Tag: News

With Bitcoin being one of the most talked about cryptocurrencies, will this decentralized digital currency overtake Gold? We briefly explain the history of gold coins, the future of Bitcoin and how IntaCapital Swiss facilitates Gold Projects.

The Gold Standard 

The first gold coins were initially struck around 550 BC by Royal Decree of King Croesus of Lydia. However as life moved on, paper currency was introduced to the world and by the late 19^th century many of these currencies were fixed to gold, known as “The Gold Standard”. 

The definition of the Gold Standard is where countries linked their currency to a specified amount of gold, and countries with no gold reserves linked their currency to a country whose currency was on the Gold Standard. This meant that fiat currencies were freely transferable into gold. 

For countries using the Gold Standard, their money supply was linked to gold, and a legal minimum amount of gold to currency issued was employed. There are many factors under which the Gold Standard operated, but for the purposes of this blog this is just an outline. 

Gold Today 

Great Britain left the Gold Standard in 1931 and the United States followed but not until August 1971. Today gold is used in many products with jewellery accounting for about 74% of gold consumption. 

On the investment side, gold is used as a hedge against inflation, financial market turbulence and geopolitical problems. In today’s world, the Covid-19 pandemic has seen central banks increase the money supply giving the perception that fiat currencies such as the Euro, USD and GBP were being devalued. As a result, investors have fled into gold to protect themselves from currency devaluations whilst preserving their purchasing power. 

Why is gold so attractive to investors? There are a number of reasons but the fundamental reason is, it’s perceived as a commodity of stored value. For hundreds of years and up to today, investors have always seen gold as easily exchangeable, attractive in appearance, durable and importantly scarce. It is these inherent qualities that give gold its attraction and value today. 

Bitcoin 

Bitcoin is a digital currency and was created on 3^rd January 2009 when Satoshi Nakumoto, the inventor of Bitcoin, mined the first block in the blockchain, known as the Genesis Block. The first Bitcoin transaction took place in 2010, when two Papa John pizzas were bought for 10,000 bitcoins by a certain Mr Laszlo Hanyecz. 

At the time of Mr Laszlo’s purchase a bitcoin was worth a fraction of a cent, but it crossed the USD 1 threshold in February 2011. Bitcoin is still maturing as a cryptocurrency/asset and over the past decade has suffered massive volatility where double digit swings in price has not been uncommon. 

Volatility 

Bitcoin is famous for massive price swings, the first of which occurred in April 2011 when the price jumped from USD1 peaking in June at USD32, a staggering gain of 3,200%. However, by November of that year, bitcoin had bottomed out at USD2. 

Bitcoin began 2013 trading at USD13.40 and reached USD220 by the beginning of April, before receding to USD 70 by the middle of the same month. However, by October bitcoin was trading at USD123.20 reaching a high of USD1,156.10 in December before virtually halving in price 3 days later to USD760. 

Bitcoins price has continued to fluctuate massively over the years, having to contend with problems in their ecosystem, fraudsters, scams, hacking and absence of any regulation. However, thanks to some serious investment, these problems have become a thing of the past. 

Today 

There is only a finite supply of bitcoin. The total amount of coins that can be mined is 21 million of which 18.5 million have been mined and estimates suggest of these 20% have been lost forever reducing overall supply. 

At the time of writing Bitcoin stands at USD62,151.20, the highest it has been since April of this year, despite losing 17% on 7^th September and despite being banned from China.  

America’s regulators have approved a Bitcoin ETF (Exchange Traded Fund), despite bitcoin not being regulated. An ETF mimics the price of an asset allowing investors to buy that asset but eliminating any personal trading. In the case of Bitcoin, the ETF would also erase any complex security and storage procedures. 

This new ETF, which starts trading on the New York Stock Exchange on Tuesday 19^thOctober, is expected to attract a serious number of new investors into the Bitcoin market. Analysts are predicting a price of anywhere from today’s price of USD62,151.20 up to USD90,000 in November and then amazingly after a correction up to USD150,000 to USD200,00 early next year. 

