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Wedding Bells – The Uneasy Marriage Between the Financial and Crypto Sectors

Over the last few years, the financial and crypto sectors have been on a path best described as an arranged marriage. Some in the crypto industry will lament the loss of independence, but the consolidation within the ecosystem will drive interoperability and standards.

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In many cultures, an arranged marriage is a union with the bride and groom chosen by family members, typically parents.  You find similar arrangements in the financial sector, where a financial advisor proposes financial partnerships or mergers between two companies. Over the last few years, the financial and crypto sectors have been on a path best described as an arranged marriage.

Regulators want the two groups to work together to improve the financial ecosystem. Crypto advocates have been unabashed about remaining unattached. They view themselves apart from the financial community. There is no need for a union. The fundamental obstacle is that the banking sector needs innovation and operability, while the crypto sector needs capital and liquidity.  

Table of Contents.

The Proposal

The move to digital, accelerated by COVID-19, demonstrates an expanding use case around cryptocurrency beyond payments and speculative investments. Virtual assets could reduce recordkeeping costs and improve ownership transparency when integrated into the financial economy. Cryptocurrencies can replace cash with associated business applications for the consumer. Virtual assets can add openness while providing a safeguard against theft.

Unsurprisingly, the Financial Action Task Force (FATF) has been behind this convergence. Without its guidance on handling virtual asset service providers (VASPs), the licensing and registration would not have been possible. Governments such as Singapore, Japan, Switzerland, and elsewhere are enacting VASP regulations. Those countries not moving forward will be pressured to comply.

12-month Plan

Plans are in place. The FATF’s 12-month period applies pressure to countries and the crypto industry to adjust to the new regulatory environment. Just as a wedding needs preparation, the crypto industry needs uniformity in the travel rule and finds common ground on interoperability. This step is required to drive the industry ahead. The well-meaning parents are coaxing the hesitant groom and the skeptical bride together, each reluctant of the other.

The Union

An example of this move is Ron Hose, the former CEO of Coins.ph, a new role in the Philippines’ UnionBank of the Philippines. Coins.ph, one of the licensed virtual currency exchanges (VCE) in the Philippines, has gone from being a payments disruptor to a regulated entity over its short life.[1] Ron can be considered the outsider who is now on the inside.

This action by UnionBank is a shrewd calculation of the growing relevance of crypto payments to the financial sector’s appreciation for new business and revenue models. The Philippines’ economy benefits from inward remittance flows. Ron’s expertise would help UnionBank get ahead of its competitor. It would not surprise me that more crypto leaders are appointed to Bank boards.

From a banking perspective, the new technology is thought-provoking, even seducing. However, the collapse of net interest margin and fees has banks looking for revenue sources. Crypto assets are becoming appealing, especially as regulators have signaled their acceptance of the new technology.  Regulations and licensing have made these assets attractive. 

Technology and Financial Crime

The perception of the crypto industry’s risks and its ability to manage those risks remains a drawback. The libertarian narrative is distracting. In a recent survey conducted by ACAMS, seventy percent (70%) of total respondents[2] remained concerned that cryptocurrencies are used to facilitate financial crime. 

Indeed, media stories have highlighted the use of crypto to facilitate money-laundering, dark web activity, the purchase of illicit goods, the involvement of rogue actors and terrorist organizations, and other financial crimes. 

The reality is that new technologies have historically been exploited by criminals when introduced. Criminals used ATMs, credit cards, and electronic payment systems when first introduced. Virtual currency is another technology available to be exploited, but organized crime prefers large financial institutions and their international networks because they accommodate size and speed.

Changing Perceptions

While stories such as the CFTC’s indictment of BitMEX and their principals may catch readers’ attention, regulators are moving the industry to adopt various risk management practices.[3] The charge highlighted the failure of anti-money laundering procedures, but the move is about correcting perception.[4]

Elevating Vivien Khoo, a seasoned finance professional with compliance experience, is a shrewd move, one to calm regulators and investors. Regulators want the crypto industry to adopt improved internal controls and risk management practices to demonstrate professionalism.

Consolidation

Not all firms will be able to adjust. Many start-ups lack the capital to build the internal frameworks. Some firms may not be able to attract the talent needed to craft compliance and risk controls.  Inevitably, this action will drive consolidation within the crypto industry. Financial institutions will acquire crypto firms and integrate them into their suite of digital products, and crypto firms will merge to streamline processes and reduce costs.

