WHAT'S NEW: banking institution becoming a counter for bitcoin, crypto friendly Prime Minister, the best article on crypto you can read...

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REGION:? NORTH AMERICA

The best article on crypto you'll ever read

The latest issue of Bloomberg Businessweek (2022, Oct 31st) is a must-read. The editorial staff entrusted the entire newspaper to Matt Levine - one of the finest finance authors - to write the longest, absolute and definitive article about the crypto world. Titled “The Crypto Story”, the result can be read online here and you will need more than a day to go through its entirety. Matt Levine is covering every topic related to crypto from the birth of Bitcoin to CBDCs, passing by NFTs, Proof of work protocol, hashing function, and many more. Why now? Because we celebrate the 14th anniversary of Bitcoin (born 2008, October 31st) and because the moment is particularly adequate as Levine writes himself: “In a sense it’s a dumb time to be talking about crypto, because the lines went down. But really it’s a good time to be talking about crypto. There’s a pause; there’s some repose. Whatever is left in crypto is not just speculation and get-rich-quick schemes. We can think about what crypto means—divorced, a little bit, from the lines going up.”

But what's new in it, you may ask, since there are a ton of books on the subject? Firstly, it is extremely well written and informed ; secondly, it is written by a crypto skeptic who finds crypto amazing (rare specimen) ; thirdly, it is written by a guy who elevates the debate beyond the technical and disruptive tropes ; fourthly, it is written by a finance writer “who enjoys human ingenuity and human folly and who finds a lot of both in crypto”. His first assumption is pretty simple: as a financial system is basically a series of databases and as we live more and more in a world of disconnected databases, what if we could rewrite all the existing databases from scratch using modern computer language to make them work seamlessly and ease our lives? The result would be a kind of database of life - as he puts it - whose administration would logically require a great deal of trust on the part of stakeholders: to whom could we give the keys of this database in total confidence? That is where cryptographic currencies become highly relevant for Levine, because it involves nobody, or as he corrects himself, everybody.

The writer then takes a lot of time to explain the base layer of cryptos: how cryptography works on the blockchain? This is highly interesting because, while the numbers involved give dizziness, he demystifies the process of hashing like nobody else. Then he proceeds through all the related topics with the same mix of humoristic distance and sincere fascination for what Bitcoin could mean for the finance system. The best way to give a taste of this illuminating equilibrium is by using Levine's own words:? “My goal here is not to convince you that crypto is building the future and that if you don’t get on board you’ll stay poor. My goal is to convince you that crypto is interesting, that it has found some new things to say about some old problems, and that even when those things are wrong, they’re wrong in illuminating ways.”

BNY Mellon Starts Crypto Custody Service

The world's largest custodian bank by assets, and the oldest lender in the United States, BNY Mellon, has begun offering crypto-currency custody services to select clients. With the launch of the Digital Asset Custody platform, BNY Mellon will be able to provide fund managers with key storage in a secure environment, and where fund managers can access and move around their bitcoin (BTC) and ether (ETH). One of the key factors in the launch of this crypto-currency custody service has been related to the significant client demand. Indeed, in June 2022, BNY Mellon sponsored a survey in which 91% of the 271 institutional investors surveyed expressed interest in investing in tokenized products, and 41% of them mentioned having crypto-currencies in their portfolio already.?

With the availability of these types of products in the crypto-currency market, and especially the fact that players like BNY Mellon are able to offer products based on a risk management approach, we might expect to see more adoption from institutional players. Indeed, one of the top three pain points for institutional investors with their digital asset custodians was actually the legal and regulatory framework. Using crypto-currency custody products through institutions like BNY Mellon can mitigate these pain points and reduce risk, as these institutions have a history of working in a compliant manner with regulators and performing due diligence.?

South Carolina house sold as NFT for $175,000

A South Carolina house has been sold as an NFT for $175,000 which was made possible by Roofstock on Chain, a Web3 real estate division of Roofstock. It is located at 149 Cottage Lake Way, Columbia. The house is titled under a limited liability company whose ownership is linked to an NFT based on Ethereum Blockchain. Then the sale happened on the Origin Protocol Marketplace, which converts the US dollar into USDC, Circle’s stablecoin. The financing of the house was then done through a decentralized loan pool that is maintained by Teller Protocol and the transfer of funds was done simultaneously to the seller with the help of smart contracts. All this happened simultaneously in a chain transaction. Through the interoperability of NFTs, the ownership of the NFT, in this case the house, can be easily traced, thus facilitating property transfers.?

Although this sale represents the first NFT sale of this company, it is not the first time such a sale has happened. Indeed, other sales have taken place, including through Propy, a real-estate transaction platform. We are nowhere near a large-scale adoption of this type of technology for home buying, however this transaction is laying the early groundwork for the industry and could potentially disrupt the real estate market in the future.

