News Updates August 30, 2022

1. Russian PM takes cue from Iran’s crypto payment permit for imports

The adoption of digital assets provides a good opportunity to ensure uninterrupted payments for imports and exports, Russia's prime minister said.

Russia may soon be taking a cue from Iran by using cryptocurrencies for imports, according to commentthe Russian prime minister.

The adoption of digital assets is necessary as a “safe alternative” for cross-border payments, Russian Prime Minister Mikhail Mishustin declared at a strategic session on the development of the domestic financial system on Tuesday.

The prime minister added that digital assets provide a good opportunity to ensure uninterrupted payments for imports and exports. Mishustin also pointed out the importance of ensuring tech infrastructure independence and the cybersecurity of financial institutions, stating:

Mishustin’s remarks came shortly after Iran’s Industry of Mines and Trade Ministry approved the use of cryptocurrencies for imports. The local media reported on Monday that the authority moved into crypto payments due to the ongoing international trade sanctions against Iran.

Russian authorities have previously considered crypto for international payments. In May, Ivan Chebeskov, head of the Financial Policy Division within Russia’s Finance Ministry, said that the authority was considering the possibility of incorporating crypto payments. “The idea of using digital currencies in transactions for international settlements is being actively discussed,” he said at the time.

 *72% of Russians say they have never bought Bitcoin: Survey*

The idea of international payments in crypto even received support from Russia’s biggest governmental crypto skeptic, the Bank of Russia. In June, Bank of Russia governor Elvira Nabiullina stated that cryptocurrencies can be used in cross-border or international payments but only if they don’t get into Russia’s domestic financial system.

2. $BTC and $ETH Fall As Fed Signals It Needs To ‘Get Real Interest Rates … Above Zero.

On Tuesday (August 30), U.S. stocks, as well as the two most valuable cryptoassets, fell after comments from the New York Fred President and the governor of the Bank of Estonia suggested that the major central banks are from getting inflation under control.

As CNBC reported earlier today, U.S. stocks dropped for a third day in a row, with the Dow, the S&P 500, and the Nasdaq Composite currently (as of 3:56 p.m. UTC on August 30) down 0.77%, 0.91%, and 1.07% repectively.

John Williams, President and CEO of Federal Reserve Bank of New York, said at a virtual event hosted by the Wall Street Journal:

“I do think with demand far exceeding supply, we do need to get real interest rates … above zero. We need to have somewhat restrictive policy to slow demand, and we’re not there yet… We’re still quite a ways from that.“

And Madis Müller, governor of Estonia’s central bank (i.e. the Bank of Estonia) told Reuters:

“I think 75 basis points should be among the options for September given that the inflation outlook has not improved… Still, I’m going into the meeting with an open mind and I want to both see the new projections and hear my colleague’s arguments… We should not be too timid with policy moves as inflation has been too high for too long and we are still far below the neutral rate.“

Rod von Lipsey, managing director at UBS Private Wealth Management, told CNBC:

“Investors are coming to terms with the idea that the Fed is serious about curbing inflation, even as recent data suggests inflation is starting to decline… We believe the market’s summer rally was ephemeral and continue to recommend that investors remain selective and focus on defensive stock sectors like health care and dividend-paying stocks.“

3. Bitcoin Flops Terribly in August, Becoming Worst-Performing Asset.

Bitcoin the world's leading cryptocurrency, has had yet another underwhelming month, plunging by almost 15%. According to data provided by U.K.-based Acorn Macro Consulting, it is the worst-performing global asset this August, sitting at the very bottom of the chart. Brazil's Bovespa stock index is at the top of the chart after its furious August rally, adding nearly 9% over the past month. The U.S. Dollar Index (DXY) continues to reign supreme. On Monday, the greenback clinched a new 2022 high of 109.5 after Federal Reserve Chairman Jerome Powell strengthened risk-off sentiment with his hawkish Jackson Hole speech on Friday. The DXY index, which measures the strength of the U.S. Dollar against other global fiat currencies, gained 2.8% in August.

4. Central banks playing catch-up in bid to influence stablecoin legislation.

The European Central Bank has urged legislators to speed up crypto regulation in the wake of the TerraUSD stablecoin collapse. 

A proposed legal bill to regulate crypto markets in the European Union (EU) is set to be fully approved later this year, setting an international benchmark for the space’s regulation.

When contacted by Protos, The Bank for International Settlements (BIS) refused to comment on the proposed Regulation on Markets in Cryptoassets (MiCA) legislation, stating that the BIS “as a general policy, does not comment on individual jurisdictions or their policies.”

The BIS has not made any public comments about MiCA, but its officials did in fact raise concerns to the press when El Salvador adopted its Bitcoin policy. And although the BIS may be keeping quiet on current legislative developments in Europe, it does hold a position on stablecoins which is in clear divergence with that of the EU’s legislators.

In its Economic Annual Report for 2021, the BIS published a chapter on crypto-currencies in which it took a very similar position to the ECB’s, which described stablecoins as a potential threat to financial stability. 

The BIS also believes that stablecoins can be a threat to financial stability, although it didn’t go into detail regarding what it considers to be a systematic financial risk.

5. Australia Starts Research Program to Explore Digital Asset Opportunities

The Assistant Treasurer and Minister for Financial Services Stephen Jones officially started the program Monday at the Australian Securities Exchange.

