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Image Attributed to @LucianoInf Now second only to South Korea as the biggest crypto market in Asia, Hong Kong's future might be one of decentralised ledgers, Bitcoin and Crypto-Currencies. Hong Kong will always hold a special place in my heart. For just shy of two years from 2016 to 2018 I lived and worked in the city, and still today it sits close to the top of the list of my preferred jurisdictions for business incorporation. Hong Kong is, as ever, a great place to do business and with its grit and its tenacity is very much the New York City of East Asia, or at least, it was. Every so often a need arises to clear up some business or banking in the city and so I find myself landing at its world class airport and dining at its world class restaurants with old friends and contacts. People who are close to the action and keyed in to the city's inner workings. Yet, as an infrequent visitor my eyes and ears observe changes not so obvious to those stuck in the daily grind, in the same way the ageing process is invisible from one day to the next, but stark and profound as the years roll by. Hong Kong is struggling to reinvent itself. Before you boomers get all giddy with your 'muh China', hold on. This isn't an article about the Chinese Government, I rather want to lay out my thoughts around Hong Kong itself, as well as the city relative to its immediate region. I don't intend to make the case for Singapore, which, despite being arguably the greatest beneficiary of Hong Kong's headaches, is still a top contender for title of the most boring place in Asia. I intend only to outline the unique challenges and opportunities faced by one of the most magnificent - and least boring - cities in the world. Gateway to the Middle Kingdom Incorporating your business in Hong Kong still makes sense in many cases. Hong Kong is pragmatic, with systems and infrastructure that is well established to facilitate commerce and trade. Structures can be highly tax efficient, and while getting a bank account has become more difficult, once established, the banking services at your disposal are second-to-none. Hong Kong is still a respected jurisdiction globally. Yet for entrepreneurs and companies alike the case for incorporating in Hong Kong has often been as part of an overall strategy to do business in and with the mainland. Because of the prevalence of a legal system and system of governance with its foundations in the British style, foreigners could come to Hong Kong and feel just enough familiarity not to be scurrying back to wherever they came from (and often this meant quite a lot of familiarity was on offer). Recently a contact of mine who does business in the mainland linked me to a new structure in Shanghai for establishing 100% foreign owned companies. While the corporate tax rate on the mainland is higher (25% vs 16.5% in Hong Kong), the fees associated with establishing such an entity are far lower, and skipping Hong Kong to go directly to the supplier or client has the benefit of reduced friction and complexity. There is no obvious remedy to this dilemma for Hong Kong. As companies have become more confident engaging directly with the mainland, the appeal of Hong Kong in this respect has waned. Added to this the fact that Hong Kong itself is too small to be a genuine start-up hub, there exists a need for the city to take a new approach. Economic Woes At the same time as Hong Kong's role as gateway to the mainland has diminished, there has been an ever growing inflow of both capital and people from the mainland. Every year the prevalence of Mandarin on the streets of the city grows, but, in the wake of the pandemic, this growth has been offset by an exodus of both Hong Kongers (primarily to the UK, Canada and Australia) and Western Expats. This population shuffle fundamentally changes the fabric of Hong Kong society, and is a phenomenon seen elsewhere, including for example in Germany. Those leaving Hong Kong are by-and-large wealthier than the average Hong Konger, and with them goes their skills and capital worsening the city's already pessimistic demographic outlook (with a Total Fertility Rate of 0.7 according to the World Bank, Hong Kong's ageing population - an almost worldwide issue - is one of its greatest challenges in the years ahead). Arrivals from the mainland have helped to offset this exodus, but only so much, and with the collapse in the Yen, Tokyo is increasingly attractive to wealthy Chinese looking to diversify themselves both financially and by way of residency. The fact that Hong Kong remains one of the most expensive places in the world only adds fuel to the fire. As the saying goes, one man's (or city's) loss is another's gain, and as already mentioned, Singapore has been effective in attracting capital and businesses included in the exodus. At the same time, countries such as Malaysia with its sizeable Chinese diaspora and corporate structures offering tax rates as low as 3% (via the Labuan incorporation route), are also seeing an uptick in interest from those who might otherwise have stayed in the Fragrant Harbour. While the economy on the mainland has been sluggish, the PBOC has adjusted rates downwards. Hong Kong's peg however has dictated that the Hong Kong Monetary Authority has followed the Fed's increases over the past few years. This has resulted in a policy rate that sits at 5.25% vs 3.10% for the PBOC at the time of writing (5 years ago the PBOC rate stood at 4.31% while the HKMA policy rate was around 1%). While the increase in rates in the USA was implemented to reign in inflation, Hong Kong suffered no such comparable phenomenon - although it did suffer significant capital outflows - and the increase in rates has been in direct contradiction to conventional economic wisdom that may have encouraged a policy of easing rather than tightening over the last few years had it not been for the peg. Crypto In February 2022, with the invasion of Ukraine by Russia marking a dramatic escalation in hostilities, Chinese policy makers and tycoons alike were undoubtedly keenly observing the geopolitical fallout. If not already clear, this event and the close to three years since has demonstrated the closeness of these two civilisational states. However, and perhaps more importantly, it has exposed the extent to which the United States will go to both pursue sanctions and weaponise the financial system that it controls via the greenback. Many, including myself, did not think that Vladimir Vladimirovich Putin would do it, and many others believed that the Russia - which had popularly, and falsely, been described by many in the West as a 'gas station masquerading as a country' (John McCain, 2015) - would quickly crumble under the weight of economic exclusion. As is usually the case, pretty much nothing happened according to consensus. Russia which had been so successful in its quick, practically bloodless annexation of Crimea, did not scare the Ukrainians back to the negotiating table. Conversely, the Russian economy has actually experienced something of an economic boom. However, and the point I want to drive home, from the perspective of those in Asia, it was a test case for what Hong Kong may face in the wake of any escalation in the straits of Taiwan. China's approach to crypto-currencies has been mixed at best. While officially there are bans on crypto, it is no coincidence that Hong Kong, which initially pushed back so hard on this financial innovation, has now seen a dramatic uptick in crypto assets. In a recent report by Chainalysis Hong Kong saw the fastest growth in its region at 86% from July 2023 to June 2024. In light of the situation in Ukraine, it is possible that crypto could be considered a useful tool in mitigating the effects of an economic war, such as that which the West has waged on Russia. At the very least, it does provide an incentive for regulators to look the other way or turn a blind eye. Conclusion With approximately 7.5 million inhabitants, Hong Kong just doesn't have the scale to make it a stand-out start-up hub, and its role as a conduit into the mainland will in all probability be further eroded by the likes of Shanghai and Shenzhen. Nevertheless, its role as a critical financial centre may be reinvigorated by a realignment towards crypto-assets and the newly emerging financial paradigm unfolding before our very eyes. Whether Trump's reelection will inspire a rapprochement and deescalation of the now vivid geopolitical schism calving up the world is yet to be seen. Nevertheless, one thing is abundantly clear, if Hong Kong is to retain its prestige and replicate its past success, things will need to change. Image Attributed to @LucianoInf Image Attributed to @LucianoInf Now second only to South Korea as the biggest crypto