Private finance is taking crypto mainstream

Last year was a turning point for cryptocurrencies. It turned blockchain from being a space for geeks into one where governments, institutions and retail traders now had a seat at the table. The 2021 GameStop story also played a major role in a change of perception.

Most interestingly, as Alex Shipp explains in an article for Cointelegraph, “cryptography and its primary feature, privacy, have been relegated from the front-and-center role they once played as cryptocurrency’s main attractions.” This has been replaced by the enticements of DeFi apps that offer “enhanced liquidity, yield farming and unprecedented economic models.”

Will 2021 be DeFi’s big year?

DeFI has become the Shangri-La of cryptocurrency it seems. Its allure is pervasive across the cryptocurrency landscape, with investors enchanted by its “double-digit APRs and seamless user experience,” which holds better long-term prospects for them than the “subtle, systemic benefits conferred by a privacy-centric exchange.”

Privacy is no longer the primary reason for entering the crypto space. Moreover, as the perceived benefits of DeFi grow, consumers are more than happy to make trade-offs to keep it growing. They really don’t want to forfeit these for the sake of privacy.

DeFi is the current Disruptor-in-chief within an already disruptive community. Now we can expect another to emerge – PriFi, or Private Finance. This, says Shipp, “brings privacy back on-stage by bringing it back on-chain — that is, into the Ethereum and Polkadot ecosystems — to integrate privacy into a robust network of rapidly evolving applications of decentralized finance.”

It’s significant because until now, “privacy solutions have remained siloed on standalone, privacy-oriented blockchains, isolated from the ever-expanding features of the DeFi landscape.” This ‘movement’ wants users to be able to have access to privacy without any trade-offs. Shipp says it could not have come at a more critical moment. Why?

The answer is GameStop. I won’t reprise the story, because I’m sure you know it. However, one critical factor is that after the hedge funds got caught over-leveraged in short positions, centralized companies, such as Robinhood, Charles Schwab, TD Ameritrade and others, restricted trading “thereby protecting the remaining capital of the exposed funds.”

This caused outrage amongst the retail investors, because these companies had essential hung them out to dry. What they learnt was, as Shipp says, “For retailers in 2021, that has meant awakening to a pair of sobering realizations: that centralized markets only remain free as long as they serve centralized powers and that surveillance is a primary supporting feature employed by such power structures.”

The trading restrictions placed on the retail traders highlighted the need for “a new line of emergent derivatives: fully private, on-chain synthetic assets whose values are securely pegged to traditional financial instruments — stocks, commodities, bonds, insurance products and more.”

The crypto space is opening up in ways the first enthusiasts probably never dreamt of, and while it may not suit purists, it is driven by the demands of the market. You could say everything has changed, and nothing has changed – depending on your perception.

Will the Year of the Ox be bullish?

This year the Chinese New Year is on 12th February and traditionally this event appears to coincide with a ‘Bitcoin dump’ and resulting price drop. However, analysts believe that this year will be quite different, simply because the “impact of retail traders in China has been reduced,” Coindesk reports.

Instead, in recent months, institutional investors in the USA and Europe have been the main drivers of the current bull run, whereas in 2017, Asian retail investors were the driving force.

According to Muyao Shen Chinese language social media platforms have been discussing the possibility that the bull run might have to pause over the New Year holidays, and concerns about Bitcoin have been reinforced by news showing that some Chinese miners sold their Bitcoin in January. There is speculation that this sell-off might have been prompted by the miners anticipating a bearish sentiment arising around the Year of the Ox festivities, as traditionally “Chinese traders tend to withdraw their crypto assets and cash out,” Alex Zuo, vice president of China-based crypto wallet Cobo, told CoinDesk.

The Chinese tradition of giving money to family and friends at New Year is well established. Felix Wang, managing director and partner of investment research firm Hedgeye Risk’s China business explained, “They need cash so they need to liquidate some of their financial holdings, and that could lead to a little bit of pressure in some of the financial markets.”

There is also a need for liquidity, as businesses, including over-the-counter service and crypto trading desks, are closed for a week. Data collected over the past two Chinese New Years shows that trading volume on Binance, Huobi and OKEx were down during the holiday period, and data from TradingView on Binance’s bitcoin/USDT pair shows “in each of the past three years, bitcoin’s price went down before the Chinese New Year.”

Significantly, whilst the Bitcoin price drop at the holiday time was 37.2% in 2018, in 2019 and 2020, it was only 8.3% and 10.5% respectively.

But, as this is the Year of the Ox, perhaps a more bullish sentiment will be sustained with the majority of Chinese traders and investors betting on a positive market trend and so holding on to their Bitcoin.

The Gamestop frenzy that shocked Wall Street

Shareholders in video game retailer, Gamestop, have had a fantastic week, especially the top three thanks to a “frenzied dual between Wall Street traders and small investors, “ as The Guardian reports. Please note that it’s a story so big that has hit the MSM as well as the crypto media.

