Cryptocurrency Market Overview 26.10.2023
News block
1. Japan is a leader in the regulation of stablecoins
Most major countries have yet to develop rules for regulating stablecoins. The only exception is Japan, an innovator in this field.
The stablecoin Law came into force in the world's third largest economy in June 2023.
The example of Japan is important because it shows that regulation of stablecoins is indeed possible. For example, in the United States, Congress is still arguing on this issue and no bill on stablecoins has become law. The rules of the European Union regarding stablecoins will come into force next 2024, but there remain their gray areas.
At the same time, Japan also shows that it is not easy to regulate stablecoins. The most important thing is to find answers to the following questions: do issuers really have assets to maintain the exchange rate of a stable coin? And are there any guarantees that the assets that act as collateral are easily accessible and are not associated with opaque and risky investments?
These are not easy problems, which means that the launch of stablecoins in Japan will not be fast.
Only banks, trust companies and money transfer services can issue stablecoins in Japan. Issuers of stablecoins can create a trust inside Japan and issue stablecoins through this mechanism. Assets supporting the trading of stablecoins on Japanese exchanges will have to be in this trust management.
For foreign issuers of stablecoins, this may seem an unusually strict requirement. However, by cooperating with Japanese trust banks, issuers can issue their own branded stablecoins without the need to obtain a special license in Japan.
There are several strict provisions in Japanese legislation to protect the assets underlying stablecoins. If a stablecoin is issued under a trust structure, which is expected to become a common way of issuing stablecoins, "100% of legal currencies (for example, dollars or yen) supporting a stablecoin should be kept in a trust inside Japan and they can only be invested in bank deposits inside Japan," says Keisuke Hatano, partner at the law firm Anderson Mori & Tomotsune.
And although this requirement may help to ensure the security of assets, it makes it difficult for issuers of stablecoins to earn money. "This creates a problem for domestic yen-based stablecoins, since the interest rate on deposits in Japanese banks is currently very low (in most cases below 0.1%)."
For dollar-based stablecoins, things are a little better, Hatano notes. "You still have to keep all the dollars in bank deposits with the Bank of Japan, but you can get a higher interest rate on dollar deposits."
"Will stablecoins succeed in Japan? It's hard to say," said Fumiaki Sano, a partner at the law firm Kataoka and Kobayashi LPC. "You cannot invest assets from collateral and if transaction fees are too high, then no one will use them. So what is the business model? Compliance costs are also high, which means you'll have to find a way to monetize them."
Achieving the right balance between security and profitability is just one of the reasons why it takes time to adopt rules for the issuance of stablecoins. But in any case, Japan is worth watching, as it solves these problems in real time.
2. Spain accepts digital euro
The Central Bank of Spain has joined a number of European banking institutions preparing their customers for the potential benefits of the digital euro. The Bank published a document concluding that the physical format of cash "does not allow using all the advantages that the growing digitalization of the economy and society provides." It is indicated that the digital euro will make electronic payments a vital part of the financial system.
According to the information of the Central Bank of Spain, a "preparatory stage" is currently underway in the development of the digital euro, which will be completed by 2025. At the same time, the final decision on the release of a pan-European CBDC has not yet been made.
The Bank of Finland recently expressed the same friendly attitude towards the digital euro. Board member Tuomas Vyalimaki called it "the most relevant project" in the European payment sector.
Thus, the ECB still needs two years to finalize the rules for the digital currency and select possible issuers.
Overview of the crypto market
🔸 The current capitalization of the crypto market is $1.316 trillion
🔸 Trading volume for the last day is $153.93 billion
🔸 BTC dominance 51.4%
🔸 Fear and greed index:
- today 71, yesterday 72, a week ago 53
where 0 is extreme fear (may be a sign that investors are too scared - often it's a good time to buy), and 100 is extreme greed (the market needs correction).
Despite many macroeconomic obstacles, the bitcoin price has exceeded the $35,000 level twice in recent days. Bullish momentum has led to Fear and Greed indices returning to levels not seen since the price hit $69,000 in mid-November 2021.
Currently, the Index is at 71 out of 100 possible points, which indicates "greed".
Such a high Index does not necessarily mean a rapid market decline. During strong bullish trends, high greed can last for months. Rather, it suggests that if you bought BTC when the Index was at around 30-40 points (at that time the price of BTC was $16,000 - $20,000), now it's time to lock in a good profit.
The Fear and Greed Index collects and weighs data from six key market performance indicators — volatility (25%), market dynamics and volume (25%), social networks (15%), surveys (15%), BTC dominance (10%) and trends (10%) — to assess market sentiment each day.
How will the approval of a spot bitcoin ETF affect the price of BTC?
Analysts continue to speculate on how the approval of a spot bitcoin ETF may affect the price of BTC. So, on October 24, Galaxy Digital published a report showing that when bitcoin ETFs are approved, the inflow of funds to BTC may amount to at least $14.4 billion in the first year, and by the third year it will grow to $38.6 billion. The fund also predicts a 74% price increase in the first year after the launch of the spot bitcoin ETF:
Growth of network activity
Currently, a number of cryptocurrency assets are experiencing the largest network activity since June 2023. This is reflected in the growth of transactions worth more than $ 100 thousand:
Chainlink supports global trading
The telecommunications giant Vodafone has demonstrated how blockchain can be used in global trade.
This company tested the concept of transferring trade documents using Web3 Chainlink Labs, Sumitomo Corporation and InnoWave services to solve "long-standing problems in the $32 trillion global trading ecosystem."
The test allowed the devices to operate autonomously and generate information that is necessary for trading processes — for example, cargo ships that have detected a fire can "autonomously transmit data to smart contracts using CCIP, potentially triggering the process of insuring marine cargo."
CCIP is an interconnection protocol developed by the Chainlink team, which provides smart contract developers with the ability to transfer data through networks of various blockchains with minimal trust.
"Vodafone and Chainlink show how their platforms can be combined to overcome this sea of incompatibility by connecting traditional markets with advanced decentralized platforms," said Jorge Bento, CEO of Vodafone DAB.
IMPORTANT - Vodafone also announced that they joined the Chainlink network as a node operator.