Bitcoin's volatility falls below Nasdaq and S&P 500's for first time since 2020

Crypto data provider Kaiko reported that Bitcoin’s 20-day rolling volatility is below Nasdaq’s and S&P 500’s for the first time in two years. On top of that, the 30-day and 90-day volatility gap between bitcoin and equities is declining. This is palpable beyond volatility data in the low sensitivity of the bitcoin price to recent macroeconomic developments such as high inflation reports, dollar appreciation, and interest rate rises, which is not the case with equity markets.

Moreover, the stability of bitcoin is being tested by a recent streak of bad news from the stock market. In the last week of October Big Tech released their disappointing quarterly earnings, which brought about a significant drop in their stocks (with Apple as an exception). Surprisingly, bitcoin did not follow in lockstep; instead, it surged almost 7 percent, which could be signaling a decoupling from the stock market, and a dawn of hope for bitcoin to become a safe haven (i.e., hedge against wider market uncertainty) which could also spillover to other digital assets, such as stablecoins (which they need it as much, as explained here). However, one week of lower correlation with Wall Street is not enough, and more time is needed to ascertain that.

REGION EUROPE

A crypto-friendly Prime Minister

Last week, Rishi Sunak became the new UK's prime minister, pledging to fight the economic crisis that has hit the country. Portrayed by many papers as crypto-friendly, the youngest PM in the history of the kingdom (42 years old) announced last April - while still Finance Minister - its plan to make the country “a global cryptoasset technology hub” by 1. introducing a ‘financial market infrastructure sandbox’ to enable firms to experiment and innovate, 2. establishing a Cryptoasset Engagement Group to work more closely with the industry, 3. exploring ways of enhancing the competitiveness of the UK tax system to encourage further development of the cryptoasset market, 4. working with the Royal Mint on a Non-Fungible Token (NFT) this summer as an emblem of the forward-looking approach the UK is determined to take. “We want to see the businesses of tomorrow – and the jobs they create - here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term, said Sunak at this time. This is part of our plan to ensure the UK financial services industry is always at the forefront of technology and innovation.”

By Simon Walker / HM Treasury, OGL 3, https://commons.wikimedia.org/w/index.php?curid=124686916

What does it mean concretely now that Sunak has been elected? Two days after his election, a bill he helped formulate was proposed, offering a good idea of what we can expect in the coming months. The bill proposes “a range of measures to maintain and enhance the U.K.’s position as a global leader in financial services, ensuring the sector continues to deliver for individuals and businesses across the country.” You can read it here in its entirety. Interestingly, it distances itself somewhat from the term “crypto assets”, preferring the name of “Digital Settlement Assets” (DSA). According to the U.K. government, “crypto assets use some form of distributed ledger technology (DLT), whereas DSA includes stablecoins, given their potential to develop into a widespread means of payment.” This nuance is important as stablecoin is a big part of the UK plan.

However, a number of crypto enthusiasts warned against one part of Mr Sunak’s plan that they see as a threat: a possible future British CBDC informally called Britcoin. It is no secret that crypto community has usually no attraction to digital tokens issued by central banks, since it suggests less privacy for users. “Undressing Bitcoin” author, Layah Heilpern, even wrote in an acrimonious tweet: “People are calling the UK’s new unelected Prime Minister Rishi Sunak “crypto friendly” Let me be clear, he’s CBDC friendly not crypto friendly.” But, as others have pointed out, this CBDC is in its very early stages of development, and the terms used by the government are so far as vague as they are in other developed countries (such as “investigating”, “looking at what it might mean” or “issuing a recommendation to conduct more research"). ?This is a necessary step (to be prepared, one must investigate and explore and test), but beyond it, what these CBDC antagonists may miss is the CBDCs projects are not necessary a betrayal of crypto legacy: whether it is a CBDC or a stablecoin or another form of digital legal tender, all cryptocurrencies are pushing the thought process of nearly all countries and, by a way or another, prepare the people's minds for the definitive advent of decentralized finance. In any case, Sunak spoke about Britcoin in 2021 and made positive remarks about CBDC at about the same time, when he was just Finance Minister. It will be interesting to see if this concept will resurface now he is Prime Minister, but for starters it looks like digital assets are going to get a boost from No. 10 Downing Street.?

REGION:? SOUTH AMERICA

Warren Buffett-backed neobank picks Polygon for Web3 token

Nubank, a Brazilian fintech neobank (i.e., bank operating only digitally, without physical branches) selected Polygon for its digital token Nucoin. Nubank is backed by Warren Buffett’s Berkshire Hathaway and Softbank. This announcement bolstered Polygon’s token MATIC which rose almost 6.5 percent after the communication, reaching its highest level in three weeks.

Nubank highlights a potential about-face from Warren Buffett regarding digital assets. The distaste of Mr. Buffett for cryptocurrencies in general and bitcoin in particular is well-known, calling it “probably rat poison squared”. That is why his decision to invest $1 billion ($500 million in 2021 and the same amount in February 2022) in a bitcoin friendly Brazilian fintech was baffling. Be that as it may, Nubank is a high-profile client for Polygon, and Buffett’s backup only emphasizes its importance in the ecosystem.

