for the year 2020 had increased by 200% as compared to the previous fiscal cycle, citing its two new offerings — i.e., a cryptocurrency tool and a “buy now pay later” feature — as being the primary drivers for its monumental growth.

And even though PayPal did not reveal the exact figures as to how much of its growth was spurred by the firm’s foray into Bitcoin (BTC), the fact that the payments giant is looking to offer a new crypto remittance tool to 29 million of its affiliated merchants worldwide in the near future just goes to show the faith the company has in its crypto vision.

If that wasn’t enough, company CEO Dan Schulman noted in a recent interview that the aforementioned development was just a “small sign” of things to come and that this is just the “beginning of an extensive road map around crypto, blockchain, and digital currencies” for PayPal.

What this seems to suggest is that firms from the traditional finance space that are actively investing in crypto have been exhibiting monetary trends that are significantly different from their contemporaries. In this vein, even Tesla’s stock market perception could now change drastically after the company recently made its way into the crypto market by purchasing $1.5 billion worth of BTC.

The link between company equity and BTC holdings

There’s no denying that an increasing number of companies from the realm of traditional finance are making their way into the crypto sector. For example, according to Ross Stevens, CEO of NYDIG, his crypto asset management firm already has enough institutional buy orders lined up to push its Bitcoin holdings over $25 billion by the end of 2021.

In light of such data, Sam Bankman-Fried, founder and CEO of quantitative crypto trading firm Alameda Research, which currently has $2.5 billion worth of assets under management, told Cointelegraph that the link between company stocks rising in line with the company’s BTC acquisition moves is very real, adding:

“Partially, investors are excited about having opportunities to buy stock of crypto-affiliated companies on public markets. The other piece is that BTC’s price is up, and so to the extent that the company owns BTC, it should be up, too.”

Similarly, Justin Barlow, research analyst for The Tie — a provider of social media data for digital assets — also believes that this ongoing surge in equities of certain firms is strongly related to their BTC acquisition strategies:

“For evidence, all you need to do is look at the market cap of the companies before and after a BTC announcement,” he added, pointing to examples of MicroStrategy, Square (NYSE:SQ), and Marathon Patent Group (NASDAQ:MARA), which are all up well over 50% since their respective announcements.

He further opined that it’s safe to assume that an increasing number of companies will look to capitalize on this ongoing trend, especially as possessing “BTC reserves” is becoming more common among firms and the demand for increased crypto exposure, from retail as well as institutional investors, is also rising at a rapid pace.

Tesla stock price rises

As everyone would have probably heard by now, it was recently unveiled that car manufacturer Tesla, had invested big in crypto, having acquired $1.5 billion worth of BTC via various monetary avenues, thus sending the currency’s value up by $3,000 within a matter of minutes.

Not only that, Tesla — one of the world’s top 10 largest companies by market cap and a member of the S&P 500 — will now also be accepting payments for its products in BTC, potentially sparking an unprecedented wave of corporate and institutional ownership in Bitcoin. On the subject, Sheraz Ahmed, head of business development for the Crypto Valley Association — a blockchain ecosystem backed by the Swiss government — told Cointelegraph:

“Tesla announced that they’re buying $1.5 billion in Bitcoin, and their share price shot up by close to 3%. BTC is having a direct impact on both the cryptocurrency market as well as traditional ones. Investors see these large corporations as the ones leading this new wave of digitalization and thus a good long-term investment opportunity.”

As of Feb. 8, MicroStrategy’s stock value has skyrocketed by +670% since the company made its initial investment into Bitcoin. Not only that, the stock’s correlation with BTC, too, has increased by +300% over the same time frame.

In the wake of this unprecedented market movement, the firm has continued to purchase additional Bitcoin, with its most recent acquisition coming on Dec. 21, when the business analytics and mobility provider added an additional 29,646 BTC (estimated to be worth roughly $650 million) to its reserves.

A similar trend was also witnessed in relation to Square’s stock value, which, on Oct. 8, 2020, the day the company purchased 4,709 BTC, was at $183.50 only to increase by 30% over the next three months to currently sit at $258. To really put things into perspective, over the same time period, the S&P 500 rose by a meager 4%.

More diversification incoming?

On the heels of Tesla’s big crypto announcement, a report by Reuters claims that Apple might also be looking to get on board the crypto bandwagon in the near future, especially since the multinational giant has a “clear opportunity” to offer a buying and selling mechanism for cryptocurrencies to its massive clientele — a move that could propel the company into the heart of the current crypto gold rush.

In this regard, Apple already has a Wallet app as well stringent Know Your Customer protocols in place, which, if employed within the context of cryptocurrencies, could make the United States a global leader in crypto assets, even hampering any possibility of a government shutdown of the industry. In regard to the subject, Ahmed said:

“The diversification of these conglomerates treasuries creates a positive incentive loop, whereby their announcements act as a catalyst, driving the price of Bitcoin up, with this rise their total capital increases and thus inherent value of their purchase as well.”

Also in 2017, a number of startups tried to trick investors by adding the terms crypto and blockchain to their names, suggesting that they were using these technologies actively. However, this time around, there are a number of live examples of firms buying heavily into BTC and Ether (ETH).

Lastly, it stands to reason that with the continued rise of the cryptocurrency industry, a number of companies are now able to show that their diversified treasury tactics are paying off, thus, in turn, forcing other companies to follow in their footsteps. “Just recently, an early adopter of Bitcoin, MicroStrategy, welcomed 6,917 enterprises on their corporation’s program — showing the significant interest in this space,” Ahmed pointed out.

What happens next for the crypto sector?

Since the start of February, Bitcoin has gained an immense amount of traction, surging by a whopping 20%. This has once again rekindled hopes of the premium asset surging past the $100,000 barrier as many experts had previously suggested. That being said, one thing that history teaches us is that such rapid increases in the value of BTC may likely be followed by one or more heavy corrections.

Thus, on the subject of whether this current upward momentum will be able to spur BTC’s value to twice its current value, Cointelegraph reached out to CryptoYoda, an independent cryptocurrency analyst, who opined that the market is still not ready to rise because “supply outweighs demand,” adding:

“I think it’s fair to say though that the current situation with Wallstreetbets and the obvious manipulation by financial institutions will result in higher market prices for crypto in general — just needs to unfold in due time.”

Also, with crypto being the extremely volatile market that it is, it would be unsurprising to see a heavy correction in the coming few days, especially since the market has been on a tear, with gains across the board.

This could potentially result in the stock prices of companies that have invested big in crypto being affected adversely since volatility fears may once again grip investors, causing large sell-offs. That being said, big companies buying into crypto is still a new occurrence, so it’s difficult to predict how the stocks will behave when a BTC correction happens.

Time to shine? Crypto should be given a chance after GameStop drama

The GameStop pump may lead a number of amateur investors to finally learn about DeFi and the advantages it puts forth.

What happened to GameStop’s stock at the end of January will be remembered by investors for years to come, as it was probably the first time in the history of the “free market” that a group of self-described internet “degenerates” outsmarted a bunch of Wall Street pros at their own game.

As a recap, on Jan 27, when the Dow Jones Industrial Average fell sharply by over 2% — in large part due to the United States Federal Reserve announcing its move to maintain interest rates around the zero percent mark — shares of video game retailer GameStop (GME) and movie theater chain AMC Entertainment (AMC) proceeded to rise by 130% and 300%, respectively, taking their market capitalizations to $24 billion and $6.74 billion.

This unprecedented surge was facilitated by a group of independent small-time traders operating out of a Reddit subreddit called r/Wallstreetbets. They were able to recognize that executives over at New York-based hedge fund Melvin Capital were shorting GameStop shares in order to net handsome profits for themselves.

In a nutshell, “shorting” is a practice used in stock market trading wherein an individual borrows shares only to sell them off immediately in hopes of buying them back once they fall in price. The person can then return these shares to the lender, netting the difference between the price at the time of borrowing and returning of the stock.

Upon seeing this window of opportunity, a large number of Redditors started to pump GME and AMC, among many others, resulting in prices shooting up by over 2,000% in a matter of several days. This caused Melvin Capital to incur substantial losses estimated to be worth billions of dollars.

In the past, there have been countless similar scenarios that have played out exactly like this, wherein billionaires have gone up against each other upon realizing that large-scale shorting action was at play. However, this time around, because a group of unnamed individuals was able to pull off such a move, financial services providers such as Robinhood and TD Ameritrade rediscovered their financial ethics and decided to help Wall Street cut down on its losses.

GME situation may serve as a game changer for crypto

With traditional stocks now being faced with cryptoesque pump and dumps in addition to traditional gatekeepers like Robinhood playing Big Brother under the pretext of “protecting their customers,” Cointelegraph reached out to Nikita Ovchinnik, chief business development officer for decentralized exchange aggregator 1inch. In his view, it’s important for people to understand that there is a big difference between traditional pump-and-dump schemes and what happened with GME, adding:

“Robinhood and other companies that prevented them from trading have set an outrageous precedent, one which hopefully will not be tolerated by authorities. Users should have access and full control over their assets and decisions at all times and DeFi is the only battle-tested solution on the market that can transparently solve this issue.”

Jason Lau, chief operating officer of cryptocurrency exchange OKCoin, said that he is glad this event is finally opening everyone’s eyes to the market manipulation that is rampant in today’s so-called free financial markets. “Crypto is an entirely free market, there are zero barriers to entry,” he added.

Lau also believes that incidents such as these are a case in point as to why brokers are bad for the financial ecosystem while also highlighting the need for more decentralization. Similarly, Vitalis Elkins, chief operating officer of Tradelize — a cryptocurrency trading platform — told Cointelegraph:

“Since 2020, M1 money supply increased by almost $3T. This is similar to the amount of money created since the global financial crisis of 2008, and yet it’s 40% of total M1 supply in circulation. [...] I believe that the GME phenomenon is not about 15-year-olds that are manipulating the market. It’s about a protest from the average investor and about the financial system that is exacerbating inequality and very close to exhausting the trust limit (of its users).”

Google and Apple come to rescue

As soon as Robinhood began to prevent amateur traders from taking a gamble on the pumping stocks, hundreds of thousands of disgruntled users decided to leave a one-star rating for the stock trading app on the Google Play store and Apple’s App Store. As a result, Robinhood’s rating proceeded to plummet to under one star almost overnight.

However, on Jan 29, it came to light that Google’s and Apple’s development teams had decided to step in to remove the negative reviews and complaints regarding Robinhood, with Google having previously stated that “Ratings and reviews meant to manipulate an app’s average rating or top reviews” violate its policies, thus effectively negating the opinions of its customers and sending the app’s rating back above the four-star range.

Following this, hoards of users once again decided to bombard Robinhood with one-star ratings, sending it to one star for the second time in just a few day’s time. However, it appears as though this time around, Google will not be coming to the app’s rescue. On Apple’s App Store, Robinhood currently has a four-star rating, but with the negative reviews flying in at a furious pace, that may soon change.

Is DeFi the way out of the confrontation?

One conclusion that the crypto community seems to agree on is that actions taken by service providers like Robinhood, Public and TD Ameritrade indicate that big money is reserved only for the elites and that the average person can't or shouldn't harbor hopes of amassing wealth, especially through the legacy financial system. Marie Tatibouet, chief marketing officer of cryptocurrency exchange Gate.io, told Cointelegraph that when it comes to decentralized finance:

“Everyone has the freedom to create financial instruments and create their own markets instead of being dependent on someone else managing it for them. Also, DeFi’s financial flexibility — no centralized limits to trades, liquidity, or influence on the market — presents an ideal platform for the financial world to grow without having to go through the usual potholes of manipulation and needless censorship.”

However, Charles Bovaird, vice president of content for advisory firm Quantum Economics, believes that while the recent developments involving GME and AMC have been very interesting to watch, they don’t put forth a strong enough argument for DeFi being the only way out of such situations in the future.

In his opinion, another solution — one that many in the crypto industry may not particularly like — could be the intervention of regulators. Bovaird pointed out that Treasury Secretary Janet Yellen recently summoned the heads of several government entities, including the Federal Reserve and the Securities and Exchange Commission, to look into matters like market fairness and asset volatility, activities that may help curb similar episodes in the future. He added:

“Yes, the stock market has suffered from manipulation at some points. So has the cryptocurrency market. While the legacy system may very well die at some point, making way for a system that values decentralization and transparency, we have no timeline for such a development.”

In a somewhat similar line of thinking, Elkins also opined that while DeFi is an attempt to “fix” the legacy financial system, it isn't the only way out. He believes that as things stand, DeFi definitely cannot be considered a decent alternative to the traditional financial system that operates at the moment. However, he did concede that with the pace at which DeFi is evolving, there is hope that adoption use cases will appear in the future: “ETH 2.0 is coming and fee lowering can be a small step for mankind but a big step for DeFi.”

Gamestop debacle has helped put crypto in a good spot

While it still seems as though a large number of people have yet to entirely grasp the immensity of what crypto technology has to offer, a lot of causal investors are now beginning to ask questions about how Robinhood could even conceive of restricting its users in the first place.

This overarching theme of censorship and financial exclusion is a significant issue in traditional finance and will potentially serve for many as a gateway toward learning about crypto-enabled decentralized finance, according to Tatibouet:

“It's not enough to have custody of your assets now. Everyone should have access to the same financial tools that the elites have. The future is where finance is not owned by any government, hedge fund, or billionaire. This is possible with DeFi.”

Similarly, Ovchinnik believes that the GME case ultimately stands to assist the crypto industry, especially because it will help investors realize that it’s simply impossible for anyone to stop trades from taking place on decentralized exchanges.

Related: r/Wallstreetbets vs. Wall Street: A prelude to DeFi bursting onto the scene?

That being said, he did state that from a purely user-experience standpoint, blockchain applications might still be too complex for many new users to get a grasp on immediately. “It would take at least a couple of years for the current protocols to evolve,” he added.

Institutional demand for crypto isn’t subsiding, but impact will be gradual

As another $2-trillion stimulus package looms in the U.S., institutions will continue to look at BTC as a hedge against inflation.

For example, just last week, when the currency was hovering around the $30,000 threshold, a whole host of pundits was warning investors to brace for impact, suggesting that the premier crypto asset was on the verge of a correction and could once again dip to around the $20,000 region.

However, in just one day, Bitcoin was once again playing with the bulls, retesting the $38,500 limit, only to witness a selloff and eventually settle around the $33,500 region. While for most crypto veterans that might have been another day at the office, others branded the upsurge as “Elon’s Candle,” which relates to Elon Musk, the CEO of Tesla, who included “Bitcoin” in his Twitter bio as well as sent out the following cryptic message “in retrospect, it was inevitable” to his 40 million-odd followers online.

Regardless of the cause, has the recent price volatility scared off institutional investors, or are they still looking to buy Bitcoin? But if they are, it is strange to see BTC continuing to hover between the $30,000–$40,000 range amid reports of big-name players lapping up sizable sums of Bitcoin. For example, on Jan. 22, when BTC dipped by 15%, MicroStrategy announced yet another BTC purchase deal, worth around $10 million.

On the subject, George Donnelly, CEO of Panmoni — a commerce system for Bitcoin Cash — told Cointelegraph that there is absolutely no doubt in anyone’s mind as to whether institutions are still looking to buy Bitcoin, saying:

“Grayscale is expanding to create some new DeFi trusts, and people are buying shares in MicroStrategy to get exposure to BTC. BTC may be stuck around 30K because retail interest seems slack. This bull market so far is not as noisy as the last one. Fewer people seem to be getting excited about it.”

Furthermore, he opined that a core reason as to why BTC is not able to break out is because the currency’s developers have “consciously limited network throughput for ideological reasons” and even attempted to divert use into its layer-two networks, thus reducing the ecosystem’s security. Even then, he does believe that in the coming three months, the currency “will top the $40K mark.”

Bitcoin hasn’t stalled but is merely adapting

With another $2-trillion stimulus package seemingly on its way thanks to the new United States President, Joe Biden, and the Federal Reserve, a lot of hype is once again being generated around crypto, especially as an increasing amount of people are beginning to understand the future implications of such uncontrolled money printing and how it can devalue the U.S. dollar to unprecedented levels.

Filipe Castro, co-founder of Utrust — a crypto-enabled e-commerce platform — told Cointelegraph that the continued expansion, or rather dilution, of the U.S. dollar money supply pool is going to sooner or later bring into perspective the effects of hidden inflation into the American economy, adding:

“While inflation has not been greatly felt by consumers in goods and services, it has manifested itself with the rise of dollar-denominated assets like stock market valuations, real estate, commodity and cryptocurrency. Many institutions have chosen not to hold onto cash as a safe haven but instead invested their capital accordingly.”

He further highlighted that institutions don’t typically directly trade in the market but instead purchase from a custodian intermediary, with the latter usually securing the necessary liquidity beforehand, thus minimizing immediate market influence upon the entry of large buyers.

What this means in layman’s terms is that a surge in demand is reflected asynchronously over time, and what’s more, it comes in large periodic variations instead of a swift outcome from the latest announcements. “It is likely thus that any future surges will take time to manifest and will do so in large and sharp swings,” he added.

Institutional interest isn’t going anywhere anytime soon

While one may be tempted to believe that mainstream interest in crypto may be finally dying out, it’s worth bearing in mind that institutional purchase cycles work very differently from the activity of individual traders and smaller institutions.

For example, Castro highlighted only a few institutions have actually taken an active position on Bitcoin, including some family offices. Not only that, it should be noted that approval procedures relating to new assets and risk assessments can usually take months or years to complete and represent a completely new investment paradigm for many traditional investors.

On the issue, Lennix Lai, director of financial markets for cryptocurrency exchange OKEx, pointed out to Cointelegraph that as the world’s global reserve currency, the U.S. dollar, becomes increasingly weaker, many institutions are turning to other assets such as BTC for its undeniable potential in regard to capital appreciation, saying:

“BTC remains a high-risk asset, and I believe that some institutional investors still have conservative clients with a wait-and-see attitude. If BTC can maintain its de-coupling from the stock market, and equities eventually flatline upon tapering asset purchases by the FED, we could see another wave of funds flowing into BTC.”

That being said, COVID-19 virus mutations, a slow rollout of vaccinations, global lockdowns and rising unemployment are adding to the ongoing economic uncertainty — something that has the potential to spill over into various financial markets, including crypto, as was previously seen over the course of the last 12 months.

Related: Risk it for the Bitcoin: Has BTC matured to be a safe investment play?

On the issue, Nischal Shetty, CEO of cryptocurrency exchange WazirX, reiterated that the reason why an increasing number of funds are continuing to explore Bitcoin is that it is turning into a legitimate hedge against inflation, the effects of which he believes are bound to be felt eventually as the global money pool continues to be diluted. He added: “As inflation increases, we believe that there will be more inflow of institutional investors buying into Bitcoin.”

Castro stated that institutional interest is only just beginning and that recent announcements should simply be viewed as a “wake-up call” for other players who haven’t yet been able to understand the proposition that has been put forth in front of them. “This is yet far from the widespread institutional [interest] that is to come. We are sure to see a higher ceiling if more and larger institutions diversify into BTC and other cryptocurrencies,” he added.

