How did we get here?
In 2008, the world experienced a financial meltdown, now known as “once in a century credit tsunami”. Before the 2008 crisis, the US was experiencing a housing boom, which was fuelled by an unregulated shadow banking system. The lack of effective regulation and oversight by the Federal Reserve fuelled the crisis further, many large financial institutions were struggling to manage own risks. Consequently, creditors and investors lost trust and confidence in these institutions. More specifically, concerns if these institutions would be able to meet short-term liabilities and concerns over their liquidity. Notably, the US investment bank “the iconic” Lehman Brothers filed for bankruptcy in the year 2008. Finally bursting the financial bubble, and creating a disaster, which led people to lose trust and confidence towards banks more so, central banks.
The financial crisis shook people faith in banks and the emergence of new alternatives was bound to gain enormous momentum. Researchers and computer scientists were working tirelessly to solve various issues with money and financial systems. For instance, in 1983, David Chaum introduced the first concept surrounding the idea of digital currencies and formed digital cash. His idea was to have a digital currency system that improved on three things namely personal privacy, control and auditability. In his paper, David discusses this core concept through blind signatures a cryptography technology aimed innovating further the automated payment systems of the world.
Then came Satoshi Nakamoto in November 2008 when he announced his success realized in a project dubbed “a new electronic cash system that’s fully peer-to-peer with no trusted third party”. Satoshi further argued in his Bitcoin whitepaper that banks and central banks often breach people’s trust by actions of banks lending people’s money in credit bubbles and maintaining very little as a reserve. Thus, as was experienced during the 2008 financial crisis central banks and other financial institutions due to maintaining such minimal reserve become vulnerable to liquidity problems. Therefore, inconveniencing the people who deposit with banks when they need their money back. All this shows Satoshi’s dissatisfaction with working of the current financial system thus the birth of Bitcoin. Fast forward to the year 2011, the concept of cryptocurrencies gained popularity. Litecoin and Ether came into existence in 2011 and 2015 respectively. Ever since new cryptocurrencies are announced each year with the highest number recorded in 2017 at the height of Bitcoin all-time high price to date reaching $20K mark.
So what is a Central Bank Digital Currency (CBDC)?
In the simplest terms, a CBDC is fiat money in the digital form also known as digital fiat money. In practicality, it is a digital extension on the medium of exchange by a central bank to aid settling of a transaction between involved parties. Any party within the central bank network thus can instantaneously transfer value to any other party as long as they are party to the network. Therefore, central banks issuing CBDC will be able to remove credit risk as well as ensure the digital fiat money stability through guaranteeing of its value just as it happens with paper money.
Central Bank’s Stance on CBDC’s
A study conducted by the Bank for International Settlements (BIS) reveals a spiking interest in introducing CBDC is high in emerging economies compared to advanced economies. Out of the 63 central banks participants to the BIS survey, 41 were from emerging market economies and among these 70 per cent were keen on implementing a CBDC. Some had either adopted own CBDC or in the process as illustrated below.
Benefits of a CBDC
Central banks introducing own digital currencies aim to improve on cost, speed and efficiency. Besides, CBDC’s are developed to overcome limitations experienced in present financial systems including resilience and systems security. For example, an effective CBDC should aim at reducing operational costs and risks. This is possible through the central bank’s ability to tokenize financial assets and have them recorded on distributed ledgers thus taking advantage of such productivity gains.
Risks Associated with Central Bank Digital Currency
Central banks issuance of CBDC poses threats to existing financial systems. For instance, during political or financial crisis access to CBDC will have financial product users run from commercial banks to the state. Hindering ability of commercial banks to make loans or meet other financial obligations, as creditors no longer deposit funds into the banks. Worse still unstable countries either politically or financially will experience a high level of capital flight to those countries perceived as stable.
It is likely in the next 3 to 5 years as the knowledge and cryptocurrencies continue to spread, more central banks will look into issuing own CBDC. This may be largely inspired by the need to regulate the emergence and use of some cryptocurrencies. Also, geopolitics and a certain sense of state’s exclusionism as well will influence certain government’s stance on the need to issue own central bank digital currency. Irrespective of the benefits aforementioned, striking of balance is necessary to avoid crowding out commercial banks at least not for now.
The post Understanding Central Bank Digital Currencies – CBDC appeared first on coinweez.
Bitcoin to Surpass $20,000 ATH By Early 2021 According to Raul Pal
Former hedge fund manager and CEO of Real Vision, Raoul Pal, believes that the real impact of the COVID-19 pandemic is about to reach the financial markets. By outlining several upcoming cornerstones among traditional financial assets, he highlighted Bitcoin as the “life raft” in this situation.
Raoul Pal: Everything Has Changed
In a recent Twitter thread, the Wall Street veteran outlined the rapidly growing COVID-19 cases worldwide. The total number of infected has neared 45 million, while the death toll is almost 1,2 million.
Pal predicted that these rising numbers in Europe, the US, and Canada are about to “exert economic pressures and extinguish the Hope phase of reflation dreams.” He believes that the upcoming consequences will harm the economy even more than the early 2020 developments. A real economic recovery “will take more than a post-election stimulus in January.”
