Since this year, the development of digital currencies is in full swing, although the launch of Facebook stable coin Libra has been repeatedly frustrated, the regulators have been cautious about Libra, but the dollar and euro continued monetary easing table makes the crypto digital currency market heat rising, the crypto digital currency market represented by bitcoin, ethereum and dogcoin, etc. under the attention of celebrities such as Masco, the wind and waves continue to record Hundred times and thousand times returns of various small coins have made more investors flock to the crypto digital currency market. This paper analyzes the basic pattern of global crypto digital currency market development, analyzes the risks and problems, and puts forward countermeasure suggestions.
I. Recent Global Digital Currency Developments
Overall, digital currencies can be divided into state-issued legal digital currencies (CBDC), global stable coins (GSC) anchored with sovereign currencies or assets, and various types of crypto tokens of expanding scale, all three areas show rapid development trends in 2020 and are gradually rebuilding the global digital financial infrastructure, with a new generation of information technology giving rise to a surge in demand for digital financial infrastructure, connecting The basic pattern of digital currency in the economy and society has taken shape.
First, the legal digital currency research and development program is widely promoted. According to a questionnaire sent by the Bank for International Settlements (BIS) to 65 central banks around the world in the fourth quarter of 2020, 86% of central banks said they were conducting research or experiments on central bank digital currencies (CBDC). Of these, 10% of central banks have gone live with digital currency pilot projects Currently, countries including the Bahamas, Uruguay, Ecuador, Venezuela, Thailand and Cambodia have issued digital currencies, and many emerging market countries such as China are actively testing the application of retail-type central bank digital currencies.
In August 2019, Governor McCartney of the Bank of England proposed in a report and speech that a “synthetic hegemonic digital currency” would replace the U.S. dollar as the world currency. The report, “The Impact of Digital Currencies on the Development of Various Types of Digital Currencies,” argues that the digital economy is platform-centric, while the traditional economy revolves around banks, and that digital currencies will affect the macroeconomy, international payments and the future development prospects of banks. The report refers to a paper by Princeton University on the theory of “digital currency partitioning”, so financial markets may split into multiple “digital currency zones” due to competition from digital currencies, and a new digital currency war is on the horizon. In early 2021, Libra changed its name to Diem, moving from anchoring a basket of currencies to a single anchor of the U.S. dollar. The move was interpreted as Facebook changing the attributes of “synthetic” and “basket” to serve the digitalization strategy of the US dollar in order to obtain compliance permission from the Federal Reserve and other institutions.
Third, the high price of crypto-digital currencies has led to the deepening of the market. In 2021, Bitcoin surged, breaking the $30,000, $40,000, and $50,000 mark in quick succession, and the mining machine market also set off a wave of high tides. Public figures such as Musk and MicroStategy continue to “bring” the digital currency to social media. On February 18, the Toronto Stock Exchange (TSX) began trading BTCC, North America’s first bitcoin ETF. 9.65 million copies, ranking in the top 10 of all varieties of volume on the TSX for the day, with first-day turnover of $165 million, accounting for 1.6% of the average daily turnover of $10.4 billion in the Canadian stock market and well above the average first-day turnover of newly listed ETFs in Canada. In addition to BTCC, another bitcoin ETF called “EBIT” also went live on the Toronto exchange, a milestone event for the cryptocurrency and ETF industry.
(i) National digital currency development in developed countries and emerging economies show a differentiated trend
Emerging economies hope to find new opportunities for development in the current round of digital economy and have been actively developing digital currencies. On the whole, the emerging countries are faster than the developed countries in the field of national digital currency research and development. Developed countries are very cautious in actual landing applications, although they make frequent voices and test work continues to advance. Europe, the United States and other countries digital currency research and development is still in the research experiment stage, only Singapore Ubin, Canada Jasper related research and development progress a little faster, and the United Kingdom has been publicly diverted to private institutions and national dual strategy mechanism.