Is another breakout inevitable?

While on paper there may be a host of ways to analyze and attempt to predict the price of BTC, the fact of the matter is that it is pretty much impossible to guess the price action of an asset with any sort of certainty. However, there are a few indicators we can look at in order to glean its potential valuation.

For example, Lai pointed out that based on historical data related to BTC’s performance post-halvings, it could be close to breaking out to $50,000 soon and even surging as high as $100,000 by April 2021.

On the subject, Castro believes that there is still no accurate model to describe BTCs fundamental behavior, adding that the only framework that he actually considers when evaluating BTC is PlanB’s stock-to-flow model, which, if one is to believe, will see the premier cryptocurrency surge to anywhere between the $100,000–$288,000 region before the end of 2021.

Related: Believing, not seeing: Institutions still predict $100K Bitcoin price

Lastly, another reason why making such predictions is so tough in Shetty’s opinion is that with every jump in Bitcoin’s price, an increasing amount of selling pressure seems to be coming from long-term investors: “These are the investors who take long positions and want to dilute at certain historic price points. $40,000 seemed to have been that historic price point where a lot of old Bitcoin holders decided to liquidate.”

Bitcoin (BTC) is proving to be one of the biggest mysteries of the decade, and anyone who claims to know where the currency might be heading is most likely deluding themselves at this point. 

BlackRock’s entry reflects a change in institutional outlook on crypto

The entry of the world’s largest asset manager into the realm of crypto finance could potentially signal the entry of other big-name players.

On Jan. 20, BlackRock, the world’s largest asset manager with over $8.7 trillion assets under management, appeared to have given the green light to two of its associated funds, BlackRock Global Allocation Fund Inc. and BlackRock Funds, to invest in Bitcoin futures. 

In this regard, the prospectus documents filed with the United States Securities and Exchange Commission suggest that BlackRock is looking to dabble in Bitcoin (BTC), especially as the first ever cryptocurrency has been added to the company’s lists of derivative products cleared for use.

Furthermore, over the last few months, the company’s executive brass had spoken positively about Bitcoin, alluding to the fact that in the near future, a number of institutions may look toward digital assets to expand their list of financial offerings.

For example, in an interview last November, Rick Rieder, chief investment officer of BlackRock, said that Bitcoin has the potential to “take the place of gold to a large extent.” A somewhat similar sentiment was echoed by the company’s CEO, Larry Fink, who told the media that Bitcoin has caught the attention of the masses and has the potential to possibly evolve into a global market of its own.

Lastly, it’s also worth remembering that exactly one month ago, BlackRock posted a job advert seeking a qualified individual for the role of vice president, blockchain lead for its New York office. According to the post, the role required applicants to be able to devise and set in motion various strategies that can help “drive demand for the firm’s investments and technology offerings.”

What does BlackRock’s entry mean for the market?

BlackRock investing in Bitcoin futures is a significant step forward for the global crypto ecosystem, as it brings tremendous credibility to Bitcoin as a new asset class. Jason Lau, chief operating officer of cryptocurrency exchange OKCoin, told Cointelegraph that this move will set the stage for other asset managers to follow since most traditional asset managers are typically “consensus followers,” adding:

“With BlackRock’s announcement, other asset managers are going to be able to point to BlackRock’s work in convincing their investment committees and the client investment boards about the potential and maturity of BTC and the crypto ecosystem.”

Currently, CME futures and investments trust shares issued by Grayscale and Bitwise are two of the primary vehicles for institutions to get involved with crypto. However, due to this severe limitation, there have been large premiums from trusts versus the underlying price of BTC. For example, Lau stated that during the recent BTC price appreciation in December, Grayscale had a 40% premium on Bitcoin’s underlying value.

Kyle Samani, a managing partner at Multicoin Capital — a thesis-driven investment firm — told Cointelegraph that BlackRock’s entry is a big step forward for the entire industry. He believes that by enabling some of its funds to go long on BTC, it will allow more investors to join the space.

Is BlackRock late to the party?

While some are rejoicing at the news of BlackRock making its way into the crypto market, Maksim Balashevich, founder and CEO of Santiment — a market intelligence platform for cryptocurrencies — told Cointelegraph that from a purely “behavior analyses” standpoint, it’s not just the big headlines that should be considered.

Instead, the reaction of the masses, which, more often than not, is the single most crucial factor that determines market price action, could be more decisive. He added: “BlackRock’s entry is no special event but just yet another ‘latecomer’ from ‘big money’ funds. The move won’t have any implications except further professionalizing, increasing the liquidity of the market.”

When asked about the impact BlackRock’s entry may have on Bitcoin’s potential value stabilization, Balashevich pointed out that despite these “big moves,” crypto volatility is here to stay and that many more ups and downs will happen in the coming months. “Players like BlackRock are sharks playing against each other,” he said.

Lastly, on the subject of whether the point of saturation in terms of institutional entry into this space is getting closer, he believes that the industry is indeed “getting very close to the top” and that “there aren’t too many big players left to enter the market.”

Could an SEC-approved Bitcoin ETF be on the horizon?

Historically, the SEC has rejected a number of ETF proposals — such as those submitted by Phoenix Wilshire, Gemini, etc. — sighting price manipulation, lack of liquidity and price indexing sources as key concerns. However, with BlackRock making inroads into this space, it seems as though the stage may finally be set for an ETF being approved sometime in 2021, as Lau pointed out:

“An increasing number of large reputable financial firms a la BlackRock, Guggenheim, SkyBridge, etc. are entering the crypto space and lending their sign of approval. This may give the regulatory body more confidence in the maturation of the crypto market and the need for an ETF to give further access to crypto.”

He pointed out that it will be extremely interesting to see if BlackRock’s ETF business, iShares, decides to become the first major mover to recognize this fast-opening window of opportunity and file for an ETF itself. Recently, investment management firm VanEck has once again submitted an application with the SEC to create a new Bitcoin ETF. This move was followed by another similar application submitted by Valkyrie Investments. So the ETF race is back on following a brief period of calm.

Also, with Bitcoin recently scaling past the $42,000 threshold, it appears as though a number of Wall Street institutions are quickly warming up to the crypto industry, as is highlighted by the fact that MassMutual recently became the latest big-name player from the realm of traditional finance to acquire $100+ million worth of BTC.

Not only that, a number of high-profile investors such as Paul Tudor Jones and Stanley Druckenmiller have cozied up to this relatively new asset class in recent times and from the corporate domain, companies such as Square and PayPal have purchased Bitcoin.

Believing, not seeing: Institutions still predict $100K Bitcoin price

Even though Bitcoin has struggled to reclaim its recent high of $42,000, projections of BTC reaching $100,000 still seem achievable to some.

Despite Bitcoin price cooling off in recent days, with the premier cryptocurrency currently hovering around the $32,000 mark, it is still showcasing strong technicals as well as a thirty-day price gain of nearly 40%. Not only that, but even since its recent dip — which has seen the digital asset fall from its recently established all-time high of around $42,000 to its present value — the top crypto is still in the green over the last 12 months, exhibiting a value spike of nearly 300%.

In this regard, since the fourth quarter of 2019, a number of traditional finance players have been predicting big things for Bitcoin (BTC), especially as governments all over the world continue to print money in the form of “economic stimulus packages,” leading to fears of inflation becoming more prevalent but also of a looming economic disaster that could potentially result in a global recession of unprecedented proportions.

For example, during the second quarter of 2020, the economy of the United States plunged at an unprecedented rate, with the global powerhouse’s gross domestic product, which outlines a nation’s total output of goods and services, falling by 31.4%.

In the wake of such developments — including an alarming rate of money being printed by central banks globally — many investment houses and banking institutions are now beginning to see a future for Bitcoin, especially as a hedge against monetary inflation, despite its current volatility levels.

Many institutions see BTC at $100,000-plus

Earlier this year, American megabank JPMorgan Chase’s strategy team, led by Nikolaos Panigirtzoglou, claimed that a theoretical target of $146,000-plus could be sustainable for BTC by the end of 2021, pushing the narrative that the digital currency seems to be a prime candidate for replacing gold as a long-term store-of-value, especially for a budding base of younger, more tech-savvy investors.

In a similar vein, new data released by Pantera Capital, an investment firm and hedge fund, reiterates JPMorgan’s sentiments surrounding BTC, suggesting that its price action is closely following the Stock-to-Flow model, thus reaffirming its faith in the digital asset hitting the $115,000 mark by Aug. 1.

The S2F model that was developed by PlanB looks at BTC halving events that take place roughly every four years and how they play a direct role in spurring the currency’s value roughly six months after each cycle. In this regard, one can see that following each of the previous three halvings, Bitcoin has shown remarkable growth. For example, after the May 2020 halving, the price of 1 BTC rested at $8,000, only to shoot past the $15,000 threshold after exactly six months.

Raiffeisen Bank too employed the S2F model in a recent report to ascertain where Bitcoin might be headed in the near future. According to the company’s research team, price targets beyond the $100,000 mark or even $1 million may be possible to achieve. “The fact is, now that the value has more than tripled in 2020 and momentum remains strong, future further gains should not surprise us,” the study reads.

Other prominent players from the realm of traditional finance who have projected big things for BTC in the short term include individuals such as Andy Yee, public policy director for Greater China at cross-border payments provider Visa, who believes that this rally is different from the one in 2017, as it marks a shift from high-speculative, nonfunctioning tokens toward Bitcoin and Ether (ETH).

Similarly, Thomas Fitzpatrick, global head of U.S.-based financial giant Citibank’s CitiFX Technicals market insight product, allegedly wrote in a private report — which was leaked online — that by December, Bitcoin has the potential to scale up to a price of around $318,000.

Fanciful projections or imminent reality?

Even though the S2F model was at first one of the few technical indicators signaling Bitcoin’s astronomical rise, it now seems that an increasing number of experts and analysts are beginning to see the technological and monetary proposition being put forth by BTC and other cryptocurrencies.

Sam Tabar, co-founder of Fluidity — the company behind the AirSwap trading platform — and former head of capital strategy for Merrill Lynch told Cointelegraph that everyone needs to remember that the optimism surrounding BTC at this point is not just fluff, as speculation is now backed by real substance, adding:

“Bitcoin is not ruled by any one person or government. Instead, it is ruled by the simple laws of supply and demand. [...] In essence, Bitcoin is two sides of the same coin: On the one side is a global currency, and then the other side is digital gold.”

As a proxy for a global currency, the friction of buying crypto has been significantly reduced, as it’s easier than ever before to acquire Bitcoin. Similarly, as a proxy for gold, Tabar opined that Bitcoin is being used as a hedge against the U.S. dollar, especially as the newly elected President Joe Biden looks to spur U.S. dollar spending in order to prop up the economy against the effects of COVID-19 lockdowns.

Providing a more technical breakdown as to why institutions are betting big on Bitcoin, J. P. Thieriot, CEO of asset trading platform Uphold, told Cointelegraph that unlike traditional dollar debasement havens like gold and other commodities, Bitcoin has zero elasticity on the supply side.

He highlighted that if/when the price of gold reaches $3,000, marginal gold mines will once again fire up, with the same dynamic being applicable with oil and every other non-math-based unit of account. Thieriot believes that “The unique lack of supply-side elasticity means that, price-wise, BTC will respond more precipitously than things like gold, to the exact same drivers.” He further added:

“BTC is in the early stages of its rollout. As it metamorphosizes from fringe curiosity to portfolio must-have, it’s pretty logical to assume that inflows will grow. If I were a bookie, I’d say the over/under for Dec 31, 2021 midnight... is $85,000.”

Lastly, the ever-increasing institutional demand seems to be changing the digital-asset market, which in turn is driving many banks to make seemingly outlandish price projections in relation to BTC. For instance, more funds are now looking to enter the crypto game, and recently, American firm Osprey Funds announced that it will be launching its over-the-counter crypto solution, Osprey Bitcoin Trust, which will likely rival Grayscale Bitcoin Trust.

Investor sentiment surrounding BTC is high

When looking at the market sentiment surrounding Bitcoin, the digital currency is increasingly showing correlations with the core functions traditionally afforded by traditional fiat currencies for their users — that is, it has become a unit of account, a standard of deferred payments and, lastly, a tangible long-term store of value.

Also, over the course of 2020, an increasing number of e-commerce platforms added support for Bitcoin and other cryptocurrencies as a method of transaction to pay for goods and services. PayPal, for example — a company that boasts a 28-million-strong merchant base — now allows users to buy, sell and store cryptocurrencies via its platform.

On the subject, Paolo Ardoino, chief technology officer of crypto exchange Bitfinex, told Cointelegraph that consumer sentiment around Bitcoin is overwhelmingly bullish right now and that people who are celebrating the rise of various altcoins and other off-chain solutions owe their success to the flagship crypto, adding:

“The king of crypto is the base layer for an emerging alternative financial system. Bitcoin is providing a solid foundation for a staggering array of projects, some of which will fundamentally change the nature of money by the end of the decade.”

Thieriot believes that the sentiment driving BTC is a result of previously unseen levels of currency debasement generated by the monetary response to COVID-19. Beyond retail speculation, he believes corporations are looking to hedge their fiat exposure, evidently seeing some relative advantages of Bitcoin over traditional havens like gold and subsequently jumping in. “The early jumpers have been handsomely rewarded, and so the trend is likely to continue,” he added.

Lastly, Tabar highlighted that one of the more recent signs of growing consumer sentiment and institutional acceptance regarding BTC has come in the form of recent filings made by BlackRock, an American multinational investment management corporation with $8.7 trillion in assets under management as of the end of 2020. A quick look at the filings showcases a strong use of crypto-oriented language alluding to the company’s funds potentially engaging in “futures contracts based on Bitcoin.”

ETH price sets new all-time high, gains financial momentum to go further

Technical indicators related to Ether suggest that a move past the $2,000 range might be in the books — but how soon?

While Bitcoin has exhibited a stagnating monetary trend over the course of the last week or so, showcasing minor gains of just 3%, its crypto cousin Ether (ETH) seems to be on a roll by not only holding its own against the U.S. dollar but also consistently floating around the $1,300 threshold, and now ultimately, briefly surpassing the all-time high value of $1,428.

It’s interesting to note that unlike Bitcoin (BTC), Polkadot’s DOT and Chainlink’s LINK, as well as a host of other decently sized altcoins, ETH is one of the few premium digital assets to have not surpassed and stuck above its ATH through the course of this current bull cycle. According to some, the currency’s macro trend outlook looks “ridiculous bullish,” and if the currency is able to close above its previous ATH value, it’s touted to quickly ascend to around the $2,800–$3,200 region.

During the end of 2020, ETH’s value lay in the $500–$650 range, following which it saw an increase of about 100% within a matter of days. Ether was trading at around $1,200 level for some time, and therefore, if this “bullish” trend continues and the market does not face any serious negative backlash, it’s possible to expect another upward surge that will take the currency to the $2,000–$3,000 range.

Another reason for Ether potentially rising in the near future could be due to the fact that the crypto’s reserves across all centralized exchanges have plummeted, which seems to indicate that demand for the altcoin is rising. In this regard, data available online indicates that between Jan. 14 and 15, exchange reserves for ETH fell by a whopping 20% from 10 million to 8million. Not only that, according to information released by Glassnode, Ether reserves on centralized exchanges are currently at levels so low that have not been witnessed since July 2018.

Why is Ether leaving centralized trading platforms?

To get a better understanding of why ETH is flowing off exchanges at such a rapid pace, Justin Barlow, research analyst for digital assets data provider The Tie, pointed out to Cointelegraph that the ongoing offloading could mean that ETH is now starting to move to “stronger hands” — i.e., players who may not be looking to sell their holdings for instant liquidity, adding:

“This includes funds, token development teams and retail investors. While this is not a clear indicator, we are likely to see this trend continue as more regulated ways to purchase ETH are introduced such as the Grayscale ETH Trust or the 3iQ ETH fund that have multi-month lockup periods.”

Nikita Ovchinnik, chief business development officer at decentralized exchange aggregator 1inch, believes that there are multiple reasons that can explain this shift and that such a trend will most likely continue into the future. Ovchinnik stated that an increasing number of crypto investors have realized that there is no need to hold Ether on exchange wallets in order to sell it since there are a number of DEXs that provide highly competitive rates.

Additionally, the incentives that are offered by DEXs far outstrip those being offered by the centralized exchanges currently. For example, holding Ether in DeFi protocols allows investors to take part in yield farming, governance, staking and all other potent routes that can allow users to draw significant passive income streams.

Not only that, it’s no secret that holding tokens on centralized exchanges has always been a risky proposition since even the best trading platforms can suffer hacks and data breaches. On the issue, Ovchinnik further opined that “DeFi has taken a major step forward from a design perspective and has become extremely user-friendly at this point. This is another reason why institutional investors have become more active in the space.”

Is the incoming Ether boom real?

While Bitcoin is clearly still the favorite of the crypto industry, it seems as though its price is mostly governed by the “strict supply and elastic demand” model. As a result, the currency stands to become more of a long-term store of value, much like gold, rather than an ecosystem for technological innovation.

Ethereum, on the other hand, is quite different thanks to its advanced programmability-related features, such as smart contracts and, therefore, appears to function as a Swiss Army knife of crypto coins. On the subject, Sandeep Nailwal, chief operating officer of Matic Network — a blockchain-based scalability platform — told Cointelegraph:

“Ethereum has clearly established itself as THE decentralized execution platform for running Web3 business logic, be it decentralized finance or being a platform of choice for gaming and collectibles, aka NFTs. The huge DeFi wave of 2020 clearly indicates that it’s going to be the Wall Street of the 21st century, and the platform to run those business rules is Ethereum.”

He proceeded to add that while a number of naysayers continue to harp on the high gas fees, the fact of the matter remains that despite the current challenges, people are still using the network. Nailwal added: “Applications running on Ethereum are valuable enough for their users to pay hundreds of dollars in gas fees.”

Ovchinnik also added that Ethereum can potentially become the Wall Street of the crypto finance sector since it affords a wide array of investment opportunities to different market participants ranging from arbitrageurs to long-term investors.

While demand for most crypto assets is currently being determined by market speculation, Ethereum seems to be one of the few projects that has a real demand for the token itself, with the simplest example being gas fees, wherein users are deploying ETH for paying roughly $7 million in gas fees alone. Furthermore, ETH pairs are the most used across all DEXs, while the altcoin is also the primary asset being deployed for a majority of all DeFi-based lending and borrowing activities.

Lastly, staking on Ethereum 2.0 has also proven to be very popular, as is highlighted by the fact that nearly $3.75 billion is currently locked on the Beacon Chain since its launch last December. By making use of this staking option, wherein individuals have to invest a minimum of 32 ETH into the currency’s ecosystem, investors can earn rewards in the form of annualized interest on their holdings.

A bright future for Ether?