market in Asia, Hong Kong's future might be one of decentralised ledgers, Bitcoin and Crypto-Currencies. Now second only to South Korea as the biggest crypto market in Asia, Hong Kong's future might be one of decentralised ledgers, Bitcoin and Crypto-Currencies. Hong Kong will always hold a special place in my heart. For just shy of two years from 2016 to 2018 I lived and worked in the city, and still today it sits close to the top of the list of my preferred jurisdictions for business incorporation. Hong Kong is, as ever, a great place to do business and with its grit and its tenacity is very much the New York City of East Asia, or at least, it was. Every so often a need arises to clear up some business or banking in the city and so I find myself landing at its world class airport and dining at its world class restaurants with old friends and contacts. People who are close to the action and keyed in to the city's inner workings. Yet, as an infrequent visitor my eyes and ears observe changes not so obvious to those stuck in the daily grind, in the same way the ageing process is invisible from one day to the next, but stark and profound as the years roll by. Hong Kong is struggling to reinvent itself. Before you boomers get all giddy with your 'muh China', hold on. This isn't an article about the Chinese Government, I rather want to lay out my thoughts around Hong Kong itself, as well as the city relative to its immediate region. I don't intend to make the case for Singapore, which, despite being arguably the greatest beneficiary of Hong Kong's headaches, is still a top contender for title of the most boring place in Asia. I intend only to outline the unique challenges and opportunities faced by one of the most magnificent - and least boring - cities in the world. Gateway to the Middle Kingdom Incorporating your business in Hong Kong still makes sense in many cases. Hong Kong is pragmatic, with systems and infrastructure that is well established to facilitate commerce and trade. Structures can be highly tax efficient, and while getting a bank account has become more difficult, once established, the banking services at your disposal are second-to-none. Hong Kong is still a respected jurisdiction globally. Yet for entrepreneurs and companies alike the case for incorporating in Hong Kong has often been as part of an overall strategy to do business in and with the mainland. Because of the prevalence of a legal system and system of governance with its foundations in the British style, foreigners could come to Hong Kong and feel just enough familiarity not to be scurrying back to wherever they came from (and often this meant quite a lot of familiarity was on offer). Recently a contact of mine who does business in the mainland linked me to a new structure in Shanghai for establishing 100% foreign owned companies. While the corporate tax rate on the mainland is higher (25% vs 16.5% in Hong Kong), the fees associated with establishing such an entity are far lower, and skipping Hong Kong to go directly to the supplier or client has the benefit of reduced friction and complexity. There is no obvious remedy to this dilemma for Hong Kong. As companies have become more confident engaging directly with the mainland, the appeal of Hong Kong in this respect has waned. Added to this the fact that Hong Kong itself is too small to be a genuine start-up hub, there exists a need for the city to take a new approach. Economic Woes At the same time as Hong Kong's role as gateway to the mainland has diminished, there has been an ever growing inflow of both capital and people from the mainland. Every year the prevalence of Mandarin on the streets of the city grows, but, in the wake of the pandemic, this growth has been offset by an exodus of both Hong Kongers (primarily to the UK, Canada and Australia) and Western Expats. This population shuffle fundamentally changes the fabric of Hong Kong society, and is a phenomenon seen elsewhere, including for example in Germany. Those leaving Hong Kong are by-and-large wealthier than the average Hong Konger, and with them goes their skills and capital worsening the city's already pessimistic demographic outlook (with a Total Fertility Rate of 0.7 according to the World Bank, Hong Kong's ageing population - an almost worldwide issue - is one of its greatest challenges in the years ahead). population shuffle population shuffle Arrivals from the mainland have helped to offset this exodus, but only so much, and with the collapse in the Yen, Tokyo is increasingly attractive to wealthy Chinese looking to diversify themselves both financially and by way of residency. The fact that Hong Kong remains one of the most expensive places in the world only adds fuel to the fire. As the saying goes, one man's (or city's) loss is another's gain , and as already mentioned, Singapore has been effective in attracting capital and businesses included in the exodus. At the same time, countries such as Malaysia with its sizeable Chinese diaspora and corporate structures offering tax rates as low as 3% (via the Labuan incorporation route), are also seeing an uptick in interest from those who might otherwise have stayed in the Fragrant Harbour. one man's (or city's) loss is another's gain While the economy on the mainland has been sluggish, the PBOC has adjusted rates downwards. Hong Kong's peg however has dictated that the Hong Kong Monetary Authority has followed the Fed's increases over the past few years. This has resulted in a policy rate that sits at 5.25% vs 3.10% for the PBOC at the time of writing (5 years ago the PBOC rate stood at 4.31% while the HKMA policy rate was around 1%). While the increase in rates in the USA was implemented to reign in inflation, Hong Kong suffered no such comparable phenomenon - although it did suffer significant capital outflows - and the increase in rates has been in direct contradiction to conventional economic wisdom that may have encouraged a policy of easing rather than tightening over the last few years had it not been for the peg. Crypto In February 2022, with the invasion of Ukraine by Russia marking a dramatic escalation in hostilities, Chinese policy makers and tycoons alike were undoubtedly keenly observing the geopolitical fallout. If not already clear, this event and the close to three years since has demonstrated the closeness of these two civilisational states. However, and perhaps more importantly, it has exposed the extent to which the United States will go to both pursue sanctions and weaponise the financial system that it controls via the greenback. Many, including myself, did not think that Vladimir Vladimirovich Putin would do it, and many others believed that the Russia - which had popularly, and falsely, been described by many in the West as a 'gas station masquerading as a country' (John McCain, 2015) - would quickly crumble under the weight of economic exclusion. As is usually the case, pretty much nothing happened according to consensus. Russia which had been so successful in its quick, practically bloodless annexation of Crimea, did not scare the Ukrainians back to the negotiating table. Conversely, the Russian economy has actually experienced something of an economic boom. However, and the point I want to drive home, from the perspective of those in Asia, it was a test case for what Hong Kong may face in the wake of any escalation in the straits of Taiwan. China's approach to crypto-currencies has been mixed at best. While officially there are bans on crypto, it is no coincidence that Hong Kong, which initially pushed back so hard on this financial innovation, has now seen a dramatic uptick in crypto assets. In a recent report by Chainalysis Hong Kong saw the fastest growth in its region at 86% from July 2023 to June 2024. In light of the situation in Ukraine, it is possible that crypto could be considered a useful tool in mitigating the effects of an economic war, such as that which the West has waged on Russia. At the very least, it does provide an incentive for regulators to look the other way or turn a blind eye. report Conclusion With approximately 7.5 million inhabitants, Hong Kong just doesn't have the scale to make it a stand-out start-up hub, and its role as a conduit into the mainland will in all probability be further eroded by the likes of Shanghai and Shenzhen. Nevertheless, its role as a critical financial centre may be reinvigorated by a realignment towards crypto-assets and the newly emerging financial paradigm unfolding before our very eyes. Whether Trump's reelection will inspire a rapprochement and deescalation of the now vivid geopolitical schism calving up the world is yet to be seen. Nevertheless, one thing is abundantly clear, if Hong Kong is to retain its prestige and replicate its past success, things will need to change.

