finance

FTX hacker reportedly transfers a portion of stolen funds to OKX after using Bitcoin mixer

On-chain activity suggests that the hacker has sent at least 225 BTC ($4.5 million) to OKX so far.

Hackers who drained FTX and FTX.US of over $450 million worth of assets just moments after the doomed crypto exchange filed for bankruptcy on Nov. 11 continue to move assets around in an attempt to launder the money.

A crypto analyst who goes by ZachXBT on Twitter alleged that the FTX hackers have transferred a portion of the stolen funds to the OKX exchange after using the Bitcoin mixer ChipMixer. The analyst reported that at least 225 BTC — worth $4.1 million — has been sent to OKX so far.

1/ Myself and @bax1337 spent this past weekend looking into the FTX attacker’s deposits to ChipMixer.

It appears they’ve likely been transferring a portion of the stolen FTX funds to OKX after withdrawing from CM

So far we’ve accounted for at least $4.1m (255 BTC) sent to OKX pic.twitter.com/C46JZWtktn

— ZachXBT (@zachxbt) November 29, 2022

According to ZachXBT, the FTX hacker first began depositing BTC into ChipMixer on Nov. 20 after using Ren Bridge, a protocol that acts as a bridge for cryptocurrencies. In his analysis, ZachXBT shared that he had observed a pattern with addresses receiving funds from ChipMixer. According to him, each of the addresses follows a similar pattern; “withdrawal from CM,” “50% peels off” and then “50% deposited to OKX”.

Following the discovery of the deposits made to the OKX exchange, the director of OKX shared on Twitter that; “OKX is aware of the situation, and the team is investigating the wallet flow.”

#OKX is aware of the situation, and the team is investigating the wallet flow.

— lennixlai.eth (OKX) (@LennixOKX) November 29, 2022

On Nov. 12, Cointelegraph reported that the hack was flagged right after FTX announced bankruptcy. At the time, out of the $663 million drained, around $477 million were suspected to be stolen, while the remainder is believed to be moved into secure storage by FTX themselves.

On Nov. 20, the hacker began transferring their Ether (ETH) holding to a new wallet address. The FTX wallet drainer was the 27th largest ETH holder after the hack but dropped by 10 positions after dumping 50,000 ETH.

The fact that hackers managed to drain assets from FTX global and FTX.US at the same time, despite these two entities being completely independent, became a hot topic of discussion within the crypto community, and raised speculations about it possibly being an inside job.

Tokenized government bonds free up liquidity in traditional financial systems

There are a number of benefits associated with tokenized government bonds, yet adoption may take time.

A handful of government-backed financial institutions have been exploring tokenization use cases to revolutionize traditional financial systems. For instance, El Salvador’s Bitcoin Volcanic bond project has been in the works for over a year and aims to raise $1 billion from investors with tokenized bonds to build a Bitcoin city.

The Central Bank of Russia has also expressed interest in tokenized off-chain assets. In addition, the Israeli Ministry of Finance, together with the Tel Aviv Stock Exchange (TASE), recently announced the testing of a blockchain-backed platform for digital bond trading.

Cointelegraph Research’s 2021 Security Token Report found that most securities will be tokenized by 2030. While notable, the potential behind tokenized government bonds appears to be massive, as these assets can speed up settlement time while freeing up liquidity within traditional financial systems.

Brian Estes, CEO of Off the Chain Capital and a member of the Chamber of Digital Commerce, told Cointelegraph that tokenizing a bond allows for faster settlement, which leads to reduced costs.

“The time of ‘capital at risk’ becomes reduced. This capital can then be freed up and used for higher productive use,” he said. Factors such as these have become especially important as inflation levels rise, impacting liquidity levels within traditional financial systems across the globe.

Touching on this point, Yael Tamar, CEO and co-founder of SolidBlock — a platform enabling asset-backed tokenization — told Cointelegraph that tokenization increases liquidity by transferring the economic value of a real-world asset to tokens that can be exchanged for cash when liquidity is needed.