Earlier in the month, when Ether was still trading below the $1,000 threshold, Tyler Winklevoss, co-founder of the cryptocurrency exchange Gemini, stated that ETH is by far one of the most “underpriced” cryptocurrencies in the market today, adding that investors accumulating the digital currency right now are getting a steal for their money.

Meanwhile, Barlow believes that while Tyler and Cameron Winklevoss have high hopes for ETH in the near term, it’s still quite difficult to project ETH’s near-term price action with a high degree of certainty. Barlow added that despite ETHs lack of a hard cap, such as the 21 million cap of Bitcoin, it’s likely that ETH will continue to witness significant demand in 2021.

Furthermore, according to Barlow, as demand for blockchain decentralized applications continues to grow and the crypto market as a whole sees increasing institutional inflow, the growth trend will likely be accelerated further: “As the second-largest crypto by market cap, it is only natural that ETH should see new demand as institutions begin to look past a ‘crowded’ Bitcoin trade.”

DeFi lending and borrowing, explained

As DeFi protocols continue to garner mainstream traction, here’s an introduction to how lending and borrowing work on these platforms.

Are there any risks involved?

DeFi protocols feature certain risks, such as third-party smart contract tampering and the risk of borrow APYs rising dramatically within a short time period.

When compared with centralized finance, there are no practical dangers associated with DeFi lending. However, like anything else, DeFi, too, has risks associated with it. For example, there are certain smart contract risks that are present as well as the threat of APYs changing dramatically within a short time window. 

For example, during the DeFi craze of 2020 where “yield farming” became a rage globally, borrow APYs on certain cryptocurrencies rose to 40% and over. This could have potentially caused unaware users who may not track their interest rates daily to repay more than what they might have initially expected.

Overall, while the entire process of lending and borrowing using DeFi platforms is not really complicated, there are certain small differences in terms of how each specific protocol operates, for example, the various wallets they support, applicable fees, etc. 

Furthermore, users still have to be cautious and ensure that they have inserted the correct wallet numbers and address details so as not to end up losing their funds since there is no way to recover them in such a scenario.

What are the mechanics of how interest returns are doled out in DeFi?

One picks a coin that they want to lend as well as the smart contract using a DeFi app, then the interest amount is supplied directly to the associated wallet.

To cut a very long story short, the interest that lenders receive and what borrowers have to pay is calculated by using the ratio that exists between the supplied and borrowed tokens in a particular market. Also, it should be noted that the borrow annual percentage yield is higher than the supply APY in relation to a particular market. 

On another technical note, interest APYs are determined per Ethereum block, which means that DeFi lending entails users being provided with variable interest rates that can change dramatically depending on the lending and borrowing demand for particular tokens. Also, some protocols, such as Aave, offer their users stable “borrow APYs” as well as flash loans, for which no upfront collateral is required.

Is there a cap on how much money one can borrow?

Yes, and there are primarily two factors that govern this. Does the platform have enough liquidity? What is the “collateral cofactor” of a person’s supplied assets?

There is indeed a limit, and there are two primary factors that govern how much money an individual can borrow. First, it depends on the total fund pool that is actually available to be borrowed from a particular market. And while this may not be a major issue, it could become a factor if someone actually tries to borrow a really large volume of a certain token.

Secondly, it’s largely dependent on the “collateral factor” of one’s supplied tokens. This term refers to the total amount of funds that can be borrowed based on the quality of the collateral provided. For example, Dai and Ether (ETH) possess a collateral factor of 75% on the DeFi lending platform Compound, which means that users can take a loan of up to 75% of the value of their supplied Dai or ETH.

On a more technical note, those who borrow funds must have the total value of their borrowed amount stay under the following limit — the value of one’s collateral multiplied by its collateral factor. As long as this condition stays valid, an individual can borrow as much money as they wants.

How does lending and borrowing work on DeFi platforms?

An individual sends the tokens they wish to lend into a “money market” using a smart contract, which then issues interest in the platform’s native token.

When making use of DeFi protocols such as Aave and Maker, users looking to become “lenders” need to supply their tokens into what is referred to as a “money market.” This is done so by an individual sending their assets to a smart contract — which serves as an automated digital intermediary — following which the coins become available to other users for borrowing.

The aforementioned smart contract issues interest tokens that are doled out automatically to the user and can be redeemed at a later stage in place for one’s underlying assets. The tokens that are minted are native to the platform, for example, in Aave the interest tokens are called aTokens, whereas on Maker they are referred to as Dai.

Almost all of the loans that are issued via the native tokens are over-collateralized, which basically means that users who want to borrow funds are required to provide a guarantee — in the form of crypto — that is worth more than the actual loan itself. 

While on paper this may seem somewhat absurd since the person could potentially just sell their assets in the first place to get the money, there are many reasons why DeFi borrowing makes sense. 

Firstly, users may need funds to cover any unforeseen expenses they may have incurred while not wanting to sell their holdings, as the assets may be primed to increase in value in the future. Similarly, by borrowing via DeFi protocols, individuals can potentially avoid or delay paying capital gains taxes on their digital tokens. Lastly, individuals can use funds borrowed via such platforms to increase their leverage on certain trading positions.

What is lending and borrowing in DeFi?

Lending and borrowing, within the realm of traditional as well as crypto finance, entails the act of one party providing monetary assets — be it fiat or digital currencies — to someone else in exchange for a steady income stream.

The concept of “lending and borrowing” has been around for ages and is one of the core aspects of any financial system, especially the “fractional banking” setup that is predominantly used across the globe today. The idea is extremely straightforward — i.e., lenders provide funds to borrowers in return for a regular interest rate, and that’s quite literally it. Also, traditionally, such deals are usually facilitated by a financial institution such as a bank or an independent entity such as a peer-to-peer lender.

In the context of cryptocurrencies, lending and borrowing can be facilitated via two primary routes — via a centralized finance institution, such as BlockFi, Celsius, etc., or through the use of decentralized finance protocols such as Aave, Maker and so on.

CeFi platforms, though decentralized to a certain extent, work in pretty much the same way as most banks, whereby they take custody of one’s deposited assets, eventually loaning them out to third parties — such as market makers, hedge funds or other users of their platform — while providing the original depositor with steady returns. And though on paper this model looks and works quite well, it could be prone to a number of issues, such as thefts, hacks, insider jobs, etc.

DeFi protocols, on the other hand, allow users to become lenders or borrowers in a completely decentralized fashion, such that an individual has complete control over their funds at all times. This is made possible via the use of smart contracts that operate on open blockchain solutions such as Ethereum. In contrast to CeFi, DeFi platforms can be used by anyone, anywhere without them having to hand over their personal data to a central authority.

Strap in: New institutions wait for Bitcoin price rollercoaster to end

Bitcoin market volatility is scaring off new institutional investors, but meanwhile, old ones continue to buy up the BTC dips.

As a result of the ongoing uptrend, many prominent institutions from the realm of traditional finance have sought to join the crypto bandwagon so as to not miss out on the ongoing action. For starters, a jump in open interest and trading volume for Bitcoin futures has been witnessed across the board over the course of the last couple of months. While that may have been expected, what may come as a surprise is that the Chicago Mercantile Exchange, a global derivatives exchange, recently became the world’s largest Bitcoin futures trading platform.

In this regard, data released by crypto analytics platform Bybt indicates that CME accounts for $2.4 billion of the $13 billion overall open interest in Bitcoin futures, closely followed by crypto exchange OKEx’s total of $2.17 billion and ahead of other prominent players such as Binance, Huobi and Bybit.

It should come as no secret that Bitcoin’s (BTC) meteoric ascent since December 2020 has increasingly been grabbing the eyeballs of investors all over the world. To put things into perspective, despite BTC’s recent dip that saw it drop to just under the $32,000 mark, the currency is once again trading well above the $38,000 threshold — thereby showcasing a net 30-day profit of around 95%.

Is institutional interest increasing, or is stagnation setting in?

The recent volatility has sparked concerns over the sustainability of the current bull season and has raised questions regarding if institutional interest in Bitcoin is starting to reach a plateau. Konstantin Anissimov, executive director of United Kingdom-based cryptocurrency exchange CEX.IO, told Cointelegraph that it is important for new entrants to realize that the game is not simply about institutions making their way into the market but rather that they see a drop in the risks:

“Unless something truly drastic were to happen that could turn this entire market on its head — and I can hardly imagine anything so bad — I believe more large companies will continue to invest into Bitcoin and other cryptocurrencies in the future.”

Quinten Francois, host of the YouTube channel Young and Investing, believes that most institutions that wanted a piece of the action have likely already made their way in, adding that during parabolic phases like these, it’s hard to imagine more big-name moneyed players making their entry into this space, at least until the end of the year when things become more stable.

That being said, he did add that most institutions that have boarded the crypto gravy train are now likely to accumulate during dips, and when they do stop, retail money will slowly pour back into the market, pumping the value of BTC even further: “They are smart money and know what they are doing, they are not going to buy into parabolic moves.”

Jonathan Leong, CEO of cryptocurrency exchange BTSE, told Cointelegraph that “Institutional inflow into cryptocurrency has just started.” He further added: “The fast price appreciation of Bitcoin and other cryptocurrencies during Q4 has a direct correlation with this institutional inflow or the expectation of such inflow.”

Will institutions decrease market volatility?

There’s no denying that Bitcoin is a much more mature asset than during the bearish phase of 2018, especially with regulations having progressed significantly in certain jurisdictions. Furthermore, the crypto market now has a substantial number of professional trading houses and non-crypto businesses participating in it. 

These factors can help greatly with dampening Bitcoin’s volatility and increasing its liquidity as an investment asset, according to Anissimov: “Institutional investors are not so much the key to driving Bitcoin’s bull run as they are a path through which this market as a whole can be tempered, becoming more stable and efficient.”

That being said, if established institutions come into the crypto industry, they will have an effect on the price movement of most cryptocurrencies. In the end, this may help the industry as a whole, especially when considering that most traditional finance players will aim for long-term deals that can potentially help protect Bitcoin from crashing in a manner similar to what was seen in 2018.

Recent moves are worth noting

Earlier this month, CoinShares, a European firm that deals with crypto-finance and exchange-traded products, announced that it had successfully facilitated the trade of more than $202 million in XBT (Bitcoin) certificates on the market’s first day of 2021. It is worth noting that the Bitcoin exchange-traded-note provider is approved by Sweden’s Financial Supervisory Authority and that the company’s aforementioned offerings are currently available for purchase via Nasdaq.

Also, according to CoinShares’ “Digital Asset Fund Flows Weekly” report from Jan. 11, $34.5 billion worth of capital is held in crypto investment products as of Jan. 8. Of this total, $27.5 billion, or 80%, is in Bitcoin funds, while $4.7 billion, or roughly 13%, is invested in Ether (ETH) products.

Comparing the performance of Bitcoin funds during this ongoing bull run with that of the one witnessed in 2017, the report states: “We have seen much greater investor participation this time round with net new assets at US$8.2bn compared to only US$534m in December 2017.”

Also, last year, the United States Office of the Comptroller of the Currency said in a landmark decision that national banks can custody crypto assets. This announcement was followed by another major development wherein the OCC also stated that American banks can even provide services to stablecoin issuers, such as holding reserves.

While some traditional institutions were already indulging in this practice prior to the above-stated decision, there was an air of uncertainty around this space due to a lack of legal clarity. Now that an official clarification has been given, stablecoins that are backed one-to-one by fiat currencies that are held in a bank’s reserves are not deemed a risk in the United States.

The rise of crypto: Bitcoin sets landmarks but alts can go independent

Unfounded hype? This time around, investors have begun to realize the value proposition of Bitcoin and Ether.

On Dec. 8, exactly one month ago, Bitcoin was hovering around the $18,700 range, with many analysts debating as to whether the flagship asset would be able to sustain its bullish momentum and cross its all-time high value close to $20,000. Well, how quickly things have changed since then because within a period of just 30 days, Bitcoin (BTC) has repeatedly scaled up to new ATHs, even surpassing the $41,000 barrier.

Over the course of the last seven days, BTC has exhibited a substantial growth of around 41%, with the digital asset seemingly breaking new ground with each passing day. However, this has led to investors becoming increasingly nervous since there are many who immediately are given flashbacks of the 2018 crash that resulted in most cryptocurrencies crashing hard within a matter of days.

In this regard, Cointelegraph Markets contributor Michaël van de Poppe believes that while 2020 was an amazing year for crypto, everyone should brace for a “healthy correction” in the near future. That being said, for many, that can serve as an opportunity like no other because there is an increasing population of budding crypto enthusiasts who now want a piece of the action, and not just Bitcoin. On the matter, van de Poppe opined: “The higher Bitcoin goes, the more money comes into the market and more money can flow towards altcoins.”

What’s causing BTC to soar?

The reasons for Bitcoin’s momentum are manifold, starting with the fact that the industry as a whole had been in a prolonged bear market all through 2018 and 2019, but despite the slumps, accumulation had never really stopped.

Another often overlooked narrative is related to the recent BTC halving, as time and again, historical data has indicated that approximately four to six months after every cycle, the value of the premier digital currency takes a sharp upward turn — something that has happened this time around as well.

Not only that, but the digital asset seems to be right on track with the stock-to-flow model, which was created by Dutch institutional investor PlanB. According to the S2F model, scarcity is used as the defining metric to quantify the value of Bitcoin. And while most people use the setup to assess BTCs future valuation, PlanB claims that the S2F model can also be used in relation to gold and silver, as well as other assets.

Ben Zhou, CEO of cryptocurrency exchange Bybit, confirmed that it’s the “institutional inflow fueling Bitcoin,” adding that there is now a level of consensus, or at the very least, peer pressure among certain corners of the institutional world to have Bitcoin in their portfolio: “Certainly, those that have a younger clientele feel the need to increase their exposure to BTC.”

Omar Chen, CEO of the ZB.com exchange, believes that institutional buying has simply served as a catalyst for Bitcoin and has not been the primary driver for its bullish momentum. He told Cointelegraph that investors, both from the traditional and the crypto sectors, are in fact on the lookout for alternative safe havens, pointing toward gold and its rally during the start of the COVID-19 pandemic:

“As people and institutions learn more about its attributes and benefits, Bitcoin has become another haven of choice for money. Combined with the recent spate of negative news about COVID-19 vaccines, investors are increasingly losing faith in traditional finance and the global economic recovery, making the bullish case for Bitcoin even louder.”

Are altcoins inextricably linked to BTC?

As Bitcoin marches on, even crossing the $41,000 threshold, there is no denying that the surge has also seen a number of prominent altcoins soar to new heights. In this regard, over the course of the past week, Ether (ETH), Stellar (XLM) and Cardano (ADA) have showcased prominent gains of 70%, 128% and 70%, respectively.

But will the financial destiny of the market’s top-10 altcoins always be linked to Bitcoin? So far, the value of ETH and Litecoin (LTC) have continued to showcase heavy correlation with BTC whenever the latter witnesses any major market movement. However, Ether may be coming into its own as an independent asset, even though it has yet to break past its 2018 ATH of $1,448.

Thor Chan, CEO of digital asset exchange AAX, opined that even though the term “alt season” is often used whenever Ether or some other altcoins start to surge, its meaning has changed over time. He pointed to the 2017 market when everything had to do with an explosion in innovation around initial coin offerings and about people “getting rich as quickly as possible.” Since then, he believes the market has evolved greatly: “Now, the growth in altcoins is more about portfolio diversification, risk management and rebalancing as traders realize their Bitcoin profits.”

It is worth recognizing that most altcoins, barring a few such as ETH, still largely fall outside the radar of institutional interest. However, with Bitcoin being promoted the way it has been, many mid- to large-scale investors might be looking at ETH and other prominent alts as potential candidates for the next wave of adoption. In this regard, Jay Hao, CEO of cryptocurrency exchange OKEx, highlighted to Cointelegraph:

“It is natural that there will be some spillover into other cryptocurrencies with Ethereum being the first in line as a well-established and long-term project in the industry. While BTC most certainly has the strongest brand recognition, Ethereum has not gone unnoticed, being used by the largest FSIs like JPMorgan and Santander.”

He further noted that Ether has very strong fundamentals and, as a result, has piqued the interest of serious institutional investors, such as TD Ameritrade and Arca Labs. Not only that, but Ethereum is the platform of choice for many cryptocurrency projects and has been behind the huge DeFi momentum that took off in earnest last year.

Hao believes that while Bitcoin has effectively been given the green light, as has Ether to a certain degree, from institutional investors, the same cannot be said for all other cryptocurrencies: “I don’t believe that we can say with confidence that the alt season will be as large or as long as the previous, as the majority of the institutional dollars are still flowing into BTC.”

Is the crypto hype real?

While the narrative of “Bitcoin being a bubble” is yet to play out, there are still those from the traditional finance sphere who continue to reiterate the statement as a mantra, hoping that their anti-crypto sentiments do come true at some point.

For example, just last month, renowned economist David Rosenberg told Bloomberg that he believes Bitcoin is in a bubble and investors don’t understand how its supply works, adding: “Everybody seems to believe that we’re going to get to that 21 million cap on the supply constraint, but there’s really nothing in the protocol to suggest that the supply of Bitcoin can’t go up once we hit that limit.”

Related: New Bitcoin price highs revive old misconceptions about BTC and crypto

As a wise man once said, “Facts don’t care about your feelings,” as is highlighted by the fact that the crypto industry is seeing unprecedented institutional demand for Bitcoin, especially with the entrance of many key players, such as MicroStrategy, Guggenheim, SkyBridge Capital, Square and PayPal into the space. Additionally, the Office of the Comptroller of the Currency has recently given U.S. banks the authorization to treat public blockchains as another form of settlement infrastructure and also allowed for banks to offer custody services of digital assets.

When it comes to altcoins, the world’s largest financial derivatives exchange, the Chicago Mercantile Exchange group, has finally announced its plans to launch a new ETH futures product in early 2021. As a result of this development, come February, traders will have the opportunity to speculate on Ether’s future monetary valuation using a fully regulated setup.

The offering, referred to as the CME CF Ether Reference Rate, will help expose crypto to a wide array of investors, traders and investors, allowing for better price discovery and, eventually, increased adoption within institutional circles.

From Uniswap to Axies, these 6 DApps blew us away in 2020

With the decentralized application space evolving rapidly, let’s take a look at some of the best examples that caught our attention in 2020.

With the crypto market making a crazy comeback this year, an increasing number of casual investors all over the world are beginning to understand the potential that blockchain technology possesses. For example, over the course of 2020, decentralized applications gained a remarkable amount of traction, with the total locked volume across all decentralized exchanges rising from under $40 million back in December 2019 to a whopping more than $26 billion within a span of just nine months.

However, it’s important to understand the core concepts underlying decentralized finance, or DeFi, and decentralized applications, or DApps, as many routinely use the two terms interchangeably. For starters, while both innovations share many similarities — such as using blockchain technology, eliminating third-party intermediaries, and providing users with complete control over their finances — there are a few key differences that are worth pointing out.