Bitcoin & Gold – Conclusion 

The question many investors are mulling over is “Will Bitcoin become the new gold?”. For many, Bitcoin is still a young digital currency and needs to grow and mature before any comparisons can me made. Pro bitcoin analysts are already saying bitcoin is now a hedge against inflation. However, the Bank of England and HSBC both say bitcoin has a long way to go. 

Gold is still way ahead in the custodial and security stakes. Despite much publicising that the cryptocurrency world is so much safer, there have been massive hacks already this year, so perhaps a cryptocurrency is not as safe security wise as we are led to believe. 

Official statistics show that 2 ½ to 3 thousand tons of gold are mined each year with an estimate of 190,000 tons being above ground. There 18 ½ million bitcoins that have currently been mined, with a maximum availability of 21 million. So what happens when Bitcoin issue no more coins?? 

Gold is priced in different currencies in individual markets all over the world. This means that gold can be hedged against currencies, whilst bitcoin is priced just in the US Dollar and therefore comes nowhere near the flexibility of gold. 

As a hedge against the future, gold is so much less volatile than bitcoin which taken together with all the above points shows that bitcoin has yet to become the new gold.

IntaCapital Swiss & Gold

At IntaCapital Swiss we have facilitated projects within the mining industy, specifically gold. Learn more from our case study, which benefited from a Collateral Injection that would Guarantee the clients’ suppliers for the payment of Gold export from Brazil to Canada.

81 countries are exploring the possibilities of introducing Central Bank Digital Currency into their economies. These 81 countries represent over 90% of global GDP, so now is the time to start thinking about the possible effects this may have on the future of the global financial sectors. 

Currently, five countries have launched a digital currency – the first of which was the Bahamas with the Sand Dollar. The other four are Grenada, St Lucia, St Christopher and Nevis and Antigua and Barbuda. Below, we concentrate on some of the more advanced economies and their plans for a Central Bank Digital Currency. 

China 

China is without a doubt the furthest down the road of any G20 country regarding the introduction of CBDC. They introduced their CBDC special task force in 2014 and will soon be adopting E-Yuan which will be backed by the Chinese Central Bank. The Chinese government has confirmed E-Yuan will be used for shopping. Visa have announced that they have expressed interest in helping E-Yuan move into mainstream markets. 

Interestingly, China did house in excess of 50% of the world’s digital miners. These miners are now moving to Texas, USA, as China took their power away and Texas is offering them cheap power supplies.  

Russia 

On June 29th 2021 the Bank of Russia launched their CBDC pilot scheme together with twelve Russian commercial banks. The largest of these banks is Sberbank, together with Alfa Bank, VTB and Gazprombank. The Bank of Russia wishes to ensure their commercial banks are able to convert their systems so there is an easy transition from paper and coin currency to digital currency. A prototype for the digital rouble is planned for the first quarter of 2022, following which the Bank of Russia will issue a roadmap for future incorporation. 

Part Survey of the G7 

United Kingdom 

Although a discussion paper was issued in March 2020, The Bank of England have announced that they have yet to make a decision on whether or not to introduce CBDC. If CBDC were to be introduced just like fiat currency it would be denominated in Sterling.  

A taskforce has been created on instructions from HM Treasury and the Bank of England. They have also created the CBDC Technology Forum and the CBDC Engagement Form. Both forums will gather and collate strategic input from their stakeholders. We await further updates, but it would appear that the United Kingdom is lagging behind in the CBDC arena. 

France 

The Banque de France has been concentrating their CBDC tests on the wholesale market rather than the consumer market. Recently the bank utilising a wholesale CBDC, completed a simulated securities settlement. The upshot was a more transparent and efficient capital markets system. Furthermore, the Banque de France has completed, in conjunction with the Monetary Agency of Singapore, wholesale settlement and cross-border payment trials utilising CBDC. Similar successful trials have been completed with the Swiss National Bank. 