Digital currency is not only a financial infrastructure, but also a new type of financial instrument, which will have a continuous impact on the macro economy, and its influence will not only not decrease, but also continuously increase. When banks and other financial institutions join the digital currency bloc, the influence will continue to expand, and each time the impact will be greater than the previous one. Because digital currencies are so efficient in cross-border transactions, accelerating and amplifying the impact of capital flows, this systemic risk in the digital age is something that any country must seriously consider when developing CBDC. For countries with weak fiat currencies, blindly developing CBDCs is not a good choice.
(ii) The properties of crypto-digital currencies as reserve assets are stealing market share from gold
The Block Research crypto trading data shows that cryptocurrency trading volume exceeded $1 trillion in February, setting a new record. As of February 26, monthly trading volume was $1.05 trillion, an increase of $143.9 billion or 15.9 percent over January. The frenzied wave of bitcoin speculation has led to pressure on gold prices. Despite the volatility, bitcoin has led the global market since September 2020, still reaping a nearly 300% gain and performing far better than other similar assets, with some retail and institutional investors at Citi turning to bitcoin and other digital currencies, arguing that “bitcoin and other digital currencies appear to be taking market share from gold.
Citi’s team of analysts believes that Bitcoin is at a “tipping point” where it could either become the preferred currency for international trade or face a “speculative implosion. After gaining traction with companies like Tesla and MasterCard, Bitcoin could be at the beginning of a major transition into the mainstream. The situation has even pushed the central banks of the Western Group of Seven (G7) to consider launching an official digital currency. Domestically, the Malaysian branch of CCB, Meitu, and Azure have all made public statements about conducting bitcoin transactions.
(iii) Countries face a tougher regulatory situation under digital currency price volatility and trading surges
Through the monitoring of nearly 100 major exchanges and wallets around the world, the number of users involved in on-chain transactions (i.e. transactions written into the blockchain) of mainstream virtual digital currencies such as bitcoin (BTC) and ethereum (ETH) in the territory in 2020 is 310,000, 110,000, and the number of virtual digital currencies traded is 1.45 million and 7.71 million, respectively. According to the calculation of the transaction unit price on December 31, 2020 (BTC 186,000 yuan/pc, ETH 5,000 yuan/pc), the equivalent of BTC, ETH, USDT and other virtual digital currencies traded by domestic users in 2020 are 269.7 billion yuan, 38.5 billion yuan and 104.6 billion yuan respectively. However, the seemingly hot market is actually undercurrents, with surges and plunges becoming more frequent. As of the morning of March 1, one bitcoin was quoted at around $45,000, down more than $10,000 in a week from a high of $58,000 on Feb. 22.
The U.S. Securities and Exchange Commission (SEC) has previously rejected applications for several bitcoin ETFs, fearing that the price of bitcoin could be manipulated and concerned about the lack of liquidity in bitcoin. Bank of England Governor Andrew Bailey publicly stated on January 25 at the World Economic Forum in Davos during a panel discussion on “digital currencies” that regulation should be concerned about digital currency financial crime and expressed concern about the volatility and “stability of value” of digital currencies. The European Central Bank President Christine Lagarde The European Central Bank President Lagarde and U.S. Treasury Secretary Yellen have also issued relevant remarks in January.
(4) Large Internet companies are using digital currencies to develop new distributed business models
The main driver of this round of digital currency is the emerging Internet enterprises, from Zuckerberg to Musk, whether launching Libra or speculating on Bitcoin and Dogcoin, they are all trying to launch new digital financial ecology with new technological business models such as online social and new energy, to circumvent the constraints from regulation and traditional financial barriers. Domestic large Internet enterprises are also invariably building digital financial ecology under the alliance chain architecture with the help of blockchain technology. Based on their already data accumulation advantages in the field of financial retail, the only thing that constrains them from further involvement in the financial industry is the issue of “license” for various businesses.
Currently, the platform economy anti-monopoly related guidance draft has been publicly released, large Internet companies seeking to overcome the traditional business model of cooperation from the perspective of equity, equity, etc. from a technical perspective, have used blockchain technology, which is closely related to digital currency, to build a new distributed business ecology. Take the “Ant Chain” renamed on July 23, 2020 as an example, it claims to technically support the scale of 1 billion accounts, has the ability to process 100,000 cross-chain messages per second, and has a daily activity of more than 100 million times per day. Tencent, Jingdong, Baidu, etc. also have similar business structures, such a large volume of transaction information, transaction content, transaction amounts across sectors and industries, there is no new position and attitude towards the new model of regulation. Already appeared in the cross-border digital token trading, platform economy regulation of some passive open interface type problems will appear again, the scene crossed under the agnostic risk again repeatedly accrued.