Hong Kong and the Crypto Boom: Economic Woes, Money Flows and Sanctions

Crypto Astrology: Eclipses, Hacks, and Blood Baths

Blockchain technology has long promised the creation of an independent financial ecosystem—one that operates free from the control of traditional finance institutions that have continually benefited from their extortion. Cryptocurrencies like Bitcoin and Ethereum emerged as decentralized alternatives to fiat, with the goal of democratizing finance and empowering individual sovereignty. Central to this mission is autonomy, transparency, and resistance to censorship. Stablecoins have become a natural extension to cryptocurrency. Acting as a proxy to real world assets, stablecoins hypothecate fiat currencies like the U.S. dollar on a blockchain. They have quickly emerged as a useful tool in the crypto ecosystem, offering a solution to volatility while still gaining the benefits of a 24/7 always-on system. Stablecoins have found a predominant product-market fit within crypto, becoming the backbone for payments, lending, and remittances. However, it is important to raise concerns about our reliance on stablecoins. Stablecoins have the ability to undermine blockchain autonomy and expose what should be a pristine network, isolated from traditional finance, to unduly force off-chain. Stablecoins as Settlement Layers Stablecoins like USDC are commonly perceived as cryptocurrencies, but in reality, they function closer to digital traditional payment gateways like Visa or Mastercard just on a blockchain. These stablecoins are backed by reserves held in traditional banks while the blockchain functions solely as an interchange protocol, similar to existing payment networks. This process closely resembles how traditional finance operates: funds are moved between accounts, with the underlying value anchored outside of the transaction. This setup is wildly different from the truly decentralized vision by early crypto pioneers. The canary in the coal mine for the chokehold stablecoins have on crypto is the comparison of transaction volume between stablecoins and native cryptocurrencies. Stablecoin transaction volume now even dominates the volume of native crypto assets like Bitcoin or Ether. The SVB Collapse and USDC The collapse of Silicon Valley Bank (SVB) in early 2023 is a stark reminder of how dangerous stablecoins deeply intertwined with traditional finance can be. As news broke of SVB’s potential insolvency, panic quickly spread through the crypto markets and fear around USDC’s peg arose. SVB’s collapse triggered a wave of USDC redemptions, essentially creating a bank run on USDC while USDC itself was experiencing a bank run on SVB. This sudden surge led to the de-pegging of USDC from $1 down to $0.84 at the lows. While the situation eventually stabilized, it exposed a critical vulnerability: stability on chain is directly tied to the health of our traditional banking system, something crypto aimed to wholly do away with. In fact, over a year and a half later, USDC has yet to fully recover in dominance against USDT. Stablecoin Dependencies Stablecoins destroy the independence and decentralization of blockchains through their reliance on traditional banking. This dependency extends beyond the mere financial aspect since stablecoins are vulnerable to regulatory control and influence, potentially comprising the censorship-resistant nature of crypto. As we know it today, U.S Treasury Secretary, Janet Yellen, could theoretically exert influence over the Ethereum network via the nearly $100B of stablecoins that exist on Ethereum. Moreover, stablecoin issuers possess the power to censor or block transactions, introducing risks to users that are not well advertised or communicated. This centralized control over such a critical and emerging sector of the crypto economy represents a significant deviation from a decentralized future without central banking. The U.S Government’s Stance on Stablecoins While many in the crypto industry are cheering on the United States government’s new found love of stablecoins, maybe we should raise our eyebrows slightly. Given the government’s previously critical stance on cryptocurrencies, this apparent contradiction lends credence to the idea that stablecoins can be a Trojan Horse for censorship and CBDCs. It is also understandable why the U.S sees stablecoins as an important sector. Stablecoins are a useful vehicle for exporting dollar dominance into the digital age. In fact, stablecoins are the 16th largest holder of US Treasuries. By encouraging the adoption of dollar-pegged stablecoins, the government can extend its monopoly on the monetary system it has held tightly since the Bretton Woods agreement in 1944. Economic Implications and Blockchain Security Every dollar invested in stablecoins on a blockchain network represents a missed opportunity for investment in the network's native asset. Diversion of capital decreases the economic security of the underlying blockchain, particularly in Proof of Stake systems. As the market cap of stablecoins continues to grow, that is value that in theory could have been attributed to the economic security of Ethereum itself. Furthermore, The fees generated from stablecoin transactions often flow to centralized entities rather than the network operators themselves. This outflow of value undermines the long term revenue for network participants and the fees paid by users. A simple example is an ETH payment on Ethereum costing $1 in fees while a USDT payment on Ethereum may cost $30 at the same gas price. The situation at hand not only drives users towards centralized stablecoins but to centralized networks as well. It is a bleak outlook if the future of crypto is purely centralized stablecoins on centralized L2s operated by centralized exchanges. Potential Solutions Fortunately, there are new economic primitives emerging that mitigate these aforementioned centralized forces imposed by stablecoins. Alternatives include ETH derivatives such as Reflexer’s RAI token, commodity-backed assets, and native crypto assets, each offering unique approaches to achieving stability without relying on TradFi. It’s also worth noting that given most stablecoins do not distribute treasury yield or track CPI, they are not truly “stable” in the strictest sense and instead lose purchasing power. This has opened the door for “flatcoins” like SPOT or NUON to further innovate although at similar dependencies for centralization. Novel approaches to achieving stability without traditional backing are constantly being developed. These include liquidity-incentivized pools, dynamic supply adjustment mechanisms, and cross-chain collateralization strategies. While none have yet achieved the dominance of fiat-backed stablecoins, they represent important steps towards a more autonomous blockchain ecosystem. The stablecoin landscape presents a variety of approaches, each with its own set of trade-offs. Treasury-backed stablecoins offer high stability but are highly centralized, while synthetic stablecoins introduce potential points of failure through reliance on exchanges or custodians. Decentralized alternatives aim for greater autonomy but have faced challenges with capital efficiency. In this context, the concept of an energy-based stablecoin alternative emerges as a promising innovation. By tying value to computational work and energy costs, it offers a unique solution that addresses many of the shortcomings of existing designs. This approach provides a tangible, real-world basis for pricing, potentially enhancing stability without sacrificing decentralization. It also aligns well with the increasingly digital and energy-conscious global economy. Conclusion Stablecoins are set to be an enormous product market fit for blockchain technology and will accelerate the use of crypto adoption globally. However, it is crucial to recognize how these assets jeopardize some of the most desirable and unique properties of cryptocurrency, namely decentralization, censorship-resistance, and economic independence. This fundamental conflict highlights the friction of how people are realistically using blockchain technology today and how crypto idealists see the future. As the crypto industry continues to evolve, it is critical that we evaluate all dependencies on centralized systems and work towards solutions that give financial sovereignty back to users. Blockchain technology has long promised the creation of an independent financial ecosystem—one that operates free from the control of traditional finance institutions that have continually benefited from their extortion. Cryptocurrencies like Bitcoin and Ethereum emerged as decentralized alternatives to fiat, with the goal of democratizing finance and empowering individual sovereignty. Central to this mission is autonomy, transparency, and resistance to censorship. Stablecoins have become a natural extension to cryptocurrency. Acting as a proxy to real world assets, stablecoins hypothecate fiat currencies like the U.S. dollar on a blockchain. They have quickly emerged as a useful tool in the crypto ecosystem, offering a solution to volatility while still gaining the benefits of a 24/7 always-on system. Stablecoins have found a predominant product-market fit within crypto, becoming the backbone for payments, lending, and remittances. However, it is important to raise concerns about our reliance on stablecoins. Stablecoins have the ability to undermine blockchain autonomy and expose what should be a pristine network, isolated from traditional finance, to unduly force off-chain. Stablecoins as Settlement Layers Stablecoins like USDC are commonly perceived as cryptocurrencies, but in reality, they function closer to digital traditional payment gateways like Visa or Mastercard just on a blockchain. These stablecoins are backed by reserves held in traditional banks while the blockchain functions solely as an interchange protocol, similar to existing payment networks. This process closely resembles how traditional finance operates: funds are moved between accounts, with the underlying value anchored outside of the transaction. This setup is wildly different from the truly decentralized vision by early crypto pioneers. The canary in the coal mine for the chokehold stablecoins have on crypto is the comparison of transaction volume between stablecoins and native cryptocurrencies. Stablecoin transaction volume now even dominates the volume of native crypto assets like Bitcoin or Ether. The SVB Collapse and USDC The collapse of Silicon Valley Bank (SVB) in early 2023 is a stark reminder of how dangerous stablecoins deeply intertwined with traditional finance can be. As news broke of SVB’s potential insolvency, panic quickly spread through the crypto markets and fear around USDC’s peg arose. SVB’s collapse triggered a wave of USDC redemptions, essentially creating a bank run on USDC while USDC itself was experiencing a bank run on SVB. This sudden surge led to the de-pegging of USDC from $1 down to $0.84 at the lows. While the situation eventually stabilized, it exposed a critical vulnerability: stability on chain is directly tied to the health of our traditional banking system, something crypto aimed to wholly do away with. In fact, over a year and a half later, USDC has yet to fully recover in dominance against USDT. Stablecoin Dependencies Stablecoins destroy the independence and decentralization of blockchains through their reliance on traditional banking. This dependency extends beyond the mere financial aspect since stablecoins are vulnerable to regulatory control and influence, potentially comprising the censorship-resistant nature of crypto. As we know it today, U.S Treasury Secretary, Janet Yellen, could theoretically exert influence over the Ethereum network via the nearly $100B of stablecoins that exist on Ethereum. Moreover, stablecoin issuers possess the power to censor or block transactions, introducing risks to users that are not well advertised or communicated. This centralized control over such a critical and emerging sector of the crypto economy represents a significant deviation from a decentralized future without central banking. The U.S Government’s Stance on Stablecoins The U.S Government’s Stance on Stablecoins While many in the crypto industry are cheering on the United States government’s new found love of stablecoins, maybe we should raise our eyebrows slightly. Given the government’s previously critical stance on cryptocurrencies, this apparent contradiction lends credence to the idea that stablecoins can be a Trojan Horse for censorship and CBDCs. It is also understandable why the U.S sees stablecoins as an important sector. Stablecoins are a useful vehicle for exporting dollar dominance into the digital age. In fact, stablecoins are the 16th largest holder of US Treasuries. By encouraging the adoption of dollar-pegged stablecoins, the government can extend its monopoly on the monetary system it has held tightly since the Bretton Woods agreement in 1944. Economic Implications and Blockchain Security Every dollar invested in stablecoins on a blockchain network represents a missed opportunity for investment in the network's native asset. Diversion of capital decreases the economic security of the underlying blockchain, particularly in Proof of Stake systems. As the market cap of stablecoins continues to grow, that is value that in theory could have been attributed to the economic security of Ethereum itself. Furthermore, The fees generated from stablecoin transactions often flow to centralized entities rather than the network operators themselves. This outflow of value undermines the long term revenue for network participants and the fees paid by users. A simple example is an ETH payment on Ethereum costing $1 in fees while a USDT payment on Ethereum may cost $30 at the same gas price. The situation at hand not only drives users towards centralized stablecoins but to centralized networks as well. It is a bleak outlook if the future of crypto is purely centralized stablecoins on centralized L2s operated by centralized exchanges. Potential Solutions Fortunately, there are new economic primitives emerging that mitigate these aforementioned centralized forces imposed by stablecoins. Alternatives include ETH derivatives such as Reflexer’s RAI token, commodity-backed assets, and native crypto assets, each offering unique approaches to achieving stability without relying on TradFi. It’s also worth noting that given most stablecoins do not distribute treasury yield or track CPI, they are not truly “stable” in the strictest sense and instead lose purchasing power. This has opened the door for “flatcoins” like SPOT or NUON to further innovate although at similar dependencies for centralization. Novel approaches to achieving stability without traditional backing are constantly being developed. These include liquidity-incentivized pools, dynamic supply adjustment mechanisms, and cross-chain collateralization strategies. While none have yet achieved the dominance of fiat-backed stablecoins, they represent important steps towards a more autonomous blockchain ecosystem. The stablecoin landscape presents a variety of approaches, each with its own set of trade-offs. Treasury-backed stablecoins offer high stability but are highly centralized, while synthetic stablecoins introduce potential points of failure through reliance on exchanges or custodians. Decentralized alternatives aim for greater autonomy but have faced challenges with capital efficiency. In this context, the concept of an energy-based stablecoin alternative emerges as a promising innovation. By tying value to computational work and energy costs, it offers a unique solution that addresses many of the shortcomings of existing designs. This approach provides a tangible, real-world basis for pricing, potentially enhancing stability without sacrificing decentralization. It also aligns well with the increasingly digital and energy-conscious global economy. Conclusion Stablecoins are set to be an enormous product market fit for blockchain technology and will accelerate the use of crypto adoption globally. However, it is crucial to recognize how these assets jeopardize some of the most desirable and unique properties of cryptocurrency, namely decentralization, censorship-resistance, and economic independence. This fundamental conflict highlights the friction of how people are realistically using blockchain technology today and how crypto idealists see the future. As the crypto industry continues to evolve, it is critical that we evaluate all dependencies on centralized systems and work towards solutions that give financial sovereignty back to users.

