Visa Cryptocurrency

Cryptos: Watershed year for cryptocurrencies as institutions dip their toes

Digital artist Beeple sold a collection of his works entitled Everydays for US$69 million
Written by publishing team

This could be seen as a watershed year for cryptocurrencies as the entry of institutions into the space marked the beginning of a shift in the perception of digital assets and currencies, which were previously known as tools for illicit activities.

Notably, there was a noticeable increase in crypto-related headlines throughout the year as banks and companies announced crypto projects, on the back of cryptocurrency prices hitting record levels.

Bitcoin (BTC) reached a peak of just over $68,000 (RM290,000) in November before experiencing a correction. At the time of writing, the cryptocurrency was trading at $48,764 – more than a 20% retracement from its all-time high.

The year saw the listing of the first US exchange-traded BTC fund (ETF), ProShares’ Bitcoin Strategy ETF, on the New York Stock Exchange, paving the way for many other BTC ETFs and providing institutions with a safer way to profit part exposure.

Institutions such as Goldman Sachs, JP Morgan Chase, Visa, Mastercard and PayPal, which have been critical of BTC, seem to have reversed their position.

In March, Goldman Sachs restarted its cryptocurrency desk as prices rose, and began dealing in BTC futures and non-deliverable futures contracts for its clients, amid strong institutional demand. The bank said BTC could be considered an investable asset, although it acknowledged in a report that the cryptocurrency “has its own risks, in part because it is still new and is in the process of adoption.”

JPMorgan Chase quickly followed suit and launched access to six cryptocurrency funds for clients in August.

While Apple Inc itself does not hold any digital assets on its balance sheet, CEO Tim Cook has publicly revealed that he owns cryptocurrency personally, adding that he has been interested in the sector “for a while.”

Musk intervenes in the market

One important news item on the issue was Tesla Inc’s $1.5 billion purchase of bitcoin, with the company citing the move as a diversification strategy and “maximizing returns on its money.” To further speculate about the digital currency, Tesla CEO Elon Musk tweeted that the electric car company will soon accept cryptocurrency as a payment for its products.

The Tesla and Musk announcements in February likely played a role in the BTC rally in the early part of the year – the cryptocurrency soared to over $60,000 in mid-April. It saw a sharp correction in the following months, coinciding with Musk’s tweet in May that the company “has stopped buying vehicles with BTC” due to environmental concerns, as BTC is known to consume large amounts of energy to keep its network up and running.

Aside from BTC, the billionaire also has an influence on the cryptocurrency Dogecoin (DOGE). While Musk was tweeting jokingly and mocking cryptocurrency (which its founders joked about), the market seemed to be taking his reactions seriously.

For example, it was recently announced on Twitter that Tesla might accept DOGE as payment for merchandise on a test basis, which subsequently drove the cryptocurrency up more than 20% after the announcement.

His tweets reportedly caught the attention of the US Securities and Exchange Commission, amid concerns about his impact on the markets.

Institutions are starting to look beyond BTC

Undoubtedly, BTC has maintained its dominance in the cryptocurrency space, and remains the number one digital asset by market capitalization, although institutions are beginning to notice other cryptocurrencies, called altcoins – an umbrella term that covers other digital assets that Not BTC.

According to a weekly CoinShares Digital Asset Fund Flows report, BTC was the main cryptocurrency that attracted institutional interest, recording $6.36 billion in institutional inflows for the year through December 17, or 68% of a total of $9.35 billion in inflows for the period.

However, the data also indicated a growing institutional interest in interest-bearing digital currencies, as the top four digital assets to be selected after BTC were Ethereum, with $1.46 billion in inflows, Solana ($217 million), Polkadot (115 US$1 million) and Cardano (US$107 million).

These digital assets allow decentralized applications (dApps) to be built on their platforms, extending their usefulness beyond just a digital currency – very different from the functionality of BTC.

While BTC is often compared to fiat currency or gold, it would be more appropriate for Ethereum and its peers to compare to the Internet. The current version of the Internet – a four-decade-old technology – ushered in the digital age by enabling numerous applications, including e-commerce, digital payments, online banking, social media, and nearly real-time music and video streaming.

Many believe that blockchain networks like Ethereum will usher in the next evolution of the Internet or Web 3.0 – where they are not controlled by huge corporations, but are instead backed by a decentralized network of computers spread across the world, making them difficult to censor. or shut down.

Equipped with an embedded layer to support payments and complex financial transactions governed by code and smart contracts enabled by blockchain technology, these networks will see more “layers” rolled out in the future, in relation to areas such as digital identity.

So far, this has led to the rise of Decentralized Finance (DeFi), as well as a crypto-derivative craze that has taken a life of their own as non-fungible tokens (NFTs).