One key distinction is that DeFi is a form of DApp, with DeFi primarily being concerned with financial use cases, whereas general DApps have a wide range of applications that are not limited to the domain of finance alone. For example, DApps can be used for the development of gaming and gambling platforms and educational systems, or even in the creation of novel tools like privacy-oriented internet browsers such as Brave.

Why DApps, you ask?

From a usability standpoint, DApps can be deployed for all of the same purposes that regular smartphone apps are good for. However, the difference lies in the fact that unlike most Android and iOS-based applications that make you sign shady agreements essentially forcing you to forgo your basic privacy rights, DApps offer users a wide array of transparency-related benefits — along with other advantages such as:

  • They are open source: As is implied by the term “decentralized,” DApps are open source, meaning their source code is freely available online and can be redistributed or modified by anyone who wishes to do so. This allows users to quickly spot flaws that may be present in their underlying software, thereby bolstering the platforms’ overall security in a big way.
  • They offer attractive incentives: A core aspect of many DApps is that they provide users various incentives, typically in the form of interest yield, airdrops, or other usage-based rewards. In fact, a large reason that the concept of “yield farming” gained so much attention in 2020 is that it enabled crypto investors to earn rewards simply by making use of various permissionless liquidity protocols.
  • They are reliable: DApps are devised using consensus mechanisms that help their networks arrive at agreements about the state of the blockchain. As a result, it is virtually impossible to tamper with such platforms.

Uniswap

The first entry on our list is an absolute no-brainer because it nearly single-handedly brought the concept of decentralized exchanges into the consciousness of the global crypto community. In its most basic sense, Uniswap is a protocol built atop the Ethereum ecosystem for swapping ERC-20 tokens without the need for buyers and sellers to create demand.

And while most casual crypto enthusiasts/investors continue to make use of centralized trading platforms like Binance, OKEx and others due to their overall accessibility and brand reputation, there are a few key areas where Uniswap has completely changed the game, including:

Asset ownership: The original idea behind Bitcoin (BTC), as well as most other cryptocurrencies, was to make it possible for individuals to create, transfer and hold their assets without the need of any intermediary financial authority such as a bank. In this regard, when it comes to centralized exchanges, one’s crypto is basically in the custody of a third party unless they choose to transfer their funds to a cold wallet — an option for which the owners have to pay a sizable processing fee!

When it comes to Uniswap, users never relinquish custody of their assets for even a single moment, thanks largely to the use of smart contracts that execute trades in a totally trustless manner.

Ease of use: To initiate an exchange on Uniswap, all one has to do is select the assets that one seeks to facilitate an exchange between, click on the “connect wallet” button and confirm the transaction in question. That’s it! Once done, the acquired tokens are reflected in one’s account without the assets ever having to go through a third-party platform.

Advanced liquidity options: Perhaps the most unique aspect of Uniswap, as well as most other decentralized exchanges, is that it allows users to play an active role in its liquidity pools by staking their coins, thus enabling them to receive a cut of the platform’s trading margin as an incentive.

InterPlanetary Search Engine

With search data manipulation increasing these days, a large number of tech-savvy individuals are realizing that the internet is no longer the decentralized utopia they once thought it was.

As things stand, a few players such as Google, Bing and Baidu have a complete monopoly over the global search engine sector. Not only that, they have unclear data ownership policies, leading to recurring issues such as customer information leaks, and advertising tracking.

InterPlanetary Search Engine, or IPSE, is a decentralized search engine built atop the EOS blockchain that makes use of the InterPlanetary File System, which allows users to browse the internet while also being incentivized to share any unique content they may have.

Some of the core advantages of using the platform include seamless consumer data protection thanks to IPSE’s asymmetric encryption technology and the need for explicit user approval for any ad tracking activities, for which one is compensated.

Other benefits include:

  • All of the content available on IPSE is permanently traceable as well as end-to-end encrypted.
  • IPSE does not make use of a “bidding-based ranking” system, thus making sure that search results are never swayed by the whims of a few moneyed players.
  • Decentralized storage of data means that hackers can never get complete access to the system because they cannot attack all of the nodes simultaneously.

CryptoKitties

For a whole host of people, the word “DApp” still immediately draws a link to CryptoKitties, a game first launched in 2017 that allows players to breed, buy and eventually sell digital cats that are represented in the form of nonfungible ERC-721 tokens.

In its most basic sense, a nonfungible token, or NFT, can be thought of as a cryptographic asset that represents a value store that is completely unique in nature, such that it cannot be mutually interchanged for another NFT. For example, in CryptoKitties, every cat is different and cannot be swapped directly for another one, for the simple reason that each cat has its own intrinsic qualities such as behavioral traits, physical appearance, etc.

Though it sounds juvenile, since its inception CryptoKitties has remained extremely popular and at one point even accounted for a whopping 10% of Ethereum’s daily transactions. As a result, it is viewed by many as being the perfect entry point for the crypto-curious into the world of decentralization and NFTs.

CryptoKitties offers players nothing more than pure entertainment, but its continued popularity has had a massive impact on the development of the NFT space, as well as the wider Ethereum ecosystem.

Rarible

While CryptoKitties pioneered the NFT space, Rarible is now carrying on the movement. Rarible is a community-owned NFT marketplace that leverages its governance token, RARI, to power its platform. 

On paper, Rarible simply allows users to secure digital collectibles using blockchain technology. Sounds  ordinary, right? However, what sets Rarible truly apart from other platforms like OpenSea, a peer-to-peer marketplace for rare digital items, is the fact that Rarible seeks to become much more than a platform for securing and trading art and digital collectibles.

Instead, Rarible aims to allow individuals to create — or more precisely, “mint” — NFTs, which in the future could be a big boon for content creators of various kinds, especially as issues such as copyright, piracy and data plagiarism continue to affect the world of digital media.

For example, using Rarible, an artist can sell their creations such as books, music albums or films using nonfungible tokens that are stored on a blockchain, thus eliminating the chance of any data forgery. Furthermore, another benefit afforded by this technology is that it enables artists to offer prospective buyers a sneak peek of their content, such as a preview or a trailer, only releasing the entirety of the content once a purchase has been completed successfully.

Lastly, since gaining a considerable amount of traction this year, the team behind Rarible has been putting a lot of emphasis on making the platform completely autonomous so that it can be run using a community-governance-based model.

Axie Infinity

The second game to make its way onto our list, Axie Infinity draws heavily from the Pokemon universe. For example, players can collect and raise fantasy creatures referred to as “Axies.” But unlike CryptoKitties where all one can do is raise and trade their collectibles, in the Axie Infinity world, individuals can team up their pets to battle other users, thus adding a real element of action and adventure into the mix.

The popularity of this game has increased so much over the past year that it has grown to become the most-played game in the Ethereum ecosystem, with the NFT-based digital pastime currently boasting 18,000 monthly active users.

Due to its rapid growth, the team behind this project has been testing out new ways to scale the game and even recently launched the public testnet of its very own sidechain, called “Ronin.” The inaugural validator of Ronin was Paris-based video game giant Ubisoft.

Steemit

Taking the sixth and final spot on our list is Steemit, a social DApp meant primarily for bloggers. It is built atop the Steem blockchain and allows verified users to create blog posts on any topic they desire as well as add tags, photos or anything else to their accounts for various incentives.

For example, if one’s posts are interesting and are able to garner enough “likes,” users are presented with rewards in the form of either Steem, Steem Dollars (SBD) or Steem Power (SP) tokens.

Steem is like any regular cryptocurrency such that it can be powered up into Steem Power tokens, traded for Steem Dollars, transferred to other accounts or simply traded across various cryptocurrency exchanges.

Steem Power tokens, on the other hand, are vested into the platform and serve as a metric of how much influence a user has within the Steem network. The more Steem Power a user holds, the more power they have to influence the value of any posts or comments they upvote and thus earn curation rewards in the process.

Lastly, Steem Dollars are stable-value currency tokens that are pegged to the U.S. dollar in a one-to-one ratio. Steem Dollars can be traded for Steem or transferred to other accounts for various commercial purposes.

XRP price faces a rocky road to recovery ahead of SEC’s Ripple lawsuit

Though Ripple CEO Brad Garlinghouse is prepared to challenge the SEC over its lawsuit, the knock may be hard to come back from.

Just over a month ago on Nov. 24, XRP’s value surged to above the $0.90 mark on U.S. cryptocurrency exchange Coinbase, albeit momentarily, leading many backers to believe that the digital currency was all set to skyrocket once again, possibly even retesting its January 2018 all-time high of over $3.

However, in the wake of the recent lawsuit laid out by the United States Securities and Exchange Commission against Ripple, not only does a future value hike look increasingly improbable for XRP but the project’s future as a whole could be in jeopardy. The SEC’s core argument against the digital currency created by Ripple is that from the very beginning, it has been a “security” and, as such, should have been registered with the governmental body before being made available for purchase for American citizens.

Furthermore, the SEC has claimed that Ripple, CEO Brad Garlinghouse and executive chairman Chris Larsen are in the wrong because they were able to acquire over $1.38 billion from the sales of the XRP token. In the wake of these allegations, the now fourth-largest crypto by market capitalization crashed by 24% in just 24 hours.

And while XRP did experience a small window of relief on Dec 25, rising by around 40%, the SEC’s announcement has led to many major crypto exchanges delisting or freezing the token. Initially, it was only platforms such as OSL, Beaxy and CrossTower that temporarily stopped trading or removed XRP from their platforms, but more recently, the U.S.-based trading platform BitStamp announced via Twitter that it was going to prohibit customers from trading and depositing XRP starting January 2021. Ben Zhou, CEO of cryptocurrency exchange ByBit, told Cointelegraph:

“SEC and Ripple will have their day in court with due process of law, so we shall not prejudge the case in the court of public opinion. It is of course likely that the case will take up much of Ripple’s attention and resources. [...] We hope a clear precedent and framework emerge from these proceedings.”

The nitty-gritty of the case

In its complaint, the SEC has laid out a fairly straightforward argument stating that XRP was never registered with the body and that Ripple’s executive brass did not make any attempts to pursue an exemption from registration. Thus, from the commission’s point of view, this amounts to a sustained practice of illegal sales of unregistered, nonexempt securities under Section 5 of the Securities Act of 1933.

However, what seems unusual to some is that the case has been brought forward in a New York federal court even though Ripple’s headquarters are in California. The simple reason for this is that Ripple has one of its offices situated in the Southern District of New York and some of the statements issued publicly by Garlinghouse regarding XRP were made within the state. Not only that, a substantial number of XRP tokens were sold to New York residents, which in legal terms makes it absolutely fine for the lawsuit to be tried in a New York court of law.

Also, the lawsuit names Larsen and Garlinghouse personally — so as to recover any money obtained by them via their various fundraising efforts — even though the initial XRP was sold by Ripple’s wholly owned subsidiary XRP II LLC. In this regard, the SEC claims that both individuals sold significant volumes of XRP illegally — 1.7 billion XRP by Larsen and 321 million XRP by Garlinghouse — even contending that they “aided and abetted” Ripple in its unethical sales practices.

Providing his thoughts on the matter, Todd Crosland, CEO of cryptocurrency exchange CoinZoom, stated that the lawsuit casts a large shadow over the price of XRP, claiming that it will be interesting to see how things play out as “Lack of institutional support will hurt liquidity,” adding: “Institutions will not bet against the SEC, and will be unloading their positions and will avoid taking new positions in XRP until the lawsuit is resolved.”

What are the implications of the lawsuit?

If the SEC succeeds in its prosecution efforts, Ripple will be framed as the primary violator, with both Larsen and Garlinghouse facing serious legal implications, as both are alleged to have participated in the pattern of XRP sales.

Technically speaking, the SEC’s issues with XRP stem from the fact that the digital currency satisfies key elements of the Howey test under federal securities laws, thus leading to the question of how exactly Garlinghouse and Larsen were able to take part in the token’s various sales efforts.

The commission is now seeking to not only obtain all of Ripple’s ill-gotten gains but is also looking to permanently ban the named defendants from ever selling unregistered XRP or participating in the sale of unregistered, nonexempt securities. Not only that, but the SEC is also seeking an unspecified civil monetary penalty, the exact amount of which has not been made public.

A twist in the tale?

The ongoing XRP saga comes at a time when SEC Chairman Jay Clayton has submitted his resignation, with his duties being taken over by Elad Roisman, who has been appointed acting chairman of the U.S. financial regulator. Also, in a recent letter sent to Clayton, Joseph Grundfest — a former SEC commissioner — was allegedly quoted as saying that while the Ripple lawsuit is an “unprecedented” event, “no pressing reason compels immediate enforcement action.” He added: “Simply initiating the action will impose substantial harm on innocent holders of XRP, regardless of the ultimate resolution.”

Related: SEC vs. Ripple: A predictable but undesirable development

In the midst of all the aforementioned events, Garlinghouse has continuously reiterated that he will “aggressively fight” in court the SEC’s allegedly unwarranted actions against Ripple and will rest only after the case has been proven to be entirely untrue. Furthermore, he also emphasized that even though he had the option of settling with the SEC, he has decided to not take the easy way out.

It now remains to be seen what fate, or the American judicial system, has in store for Ripple. As of publication, XRP is trading at $0.29, with the asset showcasing a seven-day decline of nearly 50%.

Notorious crypto figures arrested in 2020

Despite the crypto industry experiencing a major rise in mainstream interest in 2020, the year also saw many prominent crypto personnel apprehended by regulators.

Over the past year, many prominent and colorful crypto personalities have been apprehended and arrested. From the jailing of antivirus pioneer John McAfee to the laying of charges against executives from one of the world’s largest exchanges, 2020 didn’t exactly shake off crypto’s reputation as a honeypot for criminals.

Over the first ten months of 2020, blockchain forensics company CipherTrace estimates that losses from thefts, hacks, and frauds totalled a whopping $1.8 billion, a figure fueled in part by the rise of various DeFi platforms.

The report suggests that 2020 is on track to record the second-highest value in losses linked to cryptocurrency crimes, trailing 2019, when proceeds of those crimes exceeded $4.5 billion.

Let’s take a closer look at some of the highest-profile figures embroiled in legal issues this year.

Arthur Hayes goes missing following DoJ charges

On Oct. 1, the United States Department of Justice (DoJ) filed criminal charges against BitMEX founder Arthur Hayes as well as three of his associates for violating the Bank Secrecy Act. Compounding their problems, the US Commodity Futures Trading (CFTC) filed a civil enforcement action against Hayes and his company for flouting AML regulations.

The Hong Kong resident has been MIA in public since and is yet to resurface. But in a stroke of good fortune for Hayes, he might not be compelled to face the music anytime soon, as the United States and Hong Kong have suspended their extradition agreements in light of the recent political turmoil there.

The DoJ alleged that BitMEX had been engaged in a variety of shady activities and had weak Anti-Money Laundering (AML) and Know Your Customer (KYC) policies that could easily be misused by third-party actors.

BitMEX was also accused of operating a complex international corporate structure with offices in premium international destinations such as New York, Hong Kong while claiming to be registered and based out of Seychelles.

After the news broke BitMEX announced the departure of Hayes as the company CEO, along with chief technical officer Samuel Reed and the head of business development Greg Dwyer.

‘Star’ Xu’s mysterious absence explained

Prominent cryptocurrency exchange OKEx copped a lot of flak after it suspended crypto withdrawals on Oct. 16, effectively barring customers from taking out their crypto holdings.

Reports surfaced that the suspension was related to the exchange’s Chinese co-founder Mingxing “Star” Xu being arrested by local authorities — although the exchange vigorously denied that was the issue.

After being unreachable for more than thirty days, Xu finally made a media appearance on WeChat on Nov. 19. He revealed that he’d been assisting relevant authorities investigating OK Group’s “backdoor listing in 2017” in which the exchange had sought to partner with an “undisclosed third party entity” so as to make its offerings available to clients all over the world. Xu indicated that after having looked at his prior business engagements, investigators had finally clarified the matter and given him the all clear.

After a month, OKEx finally re-enabled crypto withdrawals on Nov 27.

John McAfee’s Spanish cruise comes to an abrupt end

Tech savant, crypto evangelist, and eccentric millionaire John McAfee has been leading the crypto hype train for what feels like time immemorial now. In 2017, he famously proclaimed that within 36 months, Bitcoin would hit a price of $1 million or he'd "eat my d**k on national television." He retracted his statement earlier this year to the relief of most people.

McAfee was detained in Barcelona by local authorities in October in regard to tax evasion charges levied by the US government against him. He was also charged over fraudulently promoting a series of questionable cryptocurrency projects, from which he allegedly profited millions of dollars.

Prosecutors claim that McAfee failed to file his tax returns for four years running, even while he raked in millions of dollars from his consulting work, speaking engagements, digital currency investments, etc. According to a statement released by the US Justice Department, McAfee illegally siphoned his income from various bank accounts and cryptocurrency exchange accounts in the names of different nominees. He is also accused of not declaring a number of expensive assets including a yacht and real estate.

This is not the first time McAfee has been in trouble with the law. Back in 2012, he was questioned by police after his name was linked with the death of his neighbor, Florida businessman Gregory Faull. In 2019 he was ordered to pay $25 million in a wrongful death lawsuit filed by the estate, but refused, saying: 

"I have not responded to a single one of my 37 lawsuits in the past 11 years."

If convicted of the new charges, he could face up to 30 years in prison.

Santiago Fuentes’ billion-dollar scheme collapses

Spanish national, Santiago Fuentes, was the operator of a cryptocurrency arbitrage firm called Arbistar which had tens of thousands of users investing Bitcoin into its arbitrage trading bot. Blockchain investigations firm Tulip Research reported that since its inception, the firm had raised more than $1 billion in Bitcoin.

Suspicions arose in September when Fuentes claimed that due to a “digital error”, Arbistar’s native trading module had been somehow disabled, wiping out more than a quarter of the company’s funds overnight.

In the course of their investigations, Spanish authorities determined that Fuentes had been making use of his crypto outfit to allegedly facilitate various financial frauds and to launder money. Tulip Research traced back some of Arbistar's withdrawal activity to a deep web marketplace called ‘Hydra’.

Fuentes was arrested in October and has been charged with financial fraud and money laundering. On Dec. 13 lawyers representing 130 former clients said they'd lost 4 million euros ($4.86M) between them, with Spanish media suggesting that in total, 32,000 people had lost 93.4 million euros ($113.5M).

Matthew Piercey’s daring sea scooter escape

The 44-year-old Shasta County, California man was arrested by the FBI on Nov 16. while trying to flee from authorities using a sea scooter.

Local media outlets reported that Piercey was able to evade agents for over an hour by first speeding off in a truck and then abandoning the vehicle on the edge of Lake Shasta where he used a sea scooter — an underwater mobile device that can typically reach a maximum speed of 5mph —  to continue to evade police underwater for 25 minutes. He was arrested when he emerged.

Police allege that Piercey solicited $35 million for crypto mining and other investments through Family Wealth Legacy LLC and Zolla Financial LLC.