III. Inspirational suggestions
(1) Actively respond to the new digital currency war in the field of cyberspace and build a new digital financial order
At present, in terms of digital currency transaction rules, transaction technology and regulatory policy, the representative and successor of the old commercial banks, the European Central Bank, has been caught in a dilemma, and more countries will face a new type of digital currency war scenario, and digital currency will become a new area of international competition strategy of each country.
All countries are still in the exploration stage, and all kinds of current monitoring are still post-facto supervision, and technical blocking cannot fundamentally stop the spread of the scale of cross-border transactions. China should stand on the height of network security and information technology as a national strategy to actively respond, and recognize that the essence of the digital currency war is still the competition of national digital currency, to avoid being “stuck” after the “one-size-fits-all”. Actively establish a response mechanism in the strategic dimensions of information security, network security, financial security and national security, enhance the ability to respond to the new digital currency war, and guide and participate in the construction of a new digital financial order in cyberspace.
(2) Take the initiative to solve the problem of the increasingly blurred boundary between the Internet and finance, and cultivate a new ecology of digital currency
In the context of digital currency, the boundary between finance and the Internet is increasingly blurred, and the Internet and finance are fused into one. At present, the development of financial technology industry, which is an important technical support for digital currency, has encountered many problems, facing technical and legal issues such as data flow, data value, data ownership and data application; large Internet enterprises, which are the main application scenarios of digital currency, have formed a large number of data “weirs” in the industrial chain, supply chain, capital chain, data chain, information chain and talent chain “The gray industry chain of data industry leads to a lot of privacy and security problems.
There is an urgent need for government-led reform of data elements, clear policy guidance and boundary bottom line, joint efforts of the market and the government to break through data barriers, improve the value of data utilization, and regulate data application scenarios. Especially for industries with complicated names, huge scale, intertwined risks and structures not easy to penetrate, such as fintech, it is necessary to adhere to righteous innovation, strengthen monitoring of distributed financial businesses that are still in regulatory gaps, take the initiative to solve the problems of unsound laws and regulations and regulatory gaps brought about by the blurring of industry boundaries, promote the development of new businesses, new models and new business models, solve the difficulties and confusions in the development of new industries, and cultivate The new ecology of digital currency industry.
(3) Building digital RMB application standards and enhancing the influence of sovereign digital currency
As a national financial infrastructure, China’s legal digital currency (DCEP) has started to be used on a pilot basis. Currently, the DCEP issued by the People’s Bank of China is set to replace cash in circulation. It should take the initiative to establish application standards and interface specifications based on the national sovereign digital currency to guarantee the safe use and internationalization of the national sovereign digital currency.
Based on promoting the development of digital RMB Belt and Road strategy and national strategies, the security protection capability of national digital currency at the circulation level is improved by means of financial information security technology. Construct national anti-money laundering, anti-terrorist financing and other risk management standards and application interface specifications based on the digitization of cash, prepare technical reserves for the wide application of the national digital currency, and master the international discourse of digital currency.
(4) Tracking the development of global digital currencies, and promoting the development of cooperative regulation and integration innovation
The regulators around the world are making their own responses to the development of digital currencies, some inclusive, some prudent, but the special nature of digital currencies makes it necessary for countries to face this issue together. The High-Level Recommendations, a key component of the roadmap for strengthening cross-border payments commissioned by the G20, issued an action plan for international standards, authority collaboration, and regulatory frameworks. Countries around the world are actively studying the development of digital currencies, and China’s DCEP has received widespread attention from the international community.
In the next step, China should actively play the new generation of information technology integration and innovation capabilities, and promote collaborative regulation among countries and sectors. Pay close attention to the latest developments of digital currencies, make active responses in terms of technical reserves, development plans and strategic layout, and contribute Chinese wisdom to the innovative development in the field of digital currencies.
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