Background to crypto
10 years after its initial creation, nearly everyone in the world should have heard about cryptocurrency. Bitcoin is the world’s largest cryptocurrency, currently trading at around $11,800 and with a total market capitalisation of $218 billion. This is comparable to the market capitalisation size of Bank of America.
Bitcoin reached a high of around $20,0000 in December 2017 and for a brief period of time a low of $3,500 in December 2018. Although the price is extremely volatile, the general trajectory is showing an upwards movement as can be seen below.
From all of the crypto currencies out there, which according to coinmarketcap is 6,511, Bitcoin is the largest and most well-known with a dominance of around 59%. However, a number of the other cryptocurrencies should not be ignored. Many of them bring important technological advancements and use cases.
What has been causing the general upwards price movement in the last few months?
There have been a lot of developments happening in the crypto space in the last few years since the December 2017 bubble popped. Therefore, we would like to share with you the most recent and exciting updates that have happened recently in the crypto industry.
- DeFi (Decentralised Finance): This is where the hype currently is and refers to the ability to recreate traditional financial instruments. In layman’s terms; loans, investments in stocks/shares and in debt instruments, through a decentralised way, i.e. outside of any company or government control.
The current most popular and common use case for DeFi is in borrowing and lending platforms. This can be compared to clients of a bank where one client deposits their money in order to earn interest and the other client who borrows money and pays interest. With DeFi, there is no bank or middle man, instead, smart contracts connect borrowers and lenders and enforce the loan terms.
The current DeFI market is currently sitting at around $11 billion. This has grown from about $0.5 billion just 1 year ago. Ethereum is the current blockchain of choice for many companies to build their financial products. With each passing day, more DeFi applications are being built.
Through this mechanism, the middle man (bank) is cut out, therefore cutting costs and increasing trust and transparency. This is all thanks to the blockchain.
Stablecoins are very important to the DeFI ecosystem as they are pegged to a Fiat currency such as the USD. This removes price volatility.
- Bitcoin Halving: The bitcoin halving occurred on 11th May 2020. The halving event means that the reward for mining Bitcoin transactions is cut in half. Therefore, this leads to a halving of the inflation rate and the rate at which new Bitcoins enter circulation. Above all, the two previous halvings have correlated with price appreciation in the following years. Currently, a similar pattern is starting to show.
- Visa and Mastercard grant entities power to issue crypto debit cards: There has been a large growth in consumer interest for crypto. Some research showing that up to 20% of the population in some countries are holding cryptocurrencies. In light of the current circumstances, VISA has granted its principal membership to Coinbase. Mastercard has granted the same to Wirex, with more firms to join soon. This means that their users can spend their own cryptocurrencies anywhere Visa or MasterCard is accepted.
- U.S. Bank given regulatory green light for crypto custody services: This is a major development which means that national banks may provide custody services for cryptocurrencies.
- PayPal goes crypto: PayPal takes a step to facilitating crypto payments. Given the number of retailers who already have an integration with PayPal, this move towards crypto could be pivotal for the industry. Above all, this would be a huge step towards seeing crypto assets being used to pay for everyday goods and services.
- Stable coins: Stablecoins have been around for a few years and are essentially crypto assets which are pegged to a Fiat currency such as the USD. Stablecoins have gained traction as they attempt to offer the best of both world’s; the instant processing and security or privacy of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies. Stable coins may also be pegged to a commodity such as gold.
- Central banks considering creating their own digital currency: The Bank of England (BoE) and the European Central Bank (ECB) are looking at creating their own digital currency
- Blockchain use for elections: The US Postal Service has submitted patents for a proposed blockchain-based mail-in voting system for the November Presidential election
- US Federal Reserve actively experimenting with Blockchain: Federal Reserve Board Governor Lael Brainard has said the Fed is actively testing out distributed ledger technology (DLT) to better understand how a digital currency would function in the financial system, according to Coindesk.
- Venezuela to begin using crypto in its tax system: Venezuela is set to begin using its own national cryptoasset, the petro, in its tax system according to Decrypt. Venezuela is a country that has suffered hyper inflation to its native currency.
- Goldman Sachs looks to its own crypto token: According to CNBC, Goldman Sachs, one of the largest investment banks in the world, has expressed an interest in creating its own cryptoasset. Commercial viability is currently being investigated.
- Bitcoin futures trading breaks records as price surges: According to Intercontinental Exchange subsidiary Bakkt, an institutional investing platform, there were record numbers of trades for its monthly Bitcoin futures contracts during July. The platform reported its highest ever figure for Bitcoin monthly futures on Jul. 28 with 11,506 contracts. This is an increase of 85% over the previous record, according to a report by CoinTelegraph. This was then superseded the next day when it saw some 11,706 contracts traded.
- Travel firm Expedia partnered with Travala: This partnership opens up 700,000 accommodation options around the world for payment in Bitcoin.