The two firms reportedly targeted wealthy investors, obtaining a minimum of $50,000 from each client. However Piercey reportedly admitted that he had little to no understanding of cryptocurrencies.

He reportedly spent $2.5 million obtained via his schemes, renovating two of his homes and paying off his credit card bills. He is now currently facing multiple charges of wire fraud, mail fraud, money laundering and witness-tampering. If found guilty, Matthew could face life in prison.

Harpreet Singh Sahni is brought down by Indian sleuths

Over the years, Sydney-based socialite and concert promoter Harpreet Sahni built a reputation as a man who regularly rubbed shoulders with Australia’s elites including ex-Prime Minsters such as Tony Abbott and Julia Gillard, the former Premier of New South Wales Mike Baird, and former cricketer Glenn McGrath.

But in October, Indian police authorities claimed that Sahni and his close aides had allegedly swindled around $50 million from clients. He was promoting a scheme called "Plus Gold Union Coin" (PGUC), which promised to deliver profits ranging between $5,000 to $8,000 per day to backers.

Investors who tipped around $7,000 in PGUC, were told they could potentially rake in more than $100,000 within a year. Investors had to lock into a 12-month contract during which they couldn't cash out their crypto holdings. However, as PGUC’s popularity grew, token holders began to grow suspicious.

The PGUC website would go offline for weeks at a time and when the currency plummeted, there was no way for investors to minimize their losses or withdraw their assets. The invested money — estimated to be around $50 million — disappeared, with all correspondence stopped with clients.

Sanhi now faces roughly 24 years in prison and is awaiting his sentencing.

Conor Freeman’s million-dollar Bitcoin ploy

The US Department of Homeland Security identified Dublin-based IT professional Conor Freeman as the man behind a theft involving more than $2 million worth of crypto. He was arrested by Homeland Security officials on Nov. 16  and forced to hand over more than 142 Bitcoin.

Freeman was reportedly working with a group able to gain access to the email addresses and phone numbers of victims via various social media platforms. They also had contacts inside the telecom industry, enabling them to initiate sophisticated SIM-swap attacks.

That’s where a scam artist is able to obtain a SIM card that is directly linked to their victim's mobile number, enabling them to gain access to an individual’s 2FA messages and One Time Passwords that are used to validate identities and approve larger financial transactions.

Freeman pleaded guilty to stealing cryptocurrencies worth $1.92 million from Emmy award-winner Seth Shapiro — producer of The Game Changers, The Chosen One — as well as illegally obtaining an additional $250,000 from two other victims, Michael Templeman and Darran Marble.

The entire Plustoken team

Earlier this year in July, Chinese police took 109 people into custody in connection with the Plustoken Ponzi scheme. Twenty seven of them — including Chen Bo, Luu Jianghua, Lu Jianghua, Lu Qinghai, Jin Xinghai, Wang Yin, and Zhang Qin — were allegedly the scheme’s masterminds, while the remaining 82 people arrested held smaller roles within the organization.

The Plustoken scam raked in an estimated $5.7 billion from more than two million investors. Based out of China, the project presented itself as being a cryptocurrency wallet that provided high returns if users purchased PLUS tokens with either BTC or ETH.

In 2019, key members moved large amounts of crypto out of the platform, with 25,000 BTC sent to various addresses including Bitcoin mixers between Feb and March and in June, 789,534 ETH was transferred from the firm’s coffers. However, by the end of the year, the entire scheme had been exposed, and by July 2020, the project had been taken down by Chinese police.

In November the Jiangsu Yancheng Intermediate People's Court revealed that authorities had confiscated 194,775 BTC, 833,083 ETH, 487 million XRP, 79,581 BCH, 1.4 million LTC, 27.6 million EOS, 74,167 DASH, 6 billion DOGE and 213,724 USDT — estimated to be worth $4 billion. Earlier this month Chen Bo and 13 of his co-conspirators were sentenced to jail terms ranging between two and 11 years.

New Bitcoin price highs revive old misconceptions about BTC and crypto

With crypto exceeding all monetary expectations in 2020, some mainstream analysts have reverted to long-forgotten arguments from 2017.

As anyone following the crypto industry will have noticed, yes, Bitcoin (BTC) did recently smash its previous all-time high of around $20,000. Now, many analysts anticipate the cryptocurrency to eventually rise to the mid-$30,000s or even higher within the next few years.

As things stand, BTC is trading at around $23,300, briefly testing the $24,000 mark on several occasions. However, despite all of these positive developments, many prominent individuals from the financial mainstream have spoken negatively about the crypto industry, using cliche adages — such as “crypto is for criminals” and “crypto is all hype, no substance,” etc. — to describe BTC and other prominent digital currencies.

For example, renowned economist and financial strategist David Rosenberg recently referred to Bitcoin as a “massive bubble,” propping up the argument by saying that the supply curve of Bitcoin is unknown even though some people claim to know otherwise. Similarly, Mark Cuban, who is generally quite open-minded in regard to various futuristic technologies, also bashed Bitcoin, claiming that it is “more religion than solution.” However, he did concede that despite its shortcomings, it may be useful as a store of value.

And while crypto tech is far from perfect — admittedly being many years away from replacing legacy financial instruments such as fiat — the aforementioned opinions may seem to come across as the ramblings of annoyed traditionalists who fail to see the immense potential of the technology.

2020 bull run is different from 2017

As soon as Bitcoin broke the $20,000 mark, it was inevitable that analysts from across the board would seek to use the “this bull run is the same as 2017” argument to undermine the financial traction being gained by the industry as a whole.

In this regard, “CryptoYoda,” an independent cryptocurrency analyst, pointed out to Cointelegraph that one can see that the fearful perspective provided by the financial mainstream stems from a lack of understanding of the technology. As such, he believes that what is happening right now is a shift from debt-based fiat currency to trustless financial systems:

“What has changed? Everything. While the 2017 bull run was largely driven by early adopters and retail, this bull run is being dictated by institutional players entering the market. [...] As of now, institutions buy a multiple of what is being mined per day. When one institution accumulates 500MM in BTC, it means that 500MM is no longer available for the other key players observing the market for entry.”

In a similar line of thinking, Jason Lau, chief operating officer of OKCoin, told Cointelegraph that it’s safe to say that the long-looming promise of mainstream players entering the crypto space has finally been fulfilled. In his view, this ongoing bull run has been driven by traditional financial institutions buying Bitcoin price dips as an investment and treasury product: “They have a long term strategy for these assets. So with increased demand, HODLing, and fewer block rewards due to the recent halving, the price may have no limits.”

Additionally, another major difference between the ongoing cycle and the one witnessed before is that back in 2017, the industry was in the midst of a feverish initial coin offering craze, with the bubble duly bursting within just a few month’s time, resulting in the entire crypto economy crashing almost overnight.

According to Adam Neil, chief marketing officer of Bitrue — a digital-asset management platform — these days, people in crypto are much more pragmatic, adding: “Publicly-listed companies like MicroStrategy and PayPal have come on board, and the growth of the CME Bitcoin Futures market indicates increased demand for regulated exposure.”

Crypto can’t, and shouldn’t, be compared to traditional financial mediums

It is no secret that despite its bullish outlook, a certain degree of uncertainty in regard to BTC’s value still exists, as was made clear in November when the price of the flagship cryptocurrency dipped by $3,000 within a span of just 24 hours. That being said, it is unfair to compare BTC, which is just over a decade old, to legacy systems that have been around for more than a hundred years.

So, it’s worth exploring the true meaning of the term “safe haven,” especially as the world struggles with COVID-19-induced financial destruction. CryptoYoda believes that while precious metals like gold and silver certainly are tangible stores of value, they are not very practical — i.e., they are difficult to store, transport, secure, etc. He added:

“I will always remain an advocate for precious metals as they are the ultimate stores of value and have been an accepted form of money for hundreds and thousands of years. It is difficult to store it all in Gold, and then it still needs to be protected and cannot be easily moved.”

Neil believes that while it may not be fair to compare Bitcoin to traditional stores of value, in recent times, the world’s leading cryptocurrency appears to be shouldering that expectation quite well. In his view, the digital-gold narrative is incredibly strong within the community, with a lot of people truly believing in the technology and actively working to make Bitcoin more valuable, whether by running nodes, mining, writing and reviewing code, or HODLing it.

Additionally, it’s also important to recognize how far Bitcoin has come in relation to various legacy financial systems, with an increasing number of mainstream investors now looking to enter the domain. Providing his insights on the matter, Yoni Assia, founder and CEO of eToro — a social trading and multiasset brokerage company — told Cointelegraph that crypto is no longer just the domain of computer programmers and fintech advocates, adding: “We expect this to continue into 2021 as fears of inflation continue to creep up globally.”

Crypto is not perfect, and that’s fine

While crypto stands to completely redefine the way in which the global financial ecosystem works, it still faces many pertinent issues that need to be ironed out. For example, over the first 10 months of 2020 alone, losses from cryptocurrency thefts, hacks and frauds amounted to a whopping $1.8 billion, according to blockchain forensics company CipherTrace. The company even suggested that 2020 was on track to record the second-highest value in losses linked to crypto crimes, exceeding $4.5 billion.

Furthermore, due to regulatory uncertainty, crypto continues to be used by certain sections of society as a means of tax evasion. For example, the United States Justice Department recently indicted John McAfee, an antivirus software creator and crypto proponent, accusing him of tax fraud worth millions of dollars linked to his crypto proceeds between 2014 to 2018. Furthermore, CryptoYoda believes that in its current state, the industry is far from perfect, adding:

“Scalability is a major issue. Similarly, state-level attacks pose another major risk, with such issues most likely rising as the industry grows from strength to strength. While the technology in itself is positioned well for such attacks, individuals are not. The greatest risk I see in this market is the forcing of KYC on every exchange and individual, which undermines the promise of cryptocurrency.”

That being said, fiat currencies are also used by criminals; however, in such scenarios, the “fiat is for criminals” argument is never drawn out. For example, according to a recent BBC report, HSBC allowed tech-savvy scamsters to transfer millions of dollars around the world even after it had learned of their ploy.

The leaked documents claim HSBC moved around $80 million through its U.S. business to its accounts in Hong Kong between 2013 and 2014. What’s even more surprising is that the endeavor kicked off right after the banking institution was fined a whopping $1.9 billion in the U.S. over money laundering charges. Other reports have also suggested that banks such as JPMorgan Chase and Standard Chartered have too been implicated in moving some $2 trillion of “dirty money” between 1999 and 2017.

So, it seems that both the traditional and crypto worlds only manage to see the speck in their brother’s eye but not the log in their own. Furthermore, since there are fewer well-known advocates for crypto in comparison with traditional finance, it’s of no surprise that the aspiring blockchain sector is losing out on the media spin war. As a result, many common misconceptions continue to seep into the consciousness of the masses, ultimately damaging the perception and delaying the adoption of the technologies.

XRP price still stagnant despite incoming Flare Network airdrop

Despite the snapshot on Dec. 12 for the upcoming FLR airdrop event, XRP’s value has not gained much ground, staying put at around $0.50.

While Bitcoin (BTC) has hogged the majority of the mainstream limelight when it comes to the recent bullish action seen in the crypto market, the altcoin XRP has also surged over the past month, breaking out of a multiyear downtrend to regain some previously lost momentum. For example, in March, the price of XRP against the U.S. dollar was hovering around the $0.15 mark, only to scale up to a peak high of around $0.80 by the first week of December.

However, despite all of the aforementioned positive developments, the value of XRP has not been able to break past the psychological barrier of $1. Not only that, even with news of the upcoming Flare Network airdrop, for which a blockchain snapshot took place successfully on Dec. 12, the third-largest cryptocurrency by total market capitalization has not been able to make any major monetary strides and currently sits at around $0.50.

The Flare Network, a startup backed by Ripple, began the process to distribute Spark (FLR) tokens at 12:00 a.m. UTC on Dec. 12 in a one-to-one ratio based on the XRP holdings that were held on participating exchanges. Additionally, even Ethereum wallets like Metamask and Ledger are allowing their users to participate in the event. Though balances will be settled this month, the final token distribution will take place during 2021.

Technically speaking, the Flare Network seeks to devise a two-way bridge connecting XRP to the Ethereum ecosystem by integrating the Ethereum Virtual Machine into its digital framework. As a result, it will become possible to make use of various advanced smart contracts on the XRP Ledger.

FLR airdrop indicative of something big for XRP?

Many new projects offering decentralized finance solutions have cropped up recently within the cryptosphere. Meanwhile, the “old time” digital currencies like XRP have from the very beginning operated in their own sphere, boasting of strong communities and networks of partners.

Thor Chan, CEO of AAX — a cryptocurrency exchange — told Cointelegraph that XRP’s move to partner with the Flare Network is about more than just a simple airdrop, as the move will bring smart contract functionalities to the XRP Ledger and the community, adding: “Despite trading downwards for the past week, $0.9 is still within reach in the short to medium term for XRP, especially if sentiment around BTC remains as bullish as it’s been in recent weeks.”

Reuben Merre, CEO of cold-wallet solutions provider Ngrave, believes that the Spark token drop should be treated as a “buy the rumor sell the news event.” He is confident that by this point in time, the value of the airdrop has already been factored into the value of XRP and that, if anything, a further downside beyond the $0.5 level seems probable.

What’s causing XRP to stagnate?

The Ripple project has always looked extremely promising, with many believing that the ecosystem was exactly what the banking sector needed to revolutionize its existing, outdated transactional protocols. However, following the announcements made by China and several other countries regarding the development of their own central bank digital currencies, the need to globalize Ripple has begun to dwindle.

Mikhail Karhalev, an analyst for Currency.com — a London-based tokenized-assets exchange — told Cointelegraph that over the last couple of years, Ripple has been faced with an increasing amount of competition not only from Stellar and other similar independent projects but, more importantly, from state governments around the globe. He added:

“The chances of winning such a race are extremely small. Moreover, the SWIFT system also announced the launch of its ‘gpi Instant service’, which will allow users to send cross-border payments around the clock and in only a matter of seconds.”

Lastly, it stands to reason that the distribution of Flare Network’s project tokens may play a negative role in relation to XRP’s value because buying a token against the background of an airdrop seems like an attempt to snatch additional profit. For example, the fact that XRP’s value crashed by 8% following the snapshot suggests that some people held onto XRP as a means of benefitting from the airdrop but then sold as soon as the Flare Network recorded their XRP holdings.

Ongoing bull wave may not be indicative of XRP’s future

Though XRP has performed strongly since the last week of November, it seems as though the primary reason the altcoin has been able to garner so much market support recently is due to Bitcoin surging to an all-time high of $19,892. Furthermore, big-name players investing mainly in Bitcoin may have pushed newer, more casual crypto enthusiasts to invest in other currencies.

In this regard, during the month of November, BTC went up by 40%, while Ether (ETH) grew by 53% and XRP by 166%. However, while Bitcoin and Ether reached their highs at the very end of November, Ripple reached it on Nov. 24 — demonstrating an increase of 230% since Nov. 1 — after which it slightly fell in price. Karhalev pointed out: “The faster momentum growth was likely related to the Flare Network airdrop, as crypto enthusiasts were eager to buy more XRP in order to get more FLR and thus double their benefits.”

Game recognize game: Institutions make it easier to invest in Bitcoin

As Bitcoin’s impressive run continues, it would not be surprising to see crypto FOMO reach institutional investors as well.

With the crypto sector currently riding a wave of bullish sentiment, as demonstrated by Bitcoin (BTC) passing its all-time high value of $19,892 at the start of the month, causal as well as institutional investors all over the world are now becoming more interested in the growing sector. For example, on Dec. 3, S&P Dow Jones Indices announced that it’s set to launch several crypto indexes, with a reported 550 coins to appear starting next year.

The aforementioned offerings will be facilitated by S&P Global in conjunction with the CME Group and News Corp. As part of the press release announcing the launch, a spokesperson for S&P DJI alluded to Bitcoin and other prominent altcoins like Ether (ETH) and Bitcoin Cash (BCH) as being part of an attractive “emerging asset class.”

S&P DJI also reported that it will join hands with blockchain data provider Lukka to launch the aforementioned indexes. As a result, some in the crypto community are of the opinion that the industry has finally made permanent inroads into the financial mainstream. Stephen Stonberg, chief financial and operating officer at Bittrex Global, told Cointelegraph that while the announcement has definitely been a welcome one, mainstream adoption has been looming:

“This is more of a continuation of an existing trend rather than a watershed moment. By putting crypto asset risk into the form of a traditional index-based-ETF, this should offer additional access points to the crypto market by mainstream investors. This will compete with the BTC-only high-cost products that exist now for this audience.”

However, Douglas Borthwick, chief marketing officer of cryptocurrency exchange INX, provided an alternative view that while crypto is certainly making a mark on the financial mainstream, it still has a long way to go. He added that “crypto” is not just about “Bitcoin” but offers so much more: There are so many categories these days that fit under the ‘crypto’ umbrella. For sure a permanent impression has been made. But that impression remains one of skepticism as opposed to one related to the future.”

That being said, S&P DJI’s above-stated move showcases a clear commitment from mainstream players to embrace Bitcoin and other digital currencies. For example, earlier this month, Grayscale Bitcoin Trust increased in tandem with its premium, which surpassed the 30% mark on Dec. 3, serving as a clear indicator of increasing institutional demand for crypto.

Institutions stand to benefit

According to Stonberg, S&P DJI’s latest move essentially entails the trading of digital/tokenized assets in the format of a traditional equity product that trades during standard trading hours. To put it simply, it’s a way to get institutional equity money indirectly into the crypto space — a process of convergence between traditional and crypto financial markets, which will most likely take a few years to play out.

On the subject, Anton Churyumov, founder of Obyte — a distributed ledger based on directed acyclic graph technology — told Cointelegraph that institutions will always chase everything that makes money for them and their clients, adding:

“With crypto indexes, the asset class becomes better recognized and easier to sell to clients. Maybe even more importantly, with DeFi, crypto now has a much wider choice of instruments that appeal to different investors, for example, there are now ‘stable+’ coins for more conservative investors.”

Jack Tao, CEO of Phemex — a cryptocurrency exchange headed by former Morgan Stanley executives — believes that soon, it will not be surprising to see an explosion of new services and products, making this domain even more appealing to members of the traditional finance sector: “I’m quite confident that these giants will not want to miss the crypto train. This is just the beginning, I expect to see a lot more funds and investment flow in soon.”

Will FOMO prevail?

As crypto continues its long-term price ascent, it’s worth investigating if institutional investors will catch crypto FOMO — the fear of missing out. In this regard, Sarah Austin, head of content for Kava Labs — a decentralized finance firm — told Cointelegraph that according to her sources, over-the-counter desks have seen large inflows from financial institutions.