Canada  

Whilst there have been no CBDC trials or experiments, the Bank of Canada has echoed the need for a Canadian digital currency. Like other countries they feel that a decline in utilising cash is an emphatic reason for going digital. The other reason is monetary sovereignty that again may well be challenged by alternative or non-domestic digital currencies. Facebook’s Diem, (previously Libra) was again singled out as potential competition. They also singled out the high cost to merchants that take debit and credit cards. CBDC would alleviate this problem. 

Japan  

IN early July 2021 a Japanese lawmaker announced that in 2022 there will be improved clarity on what form the digital yen will take. The lawmaker, Heidi Murai is responsible for overseeing the digital currency plan proposed by the ruling Liberal Democrat Party. Japan has yet to make any decision on the issue of CBDC. 

United States of America 

The USA is clearly the most advanced and digital ready country. It is therefore interesting that the chairman of the Federal Reserve Christopher J Waller opined that he was sceptical when it came to CBDC. He further advised that he did not believe that the US economy would become cashless. Furthermore, in a recent debate in congress a number of senators voiced their concerns regarding CBDC. 

European Central Bank 

The European Central Bank (ECB) has advised of the threat to those countries that choose not to incorporate Central Bank Digital Currencies. They fear that cross-border payments and domestic payments could become dominated by non-domestic providers. 

An example of such dominance is Facebook’s Diem (previously Libra), which has the potential to issue artificial currencies. Such dominance is a potential threat to financial stability leaving both businesses and consumers vulnerable. 

By launching CBDC domestic payments, it would retain their autonomy as would the usage of the currency in a new international digital world. The ECB in partnership with the European Commission have been discussing launching the digital Euro since January 2021.  

Central Bank Digital Currency – Conclusion  

The reticence of the United States towards CBDC is interesting considering that 81 of the world’s countries are actively considering launching a digital currency. However, those who wield the power in the USA no doubt still feel that as the largest economy in the world, the US Dollar will always be the currency of last resort. Also, congress’s attempt to bring cryptocurrencies within the realm of the IRS, could well devastate the crypto market in the USA. 

It seems inevitable that in some G7, G20 and lesser developed countries, change is inevitable and Central Bank Digital Currencies will start to appear. In many countries, cash is becoming a scarce commodity and coupled with the fear of non-domestic digital currencies, posing a threat to sovereign autonomy, the case for Central Bank Digital Currency has pretty much been decided. 
 
 
 

Stablecoins are a class of cryptocurrencies that offer financial stability being underwritten by a Fiat Currency such as the USD Dollar. Currently the global market for stablecoins is valued at USD 130 billion. The top stablecoin is Tether with a market capitalization of USD68 billion. 

Stablecoins have gained in popularity by offering not only the instant payment processing with security and privacy as offered by cryptocurrencies but also enjoy the financial stability by being pegged to Fiat currencies such as the US Dollar. 

A Fiat currency is backed by the government that issued the currency and means that these currencies are not backed by physical assets such as gold or silver. 

International Regulators for Stablecoins

Financial regulators across the global financial centres are getting increasingly worried that stablecoins (a digital asset), are beginning to exert a growing and unwanted non-regulated influence on the financial system. Earlier this week it was reported that authorities said stablecoins should be regulated in the same way that clearing houses and payment systems are regulated. They feel this is extremely important as stablecoins act as a bridge between cryptocurrencies and national currencies. 

IOSC, The International Organisation of Securities Commissions 

The IOSC is an umbrella group for regulators across the world and together with the Committee on Payments and Market Infrastructures (the CPMI, part of the Bank for International Settlements), have recommended steps to be taken to oversee the stablecoin market. 

There are several worries that concern these oversight committees. The first is that stablecoins should have no liquidity risks and little or no credit risks. They feel if stablecoins broke their one for one with fiat currencies, customers would become exposed. 