The rise of NFTs

If you consider the BTC craze to be a bit of a “tulip frenzy,” NFTs push the boundaries even further to show that markets can be created for pretty much anything – from digital artwork to a JPEG image of a cartoon monkey.

This is enabled by the blockchain’s indisputable record-keeping capabilities, which provide a way for users to verify ownership of items, including digital files such as images, video, audio, code, algorithms, and perhaps one day physical assets.

This is a boon for the digital arts sector as artists can take advantage of these networks to offer their work for sale and receive payments directly, while collectors have a way to verify and prove ownership of a particular digital artwork.

In March, digital artist Beeple sold a collection of his work called Everydays for US$69 million – which arguably spurred the NFT craze in 2021.

Meanwhile, the Bored Ape Yacht Club (BAYC) – a group of 10,000 NFTs launched on the Ethereum blockchain that depicts monkeys with various traits – has managed to lure celebrities onto the NFT bandwagon.

The price of each BAYC can be from thousands to millions of dollars depending on its appearance and rarity, denominated in Ether (ETH), the Ethereum blockchain currency.

Earlier this month, sportswear maker Adidas teamed up with BAYC on the brand’s first NFT product called “Into The Metaverse,” bringing the company’s revenue over $23 million in ETH.

Meanwhile, rival Nike has acquired RTFKT Studios (which makes digital NFT sneakers) to expand the clothing maker’s digital footprint and capabilities.

Visa also subscribed to its purchase of CryptoPunk NFT for around 50 ETH, or $150,000 USD, at the time of purchase in late August.

Visa President of Crypto Cuy Sheffield said in a statement that the payments service provider believes NFTs will play an important role in the future of retail, social media, entertainment and commerce. He added that Visa’s project in the space will provide the group with an understanding of the infrastructure requirements for a global brand to purchase, store and leverage NFT.

The group has published a white paper entirely dedicated to NFTs to help its partners understand how tokens are integrated into their ecosystem and Visa can be part of their journey.

Mastercard has also dipped its toe into the NFT space, giving its UK cardholders the chance to win the first-ever NFT, created in partnership with global ambassador and football coach Jose Mourinho – a mobile digital football signed by Mourinho.

In Malaysia, Korean restaurant chain MyeongDong Topokki released 1,000-piece NFTs aimed at encouraging sustainable consumer participation. It is also working on collaborations with NFT artists in Malaysia to release limited edition pieces.

Malaysian artists are also riding the NFT wave, including graffiti artist Abdul Hafeez Abdul Rahman, better known as Katun, who sold two NFT sets for 127.6 ETH (RM1.6 million) within 24 hours.

Calls for more regulation

Growing institutional interest in cryptocurrencies has prompted regulators around the world to act, with many calling for greater oversight and regulation.

In the US, President Joe Biden signed a $1.2 trillion infrastructure bill in November that requires crypto exchanges to notify the Internal Revenue Service of crypto transactions, although there is still room for more clarity on regulations.

The Bank of England called for intensified regulatory and legal frameworks globally in order to manage risk, encourage sustainable innovation, and maintain broader confidence and integrity in the financial system, adding that “this is not something the UK can fully solve for king”.

Nearby, the head of the Monetary Authority of Singapore, Tharman Shanmugaratnam, said “there may be a role for cryptocurrencies in future financing that goes beyond pure speculation and illicit financing” at the Asia Financial Markets Forum in October. He added that the RBS is keeping an open mind on cryptocurrencies to enable technologies and innovation to evolve.

The city state earlier this year granted crypto licenses to provide digital payment token services to the brokerage arm of DBS Bank and an Australian cryptocurrency exchange.

On the other hand, developments in Malaysia have been somewhat stagnant. The last time regulators mentioned anything about the regulations was in 2018, when the Malaysian Securities Commission (SC) said it would regulate digital asset issuance through Initial Coin Offerings (ICOs) and the trading of digital assets on exchanges in the country. It said that issuers of ICOs and digital asset exchanges are subject to the Supreme Committee’s guidelines on preventing money laundering and terrorist financing.

Meanwhile, Bank Negara Malaysia confirmed that the digital assets are not legal tender in Malaysia.

Recently, the Deputy Minister in the Prime Minister’s Department, Eden Siazli Sheth, said in Parliament that the government has no plans to regulate cryptocurrency at the moment, adding that it is difficult to regulate due to its decentralized nature.

While NFTs and DeFi applications have proliferated, there has been no mention by regulators of their stance on these areas of cryptocurrency and digital assets. There is an urgent need for Malaysia to ramp up its regulations on cryptocurrency or risk being left behind in this emerging space, as local institutions will be reluctant to take any steps without further clarity. International players in digital assets may bypass Malaysia altogether, given its neighbor Singapore’s more open attitude towards the blockchain space.

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