The Paradox of Stablecoins: The Savior or Achilles’ Heel of Crypto?

The market got what it craved: a 50 bps rate cut with no signs of economic weakness. The Fed’s dot-plot shows consensus on more rate cuts ahead. This is bullish for financial markets, and while it might raise concerns about inflation, Bitcoin stands to benefit. The Fed’s rate cut has eased global pressure, and central banks worldwide are expected to follow. China has already presented its “economic bazooka” which involves a combination of liquidity injection into the system and rate cutting. ECB has also signaled its intention to lower rates. This is bullish for markets, and Bitcoin has soared more than 6% trading north of $65.000 at the time of writing this letter. This surge puts great pressure on bears who will now struggle to find technical arguments to go short Bitcoin as most technical indicators are flipping bullish. Bitcoin’s Technical Setup Bitcoin's technicals suggest we’re nearing a breakout from a six-month consolidation. While a retracement is possible, the market looks ready to break higher. A convincing break with the triangle upwards will suggest that the all time high of $73k will soon be challenged. Gold: A leading indicator? Gold has spiked due to recession fears, inflation talk, and geopolitical tensions. Since early 2023, Bitcoin has closely followed Gold’s trend, so there’s reason to believe Bitcoin could follow Gold’s path to new highs. A Resilient Market Trading Sideways For six months, Bitcoin has been range-bound between $50K and $65K—a dull period for investors. In such times, it's easy to doubt Bitcoin’s potential, but consider the large selling events that occurred without driving Bitcoin below $50K. Since January 2024: Mt. Gox repaid 142,000 BTC to creditors, finally allowing them to sell.
Grayscale’s Bitcoin Trust saw outflows over $600M.
Germany’s Saxony State sold nearly $3 billion worth of BTC. Despite these headwinds, Bitcoin held firm above $50K, and the old saying “In a bull market, bad news doesn’t matter” comes to mind. Next Big Catalyst Awaits Us Bitcoin often needs a catalyst to ignite its rallies. Waiting for one to unfold risks missing the early part of the move. Take the ETF launches in January 2024. Those who waited on the ETF approval missed out on a 100% price jump after BlackRock’s ETF application was announced. That’s why I believe getting significant exposure now is smarter than waiting for a catalyst. What are the catalysts? Here are four key ones that could drive Bitcoin higher: Trump Winning the U.S. Presidential Election
A Trump victory would be bullish for the digital economy. Trump would likely replace the current SEC chair, leading to a more crypto-friendly stance. The U.S. would probably hold onto its Bitcoin, and new policies could attract crypto companies back to the U.S.


FTX Payout to Creditors Larger Than Expected
FTX has recovered up to $16B to repay creditors, though the actual payout might be closer to $3-5B. If the payout exceeds expectations, it could unleash fresh capital into the crypto market, especially from professional retail investors with high confidence in crypto.


Rate Cutting Cycle Continues Globally
Despite fears of the Fed being too slow, the market is confident in the rate cuts. Other large economies are following suit. China announced a 500B Yuan stimulus and rate cuts, and expectations are high for the ECB to do the same.


Option-trading to be allowed on Bitcoin ETFs
The SEC recently approved options trading on BlackRock’s Bitcoin ETF. This development boosts liquidity and opens the door to a potential gamma squeeze on Bitcoin. Jeff Park from Bitwise wrote a great primer it here. With major catalysts ahead and Bitcoin already showing bullish momentum, staying on the sidelines could mean missing out on significant upside. Fortune favors the bold. Best of luck. Ulrik The market got what it craved: a 50 bps rate cut with no signs of economic weakness. The Fed’s dot-plot shows consensus on more rate cuts ahead. This is bullish for financial markets, and while it might raise concerns about inflation, Bitcoin stands to benefit. Bitcoin The Fed’s rate cut has eased global pressure, and central banks worldwide are expected to follow. China has already presented its “economic bazooka” which involves a combination of liquidity injection into the system and rate cutting. ECB has also signaled its intention to lower rates. This is bullish for markets, and Bitcoin has soared more than 6% trading north of $65.000 at the time of writing this letter. This surge puts great pressure on bears who will now struggle to find technical arguments to go short Bitcoin as most technical indicators are flipping bullish. Bitcoin’s Technical Setup Bitcoin’s Technical Setup Bitcoin's technicals suggest we’re nearing a breakout from a six-month consolidation. While a retracement is possible, the market looks ready to break higher. A convincing break with the triangle upwards will suggest that the all time high of $73k will soon be challenged. Gold: A leading indicator? Gold: A leading indicator? Gold has spiked due to recession fears, inflation talk, and geopolitical tensions. Since early 2023, Bitcoin has closely followed Gold’s trend, so there’s reason to believe Bitcoin could follow Gold’s path to new highs. A Resilient Market Trading Sideways For six months, Bitcoin has been range-bound between $50K and $65K—a dull period for investors. In such times, it's easy to doubt Bitcoin’s potential, but consider the large selling events that occurred without driving Bitcoin below $50K. Since January 2024: Mt. Gox repaid 142,000 BTC to creditors, finally allowing them to sell.
Grayscale’s Bitcoin Trust saw outflows over $600M.
Germany’s Saxony State sold nearly $3 billion worth of BTC. Despite these headwinds, Bitcoin held firm above $50K, and the old saying “In a bull market, bad news doesn’t matter” comes to mind. Next Big Catalyst Awaits Us Bitcoin often needs a catalyst to ignite its rallies. Waiting for one to unfold risks missing the early part of the move. Take the ETF launches in January 2024. Those who waited on the ETF approval missed out on a 100% price jump after BlackRock’s ETF application was announced. That’s why I believe getting significant exposure now is smarter than waiting for a catalyst. What are the catalysts? Here are four key ones that could drive Bitcoin higher: Trump Winning the U.S. Presidential Election
A Trump victory would be bullish for the digital economy. Trump would likely replace the current SEC chair, leading to a more crypto-friendly stance. The U.S. would probably hold onto its Bitcoin, and new policies could attract crypto companies back to the U.S. FTX Payout to Creditors Larger Than Expected
FTX has recovered up to $16B to repay creditors, though the actual payout might be closer to $3-5B. If the payout exceeds expectations, it could unleash fresh capital into the crypto market, especially from professional retail investors with high confidence in crypto. Rate Cutting Cycle Continues Globally
Despite fears of the Fed being too slow, the market is confident in the rate cuts. Other large economies are following suit. China announced a 500B Yuan stimulus and rate cuts, and expectations are high for the ECB to do the same. Option-trading to be allowed on Bitcoin ETFs
The SEC recently approved options trading on BlackRock’s Bitcoin ETF. This development boosts liquidity and opens the door to a potential gamma squeeze on Bitcoin. Jeff Park from Bitwise wrote a great primer it here. Trump Winning the U.S. Presidential Election
A Trump victory would be bullish for the digital economy. Trump would likely replace the current SEC chair, leading to a more crypto-friendly stance. The U.S. would probably hold onto its Bitcoin, and new policies could attract crypto companies back to the U.S. Trump Winning the U.S. Presidential Election A Trump victory would be bullish for the digital economy. Trump would likely replace the current SEC chair, leading to a more crypto-friendly stance. The U.S. would probably hold onto its Bitcoin, and new policies could attract crypto companies back to the U.S. Trump Winning the U.S. Presidential Election FTX Payout to Creditors Larger Than Expected
FTX has recovered up to $16B to repay creditors, though the actual payout might be closer to $3-5B. If the payout exceeds expectations, it could unleash fresh capital into the crypto market, especially from professional retail investors with high confidence in crypto. FTX Payout to Creditors Larger Than Expected FTX has recovered up to $16B to repay creditors, though the actual payout might be closer to $3-5B. If the payout exceeds expectations, it could unleash fresh capital into the crypto market, especially from professional retail investors with high confidence in crypto. FTX Payout to Creditors Larger Than Expected Rate Cutting Cycle Continues Globally
Despite fears of the Fed being too slow, the market is confident in the rate cuts. Other large economies are following suit. China announced a 500B Yuan stimulus and rate cuts, and expectations are high for the ECB to do the same. Rate Cutting Cycle Continues Globally Despite fears of the Fed being too slow, the market is confident in the rate cuts. Other large economies are following suit. China announced a 500B Yuan stimulus and rate cuts, and expectations are high for the ECB to do the same. Rate Cutting Cycle Continues Globally Option-trading to be allowed on Bitcoin ETFs
The SEC recently approved options trading on BlackRock’s Bitcoin ETF. This development boosts liquidity and opens the door to a potential gamma squeeze on Bitcoin. Jeff Park from Bitwise wrote a great primer it here. Option-trading to be allowed on Bitcoin ETFs The SEC recently approved options trading on BlackRock’s Bitcoin ETF. This development boosts liquidity and opens the door to a potential gamma squeeze on Bitcoin. Jeff Park from Bitwise wrote a great primer it here. Option-trading to be allowed on Bitcoin ETFs With major catalysts ahead and Bitcoin already showing bullish momentum, staying on the sidelines could mean missing out on significant upside. Fortune favors the bold. Best of luck. Ulrik

Could the Fed's Rate Cut Signal a Bullish Turn for Bitcoin?