Another worry is stablecoin operators underpin their coins with different baskets of asset class. For example, Tether advises it holds in excess of USD30 billion in commercial paper, making it the seventh, YES seventh largest owner/holder of commercial paper in the world. One senior rating agency suggests that if there was a flight from cryptocurrencies to cash, it could well destabilise short-term credit markets. 

The Problems Posed by Tether 

Tether is a classic example as to why stablecoins should be regulated. Mystery upon mystery surrounds the organisation as critics scream “where is the proof of your holdings”. Tether takes in US Dollars and issues the same in stablecoins. However, there are no annual audited accounts or reports to regulators to show they have the assets or cash to back their stablecoins. The owners of the coins can invest in Bitcoin, Ether or any other cryptocurrency, and can redeem tether coins for cash at any given moment. Tether has now issued to date, 69 billion tether coins, and strangely of that 69 billion, 48 billion has been issued in 2021.  

This means according to Tether’s proclamations they hold the equivalent in cash or commercial paper. Tether has announced of the USD69 billion in cash and assets, USD30 billion is held in commercial paper. To look at this another way, if Tether was a bank, it would be in the top fifty US Banks. 

Interestingly, in the United States the commercial paper market is relatively small and therefore most of the players know each other or know of each other. Various traders from Wall Street were asked if Tether had been buying big in the market. To a person no one had seen Tether active in the commercial paper market. 

If as many regulators fear that Tether is in fact a Ponzi Scheme, it would eclipse Bernie Madoff with disastrous results. If there was suddenly a run-on Tether with customers scrambling to get their money out it could set off a nightmare chain of events.  

First Tether would have to sell or liquidate their assets at a loss, which could spill over into the regulated credit markets and cause a crash. It could well spill over into other cryptocurrencies causing a run on those companies.  

Tether is often used as a hedge, so if it lost its peg to the US Dollar it could take apart Bitcoin and Ethereum. Tether transactions in Bitcoin are greater than US Dollar transactions in Bitcoin. A run-on Tether could in fact cause the whole crypto market to fall into disarray with devastating effects. Many experts feel that Tether is part or is at the centre of Systemic Risk which means it has the ability to possibly severely damage or collapse an entire economy.  

Stablecoins – Conclusion 

The big question is do stablecoins such as Tether have the required assets to back their coinage in circulation? Currently there is no positive proof. Maybe a company such as Tether, likened to be in the top fifty largest United States banks be subject to Tier I and Tier ii Bank for International Settlement rules and regulations.  

These questions can go on and on, but it is time to stop pontificating. It has become incumbent upon regulators and government lawmakers to force these stablecoin companies to prove their assets. This is absolutely tantamount if a potential financial disaster is to be avoided. 

There are many individuals and investors across the globe who are understandably still not ready to invest in cryptocurrencies, such as Bitcoin, but would like to get some exposure to this market.  

There are several reasons as to why investors wish to avoid owning Bitcoin. These can range from not understanding the market, to understanding the market but wary of the volatility swings or being an owner of Bitcoin but looking for a more diverse crypto investment basket. 

Despite the volatility, Bitcoin has doubled in price in 2021, so how does one gain exposure without buying Bitcoin? 

Alternative Bitcoin Investment Options 

There are a few options that are available for those wanting exposure to Bitcoin without going through the rigmarole of opening a cryptocurrency account and becoming an owner of Bitcoin. 

Exchange Traded Funds (ETF’s) 

For those not aware, an Exchange Traded Fund is a type of security that tracks tradeable assets such as commodities, shares (FTSE 100), bonds or a mixture/basket of investment types. The ETF can be bought and sold on various exchanges, and the investor does not have to purchase individual commodities or shares etc.  

In the case of a Bitcoin ETF, this fund will track the price of Bitcoin, and allows investors to bet on the future of Bitcoin, without having to purchase Bitcoin themselves. These funds have been available in Europe and Canada for some time, but since October 2021 are now available In the United States.  

Briefly, US Bitcoin ETfs invest in Bitcoin futures, and they indirectly track the spot price of Bitcoin via contracts that are traded and overseen on the Chicago Mercantile Exchange. The regulators suggest that this is a safer way to invest in Bitcoin, (more investor protection), rather than through regular Bitcoin ETFs. 