“Because tokens communicate with financial platforms via a blockchain infrastructure, it becomes easier and cheaper to aggregate them into structured products. As a result, the whole system becomes more efficient,” she said.

To put this in perspective, Orly Grinfeld, executive vice president and head of clearing at TASE, told Cointelegraph that TASE is conducting a proof-of-concept with Israel’s Ministry of Finance to demonstrate atomic settlement, or the instant exchange of assets.

In order to demonstrate this, Grinfeld explained that TASE is using the VMware Blockchain for the Ethereum network as the foundation for its beta digital exchange platform. She added that TASE will use a payment token backed by the Israeli shekel at a one-to-one ratio to conduct transactions across the blockchain network.

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In addition, she noted that Israel’s Ministry of Finance will issue a real series of Israeli government bonds as tokenized assets. A live test will then be performed during the first quarter of 2023 to demonstrate atomic settlements of tokenized bonds. Grinfeld said:

“Everything will look real during TASE’s test with the Israel’s Ministry of Finance. The auction will be performed through Bloomberg’s Bond Auction system and the payment token will be used to settle transactions on the VMware Blockchain for Ethereum network.”

If the test goes as planned, Grinfeld expects settlement time for digital bond trading to occur the same day trades are executed. “Transactions made on day T (trade day) will settle on day T instead of T+2 (trade date plus two days), saving the need for collateral,” she said. Such a concept would therefore demonstrate the real-world value add that blockchain technology could bring to traditional financial systems.

Tamar further explained that the process of listing bonds and making them available to institutions or the public is very complex and involves many intermediaries.

“First the loan instruments need to be created by a financial institution working with the borrower (in this case, the government), which will be processing the loans, receiving the funds, channeling them to the borrower and paying the interest to the lender. The bond processing company is also in charge of accounting and reporting as well as risk management,” she said.

Echoing Grinfeld, Tamar noted that settlement time can take days, stating that bonds are structured into large portfolios and then transferred between various banks and institutions as a part of a settlement between them.

Given these complexities, Tamar believes that it’s logical to issue tokenized government bonds across a blockchain platform. In fact, findings from a study conducted by the crypto asset management platform Finoa and Cashlink show that tokenized assets, such as government bonds, could result in 35%–65% cost-savings across the entire financial system value chain.

From a broader perspective, Perianne Boring, founder and CEO of the Chamber of Digital Commerce, told Cointelegraph that tokenized bonds also highlight how technology-driven innovations in financial instruments can provide investors with alternative financial products.

“Generally, such bonds would come with reduced costs and more efficient issuance, and come with a level of transparency and monitoring capabilities that should appeal to investors who want greater control over their assets,” she said.

Features such as these were recently demonstrated on Nov. 23, when Singapore’s DBS Bank announced it had used JPMorgan’s blockchain-based trading network Onyx to execute its first tokenized intraday repurchase transaction.

Banks use repurchase agreements — also known as repos — for short-term funding by selling securities and agreeing to repurchase them later. Settlement usually takes two days, but tokenizing these assets speeds this process up. A DBS spokesperson told Cointelegraph that the immediate benefits of tokenized bonds or securities result in an improvement in operational efficiency, enabling true delivery vs. payment and streamlined processes with golden copies of records.

Challenges may hamper adoption

While tokenized bonds have the potential to revolutionize traditional financial systems, a number of challenges may slow adoption. For example, Grinfeld noted that while Israel’s Ministry of Finance has expressed enthusiasm in regards to tokenization, regulations remain a concern. She said:

“To create new ways of trading, clearing and settlement using digital assets, a regulatory framework is needed. But regulations are behind market developments, so this must be accelerated.”

A lack of regulatory clarity may indeed be the reason why there are still very few regions exploring tokenized government bonds.

Varun Paul, director of central bank digital currencies (CBDCs) and financial market infrastructure at Fireblocks, told Cointelegraph that while many market infrastructure providers are exploring tokenization projects behind the scenes, they are waiting on clear regulations before publicizing their efforts and launching products into the market.

Fireblocks is currently working with TASE and Israel’s Ministry of Finance to provide secure e-wallets for the proof of concept, which will enable the participating banks to receive tokenized government bonds.