FED-in uçot dərəcəsini azaltması Bitcoin üçün yüksəliş siqnalı verə bilərmi?

¿Podría el recorte de tasas de la Fed indicar un giro alcista para Bitcoin?

Voisiko Fedin koronlasku signaali nostaa Bitcoinin?

O recorte da taxa da Fed podería indicar un xiro alcista para Bitcoin?

Fedの利下げはビットコインの強気転換の兆しとなるか？

តើអត្រាការប្រាក់របស់ Fed អាចជាសញ្ញានៃការកើនឡើងសម្រាប់ Bitcoin ដែរឬទេ?

Na Fed ya Rate Cut e ka Signal e Bullish Turn bakeng sa Bitcoin?

ෆෙඩරල් මහ බැංකුවේ අනුපාතිකය බිට්කොයින් සඳහා බුලිෂ් හැරීමක් සංඥා කළ හැකිද?

Je! Kiwango cha Fed kinaweza Kukata Ishara Zamu ya Bullish kwa Bitcoin?

மத்திய வங்கியின் விகிதக் குறைப்பு பிட்காயினுக்கு ஒரு மோசமான திருப்பத்தை சமிக்ஞை செய்ய முடியுமா?

ምጉዳል ዋጋ ፌድ ንቢትኮይን ዕቤት ዝፈጥር ምልውዋጥ ከመልክት ይኽእል ድዩ?

美联储降息是否预示着比特币的看涨转折？

Back in 2021, the DeFi sector entered the crypto mainstream, promising to change the world of traditional finance. At the dawn of DeFi, in 2020, the total value locked (TVL) in DeFi projects did not exceed $1 billion. By the end of 2021, TVL has grown by over $175 billion, a spectacular result achieved by the emerging industry. However, DeFi found itself under material pressure in the first half of 2022. Several catalysts triggered a strong outflow from DeFi. The collapse of Terra/LUNA put the whole DeFi business model under question, while the sharp increase in interest rates in the developed world made traditional instruments more attractive to many investors. As a result, TVL pulled back from the peak near the $175 billion level to the bottom of around $37 billion, which was reached in October 2023. The rally in crypto markets, which was triggered by expectations of the approval of spot Bitcoin ETFs, provided support to DeFi projects. TVL started to grow again and surpassed the $100 billion level by June 2024. Unfortunately for DeFi enthusiasts, this growth hit a speed bump put by the general correction in crypto markets. Taking a look at the market cap of DeFi projects, it turns out that the sector is smaller than meme coins ($28 billion vs $40 billion). How did this happen? From a big-picture point of view, the DeFi sector is searching for its place in the world of high interest rates in traditional financial markets. It should be noted that interest rates have moved away from their maximum levels, while the leading central banks have already started their rate-cut cycles. Ultimately, lower interest rates should boost interest in DeFi. DeFi must define its unique value proposition to stay relevant. Back when DeFi emerged as the financial instrument of the future, its projects offered attractive yields compared to near-zero yields provided by traditional financial institutions. The significant difference in yields, and, therefore, potential profits, served as the key catalyst behind the robust growth of DeFi projects in 2021. Users have quickly found out that DeFi was unable to support mouth-watering yields, which resulted in scandals and declining confidence in the whole sector. In order to grow sustainably, DeFi must provide competitive yields compared to the yields offered by traditional finance. At the same time, such yields should be justified by a solid business model rather than by a Ponzi scheme. The sector must find a perfect balance between yields and safety and then sell the “DeFi product” to crypto investors. Meanwhile, the memecoin sector offers a simple “product” — multi-baggers. Sure, most memecoins will never achieve the success of Doge or Shiba, but investors always hope to profit from the next star in the memecoin world. Overall, the new rate cut cycle should push interest rates to lower levels and provide material support to the DeFi sector over time. However, the sector must also find internal drivers for sustainable growth. DeFi has a significant growth potential, but its value must be unlocked. Back in 2021, the DeFi sector entered the crypto mainstream, promising to change the world of traditional finance. At the dawn of DeFi, in 2020, the total value locked (TVL) in DeFi projects did not exceed $1 billion. By the end of 2021, TVL has grown by over $175 billion, a spectacular result achieved by the emerging industry. However, DeFi found itself under material pressure in the first half of 2022. Several catalysts triggered a strong outflow from DeFi. The collapse of Terra/LUNA put the whole DeFi business model under question, while the sharp increase in interest rates in the developed world made traditional instruments more attractive to many investors. As a result, TVL pulled back from the peak near the $175 billion level to the bottom of around $37 billion, which was reached in October 2023. The rally in crypto markets, which was triggered by expectations of the approval of spot Bitcoin ETFs, provided support to DeFi projects. TVL started to grow again and surpassed the $100 billion level by June 2024. Unfortunately for DeFi enthusiasts, this growth hit a speed bump put by the general correction in crypto markets. Taking a look at the market cap of DeFi projects, it turns out that the sector is smaller than meme coins ($28 billion vs $40 billion). How did this happen? From a big-picture point of view, the DeFi sector is searching for its place in the world of high interest rates in traditional financial markets. It should be noted that interest rates have moved away from their maximum levels, while the leading central banks have already started their rate-cut cycles. Ultimately, lower interest rates should boost interest in DeFi. DeFi must define its unique value proposition to stay relevant. Back when DeFi emerged as the financial instrument of the future, its projects offered attractive yields compared to near-zero yields provided by traditional financial institutions. The significant difference in yields, and, therefore, potential profits, served as the key catalyst behind the robust growth of DeFi projects in 2021. Users have quickly found out that DeFi was unable to support mouth-watering yields, which resulted in scandals and declining confidence in the whole sector. In order to grow sustainably, DeFi must provide competitive yields compared to the yields offered by traditional finance. At the same time, such yields should be justified by a solid business model rather than by a Ponzi scheme. The sector must find a perfect balance between yields and safety and then sell the “DeFi product” to crypto investors. Meanwhile, the memecoin sector offers a simple “product” — multi-baggers. Sure, most memecoins will never achieve the success of Doge or Shiba, but investors always hope to profit from the next star in the memecoin world. Overall, the new rate cut cycle should push interest rates to lower levels and provide material support to the DeFi sector over time. However, the sector must also find internal drivers for sustainable growth. DeFi has a significant growth potential, but its value must be unlocked.

Memecoins Are Bigger Than DeFi: What’s Going On?

