Within this week's newsletter, we discuss Javier Milei's election as Argentina's president, a notable event given his pro-Bitcoin stance amid the country's economic turmoil. This could signal a broader shift towards cryptocurrency adoption. We also look at HSBC's partnership with Metaco to launch a digital assets custody service, indicating mainstream financial institutions' growing interest in blockchain technology. Additionally, we analyze the decreasing presence of Bitcoin on exchanges and the potential impact of a Bitcoin Spot ETF. Finally, we touch on the significant leadership change at Binance, with CEO Changpeng Zhao stepping down amidst legal challenges.
Javier Milei wins Argentina presidential election
In a historic presidential election, Argentina elected Bitcoin-friendly Javier Milei, signaling a significant shift in the country’s political and economic landscape. Milei secured a decisive victory with over 55% of the vote, outdoing his opponent, Sergio Massa, by a margin of nearly 3 million votes.
Milei, known for his critical views of Argentina’s central banking system, which he brands as a “scam,” will be sworn into office on December 10. His rise to presidency comes at a crucial time when Argentina grapples with soaring inflation, having witnessed a 140% increase in annual inflation and significant depreciation of the Argentine peso against the US dollar.
Milei’s libertarian and free-market ideologies resonate particularly with the youth, who have grown weary of decades of economic mismanagement. The new president’s proposed solution to the currency crisis involves replacing the peso with the US dollar to restore financial stability, which aligns with his critique of the current financial system. This strategy, however, has sparked debate among economists and political analysts about its potential impacts on Argentina’s economy.
Milei’s victory could have positive effects on the cryptocurrency markets. While Milei has not proposed Bitcoin as legal tender, he praises it for symbolizing “the return of money to its original creator, the private sector.”
As mentioned above, Argentina has been plagued with high inflation rates. Milei’s leadership could see a surge in cryptocurrency adoption as Argentinians seek alternatives to the devaluating peso. With increasing skepticism towards traditional financial systems, Milei’s presidency might steer the public towards digital currencies.
In addition, the Milei administration is anticipated to introduce policies that favour the crypto sector, making digital currencies more accessible to the public. Such measures might bolster Argentina’s crypto market and attract international investors. Not only this, but Milei’s proactive approach could set a trend for other economically challenged countries. If successful in providing alternative financial solutions, Argentina could become a model for global crypto adoption.
HSBC Partners with Metaco to Launch Custody Service for Institutional Clients.
Earlier in November, HSBC, one of the world’s largest banking institutions, announced a groundbreaking initiative to launch a digital assets custody service in 2024, designed primarily for institutional clients investing in tokenized securities. This service aligns with the bank’s broader strategy to integrate cutting-edge digital solutions into its financial offerings.
Partnering with Metaco, a Swiss technology firm recently acquired by Ripple in a sizable $250 million deal, HSBC aims to leverage Metaco’s institutional platform, Harmonize. This collaboration is set to revolutionize how digital assets are managed, offering a secure and unified operational framework for these assets. This is precisely what institutions are seeking. The lack of security has prevented institutions from entering the crypto sector for many years. However, with services like this now available, it begs the question: will this partnership help bridge the gap between the traditional and digital financial world?
Zhu Kuang Lee, HSBC’s Chief Digital, Data, and Innovation Officer, emphasizes the growing demand for such services among asset managers and owners, reflecting the evolving landscape of the digital assets market. The custody service will store blockchain-based tokens representing traditional financial assets and aims to enhance efficiency and transparency in trading and asset management.
Tokenized securities, often based on blockchain technology, offer innovative ways to digitally represent real-world assets ( RWAs) like stocks, ETFs, and bonds. They also open avenues for securitizing various assets, including real estate, and for novel capital-raising methods through fractionalized digital ownership. Many significant figures within the financial space (such as BlackRock CEO Larry Fink) have suggested that tokenizing RWAs is the future and will shape the financial landscape.
As of the end of 2022, HSBC managed a substantial $9.1 trillion in custody, underscoring its influential position in the global financial sector. This new venture into digital asset custody is a strategic step in HSBC’s ongoing digital transformation journey. It aims to establish a comprehensive digital asset solution for its institutional clients and reinforce its commitment to developing digital asset markets.
