The Crypto Stories You Need to Know This Week (#164 - 17 December 2023) - BTC's Rally, Stablecoin Ratings, Crypto Guidance, China's Blockchain Plans

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1. What’s Driving Bitcoin’s Rally?

What is driving the rally with Bitcoin at over 42k once again?

A couple of thoughts:

?? Clarity around Binance - The company’s settlement with US authorities was well received, and the “Binance risk” has been significantly reduced, which was a significant uncertainty for many institutional investors.?

?? Closure on FTX - SBF is heading to prison, and FTX claims are reportedly selling for over 60 cents on the dollar, with overall recovery looking close to 90 cents.?

?? Expectation that Interest rates will fall in Q1 2024 - Thus sending capital into “risk on” assets.?

?? Upcoming physical Bitcoin ETF approval - Many investors are trying to get exposure before expected inflows following the ETF approval that could be weeks away.

?? Bitcoin halving is coming in April 2024. This will cut in half the rate of new Bitcoin issued every 10 minutes.?

?? Ease of entering the crypto ecosystem globally - Many regulated players now offer easy on/off ramps, which makes it easier for retail investors to enter the space?

?? Rise of stablecoins globally - Not only from the public in countries from Argentina to Turkey but also international trade. Once assets are in stablecoins, they rarely go back to fiat, making it much more accessible to buy other digital assets.?

2. S&P Global Launches Stablecoin Stability Assessment

S&P Global released a stablecoin rating and ranked the major stablecoins in the crypto ecosystem.

USDC, USDP and GUSD received the highest "strong" grade.

Meanwhile, USDT, FDUSD and Dai received a "constrained" grade.

The S&P approach begins with assessing asset quality risks, including credit, market value, and custody risks.

S&P then further analyzes the over-collateralization requirements and liquidation mechanisms.

The assessment's final part considers the following areas: governance, legal and regulatory framework, redeemability and liquidity, technology and third-party dependencies, and track record.

Whilst this assessment makes sense from a traditional finance perspective, many in the crypto ecosystem may disagree with some aspects.

For example, should USDT/Tether have a higher grade due to its track record and the fact that it has survived all the major recent crypto events with no issues? And that in times of crisis, crypto traders seem to go to Tether as the "safe haven" asset of crypto?

?In any event, seeing firms like S&P look at such critical aspects of the crypto ecosystem is a very positive development.

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3. Accounting Standard Setters Adopt “Fair Value” for Crypto Holdings?

The FASB published a standards update allowing a ‘fair value’ approach for crypto holdings.?

As surprising as it may sound, firms were not allowed to “fair value” any price increase in the value of the crypto they held. However, if the price of a crypto asset fell, they had to use that lower amount.

This has now changed with the latest FASB guidance, which is the accounting standard setter in the United States (and arguably globally).?

This makes sense and should be positive for any firm looking at holding crypto on their balance sheet.?

This was equivalent previously to holding a stock portfolio but where only losses are measured and none of the gains, which made crypto not an ideal asset to hold. This is another positive for the industry.?

4. China to Verify Identity On Chain

Blockchain technology will be used to verify the real-name identities of China's 1.4 billion citizens.?

The country’s Ministry of Public Security spearheaded the RealDID initiative, enabling users to register and log in to websites anonymously using DID addresses and private keys, ensuring that business data and transactions remain disconnected from personal information.?

State media said this was to enhance credibility and enable public supervision.

BSN, the technical firm leading the project, said this is the world's first national-level real-name decentralized identity system. However, what is meant by “decentralized” in this context is not yet clear.?

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Henri Arslanian

*Please note that this newsletter reflects Henri’s personal views and not those of any organisation he is involved with. This newsletter is for educational purposes only, and none of its content should be construed as investment or financial advice of any kind.?

Who is Henri?

Henri Arslanian is the co-founder and managing partner of Nine Blocks Capital Management, an institutional-grade hedge fund focused exclusively on digital assets, with a market-neutral crypto fund focused on generating alpha from inefficiencies in crypto markets using relative value, arbitrage, and quantitative strategies.?

Henri was previously a partner and global crypto leader at PwC. In that role, he advised many of the world’s leading crypto exchanges, investors, financial institutions, and tech firms on their crypto initiatives and numerous governments, regulators, and central banks on crypto regulatory and policy matters.

With over 500,000 LinkedIn followers, Henri is a TEDx and global keynote speaker, a best-selling published author, and is regularly featured in global media, including Bloomberg, CNBC, CNN, BBC, The Wall Street Journal, The Economist, and the Financial Times.?

Henri was named by LinkedIn as one of the 2022 global Top Voices in Finance and is the host of the CryptoCapsules? social media video series as well as The Future of Money podcast and newsletter.