After a whirlwind 2-week upward trend for Bitcoin, the markets went through another sell off session that saw BTC falling 1.708% this week, with the total market capitalization of the crypto market at $370.3 billion, a weekly drop of 2.5%. In a speech made by Federal Reserve Chairman Powell last week, he mentioned that the central bank will tolerate inflation rising above 2% for short periods of time.
What does this mean for the big picture? - The Feds will likely be more comfortable keeping its extraordinary stimulus measures in place for longer as it waits for the labor market to heat up and the economy to recover.
Following on from this announcement, we saw a surge in the price of Gold and Bitcoin, whilst the USD index fell rapidly. Again, we are seeing Bitcoin and Gold trends aligning with gold reacting slightly faster than Bitcoin.
In other news, the latest issue of ‘Valuing Bitcoin’ - Grayscale Investment also mentioned Bitcoin will undoubtedly be one of the best choices to beat inflation.
Hong Kong Securities and Futures Commission (SFC) officially granted the first approval-in-principle, meaning the first license to operate a virtual asset trading platform under a license for Type 1 (dealing in securities) and Type 7 (automated trading service (ATS)) has been principally issued pending some housekeeping measures. This is a big step for the digital economy in Asia and provides a reference standard for the supervision of virtual assets in Hong Kong and Mainland China. As we work towards a regulated and licensed model here at HKbitEX, we will be building a similar prime brokerage and compliance driven business model, the issuance of the first license has given a clearer and more confident path for all to follow allowing for a clearer framework for the future of STOs.
DEFI continued its impressive uptick this week. It is still too early to comment that DEFI has changed traditional finance or that the economic models behind are perfect. We noticed that Maker is trying to introduce physical assets as Dai ecosystem collateral, most other DEFI projects are still limited to serving cryptocurrencies and have corresponding flaws. For example, Compound cannot solve the problem of duration mismatch between borrowers and lenders, and the requirement of over-collateralization rate is far from enough to take into consideration all the risk parameters in their pricing. Financial data and liquidity premium are clearly scaled out. Uniswap obtains asset prices through a constant product model, but arbitrageurs still need to refer to the prices in centralized exchanges, otherwise arbitrage cannot be triggered to ensure enough inventory for balancing. In short, DEX has no Price discovery function.
In order to bridge DEFI and the real economy, we will need to see at least two more things: regulated STO and supporting from stable Consortium chains.
This week, the official APP of China Construction Bank showed that the personal digital currency wallet has been launched, although only under testing. According to the "Digital RMB Wallet Personal Customer Service Agreement", digital wallets are divided into APP wallets and hardware wallets. APP wallets refer to wallet services provided through smart applications. Hardware wallets have basic functions such as Remittance, Withdrawal, and Inquiry. As expected, the application of DCEP may change the revenue structure of Intermediary services of commercial banks.
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