In addition to regulatory challenges, large financial institutions may find it difficult to grasp the technical implications of incorporating a blockchain network. Joshua Lory, senior director of Blockchain To Go Market at VMWare, told Cointelegraph that market education across all ecosystem participants will accelerate the adoption of the technology.

Yet, Lory remains optimistic, noting that VMware Blockchain for Ethereum’s beta was announced in August of this year and already has over 140 customers requesting trials. While notable, Estes pointed out that blockchain service providers must also take into account other potential challenges such as back-end programming for brokerage firms to make sure they are equipped to report bonds accurately on their statements.

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All things considered though, Estes believes that the tokenization of multiple assets is the future. “Not only bonds, but stocks, real estate, fine art and other stores of value,” he said. This may very well be the case, as Grinfeld shared that following the proof-of-concept, TASE plans to expand its range of tokenized asset offerings to include things such as CBDCs and stablecoins.

“This POC will lead us toward a complete future digital exchange based on blockchain technology, tokenized assets, e-wallets and smart contracts,” she said. Adoption will likely take time, but Paul mentioned that Fireblocks is aware that financial market participants are interested in taking part in replicating TASE’s model in other jurisdictions:

“We anticipate that we will see more of these pilots launching in 2023.”

5 tips for riding out a downbeat market this holiday season

The market doesn’t look like it’s going to spike upward anytime soon. While you wait, grow your network and position your portfolio to take advantage of a future recovery.

These forecasts are driven by deteriorating structural fundamentals. For example, credit card debt has surged past even 2020 levels, with interest rates charged by banks that are just slightly higher than those observed leading up to the post-2000 dot-com crash. And yet, labor force participation rates — or the proportion of the population that is able to work and is working — have still not recovered to pre-pandemic levels. Furthermore, inflation — as measured by the consumer price index — has surged over the past few years.

Economic forecasts suggest that we are in for greater economic turbulence. The United States has been in a recession and that recession is expected to continue, with the Conference Board forecasting a further decline in gross domestic product (GDP) by 0.5% in Q4 of this year. It also anticipates that the recession will continue into at least Q2 of 2023. That was before the collapse of crypto trading platform FTX, which had profound downstream effects on investment portfolios and non-crypto companies. Other more optimistic forecasts, such as those of the Federal Reserve Bank of Philadelphia and S&P Global, are just barely positive for 2023 at 0.7% and 0.2%, respectively.

*Consumer Debt & Interest Rates in the United States, 1995-2020. Source: St. Louis Federal Reserve*

*Labor Force Participation in the United States, 1950-2020. Source: U.S. Bureau of Labor Statistics*

*Consumer Price Index, 2011-2022. Source: St. Louis Federal Reserve*

These macroeconomic indicators are common outside of the U.S. too. Many – even the International Monetary Fund — have pointed out the increase in inflation as a result of higher energy prices in Europe, which is one factor, among others, that contributes to the European Union’s recent forecast of nearly zero GDP growth for all of 2023. That is on top of its already long-run demographic challenge that there are too many people aging out of the labor force and not enough new entrants, which has dire implications for GDP growth.

While these macroeconomic fundamentals are outside your control, there is still a lot within your control. We need to remember that we have substantial agency over our lives and do not need to get dragged into an economic tailspin just because that’s what might be happening to the aggregate economy — we can still individually thrive during a famine.

Here are five tips for doing just that.

Optimize the wait. Make the best use of your time every day, which might mean picking up a new skill or taking up a freelance job that deploys your broader skill set. Especially with the emergence of artificial intelligence and automation, certain tasks are becoming obsolete and other new creative opportunities are emerging — and you can leverage that trend by acquiring the skills to perform these tasks. There are substantial mismatches in the demand and supply in certain parts of the labor market, such as artificial intelligence and cybersecurity jobs, so consider picking up a new skill that you can put to work.