These funds are not available in the United Kingdom as regulators (the FCA), refuse to authorise a crypto fund until they are satisfied the underlying market has the proper integrity.  

Purchase Shares in a Companies that are Bitcoin Related 

Many investors are used to investing in companies that have a board of directors that are accountable to shareholders, the regulatory authorities and produce annual financial results. Therefore, investors may find it easier to invest in Bitcoin related companies. 

An example is Coinbase Global Inc (known as Coinbase), which is a Nasdaq traded company that operates a crypto exchange, which is currently the largest US crypto exchange by volume traded. As filed with the SEC, (the US Securities and Exchange Commission), their main income is derived from the users of the exchange who deposit and trade funds. The valuation of the exchange will fluctuate in accordance with the price of Bitcoin.  

Investors may choose to invest in those companies that have an exceptionally large exposure to Bitcoin. An example will be Tesla Inc, who currently hold roughly USD1.26 billion in crypto assets on their balance sheet. There are other companies who also hold sizable assets in Bitcoin, but investors will have to due diligence the sectors they are trading in, to ensure a worthwhile investment. 

Crypto Technology Investments 

How is Bitcoin Created? A Bitcoin is known as a digital currency and each coin or unit is encrypted then stored on a digital public ledger known as a blockchain. The creation and storage of these coins is known as mining. Originally, individuals used advanced computing systems to solve extraordinarily complex mathematical equations to verify Bitcoin transactions. Their payment or reward being Bitcoins.  

This has morphed into companies who now used highly advanced computer systems to “mine” Bitcoins from scratch. Some of these companies have seen their share price go through the roof. The USA’s largest crypto miner was bought in April 2021 for USD 650 million cash and stock trade. 

Conclusion 

As shown above, there are many ways to invest in Bitcoin without having to purchase this sometimes-volatile digital currency. As with all investments, it is always prudent to diversify risk, so alternative bitcoin investment may well be the way to go for the more risk averse investor. 

Regulators throughout the world are finally taking the first steps to bring non-regulated digital currencies and their associated blockchains under regulatory control. The rapid growth in this alternative to the traditional financial system has finally brought global regulators to the conclusion that decentralised finance and defi apps need to come under regulatory control. 

Financial Action Task Force, (FATF) 

Paris, July 1989, the Financial Action Task Force or FATF was created as a joint-action intergovernmental task force at a meeting of the G7 nations. The initial remit was to develop global counter measures to money laundering. The remit was expanded in October 2001 to cover terrorist financing, and further expanded in April 2012 to cover the financing of proliferation of weapons of mass destruction. 

Money Laundering 

Last week FATF announced that they have urged global regulators to apply set rules and regulations to directors, shareholders and other individuals that control, own or exert influence on DeFi apps. These rules and regulations are designed to combat terrorist financing and money laundering and should also be applied to those who own, operate and create all decentralised finance. 

DeFi apps – are trading apps which allows any user to circumvent centralised exchanges, (such as Kraken, Binance and Coinbase), when engaging in crypto investment trading. 

Experts have suggested that Bitcoin has been and can be in the future used as an attractive way for the criminal classes to launder their ill-gotten gains. Due to the lack of regulation, and the security aspects of Bitcoin, makes large transactions in Bitcoin virtually untraceable, especially when converting Bitcoin to cash. Many exchanges and providers of wallets have no anti-money laundering regulations and do not request Customer Information Profiles, or KYC, Know Your Client profiles. 

Funding of terrorism is another problem that crypto industry has to live with. Again, experts suggest that terrorist organisations are currently using cryptocurrencies to deal weapons and drugs etc on the black market. There is a website on the dark web which apparently is associated with the transferring of Bitcoins to Islamic terrorists. 

