Digital currencies could radically change the balance of global economic power according to Deutsche Bank Research View in browser

“If I could only own one asset for the next 10 years, it would be Bitcoin. It encapsulates all of my larger macro views and feels like the point on the far horizon we are headed to, in some shape or form.” ~ Raoul Pal, a former hedge fund manager

Market State

The cryptocurrency market has been steadily gaining since the beginning of the year. The overall market has been in the range of $250 billion and $266 billion over the last week. Bitcoin climbed around 32% in January alone, adding $2000 during the first month of the year. It has been the best start of the year for Bitcoin since 2012. Bitcoin is hovering around $9440. Ether has gained a lot since December, 2019. It is continuing its move towards $200. Currently Ether is standing around $197.

Bitcoin’s January gain has coincided with large drops in the traditional market which was attributed mainly to the fear of the coronavirus outbreak. When there is an ongoing economic uncertainty Bitcoin usually goes up. However the virus is already starting to have effects on the cryptocurrency market as well. Last week two the Chinese crypto mining manufacturers, Bitmain and Innosilicon, notified their customers that there will be delays in their shipment due to the coronavirus quarantine in China. There is no doubt that Chinese economy is being hit hard from the coronavirus outbreak. It’s still too early and difficult to conclude if there is a correlation between the prices of crypto market and the virus outbreak.

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Quiz of the week

When did Bitcoin reach parity with the US dollar?

  1. 9th of February, 2011
  2. 22nd of May, 2009
  3. 28th of November, 2010

Scroll down to see the answer at the end of the newsletter.

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Top stories of the week
Bitcoin Should Make Up a Portion of Every Investment Portfolio Said CEO of Morgan Creek

Mark Yusko, CEO of Morgan Creek Capital Management said that every investment portfolio should get off zero Bitcoin exposure and have at least 1%, but rather 2-3% Bitcoin allocation (“hashtag: get off zero” - as he referred to it). Morgan Creek Capital Management is an American investment management firm that advises pension funds, endowments and wealthy individuals. In the latest episode of the Keiser Report, a financial news and analysis show, Yusko noted that portfolios with even 1% exposure to Bitcoin have outperformed all traditional investments over the past five years. He said Bitcoin is one of the most asymmetric assets he have ever seen in his career. He also suggested that it will become increasingly normal for traditional funds to seek exposure to Bitcoin. He referred to Bitcoin as a technology, a use case of blockchain technology and “investing in technology, investing in innovation has always been the path to long-term alpha.” (Alpha is a measure of the excess return of an investment fund relative to the return on a benchmark index, based on the expertise of the investment fund).

Digital Currencies Could Radically Change the Balance of Global Economic Power According to Deutsche Bank Research

Deutsche Bank Research published this January a three-part series called The Future Of Payments examining the past, present, and future of the payments industry. The series analyses the results of a proprietary survey of 3,600 customers across the US, UK, China, Germany, France and Italy and forecast trends in cash, online, mobile, crypto, and blockchain. According to the report the “potential macro and geopolitical consequences are profound”, the authors see the transition to digital payments “as having the potential to do no less than rebalance global economic power”.

The first report, titled Part I: Cash: The Dinosaur Will Survive… For Now predicts that cash will be a part of the economy for decades to come because “people have developed a deep-rooted trust in paper and coins during uncertain times” and because it “allows people to more easily track their spending”. Part II: Moving To Digital Wallets, and The Extinction Of Plastic Cards states that the coming decade will see digital payments (peer-to-peer payments and cryptocurrencies) grow at light speed, leading to the extinction of the plastic card. In emerging markets, the effect could arrive even sooner. Many customers in these countries are transitioning directly from cash to mobile payments without ever owning a plastic card. Part III: Digital Currencies: The Ultimate Hard Power Tool is an analysis of payment systems and the need to upgrade. The authors believe a new digital currency could become mainstream within the next two years and in the long run, a digital currency could eventually replace cash. To break into the global payment market, digital currencies must overcome some headwinds and forge alliances with key stakeholders. These might include mobile payment apps (Alipay, WeChat Pay, Apple Pay, Google Pay), card providers, and worldwide retailers (Alibaba, Amazon, Walmart). Assuming that (a) governments back them; and (b) they become stable; and (c) consumers and merchants can get more value by using these new currencies, then increased adoption rates will more rapidly lead to mainstream use. If current trends continue, there could be two hundred million blockchain wallet users by 2030.