Reflect and take inventory. It is far too easy to look at the circumstances we personally or as a society are in and get worried, but take stock of what is going right and what you’re thankful for. The holidays are an especially good opportunity to do so. By putting your circumstances in perspective, you avoid a lot of mental rabbit holes that could cause you to become more anxious and disappointed, which unfortunately only further amplifies challenging circumstances. Even when circumstances look bleak, remember what you have and what you have been through — it will inspire you to go on.

Grow your network. Building relationships is part of the adventure we are on. Focus on people as actual human beings, rather than potential doors of opportunity. People are indeed doors, but treating people in transactional ways warps your perspective of life and ends up closing those doors, because people do not like being treated as vending machines. (Would you like it if people only talked to you based on what you could give to them?)

Cherish small wins. We often focus on the big and flashy goals or aspirations, but overlook what is immediately in front of us. We have a lot more agency than we give ourselves credit for! Whether you are taking care of your property or writing an excellent report at work, demonstrating excellence in everything that you do creates a lot more optionality in the long run that yields truly fulfilling and fruitful employment opportunities.

Always carve out some proportion of your earnings for savings. Consider investing it in structurally sound digital assets. There is no substitute for setting aside resources every month, whether crypto or fiat, that you can draw on when you’re most in need. There will always be an element of unpredictability in the world, so view these savings as your insurance policy on market downturns. Even though crypto has been in a winter, all assets have been struggling because the entire market is in a downturn. But the future of the major tokens, such as Bitcoin (BTC) and Ether (ETH), remains hopeful, and it’s just a matter of time before they rebound. Moreover, as governments become more volatile and inflation continues to grow, crypto can be a useful hedge and diversification strategy.

Don’t despair even when the economy is faltering. You and your household can still thrive!

Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School and the chief technology officer and co-founder of Living Opera, a multimedia art-tech Web3 startup. He holds doctoral degrees in economics and management science and engineering from Stanford University.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Crypto and fiat savers are making a fatal error — and DeFi can come to the rescue

Across crypto and fiat, many consumers are making a fatal error: they’re letting their assets sit idle in accounts without earning interest.

There’s no escaping it: the DeFi markets have cooled down over the past year.

After breaking $180 billion in total value locked last November — coinciding with Bitcoin racing to a new all-time high of $68,700 — data from DeFiLlama shows the collective value of this market has now dwindled to around $40 billion.

Nonetheless, experts remain bullish on the potential of decentralized finance. Protocols are continuing to build furiously during the bear market — ensuring that they’ll be in a strong position for the next wave of adoption. And although this recent contraction has scared away some retail investors, there are still opportunities to be had.

Here’s the problem — across crypto and fiat, many consumers are making a fatal error. Whether their savings are denominated in U.S. dollars or stablecoins, they’re letting their capital sit idle in accounts that aren’t earning interest. And given the runaway levels of inflation seen in major economies right now, this effectively means that their wealth is diminishing — and spending power is eroding with every passing month.

DeFi can be the answer here, but finding the best opportunities within this nascent space and ensuring that your assets are always allocated efficiently is a task that is virtually impossible to do manually. And even if you come across market-beating levels of yield, it can often change before you are able to take advantage of the opportunity.

Crypto is a volatile market that requires 24/7 monitoring in order to be an efficient investor. Plus, traders often end up with FOMO — a fear of missing out — after deploying their assets to a specific protocol.

What’s the answer?

A new concept that’s emerging in DeFi is reactive liquidity. This means that crypto enthusiasts have the ability to ensure their digital assets are earning the best risk-adjusted yield up until the very moment their assets are needed in a different position. Investors are given the ability to add customizable market triggers to their liquidity which ensure that their positions are monitored on-chain at all times. The moment conditions are met — which are set by the user — liquidity is shifted to where it is needed.

Mero is championing this approach to decentralized finance, and argues that it can have big benefits during this time of market turbulence. It allows funds to be deposited into liquidity pools in exchange for Mero LP tokens. Liquidity that is provided into Mero liquidity pools earns auto-compounded yield from automated yield-farming strategies. Any user who holds Mero LP tokens can register market triggers or actions to their liquidity — enabling them to earn yield on Mero up until the very moment their assets are needed elsewhere.

