Crypto’s Last Week
This edition of “Crypto’s Last Week” accounts for the most notable, and crypto-related — institutional, investment, and regulatory — news published between Saturday, September 26, 2020, and Friday, October 2, 2020.
There has been a dominant acronym in crypto news sites this year, DeFi, short for decentralized finance, and it continues to blast through records in use and in total value locked (TVL) with no end in sight. At the moment, DeFi has most recently earned the milestone of swiftly passing $10 billion in total value locked within the decentralized applications (dApps) that provide a range of different services.
For context, it is important to note that DeFi can be traced back to August 2017, passing the $1 billion mark for the first time in February 2020, before a short-lived correction, moving up to $5 billion in August 2020 and $10 billion in September, clearly demonstrating the interest awaken by decentralized exchanges (DEx) such as Uniswap ($2 billion in TVL) and Curve Finance ($1.2 billion in TVL) or lending platforms such as Maker ($1.9 billion in TVL) and Aave ($1.5 billion in TVL) among other products or services.
Another important actor directly involved in the 2020 “Defi hype” has been yearn.finance with its Yield Farming concept of using crypto assets to work and generate the most returns possible or annual percentage yield (APY) from week to week. With yield farming comes “liquidity mining” which is the result of obtaining a new token besides the return that was earned by yield farming.
This most recent boom within the digital assets’ industry has not only had its very positive revenue delivery for quick and sharp users, but it has also created an issue on the Ethereum blockchain, since at the moment, 206 of the 217 DeFi projects listed are built and running on Ethereum. As a result, Ethereum gas fees have seen record highs since March 2020, in a sense, holding the network hostage due to an exponential increase in usage without any near term solution, while Ethereum miners have set record amounts in fees in 2020 — $113 million in August.
Some compare this DeFi boom with the ICO craze of 2017 that led to market all-time highs, which could in turn mean the eventual failure of dozens of these projects and a re-stabilization of blockchain networks, user earnings, and mining benefits. Time will tell.
Investors have been consistently diversifying their portfolios in 2020 due to an increasing risk of inflation or hyper-inflation as a result of radical growth seen in the U.S. Federal Reserve balance sheet, large amounts of fiscal stimulus, and expectations for higher inflation rates. The last indicator of investors running away from cash to assets that will appreciate regardless of inflation (currently between 7% or 15%, depending on the asset evaluated) is the aggressive growth of Bitcoin Funds such as the investment vehicles offered by Bitwise Investment or Grayscale Investment.
Recently, Bitwise investment filled a total raise of $8.9 million of its Bitcoin Fund, resulting in over double the amount ($4.1 million) of the amount filled in 2019, undoubtedly meaning that there is a general sentiment to avoid holding the dollar and hedge the risk of inflation by jumping ship from what seems to be a currency that will lose over 10% of value year over year.
Grayscale Investment has also demanded headlines with their latest disclosure of assets under management in its Bitcoin Trust increased by more than $180 million, adding 17,100 BTC to the firm’s fund in 7 days. It is noteworthy that the Grayscale Trust Fund has important requirements that the common American investor would be able to cover, such as a minimum $50,000 investment and a 2% annual maintenance fee, which is another indicator of the exclusive group of investors with available liquidity to enter such a fund as well as the inherent necessity to avoid holding cash at the moment.
The avoidance of fiat currencies from investors or organizations with cash in a resting state should be a flag for any individual that is yet to diversify their investments or holdings from cash to bitcoin.
A recent survey about cryptocurrencies, focusing on risk and compliance, conducted by YouGov on behalf of the Royal United Services Institute (RUSI), a U.K. defense think tank and the anti-money laundering education body ACAMS, delivered somewhat expected resulted in some areas while breaching the gap between previously sensitive topics between the cryptocurrency industry, financial institutions, and government organizations.
The survey took place in North America (32% respondents), Europe (23% respondents), Asia (22% respondents), South America (8% respondents), Africa (7% respondents), Middle East (5% respondents), and Oceania (3% respondents). Financial Institutions accounted for 49%, while government organizations equaled 24% and the cryptocurrency industry 10%, with 18% for other private sector institutions.
Among the most relevant obtained results was the difference between the surveyed on the use of cryptocurrencies, with financial institutions believing 50% of people use them for investment or speculation and 35% for illicit purposes, in contrast, the crypto industry believed 80% of people used them for investment or speculation and 2% for illicit use, while government respondents believed 62% of people used them for investment or speculation and 26% for illegal purposes. This gap between the different sets of respondents clearly magnifies the difference in perception when it comes to a simple subject such as the use of cryptocurrencies at a moment when digital assets and digital currencies are consistently being discussed and evaluated as an alternative to current investment vehicles or operational alternatives within different sectors in the economy.
Another interesting result was the consideration by respondents of their agreement of cryptocurrencies being considered legal tender (same level as the cash that you have in your wallet or your bank account). The surprising answer came from the financial institution sector agreeing on 44% and government respondents on 37%, while the crypto industry unsurprisingly agreed on 76%.
On many issues there was little difference regionally except for the clear distinction when asked if cryptocurrencies were easier to use than fiat currency, finding that 43% did believe it was easier, compared to Europe’s 15% and North America’s 9%. Notably demonstrating the technological advances that users enjoy in Asia versus the rest of the world. Also making the case for the continuous advancement and ground-breaking introduction of digital currencies to Asian economies, with the Chinese DC/EP as a clear example.
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