BitOoda Global & Regulatory Analysis, 11/25/2019: Developments in Asia Signal Upcoming Volatility and Broader Market Shifts
We are closely monitoring a series of developments in Asia that are impacting digital asset markets. Below we summarize some of the events affecting the market and informing potential trading strategies, assess some implications of these developments in the short and long term, and conclude with an observation about the U.S. response as Asia increasingly becomes the center of gravity for the global digital economy.
· Hong Kong’s elections over the weekend signaled at least a short period of calm after six months of anti-government protests, and we will continue to monitor reactions to the apparent victory by pro-democracy candidates.
· China’s PBoC (People’s Bank of China, the country’s central bank) officially acknowledged it is inspecting and monitoring exchanges in Shanghai and Shenzhen, following last month’s speech by the Chinese President advocating the country’s focus on blockchain that caused BTC prices to spike.
· The Weibo accounts for Binance and Tron have been blocked “due to violations of laws and regulations.”
What are our views on these developments? From the more immediate perspective of helping our clients execute the most advantageous strategies, we assess the political climate and events like the Hong Kong elections are likely to be a catalyst for heightened BTC volatility, at least in the short term. Please see our regularly-published Volatility Reports for details on recommended trading strategies, or reach out to our sales team at email@example.com.
Over time, we see China’s PBoC ramping up its efforts to lay the foundation for the launch of the digital yuan. Given Beijing’s “Belt and Road” initiative and continued sentiment from both China and Russia about moving away from the U.S. Dollar as the world’s dominant currency, one could see Beijing’s recent actions in the digital asset space as attempts to position its PBoC-controlled digital currency not only as the dominant stablecoin, but also a viable alternative to BTC and more broadly to the U.S. Dollar. With the PBoC’s plan for broad dissemination and use of the digital yuan, we can’t help speculating whether the country’s recent actions are part of a broader strategy to lay the groundwork for the digital yuan’s role in the global economy.
Given the continued shift of the digital asset center of gravity toward Asia, how are we seeing the U.S. respond? Unfortunately, through the continuation of an approach that favors regulation and restriction over advocacy and advancement. The House of Representatives recently introduced the “Managed Stablecoins are Securities Act” to place increased regulatory constraints on Libra and other stablecoins, FinCEN Director Kenneth Blanco recently delivered a speech underscoring his view that crypto regulatory compliance is a “national security issue,” and the U.S. Federal Reserve Board stated that stablecoins could negatively impact financial stability.
While we agree with FinCEN director Blanco that this is a national security issue for the U.S., we argue it is a bigger national security risk for the U.S. not to push to keep pace with China, Hong Kong, Singapore, Japan, and other countries with stronger pro-crypto stances. In fact, two U.S. Representatives directly asked Fed Chair Jerome Powell about the risk to the U.S. Dollar if another country created a widely-used cryptocurrency; Powell’s response — that the Fed will ‘continue to analyze the issue’ — reflects the U.S.’s wait-and-see approach that increasingly is causing the world’s focus on digital economic developments to shift elsewhere.