There are many factors that make Ethereum a fundamentally different cryptocurrency from Bitcoin, and these crucial differences are playing out in real-time on Wall Street. Unlike the US Securities and Exchange Commission’s approval of Bitcoin ETFs in January, July’s acceptance of spot Ethereum ETFs came as something of a surprise. The commission had long viewed Bitcoin as an exception in the crypto landscape, acknowledging other coins as ‘securities’ compared to BTC’s status as a commodity. Despite this, Tuesday, July 23, 2024, saw the launch of nine spot Ether exchange-traded funds on Wall Street. One month on, are market commentators ready to call the debut a success? Ether’s Mixed Results Investor sentiment for the new ETFs has been mixed. The brightest spot Ether ETF, BlackRock’s iShares Ethereum Trust ETF, has been well on course to surpass $1 billion in net inflows just one month on from its launch. Elsewhere, other funds have been less lucrative in terms of welcoming inflows. In fact, the fund with the second highest level of inflows is Fidelity’s Ethereum Fund, with less than $400 million recorded one month after launching. The elephant in the room is Grayscale’s Ethereum Trust, which has recorded significant outflows due to its relatively high fee structure. With nearly $2.5 billion in outflows from this ETF, the total cumulative flow for Ether ETFs is negative by almost $500 million. Bitcoin Comparisons are Hasty According to estimates from Bloomberg ETF analyst Eric Balchunas, the demand for spot Ethereum ETFs could settle at around 15% to 20% of what we’ve seen for Bitcoin ETFs. There are many reasons why Ethereum commanding around one-fifth of Bitcoin’s ETF market inflows is logical. Firstly, as the oldest and most popular cryptocurrency in the world, Bitcoin has fewer technological capabilities than Ether, making it more comparable to gold. Meanwhile, Ethereum’s newer, more advanced blockchain frameworks mean it can host decentralized finance (DeFi) projects and other emerging technologies, making it more comparable to oil. At least this is the view of the Industrial and Commercial Bank of China (ICBC). Despite this, Bitcoin’s ETFs have also been vulnerable to substantial outflows of late, owing to a larger contraction of the cryptocurrency market and Wall Street’s recent stock sell-offs in early August. Crucially, Bitcoin’s status as ‘digital gold’ and the cyclical nature of the coin’s halving events, making the asset marginally more predictable, mean that its ETFs are more likely to see major institutional inflows like the $600 million Goldman Sachs and Morgan Stanley invested in spot Bitcoin ETFs. Battling ETH’s Downturn While the launch of Bitcoin’s ETFs brought a subsequent cryptocurrency rally towards a fresh all-time high value for BTC, no such good fortune appears forthcoming for Ether. In fact, the cryptocurrency has fallen 26% since its exchange-traded funds launched on Wall Street, with the coin’s supply increasing by 60,555 over the same period. Unlike Bitcoin’s fixed supply, which means no more than 21 million BTC can ever be minted, no such limits exist for Ether, meaning that its scarcity won’t play the same role in determining its value as Bitcoin. Although it’s worrying to see Ether struggle in the wake of net outflows for spot Ethereum ETFs, Aurelie Barthere, principal research analyst at analytics platform Nansen, highlights that Bitcoin has also been falling significantly over the same period, indicating that Ether’s downturn is more likely related to falling risk appetite among investors. It’s also worth noting that Wall Street’s market crash in early August was another challenge that Bitcoin didn’t have to encounter during its strong post-ETF rally in early 2024. Ethereum’s Unique Challenges Unlike Bitcoin, which enjoys a market dominance of more than 56% throughout the cryptocurrency landscape, Ethereum’s status as the world’s biggest altcoin is far from assured in the long term. Since its 2015 launch, Ethereum has relied on its status as a popular, technically advanced blockchain that developers use to host their DeFi projects. This has made ETH a cryptocurrency that’s closely linked to the burgeoning NFT landscape and blockchain innovations like smart contracts and P2P lending. However, now that the asset is approaching its 10th birthday, there are many newer, more advanced blockchains that offer faster transaction speeds and lower costs than Ethereum. Because of this, Ethereum is constantly having to evolve to fend off the chasing pack, a challenge that Bitcoin has never needed to counter. One specific threat can be found in Solana. With far lower transaction fees, less network congestion, and its innovative Proof-of-History consensus mechanism, Solana could be a tangible long-term threat to Ethereum, making investing in its ETFs a riskier prospect. Despite this, we may actually see Ethereum’s spot ETF act as a driving force for maintaining its status as a leader in blockchain technology. With long-term Wall Street adoption, even if it’s at 20% the scale of Bitcoin, Ethereum’s institutional acceptance could help to see off its plucky challengers throughout the crypto landscape. “Institutional investors familiar with ETFs as a financial instrument may be more inclined to invest in Ethereum through these funds,” highlights Maxim Manturov, head of investment research at Freedom24. “This could lead to substantial capital inflows and further growth and development of the Ethereum ecosystem.” Have Spot Ethererum ETFs Been a Success? The flows surrounding spot Ethereum ETFs one month from their launch make for difficult reading. However, it’s worth noting that the exchange-traded funds had the misfortune of launching just weeks before a major market crash occurred. For investors looking to embrace Ether on Wall Street, we may see spot Ethereum ETFs act as a strong foundation for growth that sees Ethereum fend off its technical competitors and reaffirm its status as the cryptocurrency landscape’s most functional altcoin. With expectations of a cryptocurrency market bull run in late 2024 and early 2025 still high, the success of spot Ethereum ETFs could be realized a little later down the line. For now, we’re still waiting for investors to really embrace this risky altcoin play. There are many factors that make Ethereum a fundamentally different cryptocurrency from Bitcoin, and these crucial differences are playing out in real-time on Wall Street. Ethereum Unlike the US Securities and Exchange Commission’s approval of Bitcoin ETFs in January, July’s acceptance of spot Ethereum ETFs came as something of a surprise. The commission had long viewed Bitcoin as an exception in the crypto landscape, acknowledging other coins as ‘securities’ compared to BTC’s status as a commodity. viewed Bitcoin as an exception viewed Bitcoin as an exception Despite this, Tuesday, July 23, 2024, saw the launch of nine spot Ether exchange-traded funds on Wall Street. One month on, are market commentators ready to call the debut a success? Ether’s Mixed Results Investor sentiment for the new ETFs has been mixed. The brightest spot Ether ETF, BlackRock’s iShares Ethereum Trust ETF, has been well on course to surpass $1 billion in net inflows just one month on from its launch. on course to surpass $1 billion on course to surpass $1 billion Elsewhere, other funds have been less lucrative in terms of welcoming inflows. In fact, the fund with the second highest level of inflows is Fidelity’s Ethereum Fund, with less than $400 million recorded one month after launching. The elephant in the room is Grayscale’s Ethereum Trust, which has recorded significant outflows due to its relatively high fee structure. With nearly $2.5 billion in outflows from this ETF, the total cumulative flow for Ether ETFs is negative by almost $500 million. Bitcoin Comparisons are Hasty According to estimates from Bloomberg ETF analyst Eric Balchunas, the demand for spot Ethereum ETFs could settle at around 15% to 20% of what we’ve seen for Bitcoin ETFs. settle at around 15% to 20% settle at around 15% to 20% There are many reasons why Ethereum commanding around one-fifth of Bitcoin’s ETF market inflows is logical. Firstly, as the oldest and most popular cryptocurrency in the world, Bitcoin has fewer technological capabilities than Ether, making it more comparable to gold. Meanwhile, Ethereum’s newer, more advanced blockchain frameworks mean it can host decentralized finance (DeFi) projects and other emerging technologies, making it more comparable to oil. At least this is the view of the Industrial and Commercial Bank of China (ICBC). this is the view this is the view Despite this, Bitcoin’s ETFs have also been vulnerable to substantial outflows of late, owing to a larger contraction of the cryptocurrency market and Wall Street’s recent stock sell-offs in early August. substantial outflows substantial outflows Crucially, Bitcoin’s status as ‘digital gold’ and the cyclical nature of the coin’s halving events, making the asset marginally more predictable, mean that its ETFs are more likely to see major institutional inflows like the $600 million Goldman Sachs and Morgan Stanley invested in spot Bitcoin ETFs. $600 million Goldman Sachs $600 million Goldman Sachs Battling ETH’s Downturn While the launch of Bitcoin’s ETFs brought a subsequent cryptocurrency rally towards a fresh all-time high value for BTC, no such good fortune appears forthcoming for Ether. In fact, the cryptocurrency has fallen 26% since its exchange-traded funds launched on Wall Street, with the coin’s supply increasing by 60,555 over the same period. fallen 26% fallen 26% Unlike Bitcoin’s fixed supply, which means no more than 21 million BTC can ever be minted, no such limits exist for Ether, meaning that its scarcity won’t play the same role in determining its value as Bitcoin. Although it’s worrying to see Ether struggle in the wake of net outflows for spot Ethereum ETFs, Aurelie Barthere, principal research analyst at analytics platform Nansen, highlights that Bitcoin has also been falling significantly over the same period, indicating that Ether’s downturn is more likely related to falling risk appetite among investors. related to falling risk appetite related to falling risk appetite It’s also worth noting that Wall Street’s market crash in early August was another challenge that Bitcoin didn’t have to encounter during its strong post-ETF rally in early 2024. Ethereum’s Unique Challenges Unlike Bitcoin, which enjoys a market dominance of more than 56% throughout the cryptocurrency landscape, Ethereum’s status as the world’s biggest altcoin is far from assured in the long term. more than 56% more than 56% Since its 2015 launch, Ethereum has relied on its status as a popular, technically advanced blockchain that developers use to host their DeFi projects. This has made ETH a cryptocurrency that’s closely linked to the burgeoning NFT landscape and blockchain innovations like smart contracts and P2P lending. However, now that the asset is approaching its 10th birthday, there are many newer, more advanced blockchains that offer faster transaction speeds and lower costs than Ethereum. Because of this, Ethereum is constantly having to evolve to fend off the chasing pack, a challenge that Bitcoin has never needed to counter. One specific threat can be found in Solana. With far lower transaction fees , less network congestion, and its innovative Proof-of-History consensus mechanism, Solana could be a tangible long-term threat to Ethereum, making investing in its ETFs a riskier prospect. far lower transaction fees far lower transaction fees Despite this, we may actually see Ethereum’s spot ETF act as a driving force for maintaining its status as a leader in blockchain technology. With long-term Wall Street adoption, even if it’s at 20% the scale of Bitcoin, Ethereum’s institutional acceptance could help to see off its plucky challengers throughout the crypto landscape. “Institutional investors familiar with ETFs as a financial instrument may be more inclined to invest in Ethereum through these funds,” highlights Maxim Manturov, head of investment research at Freedom24 . “This could lead to substantial capital inflows and further growth and development of the Ethereum ecosystem.” Freedom24 Freedom24 Have Spot Ethererum ETFs Been a Success? The flows surrounding spot Ethereum ETFs one month from their launch make for difficult reading. However, it’s worth noting that the exchange-traded funds had the misfortune of launching just weeks before a major market crash occurred. For investors looking to embrace Ether on Wall Street, we may see spot Ethereum ETFs act as a strong foundation for growth that sees Ethereum fend off its technical competitors and reaffirm its status as the cryptocurrency landscape’s most functional altcoin. With expectations of a cryptocurrency market bull run in late 2024 and early 2025 still high, the success of spot Ethereum ETFs could be realized a little later down the line. For now, we’re still waiting for investors to really embrace this risky altcoin play.

One Month On, Have Spot Ethereum ETFs Been a Success?