REGION: MIDDLE EAST AND AFRICA

President Erdo?an?softens his stance on crypto

Appearing before students at Istanbul University during the Blockchain Istanbul Programme organized by the Justice and Development Party (AKP) he leads, Erdo?an said he wants to see Turkey be a producer, not a consumer, in the digital assets world. “The decentralized recording and assurance opportunities provided by this technology, which has made great progress in the last 10 years, have the potential to radically change the current commercial system ”, the president said, before continuing: “Alternative business methods, sustained by concepts that are newly developed in this field, have started to enter our lives more and more. A new phase in the process has begun with the securing of intellectual property through blockchain technology. To make an analogy, digital assets are the fuel of technology, and blockchain is the means and tool of technology."

By President.gov.ua, CC BY 4.0, https://commons.wikimedia.org/w/index.php?curid=122008710

This is a big turn. Despite Turkey being a fast-growing crypto market, the Erdo?an administration is not known to be friendly towards the industry. In 2021, the government banned the use of crypto for payments. Later in the year, Erdo?an made headlines over his plans to urgently send a restrictive crypto bill to the country’s parliament, but not much has since been heard of the legislation. Whatsoever, something has definitely changed in his discourse. He even mentioned that Turkey seeks to establish its own virtual world, or metaverse: "As Turkey prepares for its centenary, it is clear that we cannot ignore such a potential. We want to be the country that uses this tool rather than being the one that puts fuel in the digital asset tank. Instead of trying to take part in the virtual universes opened by others, we seek to establish our own universe.” Erdo?an doesn’t change his mind about Bitcoin and crypto speculation, but he is now clearly looking at the future: "I advise our young people to turn to larger and more fertile channels by taking part in the change of innovations such as blockchain technology instead of turning to cryptocurrency gambling that has no basis."

President Erdo?an's analysis is pretty straightforward, but his harsh opinion is unfortunately not uncommon amongst world leaders and central banks (see here). This is true, Bitcoin is indeed volatile (although recent months have seen a decrease in it), but in spite of that, its huge number of users cement its value. As long as they consider Bitcoin valuable, then its worth is going to be reflected on its market cap. This is not gambling, it is the very basis of a finance system. A good example of a similar concept is the value of fiat currency. A $1 bill has no intrinsic value: it is just a piece of paper. However, it has value because society accepts it. How Bitcoin users became to see value in it is a long discussion, but it is worth to keep in mind that it is a disruptive technological innovation in which we find not only technological components (e.g. distributed ledgers, blockchains, cryptographic puzzles), but also economic components (e.g. Proof of Work, halvings of block rewards every 4 years, total cap). A very interesting discussion about this can be found in Huber, T. and Sornette, D. (2020). "Boom, Bust, and Bitcoin: Bitcoin-Bubbles As Innovation Accelerators."

Going back to President Erdo?an's declaration, how can we explain this change of heart, at least in the discourse? The crypto market remains largely unregulated in the country, but these remarks seem to indicate an openness to some aspects of cryptocurrencies. Generation of new jobs, economies, and tax revenues might be motivating governments like the Turkish one to reconsider crypto. Otherwise, talent and businesses in this space may rather quickly shift to a location which is more conducive for running business…

Major chain begins accepting crypto-currencies

In a move that brings us closer to the day when payment processes will seamlessly include cryptocurrencies, LuLu Hypermarkets (“LuLu”) across Bahrain have become the first retail outlet in the Kingdom to accept cryptocurrency payments.

LuLu group is one of the largest retail chains in Asia and is the largest in the Middle East with 215 outlets in the Gulf Cooperation Council (GCC) countries and elsewhere. Deloitte even recently named this chain amongst the world's fastest growing retailers. Taking advantage of this leadership position, LuLu Group’s Director Mr. Juzer Rupawala signed an agreement with the Eazy Financial Services Founder and CEO Mr. Nayef Tawfiq Al Alawi to facilitate cryptocurrency payments. This will leverage Eazy’s POS payment systems and through it, the world’s leading blockchain ecosystem and cryptocurrency infrastructure provider, Binance. Thanks to this deal, Lulu Customers will be able to simply shop and use the Eazy machines at checkout to pay in crypto-currencies.

This initiative by a large hypermarket like LuLu could motivate other markets to also consider cryptocurrencies as a means of payment. This is aptly timed with the start of Binance exchange trading platform in Bahrain in October. It remains to be seen how successful the payment feature will be and if it helps LuLu in reaching its business objectives.

BlockZero Advisors?is a boutique consulting firm specializing in digital assets & blockchain. We support companies and organizations in the public and para-public sector through their digital transformation.

BlockZero Advisors?offers market intelligence services that can be tailored based on the clients needs and contexts to help inform decision-making. In addition, several times a month our team summarizes through our Newsletter the market movements and what we have been following for our client and ourselves. Finally, we issue Thought Leaderships on specific topics that discuss topics and issues that are relevant to our clients in this rapidly evolving space.