Twenty-five prominent institutions in Australia have come together to start a research program to benefit from the opportunities arising from asset digitization.
The Digital Finance Cooperative Research Center (DFCRC) is a 180 million Australian dollar (US$124.3 million) program, funded by industry partners, universities and the Australian Government. The 10-year long program will have 25 partners from the finance, academia and regulatory sectors, including the central bank.

Australian central bank governor Philip Lowe was present at the inauguration, along with Paul O’Sullivan, chairman of Australia and New Zealand Banking Group Ltd (ANZ). Earlier this month, the Australian central bank entered into a collaboration with the DFCRC to explore use cases for a central bank digital currency (CBDC).
On Monday, Assistant Treasurer and Minister for Financial Services Stephen Jones officially launched the DFCRC at the Australian Securities Exchange.

We want to get the regulation right because we want to ensure the guardrails are sufficiently wide to enable innovation to occur within a safe ecosystem,” Jones said.
ANZ's Sullivan noted this is a frontier opportunity in which a tokenized carbon exchange could lead to market efficiency.

6. SEC Chair Pushing Aside Fellow Regulators Over Crypto Regulations?

Stuart Alderoty, General Counsel at Ripple came forward to reply to the U.S. Securities and Exchange Commission’s (SEC) recently published blog over crypto markets. SEC Chair mentioned that they treat digital assets just like the rest of the Capital Markets.

 *SEC Chair stepping over other watchdogs?*

Ripple’s General Counsel stated that Gary Gensler, SEC Chair’s main objective is to shield their turf at the expense of the American crypto economy. These actions have left the investors and consumers holding the bag.

Alderoty highlighted that Gensler has chosen the SEC as the cop watching over the crypto space. He blamed the SEC chair managed to push aside the other regulators from this space. However, they are also neglecting US President Biden’s executive order.

As per the released executive order, all the directed agencies need to collaborate to set up a clear regulatory framework for the crypto space. Ripple Counsel mentioned that SEC Chair asserts that whether the car runs electricity or gas, it still needs a seat belt.

However, Alderoty counter’s that electric cars don’t need gas. While in the SEC Chair analogy the commission is selling the gas. They intend to punish whoever ignores to buy it.

7. Crypto market turmoil highlights risks of leverage in trading

Leverage is widely used in the crypto industry. While leverage has the potential to increase returns, it also amplifies downside risks.

Leveraged trading of cryptocurrencies — i.e., trading crypto with borrowed funds — comes with significant risks. This is mainly due to the capricious nature of the market.

In May, the cryptocurrency market, which had grown significantly over the past couple of years, recoiled violently following a cascade of negative market events, losing over 50% of its market cap. The pullback, which caused a jarring $2 trillion market wipeout, also exposed some of the market’s biggest weaknesses. One of them was the reckless use of leverage in a market that is historically mercurial.

This aspect was recently affirmed by billionaire investor Mike Novogratz. Novogratz, a fierce crusader for the industry at large and a once-ardent supporter of the Terra ecosystem before its downfall.

He recently acknowledged that he underestimated the amount of leverage in the market and the losses that this would bring.

"I didn't realize the magnitude of leverage in the system. What I don't think people expected was the magnitude of losses that would show up in professional institutions' balance sheets, and that caused the daisy chain of effects," he said.

Speaking to Cointelegraph earlier this week, KoinBasket Founder and CEO Khaleelulla Baig, reinforced the view that the market was indeed overleveraged and will take a while to recover.

8. Crypto developers should work with the SEC to find common ground

Developers, investors and regulators can establish best practices and raise the quality of cryptocurrency development by working together.

Regulators are tasked with balancing between protecting consumers and creating environments where entrepreneurs and the private sector can thrive. When markets face distortions, perhaps due to an externality or information asymmetry, regulation can play an important role.

But regulation can also stifle entrepreneurship and business formation, leaving society and its people worse off. The United States Securities and Exchange Commission has been particularly hostile against cryptocurrency companies and entrepreneurs. For example, SEC Chairman Gary Gensler has remarked that he views Bitcoin (BTC) as a commodity but that many other “crypto financial assets have the key attributes of a security.”

He reiterated the line in an explosive Aug. 19 op-ed penned for The Wall Street Journal, arguing that “you could replace ‘crypto’ with any other asset” when talking about the regulation of securities.

But rather than “regulating by op-ed,” as some crypto enthusiasts have framed it, a better strategy would be for developers, investors and regulatory agencies — like the SEC — to work together at least around common standards that can raise the quality of projects overall and establish best practices that the entire community of Web3 participants will benefit from.

But rather than “regulating by op-ed,” as some crypto enthusiasts have framed it, a better strategy would be for developers, investors and regulatory agencies — like the SEC — to work together at least around common standards that can raise the quality of projects overall and establish best practices that the entire community of Web3 participants will benefit from.

 *SEC reportedly launches investigation into insider trading on exchanges*

Regulators are effective when they’re also in the trenches with the innovators and industry builders,” Mirai Labs co-founder Corey Wilton told Cointelegraph.

That means there needs to be an open and free dialogue between regulators and developers. “Developers need to become familiar with Know Your Customer (KYC) best practices, vendors that are available, and how those KYC services are integrated, and how they need to manage user roles [and] capabilities,” said Simon Grunfeld, vice president of Web3 at Cogni.