Indeed, some in the crypto industry will lament the loss of independence, as every bride must ponder, but trust and transparency are vital to every marriage. The consolidation within the ecosystem will drive interoperability and standards.

Perception & Reality

There are concerns that the industry must address, but changing the perception of cryptocurrencies is one of the first steps to bringing about wider adoption. The recent RUSI-ACAMS cryptocurrency survey noted that “half of all respondents believe cryptocurrency exchanges are unprepared to deal with the aforementioned cybercrime activities.”[5] What if the perception of crypto-related risk by financial institutions is wrong?  

The industry is maturing fast with compliance talent migrating from financial institutions. One only needs to see the US regulatory action upon BitMEX and Coin Ninja as a broader signal upon the market. The crypto industry will be regulated and must address financial crime perceptions and realities. 

Bitcoin & Banks

There is a massive divide between compliance officers in financial institutions and crypto firms, reflecting an underlying bias.  Jamie Dimon’s position on crypto may reflect this evolution. In the beginning, JPMorgan and Jamie Dimon were against bitcoin and the new technology, but flirted with the idea before committing the endeavor.

They have earning power for a financial institution that already manages financial crime risk. Subsequently, look for a sea change in how compliance officers view crypto-assets in financial firms. 

The reality is that financial institutions have been the target of most sophisticated money laundering syndicates and will always be the target. Crypto-assets are just variation to an existing risk.

This article is first published on BitPinas: Wedding Bells – The Uneasy Marriage Between the Financial and Crypto Sectors


References:

[1] Mislos M., “Crypto Wallet Coins.ph Former CEO Ron Hose is UnionBank’s New Director.” BitPinas, 28Sept. 2020, Retrieved from https://bitpinas.com/news/crypto-wallet-coins-ph-ceo-ron-hose-unionbanks-new-director/

[2] “Banks, governments and crypto industry divided on cryptocurrency risk, new global survey reveals.” Centre for Financial Crime and Security Studies (RUSI), 28Sept. 2020, Retrieved from   https://rusi.org/rusi-news/banks-governments-and-crypto-industry-divided-cryptocurrency-risk-new-global-survey

[3] Palmer, D., “BitMEX CEO Arthur Hayes Leaves Role After US Charges.“ Coindesk, 8 Oct. 2020, Retrieved from https://www.coindesk.com/bitmex-ceo-arthur-hayes-leaves-role-after-us-charges

[4] “CFTC Charges BitMEX Owners with Illegally Operating a Cryptocurrency Derivatives Trading Platform and Anti-Money Laundering.” Commodity Future Trading Commission, 1Oct. 2020.  Retrieved from Violations https://www.cftc.gov/PressRoom/PressReleases/8270-20.

[5] Izenman, K., & McDonell, R., “Cryptocurrency Risk & Compliance Survey,” ACAMS-RUSI, 2Oct. 2020, p.29. https://www.acams.org/en/ACAMS-RUSI-Crypto-Survey-Report

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Source: https://bitpinas.com/regulation/wedding-bells-financial-and-crypto-sectors/

Blockchain

Ethereum, Cosmos, VeChain Price Analysis: 05 December

Thanks to Bitcoin’s performance over the past 10 days, many of the market’s altcoins noted sharp upticks recently. However, that wasn’t to last as the world’s largest cryptocurrency continued to conso

The post Ethereum, Cosmos, VeChain Price Analysis: 05 December appeared first on AMBCrypto.

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Thanks to Bitcoin’s performance over the past 10 days, many of the market’s altcoins noted sharp upticks recently. However, that wasn’t to last as the world’s largest cryptocurrency continued to consolidate on the charts under the $19k-mark, many alts fell after a correction wave hit them. While some like VeChain continued to record gains over a weekly basis, other cryptos like Ethereum and Cosmos saw mixed fortunes.

Ethereum [ETH]

Source: ETH/USD on TradingView

Ethereum, the world’s largest altcoin, has been brimming with optimism lately. Not only did the cryptocurrency surge on the back of Bitcoin’s own hike, but the community also welcomed the launch of the Ethereum 2.0 Beacon Chain on the 1st of December. However, despite these updates, ETH’s price fortunes haven’t been the best lately.