Ethereum's Slump Reflects the Web3 Development Dilemma

The launch of nine-spot Ether exchange-traded funds (ETFs) heralded a brave new world for cryptocurrency adoption on Wall Street, with the world’s largest altcoin amassing over $1 billion in trading volumes on its first day. Is the ETH ETF’s performance a statement of intent? Or a flash in the pan? Spot Ether ETFs commanded an opening day cumulative trading volume of $1.08 billion. This total has been heralded as a success by James Seyffart, senior ETF analyst at Bloomberg, with BlackRock’s iShares Ethereum Trust ETF (ETHA) drawing in $266 million in investment. Ether’s opening day attracted around 23% of the total trading volume experienced by Bitcoin on the first day of trading for the cryptocurrency’s spot BTC ETFs in January 2024. While it would be fanciful for investors to expect Ether to emulate Bitcoin’s success as the most successful ETF launch in financial history, the cryptocurrency’s superior functionality has often caused its biggest supporters to speculate that Ethereum could one day replace Bitcoin as the world’s most dominant cryptocurrency. Early Warning Signs On its second day, spot Ether ETFs experienced a dip in trading to $951 million in cumulative trading volume, representing a logical dip in the wake of its opening day furor. Despite this relatively strong start to life on Wall Street, there are some warning signs that the impact of the ETH ETF may not be all it seems. The value of Ethereum, the cryptocurrency attached to the spot Ether ETF, fell almost 10% on the second day of trading. The cause for this stemmed from concerns over the hefty $133 million outflows for the exchange-traded fund at such an early stage in its launch. The underlying asset tumbled to a value of around $3,150, pushing the coin further adrift from its all-time high of $4,878, recorded in November 2021. Perhaps more worrying is that Ethereum has failed to generate meaningful momentum since Q1 2024, when the cryptocurrency was driven higher by Bitcoin’s post-ETF rally. Despite the SEC’s approval of spot Ether ETFs in May, ETH ended Q2 2024 lower than the first quarter. So why has Ethereum failed to rally as a result of its exchange-traded fund? One solution could be that investors were more willing to sell the news than treat it as a long-term hold opportunity. The other, more worryingly, is that investors don’t have enough faith in the longevity of Ethereum. Measuring the Significance of Ether Although it’s fair to say that Ether and Bitcoin are extremely different cryptocurrencies, it’s actually Ethereum that has a technical advantage over its more famous counterpart. Bitcoin’s market capitalization of $1.28 trillion is a major draw for investors due to its scarcity and pre-programmed halving mechanism that’s expected to keep its long-term value rising. Ethereum, however, is far less scarce but offers significant technical advantages that Bitcoin could never compete with. Today, Ether is a driving force in the thriving decentralized finance (DeFi) ecosystem. Powering major blockchain innovations like smart contracts, new consensus mechanisms, non-fungible tokens (NFTs), peer-to-peer (P2P) lending, and much more, Ethereum ETFs offer investors the chance to buy into the next generation of financial technology. “Overall, the approval of spot Ethereum ETFs is likely to lead to wider adoption, greater market liquidity, and increased legitimacy for Ethereum, as well as potentially increasing institutional investment and positively impacting the broader cryptocurrency market,” explained Maxim Manturov, head of investment research at Freedom24. It’s this element of increased legitimacy that could be telling in the future. The arrival of ETH ETFs on Wall Street could see more confidence in Ethereum’s DeFi projects grow, helping to drive more Ethereum blockchain adoption. Threats to Ethereum’s DeFi Dominance If comparisons between Ethereum and Bitcoin are illogical because of how different both cryptocurrencies are, it may be more useful to compare the former with its younger rival, Solana. While Ethereum has grown around 70% over the past year, Solana has rallied more than 630% and has consistently been described as an ‘Ethereum killer’. Packed with a more advanced blockchain that facilitates faster network speeds and lower gas fees, Solana has been building momentum in recent months. So, could Ethereum fall into trouble in the face of mounting competition? Solana’s co-founder, Anatoly Yakovenko, believes that Solana and Ethereum should be seen as a more collaborative presence within the cryptocurrency landscape, with both blockchains capable of coexistence. Is it Time to Buy Ethereum’s ETF? Although Ethereum will certainly face challenges to its position as a leader in decentralized finance as the space continues to grow, it’s worth investors celebrating the contrasts between Ether and Bitcoin. While both assets have a key role to play in the future of cryptocurrencies, Ethereum’s functionality makes it fundamentally different from Bitcoin. While this means that some of the excitement surrounding the asset’s arrival on Wall Street has been muted, Ether’s more dynamic market proposition could pay dividends as a long-term hold. The launch of nine-spot Ether exchange-traded funds (ETFs) heralded a brave new world for cryptocurrency adoption on Wall Street, with the world’s largest altcoin amassing over $1 billion in trading volumes on its first day. Is the ETH ETF’s performance a statement of intent? Or a flash in the pan? Spot Ether ETFs commanded an opening day cumulative trading volume of $1.08 billion. This total has been heralded as a success by James Seyffart, senior ETF analyst at Bloomberg, with BlackRock’s iShares Ethereum Trust ETF (ETHA) drawing in $266 million in investment. heralded as a success heralded as a success Ether’s opening day attracted around 23% of the total trading volume experienced by Bitcoin on the first day of trading for the cryptocurrency’s spot BTC ETFs in January 2024. While it would be fanciful for investors to expect Ether to emulate Bitcoin’s success as the most successful ETF launch in financial history, the cryptocurrency’s superior functionality has often caused its biggest supporters to speculate that Ethereum could one day replace Bitcoin as the world’s most dominant cryptocurrency. most successful ETF launch most successful ETF launch Early Warning Signs On its second day, spot Ether ETFs experienced a dip in trading to $951 million in cumulative trading volume, representing a logical dip in the wake of its opening day furor. dip in trading to $951 million dip in trading to $951 million Despite this relatively strong start to life on Wall Street, there are some warning signs that the impact of the ETH ETF may not be all it seems. The value of Ethereum , the cryptocurrency attached to the spot Ether ETF, fell almost 10% on the second day of trading. The cause for this stemmed from concerns over the hefty $133 million outflows for the exchange-traded fund at such an early stage in its launch. Ethereum The underlying asset tumbled to a value of around $3,150, pushing the coin further adrift from its all-time high of $4,878, recorded in November 2021. Perhaps more worrying is that Ethereum has failed to generate meaningful momentum since Q1 2024, when the cryptocurrency was driven higher by Bitcoin’s post-ETF rally. Despite the SEC’s approval of spot Ether ETFs in May, ETH ended Q2 2024 lower than the first quarter. So why has Ethereum failed to rally as a result of its exchange-traded fund? One solution could be that investors were more willing to sell the news than treat it as a long-term hold opportunity. The other, more worryingly, is that investors don’t have enough faith in the longevity of Ethereum. Measuring the Significance of Ether Although it’s fair to say that Ether and Bitcoin are extremely different cryptocurrencies, it’s actually Ethereum that has a technical advantage over its more famous counterpart. Bitcoin’s market capitalization of $1.28 trillion is a major draw for investors due to its scarcity and pre-programmed halving mechanism that’s expected to keep its long-term value rising. Ethereum, however, is far less scarce but offers significant technical advantages that Bitcoin could never compete with. Today, Ether is a driving force in the thriving decentralized finance (DeFi) ecosystem. Powering major blockchain innovations like smart contracts, new consensus mechanisms, non-fungible tokens (NFTs), peer-to-peer (P2P) lending, and much more, Ethereum ETFs offer investors the chance to buy into the next generation of financial technology. major blockchain innovations major blockchain innovations “Overall, the approval of spot Ethereum ETFs is likely to lead to wider adoption, greater market liquidity, and increased legitimacy for Ethereum, as well as potentially increasing institutional investment and positively impacting the broader cryptocurrency market,” explained Maxim Manturov, head of investment research at Freedom24. It’s this element of increased legitimacy that could be telling in the future. The arrival of ETH ETFs on Wall Street could see more confidence in Ethereum’s DeFi projects grow, helping to drive more Ethereum blockchain adoption. Threats to Ethereum’s DeFi Dominance If comparisons between Ethereum and Bitcoin are illogical because of how different both cryptocurrencies are, it may be more useful to compare the former with its younger rival, Solana. While Ethereum has grown around 70% over the past year, Solana has rallied more than 630% and has consistently been described as an ‘Ethereum killer’. Packed with a more advanced blockchain that facilitates faster network speeds and lower gas fees, Solana has been building momentum in recent months. So, could Ethereum fall into trouble in the face of mounting competition? more advanced blockchain more advanced blockchain Solana’s co-founder, Anatoly Yakovenko, believes that Solana and Ethereum should be seen as a more collaborative presence within the cryptocurrency landscape, with both blockchains capable of coexistence. Is it Time to Buy Ethereum’s ETF? Although Ethereum will certainly face challenges to its position as a leader in decentralized finance as the space continues to grow, it’s worth investors celebrating the contrasts between Ether and Bitcoin. While both assets have a key role to play in the future of cryptocurrencies, Ethereum’s functionality makes it fundamentally different from Bitcoin. While this means that some of the excitement surrounding the asset’s arrival on Wall Street has been muted, Ether’s more dynamic market proposition could pay dividends as a long-term hold.