Implementation of Crypto Policing 

The proposals as offered by FATF over the past few years have been delayed as jurisdictions across the globe have struggled to implement oversight on the decentralised finance. One of the big problems has been dealing with organisations that are run by algorithms instead of the usual board of directors who can be subject to oversight committees and investigations. 

However, one of the first moves will be to look at some of these decentralised projects where brochures suggest that they are a “Virtual Asset Service Provider”, which under today’s anti-money laundering rules makes them answerable to the relevant authority. Any person who is deemed to have authority or a major influence over the project will be subject to anti-money laundering rules and regulations. 

Conclusion 

Crypto trading projects or decentralised finance projects has increased by a figure of 500% in this year alone, reaching a staggering figure of USD100 billion. The term “The Crypto Industry is too Big to Ignore” is finally becoming relevant. 

Fraud in the cryptocurrency world is rife. In fact, it has been reported that over USD 197 million has been lost to fraudulent scams in this year alone. None of these losses are covered by FDIC, (federal Deposit Insurance Agency). Thus, investors or buyers of cryptocurrencies or investors in DeFi projects are not covered as they are investing in an unregulated market. 

FATF can only make recommendations to governments and their regulatory authorities. It is up to the governments concerned to pass the relevant laws that will bring decentralised finance within the purview of their regulators. Otherwise, investors will continue to be scammed, and money laundering and terrorism finance will continue unabated. 

LIBOR has been an important interest rate benchmark for decades. Any company or individual who either has debt or savings will be affected by any swings in LIBOR. For companies this affects the cost of borrowing and for consumers, affects will be noticed surrounding, mortgages, credit card rates, personal loans to name but a few. As of mid-night, 31^stDecember we will be saying good-bye to this very important interest rate benchmark. 

The London Interbank Offered Rate or LIBOR as it is referred to by traders worldwide is about to be phased out. The rate came into global usage in the 1970’s, originally as a key benchmark that is indicative of the borrowing costs between banks. The interest rate is calculated in five currencies, Japanese Yen, Swiss Franc, Euro, US Dollar and UK Pound Sterling. 

LIBOR is now synonymous with most parts of finance such as the derivatives market, where it is used in foreign currency options, interest rate swaps and forward rate agreements. In fact, in the last 50 years, any on-going or new financial instrument with a variable interest rate, will be using this as its benchmark. 

How is LIBOR Calculated? 

The rate is calculated by the Intercontinental Exchange (ICE) Benchmark Administration, who each day receives submissions from 18 banks with their likely borrowing rates. ICE takes the highest four and the lowest four submissions and then calculates the average rates which they then submit to the markets.

When is LIBOR Disappearing? 

The Financial Conduct Authority announced on 5^th March 2021, that as of close of business December 31^st 2021 all LIBOR settings for Pounds Sterling, Japanese Yen, Euro, and Swiss Franc, will no longer be representative or will cease. The US Dollar LIBOR one week and 2 months will also be non-representative or will cease. The remaining settings for the US Dollar being overnight, 1-month, 3- month, 6- month and 12-month, will cease or be non-representative as of close of business 30^th June 2023. 

Why is LIBOR Disappearing? 

There are two main reasons as to why the rate is being dropped.  

• The scandal that engulfed the interest benchmark, where LIBOR setting banks manipulated the rates. 
• The role LIBOR played in the 2008 Global Financial Crisis.

LIBOR Manipulation was uncovered in 2012 where multiple banks, (Deutsche Bank, Barclays Bank, UBS, Royal Bank of Scotland and Rabobank), had for a long time been manipulating this for profit. 

Financial Crisis 2008 – There was less lending by banks and with interest rates soaring on literally trillions of dollars on financial products day after day, markets were crashing everywhere. Whilst the rate did not initiate the crash it was key in transmitting the financial crisis throughout the world, leaving governments to seek a safer alternative. 

The Consumer 

LIBOR touches every consumer on the streets of the United Kingdom, as well as most people living in countries across the globe. In the United Kingdom for example LIBOR underpins all consumer loans including mortgages, credit cards, car loans, and personal loans. It has a massive impact on the person in the street and it is in their interest to understand what is the replacement for LIBOR. 