Mero currently supports market triggers, or actions, for topping up or adding additional collateral for loans on protocols such as Aave and Compound. Once registered, the Mero protocol’s network of keeper bots keeps a close eye on these loans — and shifts liquidity out of Mero pools (where it earns yield) to the loan’s collateral in the blink of an eye in order to avoid liquidations.

The team behind Mero, which was formerly known as Backd, say that they have been driven by a desire to make allocating capital in DeFi not only more efficient, but also a better user experience. Their approach effectively automates the process of asset deployment — ensuring that funds are always allocated most efficiently. When better opportunities emerge, or funds are required for time-sensitive purposes, they can be delegated elsewhere.

All of this can take a lot of weight off a DeFi investor’s shoulders — freeing up precious time so they can focus on other things.

Working across DeFi

As you would expect, continually uncovering competitive yields hinges upon onboarding as many pieces of DeFi infrastructure as possible. Fresh from securing $3.5 million in funding over the summer, Mero Finance intends to do just that.

The platform’s core liquidity pools, which support deposits for DAI, USDC, and ETH have continuously been ranked among the top 10 pools for base APY on Ethereum according to DeFi Llama. Furthermore, since its initial launch last Spring, three security audits have been completed and new dedicated liquidity pools for USDT and FRAX have been added.

More features beyond collateral top-ups are scheduled to launch in the next six months, and work is underway to roll out a governance token, too.

The project told Cointelegraph: “Mero enables you to maximize the power of your assets with reactive liquidity. Start using DeFi like a pro with Mero’s 24/7 on-chain monitoring, interest-bearing assets, and automated liquidity management.”

Material is provided in partnership with Mero

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you with all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor can this article be considered as investment advice.

Crypto no longer in top 10 most-cited potential risks: US central bank report

U.S.-China tensions, the Russia-Ukraine war, higher energy prices, rising inflation, the COVID-19 pandemic and cyberattacks came out as some of the most pressing financial risk concerns.

While proponents of traditional finance remain keen on dismissing Bitcoin (BTC) and the crypto ecosystem as financial risks, a survey conducted by the Federal Reserve Bank of New York — one of the 12 federal reserve banks of the United States — revealed 11 factors that overshadow crypto in terms of risk in 2022.

Geopolitical tensions, foreign divestments, COVID-19 and high energy prices were found to be some of the most-cited potential risks for the U.S. economy, according to a central bank survey published by the Federal Reserve System.

*Federal Reserve Bank of New York survey results. Source: Federal Reserve System*

Out of the 14 factors that pose a financial risk, crypto stands at the 11th position — revealing a change in investor mindset owing to the continued efforts of crypto entrepreneurs to educate the masses.

Some of the pressing risk concerns raised by the respondents were related to the power struggle of global economies, which includes the U.S.-China tensions, the Russia-Ukraine war, higher energy prices, rising inflation, the COVID-19 pandemic and cyberattacks, to name a few.

However, the U.S central maintains its anti-crypto position when it comes to evaluating the risks in crypto investment. It pointed out in the report that selected cryptocurrencies — including BTC, Ether (ETH), BNB (BNB), Cardano (ADA) and XRP (XRP) — are down about 69 percent in value compared to the Nov. 2021 peak, adding that:

“Speculation and risk appetite appear to be the primary driving forces of crypto-asset prices, which have recorded big swings in recent years.”

The central bank also cited the collapse of the Terra ecosystem, highlighting that entities that had direct exposure to the in-house stable TerraUSD (UST) found themselves in financial distress, sometimes leading to bankruptcy.

On the other side of the world, India launched its home-grown central bank digital currency (CBDC) for the wholesale segment.

While the country is still opposed to the idea of mainstreaming cryptocurrencies, the pilot project saw the involvement of nine local traditional banks, which include the State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC.

Related reports suggested that India’s central bank — the Reserve Bank of India (RBI) — plans to launch the digital rupee for the retail segment within a month in select locations.

Does the IMF have a vendetta against cryptocurrencies?