Days after ETH surged to levels unseen since June 2018, ETH fell by 8.6% on the charts as corrections ensued. Despite these corrections though, the larger market sentiment remained on the bullish side, at press time.

This was evidenced by Ethereum’s technical indicators as while the Parabolic SAR’s dotted markers were well below the price candles the Relative Strength Index was hovering near the overbought zone.

Cosmos [ATOM]

Source: ATOM/USD on TradingView

Cosmos [ATOM], the cryptocurrency ranked 26th on CoinMarketCap’s charts, has seen topsy-turvy movement over the past few months. Despite such volatility, however, ATOM has been unable to hit the highs it last saw back in August. While ATOM’s investors did hope to see the cryptocurrency surge when the rest of the market did, the crypto disappointed. In fact, ATOM was down by almost 15% in the last 10 days alone.

ATOM’s movement on the charts was underlined by the findings of its technical indicators. While the Bollinger Bands were dropping slightly south, the MACD line crept under the Signal line following a bearish crossover.

Cosmos was in the news a few weeks ago after Celo gave Chorus One a grant to build a bridge to facilitate interoperability between Celo and Cosmos.

VeChain [VET]

Source: VET/USD on TradingView

Popular altcoin VeChain, like ATOM, has seen a lot of sideways movement in the months gone by, despite a host of updates on the developmental side. Thanks to the general bullishness in the market triggered by Bitcoin’s movement over the past week, VET finally surged on the charts, with the crypto up by over 20% on the weekly timeframe. This was a healthy hike, especially since most of the market soon saw corrections after the aforementioned bullishness had passed.

While the Awesome Oscillator underlined the momentum in the market, the Chaikin Money Flow was holding steady under 0.20, a sign of capital inflows being greater than capital outflows.

VeChain’s development of a blockchain-based medical solution was recently adopted by a service provider based in Cyprus.

Source: https://eng.ambcrypto.com/ethereum-cosmos-vechain-price-analysis-05-december

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Blockchain

Legalise Bitcoin and scrap the IRS – Former US Presidential candidate

Former presidential candidate Ron Paul, advises the government to legalise Bitcoin  Some states have strict crypto regulations guarding the operations of the industry  Ron Paul, former presidential candidate has called on the government to legalise Bitcoin. According to him, the best way to be able to deal with cryptocurencies like Bitcoin would be to legalise […]

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  • Former presidential candidate Ron Paul, advises the government to legalise Bitcoin 
  • Some states have strict crypto regulations guarding the operations of the industry 

Ron Paul, former presidential candidate has called on the government to legalise Bitcoin. According to him, the best way to be able to deal with cryptocurencies like Bitcoin would be to legalise it.

The former Texas congressman went on to state that Bitcoin interests him because the crypto asset was not a creation of the government. He made this statement on the Stephan Livera podcast where he also added that the government was, however, paying a close attention to the crypto asset.

Paul noted that the government should give people the liberty to make their choices. And to do that, the right thing would be for them to legalise Bitcoin. 

The libertarian also said that he had no believe in the Internal Revenue Service (IRS). So, because of that Bitcoin shouldn’t be taxed. This view of his is not entirely surprising as libertarians are generally against taxes. 

Paul used gold as an example of government dalliance to press home his points. The government did not legalise ownership of gold until 1975. His current call to legalise Bitcoin is to avoid a similar situation that happened back then.

Libertarians believe that people should have freedom of choice over everything. This includes the kind of financial system and the monetary currencies used in such systems.

United States yet to legalise Bitcoin 

The government of the United States is yet to legalise Bitcoin nationwide. 

Different states in the country have strict regulations guarding the operations of cryptocurrency. New York, for instance, is an example of one of such states with strict crypto regulations.

While in some other states, there is little to no regulations guarding the use of cryptocurrency. 

However, players in the crypto industry can expect the input of more regulation into the US crypto market. The Securities and Exchange Commission (SEC) have, at different times, released different regulation to guard the operation of the industry. 

Source: https://www.cryptopolitan.com/legalise-bitcoin-and-scrap-the-irs-former/

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Editorial: Is “Digital Yuan” China’s Weapon to Rule Global Markets?