On Wednesday, the company shares hit a fresh “52-week high of $354.83, making the 13% stake held by Ryan Cohen, 34, GameStop’s largest single shareholder, worth more than $1.3bn.” CNBC reported that Cohen’s wealth   increased an average of $90m a day, or nearly $4m per hour over the last two weeks. The other two major shareholders, Donald Foss and George Sherman made $500m and $350m respectively. Let’s not forget that the stock was trading at less than $20 per share earlier this month. However members of a subreddit group believed Gamestop stock was under attack by a hedge fund that had disclosed a large short position in the stock.

For these small investors the action took place in a Reddit chat room called r/WallStreetBets, where they organised their strategies, their aim being to beat Wall Street traders and funds, such as Black Rock, which holds Gamestop shares now valued at $3 bn. The subreddit members coordinated a pump action on the stock on Reddit, which was executed by individual traders using platforms like TD Ameritrade and Robinhood.

What happened is that these subreddit small investors poured their money into the retailers stocks, while the hedge funds, which had been betting against Gamestop ultimately lost billions. The action became so heated that even the Biden administration announced they were monitoring it.

Over at Cointelegraph, the commentary is focused more on the implications for decentralization. It says, “The success of the GameStop short squeeze in pumping the price above $370 has highlighted the need for decentralized finance, according to some in the crypto industry.”

Why are they talking about decentralization? Because, “Various centralized trading platforms have now put limits on trading the stock and the president of NASDAQ — the exchange on which GME is listed — suggested that trading could be temporarily halted on stocks deliberately targeted by internet users, in order to give investors a chance to ‘recalibrate’.”

Anthony Scaramucci of SkyBridge Capital, believes these recent events surrounding GME are good for crypto and especially bitcoin. He told Bloomberg, it was “more proof of concept that Bitcoin is going to work.”

Furthermore, thanks to activity by derivatives and futures specialists FTX, which has listed a tokenized version of Gamestop futures that can be traded against crypto collateral, the price of GME opened at $354.83 on Wednesday, representing a 140% gain overnight. Keep an eye on this story, as it could be the beginning of something very interesting.

Visa goes for USDC with Circle

Visa, the credit card giant, has joined with Circle to connect 60 million merchants to the US Dollar Coin (USDC), a coin on the Ethereum blockchain. This is yet another sign that cryptocurrencies are integrating even further with mainstream payment currencies.

Although Visa won’t have custody itself of the USDC, it is going to work with Circle to select Visa credit card issuers and integrate the USDC software with their platforms, so that it can be used for payments. What this means is that businesses will soon enough be able to make international payments in USDC to other businesses supported by Visa. The funds will then be converted into national currencies when they are spent anywhere that accepts Visa.

Circle is a part of Visa’s Fast Track program, and when it completes the course next year, that is when this new USDC program will begin, with the issuance of a new credit card that allows users to spend USDC. Visa’s head of crypto, Cuy Sheffield, said, “This will be the first corporate card that will allow businesses to be able to spend a balance of USDC. And so we think that this will significantly increase the utility that USDC can have for Circle’s business clients.” 

The partnership between Visa and Circle, helped by the $40 million investment Visa made in another firm developing a platform for holding similar assets issued on a blockchain, “is the latest evidence that the credit card giant sees the technology first popularized by bitcoin as a crucial part of the future of money,” Michael de Castillo writes at Forbes.

Sheffield said, “Blockchain networks and stablecoins, like USDC, are just additional networks. So we think that there’s a significant value that Visa can provide to our clients, enabling them to access them and enabling them to spend at our merchants.”

Currently, according to Visa’s data, “$120 trillion in payments annually are made using checks and instant wire transfers, costing as much as $50 each.” By contrast, since USDC settles on the ethereum blockchain, transactions can close in a little a[s] 20 seconds and, importantly, can be done for nearly free.

Visa has been making strong moves in the cryptocurrency sphere this year. In February 2020. Coinbase became the first company granted principal membership status by Visa. This means that Coinbase, one of the biggest crypto exchanges globally, can in turn issue cards to others.

Circle has done some rethinks of its own in regard to cryptocurrency. In 2019 it had a fire sale of its assets including Poloniex, Circle Invest and Circle Pay. It also rebranded its home page with a focus exclusively on stablecoins and central bank digital currencies. The attraction of the USDC is that it is built on the Ethereum block chain and only tiny amounts of the cryptocurrency ETH are used as “gas” to pay for the transactions.

Jeremy Allaire, the CEO of Circle Internet Finance, says of the new partnership and its probable outcome: “Imagine a capital marketplace that is for anyone who needs capital, or anyone who needs to offer capital that has the same efficiency that Amazon has for e-commerce, the same efficiency that YouTube has for content, effectively, capital markets with the efficiency of the internet, which is essentially zero.” He added, “And that will ultimately return trillions of dollars in value back to the economy, it will reduce costs for every business in the world, it will accelerate the way in which individuals can participate in commercial activity and commerce activity, in conducting their labor and interacting with businesses around the world.”