Is the multilateral lending institution throttling useful DLT experiments in the developing world, or is it saving crypto from itself?

Is the International Monetary Fund (IMF) really hostile to crypto? Many in the cryptocurrency and blockchain space think so. In January, the fund asked El Salvador to drop Bitcoin (BTC) as legal tender.

In May, it reportedly pressured Argentina to curtail crypto trading as the price for an IMF loan extension, and it also recently warned the Marshall Islands that raising a digital currency to the status of legal tender could “raise risks to macroeconomic and financial stability as well as financial integrity.”

“I do believe that the IMF is an implacable foe of crypto,” David Tawil, president and co-founder at ProChain Capital, told Cointelegraph. Given that Bitcoin and other cryptocurrencies are ‘“issued” by non-state entities and are borderless, “crypto has the potential to be ubiquitous, which can significantly curtail the need for the IMF,” a financial agency of the United Nations.

“Bitcoin stands against everything the IMF stands for,” Alex Gladstein, chief strategy officer of the Human Rights Foundation, told Politico in June. “It’s an outside money that’s beyond the control of these alphabet soup organizations,” while Kraken’s Dan Held simply tweeted, “The IMF is evil,” in response to the fund’s reported actions in Argentina.

Still, others believe that this multilateral lending institution that serves some 190 countries — and has long been a lightning rod for criticism in the developing world — may have a more nuanced view of cryptocurrencies.

A broad-minded view of crypto-assets?

In a September report, “Regulating Crypto,” the IMF seemed to have no problem with the existence or even proliferation of non-governmental digital currencies. Indeed, it called for a “global regulatory framework” for cryptocurrencies in order to bring order to the markets “and provide a safe space for useful innovation to continue.”

“The IMF has taken a very broad-minded view of crypto-assets,” John Kiff — managing director of the CBDC Think Tank and, until 2021, a senior financial sector expert at the IMF — told Cointelegraph, especially if one looks beyond some of the recent cases cited above. He added:

“The Marshall Islands and El Salvador opinions pertained to country governments adopting crypto as legal tender when their unit of account currencies were already well established. And, those adverse opinions were mostly focused on the macroeconomic impact of hitching their fiscal wagons to cryptocurrencies.”

Institutionally speaking, “It’s true that the IMF is skeptical of crypto, and it came down hard on El Salvador,” Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center, told Cointelegraph. But that’s because the fund was worried about the financial vulnerability of that nation’s economy. The IMF “will have to bail them out” if and when El Salvador reneges on its international debt payments.

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Meanwhile, “Argentina has done something like 20-plus lending programs over the years, so it can’t really go back to the IMF and renegotiate [its loans] while it is also conducting crypto experiments,” added Lipsky, who previously served as an adviser to the IMF and speechwriter to Christine Lagarde. The mayor of Buenos Aires, a cryptocurrency proponent, was reported to be developing plans that would allow the city’s residents to pay their municipal taxes in cryptocurrencies. “That raised some eyebrows” at the fund, commented Lipsky.

Even Tawil agreed that the IMF was justified in forcing “certain policy choices, like austerity or taxation or removal of government subsidies that cannot be supported economically” under certain circumstances. If a country “has awful policies” that will make it persistently dependent on the fund’s support, then “the IMF will use its lending ability to influence policy choices.”

Money laundering risks

In connection with the Marshall Islands’ bid to implement a sovereign digital currency, known as SOV, as a second legal tender, the IMF’s Yong Sarah Zhou cited not only financial stability perils but also “anti-money laundering and combatting the financing of terrorism (AML/CFT) risks.”

Simon Lelieveldt, a Netherlands-based regulatory consultant for payments and blockchain, wasn’t really sure this was the fund’s main objection, however. Yes, crypto can be “used as an investment asset and also a tool for money laundering — as can cash in the bank,” but it is more likely crypto’s “ungoverned nature” that alarms the IMF and other intergovernmental organizations, including the Financial Action Task Force.