Related: PayPal’s baby steps into crypto aren't dampening the hype for adoption

Not only that, as regulation becomes more favorable for the crypto market and as more large players like PayPal, Square and MicroStrategy broadcast their adoption of the asset class, it lends to the argument that the increase in interest has a sound basis. Chris Norris, head of corporate relations for Electroneum, told Cointelegraph:

“I believe that we will see the same FOMO from institutional investors moving forward, as we did from retail investors back in 2017 when Bitcoin and the crypto market reached all-time highs. However, the key difference here is that a new asset class is emerging and the recognition by institutional investors is a sign that we will see new ATHs.”

Lastly, as the use of Ethereum and its associated smart contracts continue to gain traction, it will most likely spur the value of most premier cryptocurrencies in an upward direction, with Austin stating: “With more institutional players in crypto other digital assets could fare better as the crypto space and traditional finance become more aligned.”

What does the future hold for the market?

Tao believes that in the long term, the value of most crypto assets will continue to soar higher, likely reaching new all-time highs. However, in his view, the price of a digital currency alone cannot be used as an indicator of things to come, adding: “Ultimately what drives things forward is the technology and innovation behind each project. That is what attracts new users and moves the market.”

Churyumov believes that while prices may rise significantly in the near term, he isn’t entirely sure of whether or not this trend will continue after the “money printing slows down on the other side of the pandemic.”

Lastly, Norris pointed out that there have been clear indications that most major institutional investors are currently buying BTC and ETH every time the prices dip, which serves as another indicator that they have decided to invest in the crypto market as a long-term strategy.

UniSwap fights back as competitors drain value from the DEX

Even as incentives continue to dry up on UniSwap, TVL across the board seems to have remained steady.

Just a few months ago, the global finance sector witnessed the meteoric rise of yield farming, which in large part helped to spur the growth of the decentralized finance domain. During Q3 2020 alone, the DeFi market ushered in significant growth for many stablecoins compatible with Ethereum (ETH), such as MakerDAO’s Dai.

According to information released by crypto market data aggregator Messari, the overall supply of the Dai stablecoin increased by a mammoth 623% during Q3, propelling the token’s value above $1 for 120 days running. The report also goes on to add that 65% of Dai’s entire token supply is currently being used for yield farming purposes across various DeFi protocols.

That being said, it appears as though liquidity incentives on the Uniswap decentralized exchange have dried up, with the platform recently offloading 40% of its liquidity within a period of just 48 hours before the conclusion of its UNI liquidity rewards program on Nov. 17. This has resulted in many users switching over to rival platforms such as Sushiswap.

Regarding the situation, Carlsbad Sunshine, CEO at LID Protocol, a platform providing solutions for depositing liquidity into Uniswap, told Cointelegraph that all DeFi projects follow a hype cycle with ups and downs. The key is continued growth in each cycle, which is clear in the case of Uniswap, according to him:

“That’s why we’re still using Uniswap to lock liquidity. It’s the largest platform by far, but there’s a huge number of scams running on it. Ideally Uniswap would upgrade itself with better features to indicate which tokens have liquidity locking and which don’t. My personal opinion is Uniswap is going to be around for a long time, and pooling may evolve, but it’s not going to end.”

Can DEXs fall out of favor?

Providing his views on this latest liquidity crisis, Kyn Chaturvedi, chief business development officer at TomoChain, a scalable blockchain platform that also runs TomoDEX, told Cointelegraph that when it comes to liquidity-based incentives, the customers will flock to where the rewards are. He added:

“To think that liquidity is going to dissipate and move back to CEXs makes little sense. It’s more likely the liquidity will slosh around DeFi to seek alpha. Why? The trustless, anonymous, easy access nature that comes with DEXs/DeFi works and because Centralized Exchanges have been far less secure with recent high profile hacks and accusations of fraudulent activities.”

That being said, Chaturvedi did acknowledge that while a fair share of scammy DeFi projects have cropped up over the last six months or so, the technology as a whole has so much potential that consumers have not lost their confidence in it.

Nischal Shetty, CEO of India-based crypto exchange WazirX, believes that the primary intention behind liquidity farming from the very start was to simply attract users, giving them an opportunity to try out DEXs and understand how to use them: “So despite the initial drop in liquidity when the mining rewards stop, I don’t think there will really be a decline in usage because the people who want to buy/sell crypto via a DEX, and have discovered the DEX, will stay back.”

Changes incoming for Uniswap?

Following a sharp decline in Uniswap’s liquidity, many of the platform’s token holders submitted a fresh governance proposal to deploy a new rewards program. In this regard, a proposal put forward by blockchain-powered music streaming provider Audius seeks to reduce the total number of UNI reward tokens to half as compared with previous incentive schemes.

While previously, 2.5 million UNI tokens were distributed among liquidity providers of Uniswap’s WTBC/ETH, USDC/ETH, USDT/ETH and DAI/ETH pools per month, the new proposal will effectively cut this reward number into 1.25 million UNI for the next two months — working out to around 4.6% of UNI’s current token pool.

As things stand, the proposal has more or less passed the first round of voting. However, in order for the proposal to come into full effect, it needs to undergo another two rounds of voting and secure a bare minimum of 40 million “affirmative votes” in order to be implemented.

Lastly, UniSwap’s proposal went live at the same time rival DEX SushiSwap announced a new incentive scheme for providing liquidity to the exact four pairings that Uniswap stopped providing benefits for. Also, it should be pointed out that ever since governance on UniSwap went fully decentralized back in mid-September, the platform has failed to pass a single governance proposal.

DeFi is here to stay?

The advent of governance tokens has not only incentivized members of the entire crypto industry to educate themselves but also jump-started the concept of DEXs as a whole. Monetarily speaking, they are also the reason as to why the crypto industry has gone from $1 billion in total value locked in DeFi at the end of 2019 to well above $13.5 billion.

In Chaturvedi’s view, a broader scope should be used to determine what DEXs are hoping to achieve, since most of these platforms intend to lock liquidity in order to build next-generation financial instruments on top of them: “Done right, TVL won’t be limited to serving just the crypto space. It’ll be the genesis of a new financial paradigm that will allow the rest of the non-crypto world to access global liquidity at scales unseen in our history.”

Not only that, since DEXs by their very nature should be highly transparent and trustless, the scope for cheating — which most mainstream financial institutions possess — can almost be eliminated. Not only that, even returns on paper can be higher for lenders, and lower for borrowers.

Lastly, as a by-product of the DeFi boom, it seems as though governance tokens are now being used for reasons they were originally intended for: to help a project’s community make better decisions by giving users a say on matters affecting the platform. Speaking on the subject, Shetty opined: “Even if the rewards continue, it’s a good sign because you’re giving people what they expect from the product. It’s a win-win situation for the token as well as the ecosystem.”

It’s not DEX vs. CEX

Centralized and decentralized exchanges are often pitted against each other as direct competitors. However, users have a clear choice — if people don’t want to custody their crypto on their own, then a centralized exchange is the right option for them. If people want to hold their crypto by themselves, then decentralized exchanges are the way to go. So it may be the case that the recent UniSwap liquidity loss is not going to hamper the progress of DEXs.

Additionally, it should possibly be a conversation about how the two types of exchanges can co-exist in relation to various crypto audiences. That being said, Sunshine believes that in the future, DEXs will supersede the growth of CEXs. For example, he pointed out that Uniswap V3, Ethereum 2.0 and UNI governance are right around the corner, a development that will most likely continue to fuel the rise of DeFi:

“DEXs continue to release in competition to Uniswap, and 3rd party platforms such as Crypto wallets will help fuel this transition via DEX aggregator services. What we’re seeing isn’t just a momentary hype phase, but rather an evolution.”

Silence is not golden: OKEx still quiet as customers seek answers

The way OKEx has handled its nearly month-long withdrawal ban has left many of the company’s loyal customers confused and angry.

As the crypto market continues to soar to new heights on a nearly daily basis — with Bitcoin (BTC) currently resting around the $16,100 threshold — the murkiness surrounding cryptocurrency exchange OKEx has continued to linger.

OKEx initiated a crypto withdrawal suspension on Oct. 16, citing the unusual reason that one of the company’s private-key holders had been cooperating with local security agencies, and thus, it was in the best interest of its customers that any crypto movement emanating from the exchange be halted for the time being.

Furthermore, the OKEx team has failed to provide any sort of clarity in regard to the situation. For example, just a couple of days before the company’s withdrawals went offline, unconfirmed reports surfaced that the exchange’s Chinese co-founder Mingxing “Star” Xu was arrested, leading many of the company’s clients to believe that there may be more to the matter than meets the eye.

To get more clarity in regard to this developing situation, Cointelegraph reached out to OKEx. A spokesperson for the firm said that due to the “sensitive nature” of the ongoing investigation, the company is unable to provide any comment at the moment. However, they went on to add:

“We’d like to reiterate and assure all OKEx users that their funds are safe and that all other services remain unaffected. We sincerely apologize for the temporary suspension of withdrawals. Our teams are working tirelessly to restore our services to full capacity as soon as possible. The security of our users’ funds and assets on the OKEx platform remain our first and foremost priority.”

OKEx’s silence has been confusing

It has been almost a month since OKEx announced that it was suspending customer crypto withdrawals, which is a long time, especially for an exchange as big as OKEx. To put things into perspective, on Sept. 17, crypto exchange ZB.com suspended its customer transactions for 48 hours. That was enough for the company to feel strong pressure from its clients, sending the firm’s security team working night and day to resume normal trading services. Omar Chen, CEO of ZB.com, told Cointelegraph:

“The voice of the market has changed a lot in response to the OKEx incident, from the initial sentiment of trust and relaxation of users to many complaints and even anger. All in all, hopefully OKEx will return to normal as soon as possible.”

Ben Zhou, CEO of ByBit — a cryptocurrency derivatives exchange — believes that while matters related to OKEx remain highly uncertain at this point in time, it’s best to not jump to any conclusions, especially as certain key aspects of the matter remain unsubstantiated. He, however, did go on to add: “Trust goes both ways, and is built through transparency. We are convinced that we benefit by keeping our customers in the loop. Leaving them in suspension is not a healthy and sustainable solution.”

Is OKEx hurting the industry’s market perception?

It stands to reason that OKEx’s aforementioned black swan incident has had an adverse effect on the market, especially from a regulatory standpoint. OKEx is a very popular derivatives exchange, and in the current crypto investment environment — where demand for many digital assets is increasing daily — its loyal customers seem to have been affected greatly. On the matter, Chen added:

“If OKEx does not survive this incident, it is likely to cause the crypto market to plunge by hurting the confidence of users, which will also affect the popularity and application of digital currencies.”

From a security standpoint, Lior Lamesh, CEO and co-founder of blockchain cybersecurity company GK8, believes that the ongoing OKEx saga is a classic example of exploiting a single point of failure in the exchange’s security architecture. And while this bump in the road might be frustrating for many, Lamesh is of the opinion that any damage in reputation will be limited mainly to OKEx and will not affect the industry as a whole.

Following the incident, Bitcoin’s value was hardly affected, with the currency falling by around 3% right after the announcement, only to rebound almost instantly. This seems to suggest that the digital asset market is now starting to evolve and reach a state of maturity where investors can trust the market to be less volatile during major events. Lamesh added: “With the right custodian infrastructure in place, digital assets still hold solid growth potential in the foreseeable future.”

Incident may help redefine the crypto industry’s security standards

One potential effect that OKEx’s silence could have on the crypto sector is that it may help users understand that, given what is known about the situation, multisignature or multiparty-computation solutions may not secure enough, as they all tend to share a single point of failure that can be exploited — be it through external hacking jobs or insiders. In that sense, the impact of OKEx’s withdrawal freeze incident is not so much on crypto owners themselves but on the exchanges that manage their funds.

Lastly, the threat of losing or getting one’s crypto assets blocked has been a significant barrier to the entry of professional financial market participants, such as hedge funds and asset allocators.

The custody conundrum has been around for a while, but recently, several new technologies have surfaced — such as decentralized exchanges, decentralized derivatives and oracles — that have sought to address the industry’s current security needs.

Thus, it will be interesting to see how things play out in this regard in the coming few months and to find out what is behind the OKEx withdrawal freeze. Maybe some of the newer technologies can be adopted by centralized exchanges to improve transparency and trust in the aftermath.

Simple in practice: Crypto education is key to curbing phishing scams

Even though wallet operators have a large role to play in protecting funds, customers also need to educate themselves to avoid phishing scams.

As the global crypto economy continues to prosper, with Bitcoin (BTC) currently occupying the $15,500 region, questions regarding the overall safety and security of digital assets continue to persist, especially in the wake of a new scam whereby hackers made use of a phishing email to direct users to a fake Ledger website. According to various reports, victims were scammed to the tune of 1,150,000 XRP, worth approximately $290,000.

Dave Jevans, CEO of blockchain intelligence firm CipherTrace and chairman of Anti-Phishing Working Group, told Cointelegraph, “Ledger should clearly have a more aggressive defensive domain acquisition strategy, as look-alike domains were used by phishers in an attempt to trick Ledger users.” He explained further that an illegal money-making scheme employed the use of a homoglyph in the company’s official URL — in this case, a letter that looked like the letter “e.” He added:

“The phishing scams were likely a result of emails released from an e-commerce/marketing data breach. An unauthorized third party had access to a portion of Ledger’s e-commerce and marketing database through an API Key.”

Earlier this year in July, the Ledger team revealed that it had been on the receiving end of a data breach, as a result of which nearly a million email addresses were compromised, along with the personal details of a subset of 9,500 customers. Furthermore, back in 2018, scammers were able to devise a copy of the Binance website (complete with an SSL certificate), which remained active for some time before being taken down.

Lastly, some miscreants were able to rake in a sizable 1.4 million XRP tokens in March by making use of a scammy Google Chrome extension that replicated Ledger’s likeness. In fact, the extension was live on the Google app store for nearly a month. Speaking on the various security protocols that the company employs, a spokesperson for Ledger told Cointelegraph:

“Ledger has its own attack lab, Ledger Donjon, where the security experts try to hack and stress test our own solutions, the solutions of our partners, and our competitors’ solutions. Furthermore, Ledger regularly conducts penetration tests.”

Customers bear responsibility as well?

It goes without saying that wallet operators need to be on top of their security game when it comes to protecting the assets of their customers. However, phishing attacks are a common occurrence, not only within the crypto space, but with any online service that involves a means of payment.

Speaking on the issue, Pavol Rusnák, co-founder and chief technology officer of SatoshiLabs, the firm behind the Trezor wallet, told Cointelegraph that it’s of prime importance that crypto owners are careful and double-check every piece of information they receive in relation to their digital assets, be it from their wallet providers or the internet in general:

“If an email claims you need to do something, you can always confirm this via vendor’s support or with other users on Reddit or Twitter. As for what vendors can (and should) do is to decrease the possibility of the leak by not sharing their customers’ data with third parties and decrease the impact of such leaks by deleting their customers’ data after a certain period of time.”

A similar outlook was shared by Jevans who believes that matters related to customer security and privacy need to be viewed with a lens of “shared responsibility,” such that hardware wallet operators as well as crypto owners work in sync with one another to ensure the optimal safety of their assets from third-party threats.

Jevans encouraged users to take reasonable safeguards to protect their value and take responsibility for their actions by using practices that are steeped in individual data safety, adding: “Deploy two-factor authentication as well as never click on a ledger link unless they specifically requested their password reset. Users should always type the URL themselves when visiting the Ledger site directly.”

Crypto education remains crucial

Despite being revolutionary in design and technological potential, crypto continues to remain a foreign concept for most. However, by providing people with monetary self-sovereignty, the technology has also burdened them with a lot of personal responsibility, especially in terms of individual financial security. As a result, it stands to reason that companies in the blockchain and crypto space need to educate their users about the security implications of their actions.

Rusnák believes that the industry still has some ground to tread regarding security. He pointed out that a number of companies operating within this domain today tend to make gross oversimplifications, such as, “Your coins are safe because your wallet has a secure element,” or, “Your coins are safe because our exchange is insured.” To this, he added, “This is not helping with the matter, making people believe something which is not true, rendering them defenseless.”

Statistically speaking, around 85% to 90% of crypto owners seem to fall prey to very common crypto theft schemes, typically fake investment scams rather than phishing traps, according to data provided to Cointelegraph by CipherTrace. As a result, Jevans believes that it would be in the best interests of major hardware wallet operators to use their platforms to educate their users about what to look for when it comes to phishing attempts, particularly when these scams invoke the wallet provider’s name:

“Based on hundreds of crypto theft and fraud cases, crypto users need to become much more sophisticated regarding their personal security operations (SecOps) when they choose to custody their private keys. Many crypto crime victims do not know what to do when they discover they have experienced theft.”

Wallet operators should become industry trendsetters

While companies like Ledger and Trezor do have dedicated information related to phishing and other similar, scammy tactics on their websites, these pages are not easily accessible and are usually buried deep within troubleshooting FAQ sections. Therefore, it seems reasonable to expect that e stablished wallet providers do more in terms of providing customers with streamlined access to high-quality education that centers around security.

On the issue, Rusnák is adamant that transparency and education are the keys when it comes to maximizing the security of one’s funds. He opined that users can’t really be safe unless they actually take time to sit down and understand the nitty gritty of crypto security and personal wallet safety.

On a more technical note, he explained that the core operational design of Trezor’s various wallet options are fully open-source and that the company is completely transparent about all of its various operational agreements with its customers, to avoid all legal monetary issues encountered later down the line: “It will take some time until every company in the cryptocurrency space understands this, but it’s also our job to demand transparency and openness from service providers we use.”

Blockchain in journalism: Winds of change carry media to new frontiers

Despite the potential to bring an unparalleled level of transparency to journalism, blockchain adoption by mainstream media may be slow.

It is no secret that over the course of the last couple of decades, issues related to fake news, substandard fact-checking and rampant censorship have resulted in many mainstream media outlets losing the trust of their viewers and readers. 

In this regard, the 2020 Edelman Trust Barometer — a digital tool that serves as an indicator of how people view the media industry in general — shows that 57% of people all over the world believe that they cannot fully trust their news media sources, while 76% believe that false information is purposefully being disseminated by various prominent media houses as a means of polarizing their viewers.

Similarly, according to a survey conducted by Gallup and the Knight Foundation, nearly eight in 10 Americans believe that the mainstream media is actively trying to get them to adopt a certain political stance or opinion. Lastly, according to another study released by data intelligence company Morning Consult, an increasing share of adults in the United States are losing trust in news affiliated with nine of America's leading media outlets, such as CBS and The New York Times.

On Nov. 4, the Associated Press started publishing results from the 2020 United States presidential elections on the Ethereum and EOS blockchains using Everipedia's OraQle software. By making use of such a novel system, the AP has attempted to establish an unhackable, permanent record of the results for each state as they continue to come in. The results can be viewed via blockchain explorers such as Etherscan as well as the AP's EOS account on Bloks.io.

Earlier, telecommunications giant Verizon announced the launch of its blockchain-based, open-source newsroom product designed to help increase the firm's overall corporate accountability. The platform will immutably document the company's various news releases, op-ed pieces and more using a public blockchain. In fact, even the aforementioned press release was posted via the platform and was later modified — with the corrections being duly accounted for by the system.