Spot Ether EFTs Top $1 Billion in Volume But Bitcoin Comparisons Could be Short-Lived

Barely a week ago, popular cryptocurrency exchange KuCoin announced that its KYC’d Nigerian users would be eligible to pay a 7.5% VAT on every crypto transaction starting the 8th of July, 2024. In other words, Nigeria's tax agency, the Federal Inland Revenue Service (FIRS), is comprehensively setting plans in motion to regulate the country’s burgeoning crypto industry by charging a flat rate on every crypto transaction. With the outright ban on cryptocurrency still ongoing and the protracted legal battle with the world's most popular cryptocurrency exchange Binance, the Nigerian regulators appeared to have missed the point about the fundamentals of cryptocurrency regulation, so much so that they have unwittingly put the cart before the horse. While Nigeria, a country with over 12 million crypto users, has not officially imposed a ban on cryptocurrency, its apex bank, the Central Bank of Nigeria(CBN), has continued to maintain anti-crypto policies with the tacit cooperation of the country's capital market regulator, SEC Nigeria, making the West African country one of the most ambiguous crypto regulating countries in the world. Recent actions to restrict peer-to-peer (P2P) crypto trading in Nigeria highlighted the government's resolve to address what it saw as palpable concerns about the potential impact of cryptocurrency on the national currency, the Naira. These concerns were based on the allegations of the Naira manipulation on cryptocurrency exchanges. However, in a surprising move, the Tinubu-led government is now focusing its effort on taxing cryptocurrency transactions despite the restrictions that have been put in place. This development does not only alter its course of action altogether, but it also raises a valid question as to whether the government's plan to tap into the endless possibilities of crypto taxation can coexist with the unofficial recognition of cryptocurrency in the country. Apparently, the newly introduced VAT policy on crypto transactions emanated from the noticeable absence of a tax framework for cryptocurrency in Nigeria, as revealed by the Binance tussle with the Nigerian authorities, most especially from the failure of the FIRS to find credible evidence to support the tax evasion charges it leveled against a mid-level Binance executive Tigran Gambrayan, who has spent several months in one of the nation's worst prisons. (Gambrayan, a former US federal agent alongside his colleague Nadeem Anjarwalla, was arrested and detained by the Office of the National Security Advisers(ONSA)after they were invited for a talk in Abuja). The sudden recourse to cryptocurrency, which is what the 7.5%  VAT represents, is ill-advised and inopportune. It's the latest in a list of several ridiculous crypto policies that have come out of Nigeria. Is it not surprising that within a year, Nigeria has gone from charging exorbitant crypto licensing fees to imposing a 7.5% VAT on crypto transactions while maintaining its ban on cryptocurrency? Is the government now suddenly realizing that there are millions of dollars of unrealized taxes lying outside of the province of the FIRS? One must pay attention to the event preceding the introduction of the VAT policy. A few months ago, the CBN made a shocking discovery that crypto P2P trading had been responsible for the steady decline of the Naira and promptly responded by waging a week-long war on crypto exchanges operating in the country. These actions signaled a harsh stance on cryptocurrency. Binance, the most popular centralized crypto exchange (CEX), was first scapegoated. Two of its executives found themselves under investigation for Binance-related activities in Nigeria. Later, they were dragged to court on charges bordering on tax evasion, money laundering, and currency manipulation. The Nigerian press further amplified concerns by heavily publicizing the Central Bank of Nigeria (CBN) governor's unverified claim of a $26 billion outflow from Nigeria through Binance. Many news reports portrayed cryptocurrency as a national security threat, potentially prompting an urgent response from the Nigerian government. How, within a short window of time, is cryptocurrency now part of the FIRS’ grand design to expand the nation’s revenue base? While the VAT policy signifies a regulatory approach toward crypto regulation, it can afford to wait until there is a much broader and clearer regulatory framework governing Nigeria’s burgeoning cryptocurrency industry. In other words, there have to be clearly defined rules in place addressing the key issues surrounding cryptocurrency before a tax policy is activated, borrowing a leaf from countries like South Africa and Kenya, which have made significant progress in this regard. Not only is the establishment of a clear-cut policy framework for digital assets a non-negotiable cryptocurrency adoption strategy, but it is also in the first order of cryptocurrency regulation principles. Countries that are intentional about leveraging this technology don't take a leap of faith but rather create a regulatory environment where crypto rules are clearly defined and established. The rationale behind the VAT on crypto transactions, however well-intentioned, might be overshadowed by the urgency of addressing Nigeria's broader economic challenges. For decades, Nigerians have grappled with a struggling national economy alongside pockets of insecurity. As of today, inflation is a nationwide concern, further fueled by President Tinubu's removal of fuel subsidies in May 2023. Barely a week ago, popular cryptocurrency exchange KuCoin announced that its KYC’d Nigerian users would be eligible to pay a 7.5% VAT on every crypto transaction starting the 8th of July, 2024. In other words, Nigeria's tax agency, the Federal Inland Revenue Service (FIRS), is comprehensively setting plans in motion to regulate the country’s burgeoning crypto industry by charging a flat rate on every crypto transaction. With the outright ban on cryptocurrency still ongoing and the protracted legal battle with the world's most popular cryptocurrency exchange Binance, the Nigerian regulators appeared to have missed the point about the fundamentals of cryptocurrency regulation, so much so that they have unwittingly put the cart before the horse. While Nigeria, a country with over 12 million crypto users, has not officially imposed a ban on cryptocurrency, its apex bank, the Central Bank of Nigeria(CBN), has continued to maintain anti-crypto policies with the tacit cooperation of the country's capital market regulator, SEC Nigeria, making the West African country one of the most ambiguous crypto regulating countries in the world. Recent actions to restrict peer-to-peer (P2P) crypto trading in Nigeria highlighted the government's resolve to address what it saw as palpable concerns about the potential impact of cryptocurrency on the national currency, the Naira. These concerns were based on the allegations of the Naira manipulation on cryptocurrency exchanges. However, in a surprising move, the Tinubu-led government is now focusing its effort on taxing cryptocurrency transactions despite the restrictions that have been put in place. This development does not only alter its course of action altogether, but it also raises a valid question as to whether the government's plan to tap into the endless possibilities of crypto taxation can coexist with the unofficial recognition of cryptocurrency in the country. Apparently, the newly introduced VAT policy on crypto transactions emanated from the noticeable absence of a tax framework for cryptocurrency in Nigeria, as revealed by the Binance tussle with the Nigerian authorities, most especially from the failure of the FIRS to find credible evidence to support the tax evasion charges it leveled against a mid-level Binance executive Tigran Gambrayan, who has spent several months in one of the nation's worst prisons. (Gambrayan, a former US federal agent alongside his colleague Nadeem Anjarwalla, was arrested and detained by the Office of the National Security Advisers(ONSA)after they were invited for a talk in Abuja). The sudden recourse to cryptocurrency, which is what the 7.5%  VAT represents, is ill-advised and inopportune. It's the latest in a list of several ridiculous crypto policies that have come out of Nigeria. Is it not surprising that within a year, Nigeria has gone from charging exorbitant crypto licensing fees to imposing a 7.5% VAT on crypto transactions while maintaining its ban on cryptocurrency? Is the government now suddenly realizing that there are millions of dollars of unrealized taxes lying outside of the province of the FIRS? One must pay attention to the event preceding the introduction of the VAT policy. A few months ago, the CBN made a shocking discovery that crypto P2P trading had been responsible for the steady decline of the Naira and promptly responded by waging a week-long war on crypto exchanges operating in the country. These actions signaled a harsh stance on cryptocurrency. Binance, the most popular centralized crypto exchange (CEX), was first scapegoated. Two of its executives found themselves under investigation for Binance-related activities in Nigeria. Later, they were dragged to court on charges bordering on tax evasion, money laundering, and currency manipulation. The Nigerian press further amplified concerns by heavily publicizing the Central Bank of Nigeria (CBN) governor's unverified claim of a $26 billion outflow from Nigeria through Binance. Many news reports portrayed cryptocurrency as a national security threat, potentially prompting an urgent response from the Nigerian government. How, within a short window of time, is cryptocurrency now part of the FIRS’ grand design to expand the nation’s revenue base? While the VAT policy signifies a regulatory approach toward crypto regulation, it can afford to wait until there is a much broader and clearer regulatory framework governing Nigeria’s burgeoning cryptocurrency industry. In other words, there have to be clearly defined rules in place addressing the key issues surrounding cryptocurrency before a tax policy is activated, borrowing a leaf from countries like South Africa and Kenya, which have made significant progress in this regard. Not only is the establishment of a clear-cut policy framework for digital assets a non-negotiable cryptocurrency adoption strategy, but it is also in the first order of cryptocurrency regulation principles. Countries that are intentional about leveraging this technology don't take a leap of faith but rather create a regulatory environment where crypto rules are clearly defined and established. The rationale behind the VAT on crypto transactions, however well-intentioned, might be overshadowed by the urgency of addressing Nigeria's broader economic challenges. For decades, Nigerians have grappled with a struggling national economy alongside pockets of insecurity. As of today, inflation is a nationwide concern, further fueled by President Tinubu's removal of fuel subsidies in May 2023.

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