Laser Eye Goes to El Salvador
7 June 2021
Sovereign nations continue to ponder on how to treat digital assets; during the Bitcoin 2021 conference on Saturday, El Salvador’s president announced that he planned to submit a legislative approval that would grant bitcoin the status of legal tender. In the opposite side of the world, China sent mixed messages by admitting that crypto trading is not necessarily illegal, but also blocked Weibo accounts of crypto influencers in what appeared to be a targeted crypto social media censorship effort. RBI in India clarified that banks cannot caution their customers against dealing in crypto. With more than 60 central banks working on central bank digital currencies (according to PwC), and acknowledgment and adoption of digital assets as an asset class, powers-that-be are looking at optimal ways to regulate the space. In terms of price action, nature seems to be healing with rally led by smart-contract platforms (Chart 1) and bitcoin dominance back at 41% (Chart 2).
Notable outperformer was Solana (+55%), with reports that the project could be raising US$ 300-450mio in a bid to overtake Ethereum blockchain; Solana’s purported superior technology, ecosystem and connection to FTX have made it one of the best performing tokens YTD, but dApps (Serum, Raydium, Oxygen, etc.) built on ecosystem have materially underperformed.
The TraFi and digital assets rail continue to merge; Standard Chartered announced plans to launch institutional crypto brokerage and exchange platform in UK and Europe, as a JV between SC Ventures, the bank’s innovation arm, and BC Technology Group, which operates OSL. DBS, a Singaporean bank, issued the DBS Digital Bond (SGD 15mio, 6-months, 0.6%) on its digital exchange, making it the first security token offering (STO) on the exchange. On the payments side, MAS commented it has received over 300 requests for payments and crypto exchange licenses (Payment Services Act), including applications from Alibaba and Google.
On the macro side, the shortened, quiet trading week saw major indices closing moderately higher. The performance was led by energy shares as oil prices reached their highest level in 2 years, and ‘meme stocks’ with AMC surging more than 80% for the week (ape together strong!). On the data side, jobs report sent mixed signals, with nonfarm payrolls on Friday showing employers added 559k jobs in May (Est. 650k) vs. unemployment rate dropping from 6.1% to 5.8% (Est. 5.9%), and average hourly earnings rising 0.5% MoM (Est. 0.2%), indicative of a tighter labour market. Fedspeak that significant slack remained in the economy and that the Fed is far from achieving its inflation and employment targets continued.
What is Happening?
Square is considering developing a bitcoin hardware wallet. Although whether or in which context Square might move forward on the project is unclear, some considerations that Square and its CEO, Jack Dorsey, are contemplating are 1. Whether to integrate the wallet with Square’s Cash App, which has seen its bitcoin sales offering become a lucrative revenue stream for the company, 2. How to enable seamless, scalable, Layer-2 native support for hardware wallet.
G7 central bankers, finance ministers discuss stablecoins, CBDCs at latest meeting in London. G7 first discussed about stablecoins and digital assets in 2019, and this year, the G7 notably expressed a series of design preferences (“resilient and energy-efficient; support innovation, competition inclusion, and could enhance cross-border payments; operate within appropriate privacy frameworks and minimise spillovers”) for CBDCs, with more formal expression to be released later this year. This comes together with ECB’s report this week, in which they noted the importance of CBDC for future financial strength.
The digitisation of the financial system is a secular trend, with blockchain and digital asset rails merely helping the broader goal of digitisation and disintermediation (to a certain extent). Integration of the technology in one form or the other is inevitable, and as such, certain technologies like smart contract platforms, Layer-2 solutions appear attractive.