Speaking on the potential that blockchain possesses in regard to making journalism more credible, Saul Hudson, managing partner at strategic communications company Angle42 and former general manager of the Americas at Reuters, told Cointelegraph:

“Too often, publications will just replace an article online updating information that corrects an error in a previous version without making it obvious what has been changed. Accuracy is the lifeblood of a media organization. It may feel counterintuitive but being transparent about factual mistakes is a way to win the trust of audiences.”

Here’s how blockchain can factor into mainstream journalism

From the outside looking in, it seems as though blockchain can potentially make journalists adhere to strict editorial standards, thanks in large part to the technology's core operational premise that is steeped in the principles of transparency.

For example, the tamper-proof aspect of most blockchain systems can help establish a standard of transparency that will be needed to prove the authenticity of any images being used in news stories as well as for combatting issues such as "deepfakes."

Related: Deep Truths of Deepfakes — Tech That Can Fool Anyone

Similarly, blockchain systems can also help establish clear links for specific stories/news items by creating an immutable database of articles that have been released by various media outlets in relation to a particular piece since its initial circulation.

Providing her thoughts on how blockchain-enabled news platforms can completely revamp the traditional structures of how news is curated and disseminated for public consumption, Nisa Amoils, a contributor at Forbes and a managing partner at venture capital firm Grasshopper Capital, told Cointelegraph that such platforms can potentially provide the technological underpinning that may be needed for direct journalistic funding:

“These platforms can exist outside of traditional funding models, thus allowing greater freedom for journalists to pursue the stories that are worthy of being reported. They can also archive stories, as blockchain technology has the inherent benefit of permanence.”

She further noted that through the use of smart contracts, fact-checking could become more automated and blockchain systems could even serve as secure registries for important metadata, such as a story's time of publication, bylines, tags, etc.

Lastly, talking about the monetization aspect of blockchain-based journalism, Sarah Austin, a regular contributor for Entrepreneur Magazine and chief marketing officer at Kava — a decentralized bank for digital assets — told Cointelegraph that Steemit is an example of how journalists can get paid to contribute their content: “Community generated tips for content was first popularized by PayPal's early Tip Jar product that catapulted the notion of tipping for content. Nowadays writers and journalists can get tipped for content on social media in cryptocurrencies.”

Resistance toward the tech bound to arise

Earlier this year in April, Italy's leading news agency, Ansa, announced that it had created a unique blockchain-based news tracking system so that readers can verify the origin of any news appearing on any one of the company's various media platforms.

The goal of the entire operation was to strengthen bonds of trust “between its [Ansa's] organization and its readers and customers.” Even though blockchain can play a major role in turning public sentiment positive by ensuring that authenticated news articles and images are circulated around the web in a way that is totally unmanipulable, Hudson believes that change may be slow to come:

“Many media outlets will resist blockchain innovation because of the fear of costs involved in an unfamiliar technology. This is why we are seeing the industry tackle low-hanging fruit first. The biggest hurdle the media industry faces is not technical but cultural. Consumers have become so siloed in the way news is filtered to them that they often refuse to even contemplate that a different perspective could be anything but fake news.”

A similar opinion is shared by Amolis, who believes that the forced transparency and data-freezing affordances of blockchain technology may not be able to garner any tangible mainstream support, at least in the near future.

Use blockchain to keep on going

Blockchain technology, with its immutable, transparent ledger, can help make the global media industry behave in a more accountable fashion. For example, verified journalists can be placed on a blockchain database, potentially in the form of nonfungible tokens, to prove their identity. In this regard, Wong Yun Han, partner at The Block School — a blockchain education and training provider — pointed out that the technology can tackle plagiarism, another issue that currently plagues the journalistic world:

“If news content is put on a decentralized system and there is a 'Turnitin' equivalent for the blockchain media industry, we can verify the originality of the articles. It's not just about making journalism more transparent, blockchain technology also has the potential to both democratize and incentivize transparency and engagement for journalism.”

With platforms like Everipedia and Steemit — where users are given incentives for their contributions — slowly gaining mainstream traction, it will be interesting to see how quickly news media outlets start to consider the option of incorporating blockchain-based systems into their existing editorial frameworks.

Lastly, the Content Authenticity Initiative, or CAI, recently released the white paper for its novel digital platform that is meant to provide trust and transparency for photojournalists, editors and content consumers. According to the document, any individual can make use of a CAI-enabled device to capture images whose details — such as authorship, geolocation, time, file storage preference, etc. — are automatically recorded within a secure, transparent data registry. As a result, any attribution-related issues that may potentially arise at a later stage are resolved almost instantly.

Blockchain in journalism: Winds of change carry media to new frontiers

Despite the potential to bring an unparalleled level of transparency to journalism, blockchain adoption by mainstream media may be slow.

It is no secret that over the course of the last couple of decades, issues related to fake news, substandard fact-checking and rampant censorship have resulted in many mainstream media outlets losing the trust of their viewers and readers. 

In this regard, the 2020 Edelman Trust Barometer — a digital tool that serves as an indicator of how people view the media industry in general — shows that 57% of people all over the world believe that they cannot fully trust their news media sources, while 76% believe that false information is purposefully being disseminated by various prominent media houses as a means of polarizing their viewers.

Similarly, according to a survey conducted by Gallup and the Knight Foundation, nearly eight in 10 Americans believe that the mainstream media is actively trying to get them to adopt a certain political stance or opinion. Lastly, according to another study released by data intelligence company Morning Consult, an increasing share of adults in the United States are losing trust in news affiliated with nine of America's leading media outlets, such as CBS and The New York Times.

On Nov. 4, the Associated Press started publishing results from the 2020 United States presidential elections on the Ethereum and EOS blockchains using Everipedia's OraQle software. By making use of such a novel system, the AP has attempted to establish an unhackable, permanent record of the results for each state as they continue to come in. The results can be viewed via blockchain explorers such as Etherscan as well as the AP's EOS account on Bloks.io.

Earlier, telecommunications giant Verizon announced the launch of its blockchain-based, open-source newsroom product designed to help increase the firm's overall corporate accountability. The platform will immutably document the company's various news releases, op-ed pieces and more using a public blockchain. In fact, even the aforementioned press release was posted via the platform and was later modified — with the corrections being duly accounted for by the system.

Speaking on the potential that blockchain possesses in regard to making journalism more credible, Saul Hudson, managing partner at strategic communications company Angle42 and former general manager of the Americas at Reuters, told Cointelegraph:

“Too often, publications will just replace an article online updating information that corrects an error in a previous version without making it obvious what has been changed. Accuracy is the lifeblood of a media organization. It may feel counterintuitive but being transparent about factual mistakes is a way to win the trust of audiences.”

Here’s how blockchain can factor into mainstream journalism

From the outside looking in, it seems as though blockchain can potentially make journalists adhere to strict editorial standards, thanks in large part to the technology's core operational premise that is steeped in the principles of transparency.

For example, the tamper-proof aspect of most blockchain systems can help establish a standard of transparency that will be needed to prove the authenticity of any images being used in news stories as well as for combatting issues such as "deepfakes."

Related: Deep Truths of Deepfakes — Tech That Can Fool Anyone

Similarly, blockchain systems can also help establish clear links for specific stories/news items by creating an immutable database of articles that have been released by various media outlets in relation to a particular piece since its initial circulation.

Providing her thoughts on how blockchain-enabled news platforms can completely revamp the traditional structures of how news is curated and disseminated for public consumption, Nisa Amoils, a contributor at Forbes and a managing partner at venture capital firm Grasshopper Capital, told Cointelegraph that such platforms can potentially provide the technological underpinning that may be needed for direct journalistic funding:

“These platforms can exist outside of traditional funding models, thus allowing greater freedom for journalists to pursue the stories that are worthy of being reported. They can also archive stories, as blockchain technology has the inherent benefit of permanence.”

She further noted that through the use of smart contracts, fact-checking could become more automated and blockchain systems could even serve as secure registries for important metadata, such as a story's time of publication, bylines, tags, etc.

Lastly, talking about the monetization aspect of blockchain-based journalism, Sarah Austin, a regular contributor for Entrepreneur Magazine and chief marketing officer at Kava — a decentralized bank for digital assets — told Cointelegraph that Steemit is an example of how journalists can get paid to contribute their content: “Community generated tips for content was first popularized by PayPal's early Tip Jar product that catapulted the notion of tipping for content. Nowadays writers and journalists can get tipped for content on social media in cryptocurrencies.”

Resistance toward the tech bound to arise

Earlier this year in April, Italy's leading news agency, Ansa, announced that it had created a unique blockchain-based news tracking system so that readers can verify the origin of any news appearing on any one of the company's various media platforms.

The goal of the entire operation was to strengthen bonds of trust “between its [Ansa's] organization and its readers and customers.” Even though blockchain can play a major role in turning public sentiment positive by ensuring that authenticated news articles and images are circulated around the web in a way that is totally unmanipulable, Hudson believes that change may be slow to come:

“Many media outlets will resist blockchain innovation because of the fear of costs involved in an unfamiliar technology. This is why we are seeing the industry tackle low-hanging fruit first. The biggest hurdle the media industry faces is not technical but cultural. Consumers have become so siloed in the way news is filtered to them that they often refuse to even contemplate that a different perspective could be anything but fake news.”

A similar opinion is shared by Amolis, who believes that the forced transparency and data-freezing affordances of blockchain technology may not be able to garner any tangible mainstream support, at least in the near future.

Use blockchain to keep on going

Blockchain technology, with its immutable, transparent ledger, can help make the global media industry behave in a more accountable fashion. For example, verified journalists can be placed on a blockchain database, potentially in the form of nonfungible tokens, to prove their identity. In this regard, Wong Yun Han, partner at The Block School — a blockchain education and training provider — pointed out that the technology can tackle plagiarism, another issue that currently plagues the journalistic world:

“If news content is put on a decentralized system and there is a 'Turnitin' equivalent for the blockchain media industry, we can verify the originality of the articles. It's not just about making journalism more transparent, blockchain technology also has the potential to both democratize and incentivize transparency and engagement for journalism.”

With platforms like Everipedia and Steemit — where users are given incentives for their contributions — slowly gaining mainstream traction, it will be interesting to see how quickly news media outlets start to consider the option of incorporating blockchain-based systems into their existing editorial frameworks.

Lastly, the Content Authenticity Initiative, or CAI, recently released the white paper for its novel digital platform that is meant to provide trust and transparency for photojournalists, editors and content consumers. According to the document, any individual can make use of a CAI-enabled device to capture images whose details — such as authorship, geolocation, time, file storage preference, etc. — are automatically recorded within a secure, transparent data registry. As a result, any attribution-related issues that may potentially arise at a later stage are resolved almost instantly.

JPM Coin debut marks start of blockchain’s value-driven adoption cycle

Despite its centralized design, JPM Coin’s real life utilization represents a step toward the mainstream adoption of blockchain technology.

On the heels of PayPal announcing its decision to enter the crypto sector early next year, Bitcoin (BTC) has continued its strong performance and has been hovering around the $13,500 mark for nearly a week now. In this regard, the payment giant’s foray into the crypto market has been hailed as a game changer, especially when it comes to improving the mainstream perception of the digital asset industry as a whole.

Not only that, JPMorgan Chase announced that its native digital currency offering — the JPM Coin — has finally been deployed for mainstream use by one of the firm’s technical associates. The token is designed to facilitate JPMorgan Chase’s various cross-border monetary transactions.

The origins of the JPM Coin can be traced back to early 2019, when the banking giant announced its plans to release a dollar-backed cryptocurrency that would eventually be used to process its internal and international transfers. Now, JP Morgan seems to have finally delivered on its promise of building a solution that could potentially save the global finance industry hundreds of millions of dollars in peripheral costs such as processing charges, high tax fees and more.

Making an impact

As things stand, JPMorgan is one of the largest players operating within the global payments landscape, with the firm reportedly facilitating transfers in excess of $6 trillion across more than 100 countries on a daily basis. Brian Behlendorf, executive director at Hyperledger, an enterprise-grade permissioned blockchain framework, told Cointelegraph that, in his estimation, the move will most likely fail to have any sort of major impact on market, especially since JPMorgan’s payment network is sealed off from those not fungible with them:

“Consumers likely won’t even be aware of them — it’ll show up perhaps as reduced fees to move money between accounts or other kinds of trades, etc. Professional investors may notice they have new kinds of assets available in their portfolios in the form of these stablecoins, but they’re not really ‘investments’ so much as more convenient ways to move money.”

However, Behlendorf did concede that, by and large, the move does represent an additional step toward the mainstream adoption of crypto and technology that is now ready for prime-time, industrialized use.

With a centralized token being deployed, it stands to reason that blockchain technology is finally ready to generate some serious returns for its users. Paul Brody, principal and global innovation leader for blockchain technology at Ernst & Young, told Cointelegraph that even though people may be just beginning to realize the financial potential of this technology, blockchain has quietly been generating substantial value for many companies over the last few years.

Additionally, Brody believes that trusted payments for enterprise users from big-brand-name banks will have a positive impact on the market at large because much of the work being done on-chain so far is operational, but payments are still being completed off-chain. Furthermore, the entry of JPM Coin could help “more enterprises get comfortable with the idea of closing the loop and running an entire business process on-chain.” He added:

“The market for global, cross-border payments has not had much competition until recently, so I think the addition of new players, regardless of their technology, will have a positive impact. What does matter a great deal is that for business to business payments, if you can make payments a part of a fully digital business contract, you can hugely reduce the cost of running a cross-border deal for enterprises, and that is quite revolutionary.

Behlendorf also pointed out that private commercial tokens similar to JPM Coin have been in production for a few years, primarily as settlement mechanisms for trade finance. Not only that, he stated they have also been implemented across other banking, securities and bond markets in Asia and Europe: “U.S. business blockchain networks have been generating business value in other ways as well, from supply chain traceability to KYC and regulatory compliance, and so on, even JPM’s own IIN network.”

JPMorgan sets up a dedicated blockchain outfit

In a recent interview, JP Morgan’s global head of wholesale payments stated that the launch of JPM Coin as well as certain other “behind the scenes moves” prompted the banking giant to create a new business outfit called Onyx. The unit will allow the company to spur its focus on its various ongoing blockchain and digital currency efforts.

Onyx reportedly has more than 100 staff members and has been established with the goal of commercializing JP Morgan’s various envisioned blockchain and crypto projects, moving existing ideas from their research and development phase to something more tangible.

When asked about their future plans and if crypto factors majorly into the company’s upcoming scheme of things, a media relations representative for J.P. Morgan told Cointelegraph that there are no additional announcements on top of what was already unveiled recently.

Lastly, on Oct. 28, the bank announced that it was going to rebrand its blockchain-based Interbank Information Network, or IIN, to “Liink” as well as introduce two new applications — Confirm and Format — that have been developed for specific purposes of account validation and fraud elimination for its clients. Liink will be a part of the Onyx ecosystem and will enable participants (over 400 financial institutions) to collaborate with one another in a seamless fashion.

Blockchain tech and banking go together

It’s not far-fetched to think that the marriage of blockchain technology and the banking sector could completely revolutionize the way in which day-to-day business transactions are facilitated by financial institutions across the globe. For example, decentralized transaction frameworks cannot only make cross border transactions cheaper but can also substantially improve on the transparency aspect.

Related: Crypto Banks Answer the Call Amid Coronavirus-Fueled Economic Decline

However, Behlendorf said that the banking industry has largely been digital for decades, with very few organizations shipping around physical hard currency or other hard assets as a way of settling payments between financial institutions anymore, adding:

“What’s new is using a DLT as the settlement layer rather than relying upon human audits and regulatory trust. The digitization of cash is a very different matter, and Alipay/Wechat Pay and Paypal and Venmo etc. has likely done far more to hasten the end of physical cash than any blockchain today or likely will over the next ten years.”

However, he then proceeded to add that as convenient as these digital payment mediums may be, there are some drawbacks due to their underlying architecture: “We should be very wary of giving up the anonymity that physical cash provides.”

PayPal’s baby steps into crypto aren’t dampening the hype for adoption

While crypto firms have been trying to build the crypto equivalent of PayPal, the company itself will soon enter the industry.

The crypto world has been buzzing with excitement over the last couple of days, and rightfully so. Bitcoin (BTC) is currently hovering around the $13,000 mark, while Ether (ETH) has once again safely tread past the $400 threshold in spite of the KuCoin exchange hack and the unfortunate legal events that recently unfolded around BitMEX. That being said, this latest surge can largely be attributed to the decision of online payments processor PayPal to finally enter the crypto arena.

Come 2021, PayPal will be allowing its customers to use a number of popular digital currencies such as Bitcoin, Ethereum, Bitcoin Cash (BCH) and Litecoin (LTC) in order to shop seamlessly across its massive network of affiliated merchants. While transactions can be initiated in crypto, payments will only be settled in fiat, meaning that merchants will only receive money in their local currency.

To make all of this possible, PayPal teamed up with Paxos for its custody and liquidity needs. Furthermore, PayPal was able to secure its conditional virtual currency license from NYDFS through the Paxos Trust charter. Charles Cascarilla, CEO of Paxos, told Cointelegraph that teaming up with PayPal to provide customers all over the world with streamlined crypto access will undoubtedly have huge implications for the crypto industry at large. He also stated via a blog post that based on PayPal’s market reputation alone, the crypto industry will most likely experience an unparalleled surge in mainstream awareness.

Similarly, Luke Stokes, managing director at the Foundation for Interwallet Operability and Interim Executive Director for the EOS Foundation, told Cointelegraph that PayPal has not only legitimized the cryptocurrency space for retail user adoption, but also highlighted the importance of timing:

“The time is now and PayPal is looking to get in early with their personalized approach to digital finance. Other financial products and services have an opportunity to step outside of a walled garden that PayPal will be stuck in by integrating with decentralized open finance usability solutions.”

PayPal’s entry could be a game changer

Just a day after PayPal announced its decision to foray into the world of crypto, news broke that the payments giant was exploring various avenues through which it could potentially purchase prominent and soon-to-be-rival Bitcoin custodian BitGo, which was the first United States crypto service provider to obtain a broker-dealer approval, transfer agent registration and trust company recognition.

The move could be pertinent for PayPal, since its new crypto buying and selling platform will effectively transform the company into a digital asset custodian, thus explaining its interest in BitGo. Not only that, the deal could also potentially signal a new era for mainstream crypto legitimacy, as both PayPal and BitGo have made compliance a priority from the very beginning and have been able to secure all of the necessary licenses needed to facilitate various crypto-related activities throughout the U.S.

Lastly, over the last couple of days, certain critics have pointed out that companies such as Square and Revoult are already doing more in terms of providing their users with crypto functionality than what PayPal is planning on implementing. However, the fact remains that there is no other digital financial platform that currently possesses the same type of mainstream market clout as PayPal.