The advent of cryptocurrencies like Bitcoin as a mainstream investment market and a reliable payment gateway has forced governments around the globe to take notice of the nascent technology. The ongoing bitcoin bull run driven by the mainstream financial giants such as PayPal and MicroStrategy & rising global trade tensions has only made the contention

The post Editorial: Is “Digital Yuan” China’s Weapon to Rule Global Markets? appeared first on Coingape.

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The advent of cryptocurrencies like Bitcoin as a mainstream investment market and a reliable payment gateway has forced governments around the globe to take notice of the nascent technology. The ongoing bitcoin bull run driven by the mainstream financial giants such as PayPal and MicroStrategy & rising global trade tensions has only made the contention of digital currencies stronger as the future of money.

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Rise of State Owned Digital Currencies

Governments around the globe have shown interest in developing their own sovereign digital currency pegged against the national fiat issued by their respective central banks. However, the large institutional interest combined with multi-billion dollar companies planning to use bitcoin as a hedging asset has made governments realize that the time for digital currencies has arrived.

Many countries have been either planning to develop a sovereign digital currency or they have it under development. If we look at the progress made by these countries, China is definitely at the top with their digital yuan or DCEP which is already under several pilot programs in different provinces of the country.

The US is currently working on the research aspect while the UK is already ready with a model and seeking feedback. Apart from these Russia, Canada, South Korea, and a few European countries have also laid out plans for a digital currency.

Source: China Briefing

China’s Growing Footprint in Digital Currency Space- Digital Yuan

China is one of the most progressive countries when it comes to digital payment where more than 80% of the population uses some form of digital payment in their daily lives. China started its research towards a sovereign national digital currency in 2014 itself and they have already developed their digital payment system called DCEP or digital yuan which is currently under trial in different parts of the country. The pilot programs for digital yuan started almost a year ago and it has already grown from few cities to several provinces. In fact, there were rumors of a possible launch by the end of 2019 itself.

The pilot for digital yuan started as a traveling subsidy for government employees and was later expanded to be used at restaurants, hotels, and many other service providers. The digital yuan transactions have already exceeded above 2 billion yuan which is about $300 million.

Looking at different use cases of digital yuan combined with a nationwide launch would give China an unfair advantage in the digital currency race and most of the countries have started to realize it especially the US.

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The US and China do not really hold very cordial diplomatic ties and are not good allies as both countries are looking to stamp their authority as world power where the US holds an upper hand. The US Dollar is seen as a default currency of trade giving them a monopoly in the trade market and China is looking to end that dominance. The US is very much aware of the threat which is evident from the recent letter from the director of National Intelligence to the chief of SEC, in which he deemed digital yuan has a security threat.

The growing dominance of China in the digital currency space has sparked speculations about its impact on the dominance of the US Dollar, where many fear that China would try to bypass the US Dollar for trade with other countries.

Can Digital Yuan Become Global Currency of Trade?

The US Dollar is currently used for over 88% of the international trade followed by the Euro at 32.3%, while the Chinese yuan is only used for 4.3% of the trade which is almost negligible compared to the USD. This brutal dominance of the Dollar gives the US an unfair advantage which allows them to put sanctions on other countries with whom they don’t share a good relation, barring them to use or make a trade-in USD.

Source: CNN

Chinese currency’s influence in the international trade market is too little to challenge the US Dollar’s dominance. Also, China does not hold a good relation and confidence in the rest of the world, especially after the COVID-19 pandemic. At present the best China can hope for is to increase its influence with the digital yuan in the international trade market.

One other aspect being discussed about the possible use of digital yuan is for trade with sanctioned countries. Sanctions have become quite cruel for the countries affected by it such as Iran which suffered dearly during the pandemic and its national fiat also lost almost 50% of its value in the past decade. The emergence of China as an alternative trade corridor could prove fatal for the US but only if it manages to flourish and create an impact of that level.

Final Thoughts

China has been eyeing to dominate as the world power for quite some time now and the emergence of digital currency as a possible future of money could well serve them right. China’s presence in the international trade market is large enough to challenge the US, however, its progress with the sovereign digital currency could give it a fair advantage in the growing fintech world.


To keep track of DeFi updates in real time, check out our DeFi news feed Here.

Author: Prashant k Jha




An engineering graduate, Prashant focuses on UK and Indian markets. As a crypto-journalist, his interests lie in blockchain technology adoption across emerging economies.

Source: https://coingape.com/china-masterplan-digital-yuan/

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