Monday, 14 June 2021

Digital currencies gain momentum in US and China

By Busch Pu

The largest US cryptocurrency platform goes public and China's digital renminbi testing speeds up

  • S&P Dow Jones Indices launched new cryptocurrency indices weeks after Coinbase went public on Nasdaq
  • China's digital RMB accelerates after rolling out pilot programmes covering 10 cities and Winter Olympic venues
  • Will CBDCs and cryptocurrencies cross paths in the future?

Coinbase, the largest cryptocurrency exchange in the United States, went public on Nasdaq under the code "COIN", becoming the first large-scale cryptocurrency company listed in the US. Financial Times commented that the Coinbase listing marks the "coming-of-age moment" of cryptocurrencies.

S&P Dow Jones Indices launched new cryptocurrency indices

S&P Dow Jones Indices, the world’s leading index provider and a joint venture between S&P Global, the CME Group, and News Corp, officially launched its new series of digital asset benchmarks, the S&P Digital Market Indices.

The new S&P Digital Market Indices series include S&P Bitcoin Index, S&P Ethereum Index and S&P Crypto Mega Cap Index which will measure the performance of respective digital assets listed on recognised open cryptocurrency exchanges.

"As cryptocurrency becomes more mainstream, investors now have access to reliable and transparent benchmarks backed by institutional quality pricing data. We look forward to further expanding our new family of digital market indices and bringing much needed transparency to this exciting market," said Peter Roffman, global head of innovation and strategy at S&P Dow Jones Indices.

Cryptocurrency platform Coinbase went public on Nasdaq

The launch of the new cryptocurrency indices is only weeks after the direct listing of Coinbase, which was viewed by the market as one of the landmark developments in cryptocurrency.

With a market cap around $86 billion, Coinbase became the most valuable US exchange after first day of trading, close to the combined market value of Nasdaq and Intercontinental Exchange, which owns the New York Stock Exchange.

Coinbase’s listing rode on a bull run in the price of cryptocurrencies, with bitcoin hitting a record high just under $65,000 days before its listing. Bitcoin has more than doubled this year and attracted large investors such as Goldman Sachs, Morgan Stanley, and Tesla.

However, Coinbase stock has lost more than 30% of its value since its peak on 14 April after bitcoin slumped 5% to $48,886, falling below the $50,000 mark for the first time since early March on concern that US President Joe Biden’s plan to raise capital gains taxes will have negative effects on investment in digital assets.

Founded in 2012, Coinbase, headquartered in San Francisco, is the first cryptocurrency exchange in the US with a formal licence. It mainly trades in 59 currencies including bitcoin and ethereum and has 56 million users in total.

Coinbase generated its income mainly through charging fees and commissions when investors buy and sell cryptocurrency, while its popular wallet service remains free.

As its US Securities and Exchange Commission (SEC) filing shows, Coinbase’s transaction volume reached $335 billion and total revenue was $1.8 billion in the first quarter, surpassing last year’s total of $1.3 billion. Assets in the first quarter have increased from $90 billion to $223 billion, accounting for 11.3% of the digital asset market share.

As of April 2021, Coinbase was ranked world’s second largest cryptocurrency exchange in terms of spot trading volume, second to Binance, whose 24-hour volume is eight times more. Binance also trades in 358 currencies much more than Coinbase’s 59. Binance CEO Changpeng Zhao said that it has no plans to follow Coinbase’s path and go public in the near future, given its ample cash reserve and healthy growth.

China's digital RMB accelerates after rolling out pilot programmes

On the other side of the Pacific, China, determined to be the first to issue central bank digital currencies (CBDC), has accelerated its test of digital renminbi (RMB).

Li Bin, head of the macroprudential policy bureau, People’s Bank of China (PBoC), said the tests have been conducted in Shenzhen, Suzhou, Xiong’an, Chengdu and the Beijing Winter Olympic venues since late 2019. Six new pilot areas in Shanghai, Hainan, Changsha, Xi'an, Qingdao, and Dalian were added by October 2020. This is the first time the central bank has announced the expansion of the digital RMB pilot programmes to "10+1" or ten cities plus Beijing Winter Olympic venues.

“At the moment, the pilot areas in general are still on the testing stage. So far, we don’t have a timetable of the official launch,” Li said. The PBoC would also consider expanding digital RMB for cross-border payment transactions when conditions are ripe, said Wang Xin, head of its research bureau.

“Recently, with the support of the Hong Kong Innovation Hub of the Bank for International Settlements (BIS), the Digital Currency Research Institute of the PBoC and Hong Kong Monetary Authority (HKMA), the central bank of Thailand, and the United Arab Emirates have jointly initiated a multilateral CBDC bridge research project to explore the application of CBDC in cross-border simultaneous settlement using distributed ledger technology,” added Wang.

The PBoC established a joint venture called Finance Gateway Information Services Co. with Belgium-based SWIFT financial messaging service. Other shareholders of the entity include China’s Cross-border Interbank Payment System (CIPS) and the Payment and Clearing Association of China, both supervised by the PBoC.

Will CBDC and cryptocurrencies cross paths in the future?

Thirteen years after the invention of bitcoin, S&P Digital Market Indices and the direct listing of Coinbase are yet another two milestones in the unstoppable trend of cryptocurrencies becoming mainstream.

With China trailblazing in CBDC, global central banks too are no longer playing defence facing the imminent threat of cryptocurrencies, especially from the so-called stablecoins, to monetary sovereignty. A January 2021 BIS survey indicates that 86% of the central banks around the globe are actively researching the potential for CBDCs, 60% were experimenting with the technology and 14% were deploying pilot projects. A fifth of the world’s population are likely to have a general purpose CBDC in the next three years.

Witnessing the fast pace of CBDC development, Brian Armstrong, CEO of Coinbase, expressed his willingness to add CBDCs to the trading platform. “We at Coinbase are cryptocurrency agnostic; we're going to support any cryptocurrency including CBDCs and stablecoins and even decentralised ones like dai as long as they meet our listing standards.”

As cryptocurrencies and CBDCs are gaining more traction in parallel, they should not be mutually exclusive. Symbiotic public-private partnerships can and should be formed where key issues like data privacy, compliance monitoring and network safety can be addressed by working together.

“A successful retail CBDC would need to provide a resilient and inclusive digital complement to physical cash but that does not preclude an important role for the private sector,” said Agustín Carstens, general manager of BIS.



Keywords: Cryptocurrency, Digital Renminbi, CBDC, Digital Assets, Blockchain Technology, Cashless Payments
Institution: Coinbase, Nasdaq, S&P, Morgan Stanley, Goldman Sachs, Tesla, US Securities And Exchange Commission, People’s Bank Of China, Bank For International Settlements, SWIFT
Region: United States, China
Guest: Changpeng Zhao, Li Bin, Wang Xin, Brian Armstrong, Agustín Carstens
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