On the subject, Douglas Borthwick, chief marketing officer at INX Limited cryptocurrency exchange, told Cointelegraph that while PayPal’s initial restrictions may be perceived as severely limiting for many crypto purists, it will allow users to interact with, and learn about, crypto as well as be involved with crypto outside of PayPal. “Think of the Paypal environment as being a safe space with training wheels for folks to learn about crypto, before escaping to the real world, where they can experience crypto without limitations,” he proposed.

Centralization still remains a key issue

The last few months have seen many prominent banking institutions dabble with crypto tech as well as various countries experimenting with CBDCs, suggesting that it was just a matter of time until a financial giant like PayPal would make its entry into the world of crypto. João Gomes, head of growth and marketing for Utrust, a crypto payments firm, told Cointelegraph:

“Everywhere in the world, adoption is gaining momentum. We have always believed it was a matter of ‘when,’ not ‘if,’ and PayPal jumping in is just another domino falling. This is the money of the future.”

That being said, Gomes was skeptical about the centralized design of PayPal’s upcoming digital currency system since it completely deprives users of features such as private keys as well as the ability to withdraw their digital assets. Also, the fact that PayPal’s system is not on-chain makes it extremely limited in its overall scope of utilization, especially for seasoned crypto players.

Another pertinent critique could be that when making use of PayPal’s system, users won’t really be buying digital currencies, but getting derivatives — much in the same way as how Revoult’s system works — since they won’t have real ownership of their assets.

Not only that, but for every transaction, the crypto in question will be converted back into fiat for a hefty fee of 2.3% (on transactions of less than $100), since merchants can only receive payments in crypto. This then raises the question of why anyone would choose to pay with crypto with so many add-on fees.

In short, it seems as though PayPal is currently dabbling with digital currencies on the surface without providing users any of the independence that should ideally come with them, according to Gomes: “They actually own the currencies, they intermediate everything, and they even charge you according to their own not-so-clear payment structure. [...] They run the show.”

PayPal will need to evolve

It stands to reason that as some of the ongoing hype around PayPal dies out, people may start looking more closely at some of the company’s rivals for possible alternatives. For example, on crypto-to-fiat (and vice versa) transactions between $200 and $1,000, PayPal will be charging a processing fee of 2%. In comparison, one can see that Coinbase charges just 1.49% on transactions over $200. Similarly, Square’s Cash App provides users with dynamic conversion fee rates.

Lior Lamesh, co-founder and CEO of GK8, an Israeli cybersecurity firm, told Cointelegaph that PayPal must avoid the “Not your keys, not your money” pitfall that has already inflicted a great deal of damage on many crypto exchanges in past years:

“By relying on 3rd party custody providers, PayPal is exposing its customers’ digital assets to a serious cybersecurity risk. Therefore, I believe that once this initiative takes off and gains traction, PayPal will eventually shift to a self-managed services model, particularly self-custody: when it comes to a network of over 340 million users, stakes are simply too high.”

Last but not least, PayPal has always been considered as an out-and-out centralized financial platform. Many hardcore crypto enthusiasts who hold transparency and financial freedom in high regard may therefore stay away from the platform altogether. However, it seems fair to say that just PayPal’s market reach alone will do more good than harm for the crypto industry’s mainstream reputation in the long run.

PayPal’s baby steps into crypto aren’t dampening the hype for adoption

While crypto firms have been trying to build the crypto equivalent of PayPal, the company itself will soon enter the industry.

The crypto world has been buzzing with excitement over the last couple of days, and rightfully so. Bitcoin (BTC) is currently hovering around the $13,000 mark, while Ether (ETH) has once again safely tread past the $400 threshold in spite of the KuCoin exchange hack and the unfortunate legal events that recently unfolded around BitMEX. That being said, this latest surge can largely be attributed to the decision of online payments processor PayPal to finally enter the crypto arena.

Come 2021, PayPal will be allowing its customers to use a number of popular digital currencies such as Bitcoin, Ethereum, Bitcoin Cash (BCH) and Litecoin (LTC) in order to shop seamlessly across its massive network of affiliated merchants. While transactions can be initiated in crypto, payments will only be settled in fiat, meaning that merchants will only receive money in their local currency.

To make all of this possible, PayPal teamed up with Paxos for its custody and liquidity needs. Furthermore, PayPal was able to secure its conditional virtual currency license from NYDFS through the Paxos Trust charter. Charles Cascarilla, CEO of Paxos, told Cointelegraph that teaming up with PayPal to provide customers all over the world with streamlined crypto access will undoubtedly have huge implications for the crypto industry at large. He also stated via a blog post that based on PayPal’s market reputation alone, the crypto industry will most likely experience an unparalleled surge in mainstream awareness.

Similarly, Luke Stokes, managing director at the Foundation for Interwallet Operability and Interim Executive Director for the EOS Foundation, told Cointelegraph that PayPal has not only legitimized the cryptocurrency space for retail user adoption, but also highlighted the importance of timing:

“The time is now and PayPal is looking to get in early with their personalized approach to digital finance. Other financial products and services have an opportunity to step outside of a walled garden that PayPal will be stuck in by integrating with decentralized open finance usability solutions.”

PayPal’s entry could be a game changer

Just a day after PayPal announced its decision to foray into the world of crypto, news broke that the payments giant was exploring various avenues through which it could potentially purchase prominent and soon-to-be-rival Bitcoin custodian BitGo, which was the first United States crypto service provider to obtain a broker-dealer approval, transfer agent registration and trust company recognition.

The move could be pertinent for PayPal, since its new crypto buying and selling platform will effectively transform the company into a digital asset custodian, thus explaining its interest in BitGo. Not only that, the deal could also potentially signal a new era for mainstream crypto legitimacy, as both PayPal and BitGo have made compliance a priority from the very beginning and have been able to secure all of the necessary licenses needed to facilitate various crypto-related activities throughout the U.S.

Lastly, over the last couple of days, certain critics have pointed out that companies such as Square and Revoult are already doing more in terms of providing their users with crypto functionality than what PayPal is planning on implementing. However, the fact remains that there is no other digital financial platform that currently possesses the same type of mainstream market clout as PayPal.

On the subject, Douglas Borthwick, chief marketing officer at INX Limited cryptocurrency exchange, told Cointelegraph that while PayPal’s initial restrictions may be perceived as severely limiting for many crypto purists, it will allow users to interact with, and learn about, crypto as well as be involved with crypto outside of PayPal. “Think of the Paypal environment as being a safe space with training wheels for folks to learn about crypto, before escaping to the real world, where they can experience crypto without limitations,” he proposed.

Centralization still remains a key issue

The last few months have seen many prominent banking institutions dabble with crypto tech as well as various countries experimenting with CBDCs, suggesting that it was just a matter of time until a financial giant like PayPal would make its entry into the world of crypto. João Gomes, head of growth and marketing for Utrust, a crypto payments firm, told Cointelegraph:

“Everywhere in the world, adoption is gaining momentum. We have always believed it was a matter of ‘when,’ not ‘if,’ and PayPal jumping in is just another domino falling. This is the money of the future.”

That being said, Gomes was skeptical about the centralized design of PayPal’s upcoming digital currency system since it completely deprives users of features such as private keys as well as the ability to withdraw their digital assets. Also, the fact that PayPal’s system is not on-chain makes it extremely limited in its overall scope of utilization, especially for seasoned crypto players.

Another pertinent critique could be that when making use of PayPal’s system, users won’t really be buying digital currencies, but getting derivatives — much in the same way as how Revoult’s system works — since they won’t have real ownership of their assets.

Not only that, but for every transaction, the crypto in question will be converted back into fiat for a hefty fee of 2.3% (on transactions of less than $100), since merchants can only receive payments in crypto. This then raises the question of why anyone would choose to pay with crypto with so many add-on fees.

In short, it seems as though PayPal is currently dabbling with digital currencies on the surface without providing users any of the independence that should ideally come with them, according to Gomes: “They actually own the currencies, they intermediate everything, and they even charge you according to their own not-so-clear payment structure. [...] They run the show.”

PayPal will need to evolve

It stands to reason that as some of the ongoing hype around PayPal dies out, people may start looking more closely at some of the company’s rivals for possible alternatives. For example, on crypto-to-fiat (and vice versa) transactions between $200 and $1,000, PayPal will be charging a processing fee of 2%. In comparison, one can see that Coinbase charges just 1.49% on transactions over $200. Similarly, Square’s Cash App provides users with dynamic conversion fee rates.

Lior Lamesh, co-founder and CEO of GK8, an Israeli cybersecurity firm, told Cointelegaph that PayPal must avoid the “Not your keys, not your money” pitfall that has already inflicted a great deal of damage on many crypto exchanges in past years:

“By relying on 3rd party custody providers, PayPal is exposing its customers’ digital assets to a serious cybersecurity risk. Therefore, I believe that once this initiative takes off and gains traction, PayPal will eventually shift to a self-managed services model, particularly self-custody: when it comes to a network of over 340 million users, stakes are simply too high.”

Last but not least, PayPal has always been considered as an out-and-out centralized financial platform. Many hardcore crypto enthusiasts who hold transparency and financial freedom in high regard may therefore stay away from the platform altogether. However, it seems fair to say that just PayPal’s market reach alone will do more good than harm for the crypto industry’s mainstream reputation in the long run.

OKEx’s lips remain sealed on its sudden crypto withdrawal freeze

OKEx’s secrecy around locking customer withdrawals has led to misinformation and confusion around what’s happening with the exchange.

For nearly a week, uncertainty as to why OKEx suddenly suspended its cryptocurrency withdrawals on Oct. 16 has lingered on. The ongoing suspension has been puzzling to many, but the exchange’s representatives maintain that the move was solely because one of the company’s private key holders has been cooperating with a Chinese public security bureau. With one of OKEx’s three keyholders now in question, the exchange’s multisignature authorization process cannot be fulfilled, thus locking up its withdrawal function.

Following reports of OKEx founder Mingxing Xu being under investigation by Chinese authorities, the price of Bitcoin subsequently dropped by around 3% within the span of less than half an hour. Not only that, but OKEx’s native crypto offering — the OKB token — has also been on the slide, with the currency’s value dropping by around 25% since the incident came to light.

It is worth noting that just hours before OKEx halted its withdrawal services, on-chain transaction monitoring platform Whale Alert noted several large transfers between OKEx and certain unknown wallet addresses. In all, a transfer of 1,180 Bitcoin (BTC) was followed by another of 3,500 — both worth around $53.2 million combined. Additionally, 50 million Tron (TRX) worth $1.3 million was transferred, along with 21,000 Ether (ETH) worth $7.9 million and an incoming transaction of roughly $13.9 million in Tether (USDT).

Speaking directly on the issue, OKEx CEO Jay Hao told Cointelegraph that while he fully understands that his company’s current actions may impact customer sentiment negatively, the decision has been made with user security in mind:

“We wholeheartedly apologize for this. As a world-leading exchange, user security is not something that OKEx can or will ever compromise on. We will do everything in our power to reinstate this service promptly and will provide updates on the matter as soon as possible.”

Hao went on to highlight that except for withdrawals, all of OKEx’s other services such as deposits, spot trading, derivatives and staking remain unaffected. On Oct. 21, the Tron Foundation announced that it would facilitate an “internal transfer” option at a 1:1 ratio for all TRX holders directly affected by the withdrawal freeze.

Why so secretive?

Understandable it may be that a company is not obliged to share any sensitive investigative data with its customers immediately following a sudden service suspension, customers are starting to feel that a little more clarity would be welcome, considering OKEx’s withdrawal ban has been in place for over four days now.

Providing her thoughts on the matter, a spokeswoman for OKEx told Cointelegraph that due to certain unforeseeable circumstances, the company is “unable to disclose the nature of its ongoing investigation.” Much like Hao, she stated that despite any inconvenience caused, it’s important for the company’s customers to understand that the decision to suspend crypto withdrawals has been made to ensure a high standard of security. She added:

“We will be providing updates on the matter and restoring full service as soon as possible. There is no cause for alarm about the safety of users’ crypto assets and that there has been no cessation of any other activities on our platform. While our business is as usual apart from withdrawal, our apologies if you feel we have been silent. We will be providing daily updates on Twitter.”

Ben Zhou, CEO of Singapore-based crypto exchange ByBit, believes that while jumping to conclusions prematurely may not be healthy, it would be best for centralized exchanges to avoid a single point of failure going forward and build fail-safe contingencies to ensure optimum security and service availability at all times. He added: “Transparency is key, especially in the crypto space where there is a whole host of uncertainty and potential risks. Trust goes both ways, and is built through transparency.”

Crypto critics have their say

Even though Bitcoin has continued to forge an impressive recovery after its 3% drop in price, it still stands to reason that the general sentiment of the crypto market may have been affected negatively by OKEx’s situation along with what happened to crypto exchange platform BitMEX.

Earlier this month, several federal agencies in the United States filed charges against BitMEX’s top brass — Arthur Hayes, Samuel Reed and Ben Delo. As a result, 100x Group, the parent body governing BitMEX’s day-to-day operations, announced that it will no longer hold executive roles at the company. Potentially contributing to the market’s attitude was KuCoin on Sept. 26 announcing that it had been on the receiving end of a major hack, resulting in the firm’s Bitcoin, Ether and ERC-20 hot wallets being fleeced to the tune of more than $275 million.

Elucidating his thoughts on the subject, Thor Chan, CEO of Hong Kong-based crypto exchange Aax, told Cointelegraph that despite these recent developments, the global crypto sector seems to have staved off bearish pressure reasonably well. That being said, he did add that the noise surrounding OKEx, BitMEX and public figures such as John McAfee has certainly sent shockwaves throughout the industry.

Issues to resolve

While crypto offers customers a whole host of advantages in terms of transparency, faster transaction speed and cheaper cross-border payments, traditional market-infrastructure businesses don’t require their clients to deposit funds directly to an exchange, rather they make use of brokers. Hypothetically, even if a broker were to go bankrupt, its customers always have the option of recovering their funds directly from the broker’s bank.

Lastly, from a legal standpoint, OKEx being based out of Malta, a member-country of the European Union, but headquartered in Hong Kong raises certain jurisdiction-related issues. In fact, this very loophole has been a major cause of concern for regulators all over the globe since crypto trading became a prominent market.

Competition for global crypto derivatives market dominance heats up

Despite Binance recording the highest crypto derivatives volume in September, OKEx seems to be fighting back.

At the start of October, the crypto market was faced with extremely tumultuous financial conditions, thanks in large part to the recent filings against BitMEX, which saw the company’s top brass being indicted by the United States Commodity Futures Trading Commission on several charges. Not only that, but just a few days before the BitMEX scandal came to light, cryptocurrency exchange KuCoin was hacked to the tune of over $275 million on Sept. 26.

In the midst of all this, the crypto derivatives market also witnessed a major development in the form of Binance overtaking Huobi and OKEx to become the largest crypto derivatives exchange by volume for the month of September, with the platform recording a total trade volume of $164.8 billion for the month.

The data, released by U.K.-based crypto analytics firm CryptoCompare, took into consideration the trading volume of the aforementioned exchanges and found that Binance drew in a total of $8 billion more in trade volume than its closest competitor, Huobi, which raked in $156.3 billion during the same time period, while OKEx drew in around $155.7 billion.

Binance and OKEx demonstrated relatively similar derivatives volumes during July and August; however, it’s worth noting that during this same time window, Huobi had quite a margin on both its closest rivals. This then poses the question of how Binance was able to make such strides in just one month to overtake Huobi and OKEx so quickly. Providing his thoughts on the subject, Jay Hao, CEO of OKEx, told Cointelegraph:

“Binance held a $1.6 million trading competition on its futures exchange to mark its one year anniversary in September. This may have led to the sudden rapid spike in volume and also explain why the OI is so low compared to OKEx, as traders did not open long positions but were competing for their share of the prize pool.”

What fueled Binance Future’s rise?

According to a Binance spokesperson, one of the key drivers that helped spur the recent market performance was user feedback, especially in regard to the less-than-ideal trading experiences that many customers had previously faced on other derivatives exchanges: “They told us about system outages or instability, interfaces that weren’t user-friendly, and that all the exchanges then were only offering incentives for market makers, which created a lopsided environment that disadvantaged market takers.”

Another event that may have bolstered market confidence in Binance’s derivatives arm was Black Thursday, or March 12, a day that greatly impacted both traditional and crypto markets. While many other derivatives exchanges encountered significant outages, Binance offered uninterrupted service to its customers, thereby potentially cementing confidence in the platform.

Lastly, during the course of summer this year, a number of users moved from Bitcoin to various altcoins and DeFi-based derivatives. During this transitional phase, Binance Futures expanded its offerings pool. The Binance spokesperson noted: “There’s also better awareness on how we balance Bitcoin and altcoins; altcoin futures volumes make up around 40% on Binance. We think we understand and reflect market conditions well.”

OKEx stages a comeback

While September saw Binance lead the derivatives roost, heading into October, OKEx is leading all Bitcoin futures exchanges in terms of Bitcoin futures open interest. In its most basic sense, open interest signifies the total number of outstanding derivative contracts — be it options or futures — that are yet to be settled. From a more technical standpoint, open interest serves as an indicator of options trading activity and whether or not the total amount of money coming into the derivatives market is increasing.

On Oct. 4, OKEx’s 24-hour trading volume was over the $1.3 billion mark, dwarfing the $1.23 billion trade volume of its closest competitor, Binance Futures. Additionally, as can be seen from the chart above, open interest on OKEx is the highest by a wide margin, with the other five exchanges performing similarly to one another.

Such positive statistical data seems to suggest that BTC futures and options sentiment has remained quite strong, despite the recent BitMEX lawsuit and KuCoin hack. Not only that, but OKEx’s futures open interest has risen from $850 million to $930 million since the start of October, something that is potentially indicative of a bull run in the near future. Providing his insights on the subject, Hao told Cointelegraph:

“Trading volume is a very important metric but it is not the only metric to keep in mind when assessing the overall health and popularity of an exchange. OKEx has been laser-focused on DeFi lately as well and this move from Binance in derivatives is a signal for us that we cannot take our attention from our flagship product.”

U.K. ban on local derivatives market could hurt

On Oct. 11, the United Kingdom’s Financial Conduct Authority — the country’s principal finance regulator — issued a blanket ban prohibiting crypto service providers from selling derivatives and exchange-traded notes to retail investors. While the U.K. derivatives market may not be large in comparison to others, the fact that a prominent regulator such as the FCA continues to claim that “cryptoassets are causing harm to consumers and markets” is rather alarming for the industry.

The government agency is still alleging that digital assets have no inherent value — an argument that has been used against crypto since its inception. Moreover, another reason for the ban is the “extreme volatile nature” of crypto, which seems like another unjust evaluation considering the same can be said about many traditional stock options. The FCA claims that retail investors “do not understand enough about the derivatives market,” so there is no real need for them to invest in such offerings.

That being said, it is worth remembering that when the ban was proposed in July last year, it generated a total of 527 responses from various companies that sell derivatives as well as crypto exchanges, law firms, trade bodies and other entities. In a 55-page report released by the FCA, a staggering 97% of respondents are shown to have opposed the proposal.