Companies 

LIBOR affects the cost of borrowing for all companies. If the borrowing company is quoted on the London Stock Exchange for example any swings in the rate can affect their share price. If Sterling LIBOR goes up the cost of borrowing goes up as well. This will have a negative effect on the company’s bottom line, possibly culminating in a sell off of their shares, thus producing a fall in their price. The opposite may be said if Sterling LIBOR falls. The cost of borrowing is then reduced, which will have a positive impact on the company’s bottom line. This may well precipitate orders to buy their shares, which will accordingly increase in price. 

What is Replacing Sterling LIBOR, and US Dollar LIBOR 

Sterling LIBOR is going to be replaced by SONIA, an acronym for Sterling Overnight Index Average. This will be the new reference rate for all sterling transactions. SONIA is already being utilised in certain parts of the market which includes retail banking. It is administered and published by the Bank of England and experts agree it is a reliable market standard. 

US Dollar LIBOR is being replaced by the Secured Overnight Financing Rate (SOFR), which is an across-the-board measure of the cost of borrowing overnight cash which is collateralised by treasury securities.  

Conclusion 

This is a major step being taken by governments and international markets. These reforms have been seven years in the making. As far back as 2014, the FSB, (Financial Stability Board), recommended that IBORs needed to be reformed and replaced by RFRs, (Near Risk Free Rates), which are based on more liquid overnight lending markets. 

Firms that have lending contracts in LIBOR will have to change to SONIA and it is hoped that they have started using SONIA long before the final departure date. This will have made the transition much easier, and for those companies with outstanding or “legacy contracts”, exposure to LIBOR will bring legal uncertainty from 1^st January 2022. 

The digital and cryptocurrency world has seen an explosion of non-fungible tokens (NFTs) onto the market. These tokens are generally traded and supported on the Ethereum blockchain.  

• Ethereum – a cryptocurrency, designed to offer clients smart contracts.  

• Blockchain – a digital ledger and system that records transactions. 

What is an Non-Fungible Token? 

A non-fungible token is used to represent ownership of unique items and can only have one official owner at a time. The record of ownership cannot be modified, nor can a new NFT be copy/pasted into existence. Items that can be tokenised range from art and collectibles to real estate. There is an excitement surrounding NFTs, which is the ability to sell the digital items using technology and creating scarcity by limiting or having zero replicas. Each Non-Fungible Token effectively has its own barcode and cannot be copied. 

Non-Fungible Token Explosion 

The market for non-fungible tokens has reached new highs, with total trading volumes for the first six months of 2021 reaching $2.5 billion, compared to 2020 where the total trading volume was $125 million. In March of this year Christies sold a digital image for $69.3 million while Sotheby’s sold a CryptoPunk image for $11.8 million. Even the world’s largest auction houses are jumping on the bandwagon. Visa have even purchased a NFT for $150,000. 

Funds are now being created to invest in digital art. Artcels, an online art investment platform, created the XXI Fund – designed to invest in digital art through Non-Fungible Tokens. Currently a Mayfair London art gallery is exhibiting works of Fabio Vale, an Italian Sculptor along with other artists such as Yoshitomo Nara and Nina Abney.  

These artists’ work is now digitised and Artcel offered 320 shares in the fund at £1,000 per share represented by a NFT. This is proving a major attraction to millennials, especially those found in London, China, America and Japan. They believe in the fundamentals of the blockchain, e.g., cannot be destroyed, faked or lost.  

Conclusion 

During the Pandemic the interest shown in NFT’s and cryptocurrencies exploded. The younger generation now have an “in” to the art market, where before art markets, auctions and exhibitions were the playground of yesteryear investors 

NFT’s may well represent the future of art sales. Art NFT’s represent not only digital art with an underlying physical piece, but also represent art that has been digitally created. Instead of a picture hanging on the wall, there will be a screen depicting the digital art owned by the householder or museum.  