He continued by looking at several markets that have started to feel the adverse consequences and have fallen to long-term support levels. Those included the oil price, Spain’s benchmark stock market index – the IBEX 35, the EU Banks Index, the euro, the British pound, the US dollar, and more.
As such, he broached a few possible solutions – “you can buy bonds and dollars, or you can take the life raft – Bitcoin.”
“Or, to dampen the volatility of a risk-off event (we can and will see sharp BTC corrections), you can have all three for a near-perfect portfolio for this phase.” – Pal concluded.
Bitcoin Will Eat The World And Price Predictions From Pal
Pal further highlighted his positive views on Bitcoin by saying the cryptocurrency “will eat the world.” He attributed it to its performance, which is so dominant and so “all-encompassing” that it will “suck in every single asset narrative dry and spit it out.”
“Never before in my career have I seen a trade so dominant that holding any other assets makes almost no sense.”
As far as price predictions go, Pal said that $14,000 is the only resistance left in Bitcoin’s way to the all-time high at $20,000. He expects that BTC should overcome the December 2017 high by “early next year at the latest.”
Additionally, CryptoPotato recently reported an even more optimistic and long-term forecast. By using a regression on the logarithmic chart since inception, Pal brought up a model that sees Bitcoin reaching $1 million by 2025.
Featured Image Courtesy of BusinessInsider
Coinbase Launches A Crypto Debit Card With 1% Reward on Bitcoin Spendings
- The largest US-based cryptocurrency exchange Coinbase announced today the launch of a Visa debit card, allowing customers to spend digital assets for everyday purchases.
- According to the official statement, the Coinbase Card will provide clients the opportunity to earn up to 4% back in cryptocurrency rewards.
- It will be available in nearly 30 countries, including the US, the UK, and across Europe. It will be connected to customers’ Coinbase accounts, and they can spend the funds without having to move funds to their bank accounts.
- The designated cryptocurrency asset spent by users will be automatically converted to US dollars prior to completing the purchase or the ATM withdrawal.
- The rewards will be available for US-based customers only initially and will depend on the cryptocurrency used. For instance, customers can get 1% back if they spend bitcoins and 4% back if they choose Stellar Lumens (XLM).
- The Coinbase app will serve as a fund manager. All spendings, reward details, and preferences will be manageable through the app.
- US customers can start applying to receive the card through the exchange’s app or the website. The first approved clients will be announced “this winter,” and they can start spending with a virtual card. The physical one will be delivered within two weeks.
Bitcoin-Friendly Avanti Receives License to be The Second Crypto Bank in The US
Now the United States can boast a new crypto bank: Welcome Avanti.
Avanti Financial Group, a firm founded by the former managing director at Morgan Stanley, Caitlin Long, announced that it had been granted a license to offer banking services by the Wyoming State Banking Board.
Avanti is The Second Crypto-bank Operating in the United States
With this decision, Avanti becomes the second crypto company to receive a banking license after the crypto exchange Kraken was also authorized by the Wyoming State Banking Board.
This license allows Avanti to offer financial services in the same way that a traditional bank would, only that these are in addition to the crypto services already provided by the platform.
According to Avanti, the application in the state of Wyoming was key to meeting its expectations —just like Kraken did— as it is the only state in the country that has a regulator with a bank supervisory and regulatory program for digital assets mature enough to ensure the operations of a banking platform that offers risk-free custody services.
Currently the only type of U.S. financial institution that can provide final and simultaneous settlement of trades between digital assets and the U.S. dollar-because it is the only type currently approved to handle both within the same legal entity-is a Wyoming special purpose depository institution like Avanti.
Blockchain and Banking Working Together
Avanti said in a tweet that the first crypto product the company will launch will be a stablecoin pegged to the dollar and backed by physical deposits made to its bank accounts. The token will be called Avit and will be available for its customers in the first quarter of 2021.
AVANTI IS OFFICIALLY A BANK! Our charter & business plan were approved 8-0 today, incl. #Avit (a tokenized US dollar, which we announced we’ll issue initially on #Liquid (#Bitcoin sidechain) & #Ethereum. Open for commercial customers early Q1. More here:https://t.co/CgNazN08zV
— Avanti Bank & Trust (@AvantiBT) October 28, 2020
Avanti revealed that Avit tokens will run on Ethereum – a critical blockchain for those seeking to take advantage of programmable smart contracts – and Liquid – a Bitcoin sidechain developed by Blockstream for those seeking to benefit from inter-exchange transfers for arbitrage operations.
Avanti had previously confirmed its collaboration with Blockstream to develop this token, explaining that it would not be like a normal crypto-currency and that it would be “just bank money that happens to be issued on a blockchain.” So it may look more like JPM Coin than the famous USDT.
Caitlin Long promised that Avanti “will provide products and services that do not exist in the market today. They did not refer to what they had in mind, so we can only hope.
There has been a lot of activity around cryptocurrency and financial services with blockchain technology in the United States. After MicroStrategy announced a major investment in Bitcoin, Square revealed a $50 million investment in BTC. Also, PayPal started providing support for cryptocurrencies and JP Morgan started using its own cryptocurrency commercially days after it talked about Bitcoin’s potential to triple its price.
Most of these announcements helped boosting BTC’s price. Will this have a bullish effect too?
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