According to the report the main contestants for a mainstream digital currency are Facebook’s Libra stablecoin and the Chinese government’s digital currency. Facebook, with nearly 2.5 billion users (one-third of the world’s population), and China, with more than 1.4 billion inhabitants combined the two currencies would cover more than half of the world's population. If China launches their central bank digital currency, it will become the first major economy to use a digital currency, which will pressure other countries to set up their own digital currencies.

As China (and India) develop electronic, crypto, and peer-to-peer strategies, the epicentre of global economic power could shift. China is working on a digital currency backed by its central bank that could be used as a soft- or hard-power tool. In fact, if companies doing business in China are forced to adopt a digital yuan, it will certainly erode the dollar’s primacy in the global financial market.

The reports suggest that Western governments should address and issue regulatory rules soon before technological disruption and changing services in emerging economies creates a potential crisis. Adoption will require, as noted in the final report, legitimacy from local governments and regulators.

Art Project Provides Crypto Wallets For Art Pieces

Renowned international art dealer Stephern Howes established an art gallery that combines art and technology. The Thomas Crown Gallery opened on the 3rd of February in Birmingham, UK. Stephern and technology expert Ian McLeod created SmART Contract (Smart Art Contract) an innovative solution for artists and art collectors which enables them to use the art work as a store of value. All works of art of the gallery are logged on the Ethereum’s blockchain with the unique smART contract. SmART Contract enables the public to confirm the authenticity of an artwork and view the chain of ownership while allowing an artwork to act as a cryptocurrency wallet. Exhibitors of smART Contract enabled art are able to attract public donations directly to the artwork wallet. Each artwork has its own QR code and a unique smart contract. Only the owner of the artwork has the ability to destroy the Provenance Certificate for the artwork, making it difficult for the thief to resell the piece. It is useless to copy the artwork, its certificate and QR plaque as the copy owner won’t be able to prove ownership or withdraw funds from the art without the private key.

US Marshall Set to Auction Over $37 Million In Bitcoin

The US Marshals Service (USMS) has announced that it will auction off more than 4000 Bitcoins which are currently worth around $37 million. This will be the largest Bitcoin collection offered by the Marshals Service. The USMS is the oldest federal law enforcement agency within the US Department of Justice, which has served the country since 1789. These Bitcoins were seized during various legal investigations. The auction will take place over a six hour period on the 18th of February, 2020. In order to participate bidders must register by the 12th of February and deposit $200,000 which will be returned to failed bidders. Foreign citizens can participate in the auction, however all deposits must be received from a US bank. The agency has been frequently offering seized Bitcoins. The first Bitcoin auction was in the summer of 2014, where technology investor Tim Draper purchased all 29656 Bitcoins (A Bitcoin at the time was worth $650.)

Privacy on Ethereum Has Arrived

AZTEC (Anonymous Zero-knowledge Transactions with Efficient Communication) Protocol, a privacy network is now live on the Ethereum mainnet. AZTEC enables users to create custom digital assets and smart contracts confidentially. Privacy issues have prevented Ethereum from providing alternatives to traditional financial assets. Traditional financial services offer privacy by default. When companies raise funds through a bank, counterparties sign a confidentiality agreement and transactions are kept private. However privacy on Ethereum wasn’t available until now as transaction inputs (where the money comes from) and outputs (where the money goes) are public. AZTEC protocol is designed to issue assets such as STOs and traditional assets confidentially on Ethereum.

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Quiz answer

When did Bitcoin reach parity with the US dollar?

The correct answer is “A”.

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