After a very eventful week that saw Bitcoin finally move, the IMF head proposing a case for state-backed digital currencies, and the Bitcoin Cash hard fork that the saw the chain splinter to BCH SV and BCH ABC, in today’s edition,we decided to provide a quick summary of the key events this week, a bite-sized recap of the significant events. Sometimes when you have nothing new to add, you should let things speak for themselves.
Underfunded pensions might be the real institutional investors we are waiting for.
With near-zero bond yields for the better part of the decade since the 2008 crisis, pensions have been left with modest returns, but growing payout liabilities, and therefore, a widening pension deficit.The average annual yield requirement for pension funds to meet their obligations is around 8%, and only a handful of them have managed to consistently deliver around or above that number over the past few years. Cryptocurrencies could be a valuable addition to pension funds’ portfolios, especially when yield targets are high, as it improves the risk-adjusted returns of the entire portfolio. Institutional investors such as Yale are beginning to look at crypto, but the much-touted institutional capital deluge could take a while, dependent as it is on regulation, custody solutions etc among others
State-backed digital currencies might not be very far away.
Iran’s cut off from the SWIFT network - a proverbial lifeline for global banks to settle international transactions - could well be the impetus for the launch of state-backed digital currencies. In her speech earlier this week, the IMF head Christine Lagarde urged central banks around the world to consider issuing CBDCs (Central Bank Digital Currencies) to improve financial inclusivity for the underbanked and accountability for larger institutional institutions.
To be fair, a CBDC, or a central bank backed crypto would be anathema to maximalists and true crypto libertarians, given that it will prone to the very same vagaries of inflation and censorship, political or otherwise, that plague traditional cryptos. However, this could play out like the whole blockchain vs. bitcoin debate, and some real benefits could yet come out of wider adoption by the existing establishment, the governments and the corporations.
Bitcoin Cash hard fork in fewer than 50 words. There are two factions here - Bitcoin SV led by Craig Wright and Bitcoin ABC led by Roger Ver. Craig & Co want to increase the block size by 4 times to 128MB, while the ABC faction feels that the current 32MB is good enough. The standoff is resulting in new client nodes called Bitcoin ABC, forking off from Wright’s Bitcoin SV (Satoshi’s Vision). Collateral damage is the resultant BTC price rundown, at least according to some.
Is the Bitcoin Cash fork the reason behind the recent downturn? We have heard of rumors that the recent steep price correction a couple of days ago was indeed due to BCH holders dumping their large stash of BTC to garner support for their newly forked versions of Bitcoin Cash. One more theory that is making the rounds - investors panicked after the IMF head made a passing reference to stable-backed digital currencies and decided to kick cryptos to the curb; We think this is far-fetched, even by the high (low?) standards of “crypto-far-fetchedness”.
During every market downturn, the hope is that at least a few of the shitcoin projects won’t resurface again when the tide turns! Markets are a natural cleansing mechanism, flushing out the garbage, but for many, the process might be too painfully slow for them to hold on.