HSBC is known for being reluctant when it comes to the cryptocurrency market. HSBC's Chief Executive Officer, Noel Quinn, in an interview with CNBC-TV18, confirmed that the bank has no intention of engaging in cryptocurrency. Although HSBC's custody service will specifically exclude cryptocurrencies, its partnership with Metaco shows its willingness to integrate with blockchain-based assets and demonstrates confidence in the underlying technology, which could indirectly bolster the credibility of the entire crypto space.
Bitcoin Balance on Exchanges
The chart below shows the amount of Bitcoin on exchanges continues to fall. Bitcoin's diminishing presence on exchanges emphasizes a widespread trend among investors to hold their assets long-term. The transfer of Bitcoin from exchanges to private wallets indicates investors' confidence in the digital currency's future appreciation.
In scenarios where the market is bullish and demand spikes, the lack of supply can cause significant (and often volatile) moves to the upside. This increase in value tends to create a snowball effect: rising prices draw additional investors, constricting the supply on exchanges and leading to further price appreciation.
Should a significant event occur—such as the approval of a spot Bitcoin ETF—that triggers a surge in demand, the consensus is that Bitcoin's value could escalate spectacularly. This prediction is supported by the steady elevation in Bitcoin's On Balance Volume (OBV), an indicator that denotes the asset's increasing momentum. Currently, the volume is at levels we've not since the beginning of the year when Bitcoin was recovering from its cycle lows. Given the strong uptick in volume, it is anticipated that a fresh inflow of demand and trading activity could propel Bitcoin towards all-time highs.
Bitcoin Spot ETF
Whilst we are on the topic of Bitcoin Spot ETFs, there's a prevailing sentiment within the cryptocurrency community that we may soon witness the green light for at least one pending application. January 11th, 2024 is the next deadline for the SEC to decide on Ark Invest's Bitcoin Spot ETF application. Given that the SEC cannot logically deny Ark's ETF and subsequently give the nod to BlackRock's, there's a widespread expectation that BlackRock's Bitcoin Spot ETF might get the go-ahead before Ark's deadline. At this stage, such expectations remain purely speculative. However, it’s something you must keep monitoring closely. As mentioned above, if a Bitcoin Spot ETF was to be approved, the markets would experience an immense spike in demand, and given the decreasing supply, it’s fair to say the move would be extremely volatile.
Binance CEO Steps Down
Binance has been in the spotlight yet again; this time, it's for the wrong reasons. They have recently faced a significant turn in its operations due to legal challenges in the United States. The company agreed to a $4.3 billion settlement with U.S. agencies, marking one of the most significant penalties ever imposed on a corporate entity.
Changpeng Zhao ( CZ) stepped down as CEO, acknowledging his mistakes and taking responsibility for the company's past actions. This leadership change is part of Binance's broader strategy to address its legal and regulatory issues. What's even more interesting is that Richard Teng, the former CEO of the Financial Services Regulatory Authority ADGM, will succeed CZ. Is this leadership change the start of Binance's broader strategy to address the legal and regulatory issues it faces?
The legal actions against Binance primarily revolved around anti-money laundering laws and sanctions violations. CZ pleaded guilty to these charges, admitting that the company's initial lack of adequate compliance controls facilitated illicit activities. Binance was specifically accused of failing to prevent transactions linked to sanctioned countries and entities.
This settlement and the associated penalties reflect a growing trend of regulatory scrutiny in the cryptocurrency sector. The U.S. government, through various agencies including the Department of Justice, the Commodities Futures Trading Commission, and the Treasury Department, has emphasized the importance of compliance with anti-money laundering and sanctions laws. However, now that Binance has been fined for its wrongdoings, many experts suggest this gives the exchange a clean slate going forward.
In response to these legal challenges, Binance has committed to significant changes in its operations. These include appointing an independent compliance monitor, enhancing its compliance reporting, and ensuring that CZ has no operational or management role in the company for a specified period.
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