And guess what? This art cannot be stolen by burglars or destroyed in fires. The gains saved on insurance premiums should be astronomical. Experts have estimated that within the next decade half the world’s artists and their artwork will be digitally recorded as an NFT. 

On Tuesday 7th and Wednesday 8th September 2021 cryptocurrencies lost their value across the board to the tune of USD300 billion. Bitcoin, true to its reputation for lack of stability, lost 17% on Tuesday 7th September. However, investors are piling back in with Bitcoin trading at USD44,344 but still well below its pre-Tuesday levels of USD52,000. 

Those who are worried suggest that Bitcoin has no intrinsic value except for the fact that coins are in short supply. Can these cryptocurrencies truly perform in the long-term for investors, or will they be a bubble that will eventually burst? Below are some arguments for and against cryptocurrency. 

Arguments In Favour of Cryptocurrencies 

Alternative to Fiat Currencies   

Nearly all cryptocurrency users/followers cite the global financial collapse of 2008 as the reason why cryptocurrencies are necessary. Can we trust bankers and the institutions they work for to not make the same mistakes again. Can we trust central banks to ensure these mistakes do not happen again?  

None of us have any say in the financial policies of the European Central Bank (ECB), the Bank of England (BOE) or US Federal Reserve. Perhaps it makes more sense to ignore the potential mistakes of bankers and put one’s faith in algorithms. 

Privacy and Obscurity of Cryptocurrencies

The identities of the owners of digital coins are encrypted and therefore anonymous. All cryptocurrency wallets, (equivalent of bank account holders), are in the names of pseudonyms allowing the owners complete privacy. There is no supervision or control from third parties such as banks and government oversight bodies. 

Peer-to-peer payments can be made in complete privacy avoiding any bank charges or fees. Many critics of the system have pointed out that many criminals have been tracked by using bitcoin. There are however, other cryptocurrencies that offer stronger privacy controls such as Verge, Monero or DASH. 

One Reason to Invest  

Good news for cryptocurrency investors. Despite the recent decline across the board in the value of cryptocurrencies, one cryptocurrency stood out from the rest. Solana has seen an increase in value over the past one month of 420%. It is understood that the double digit increase in Solana’s value over the past year is due to the underlying technology containing exciting novel features.  

Arguments Against Cryptocurrencies 

Cryptocurrencies & Volatility  

One of the favourite arguments against cryptocurrencies is they are too volatile and lack transparency. Indeed, the CEO of HSBC Noel Quinn has advised that they will not be opening a cryptocurrency desk or offer digital coins as an investment for those very reasons. He cited similar reasons for not going into Stablecoins such as Tether. 

Cryptocurrencies & Regulation  

Cryptocurrency supporters are proud of the fact that their currencies are completely unregulated and decentralised. But how can you put your trust in something that has no rules and regulations. Many individuals from all over the world have lost billions to cryptocurrency scams. Two examples of this are One Coin and BitConnect where clients lost USD15 billion and USD2 billion respectively. If ever there were adverts for regulation in the cryptocurrency markets, then these two would be right at the top. 

One Reason not to Invest 

In the USA recently, Joe Biden’s USD1.2 trillion infrastructure bill has slowly been making its way through congress. Incongruously there is an important clause within this bill aimed at the American crypto economy. This clause will attempt to bring the crypto economy within the US tax system. If the crypto industry is forced to acquiesce, the result could be complete devastation, forcing investment and innovation to jurisdictions outside the USA. 

Conclusion 

There are obviously arguments on both sides of the cryptocurrency debate. However, cryptocurrency is here to stay, especially as some banks are now jumping on board. Institutions such as Goldman Sachs re-opened their cryptocurrency trading desk in March 2021, and UBS has announced it is looking for avenues where they can offer cryptocurrencies to their clients as an investment product. 

These financial institutions can only lend weight and credence to the crypto revolution. However, one thing is clear, some form of regulation will have to be introduced if the supporters of cryptocurrencies wish to see their influence grow and grow throughout the world.