Governments in the developing world sometimes feel “oppressed by IMF rulings and neoliberal dogmas” and are tempted to “escape the harness of the IMF” through the use of alternate legal tenders, actions that inevitably “lead to reactions from institutions that are afraid of losing their power,” he told Cointelegraph.

A misbegotten case?

El Salvador was the world’s first country to adopt Bitcoin, or any cryptocurrency, as legal tender in September 2021. “El Salvador was a really bad use case,” Lipsky told Cointelegraph. “What Terra Luna did for crypto in the United States, El Salvador did for crypto globally.”

What went wrong? “There were so many failures, but if I were to pick one, it would be how rushed it felt.” There was a “paper-thin, two-page explanation of how it [Bitcoin] would work,” and that was it.

Rather than take an experimental approach, beginning with small pilots and independent risk assessments, the Bitcoin Law was hurried through El Salvador’s legislature and immediately imposed — “reckless and rushed,” according to one critic.

The IMF’s wariness of crypto as legal tender only deepened in the wake of the El Salvador inept BTC launch, in Lipsky’s view.

Still, institutions like the IMF and the World Bank arguably have an “outsized influence” on small countries looking to take more control over their currencies, and they “can apply pressure, from making aid conditional to simply blocking aid, unless countries comply with their requirements,” Henri Arslanian wrote in his recently published book, The Book of Crypto.

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When El Salvador recognized Bitcoin as legal tender, for instance, the World Bank, another lending institution in the United Nations system, not only criticized the move but “also refused to provide technical assistance, citing environmental and transparency concerns,” wrote Arslanian.

Natural enemies?

Given the mandate of nongovernment organizations like IMF and the World Bank — which is, broadly speaking, to support global financial stability and spur economic growth in the developing world — there could simply be a natural tension vis-a-vis decentralized currencies — which are often volatile and hard-to-control financial instruments with no return address or even identifiable individuals in charge.

As Tawil noted, the IMF is often called upon to deal with economies “plagued by corrupt and inept leadership and illusory currencies,” and therefore, it really has “no incentive to add another ‘issuer-less’ currency.” Nevertheless, he added:

“The IMF cannot ignore reality, which is that our future will be filled with cryptocurrencies.”

India aims to develop crypto SOPs during G20 presidency, says finance minister

Sitharaman has previously called for global collaboration to decide on crypto’s future and has been cautious against mainstream crypto adoption citing risks to financial stability.

The finance minister of India, Nirmala Sitharaman, revealed India’s plan to develop standard operating procedures (SOPs) for cryptocurrencies during its G20 presidency, from Dec. 1, 2022, to Nov. 30, 2023.

Sitharaman has previously called for global collaboration to decide on crypto’s future and has been cautious against mainstream crypto adoption citing risks to financial stability. However, speaking to local Indian reporters on Oct. 15, she confirmed, “That (crypto) will also be part of India’s thing (agenda during G20 presidency).”

The G20, or Group of Twenty, is a global forum for addressing the major issues related to the global economy. According to Sitharaman, no country can alone effectively handle or regulate crypto, adding that:

“But if it’s a question of platforms, trading of assets which have been created, buying and selling making profits and, more importantly in all, these countries are in a position to understand the money trade, are we in a position to establish for what purpose it’s being used?”

Sitharaman further highlighted the use of crypto assets in money laundering as detected by India’s law enforcement agency, Enforcement Directorate.

She further added that members of the G20 have also acknowledged the same concerns while reiterating the need for the participation of all countries when it comes to effectively regulating crypto assets.

On Oct. 7, the Reserve Bank of India released a list of proposed features and reasoning behind its in-development central bank digital currency (CBDC).

The 51-page document summarizes key motivations for the issuance of the digital rupee, which include trust, safety, liquidity, settlement finality and integrity. Some of the biggest motivations for India’s digital currency are reduced operational costs and improved financial inclusion.

India aims to develop crypto SOPs during G20 presidency — Finance minister

Sitharaman has previously called for global collaboration to decide on crypto’s future and has been cautious against mainstream crypto adoption citing risks to financial stability.

Sitharaman has previously called for global collaboration to decide on crypto’s future and has been cautious against mainstream crypto adoption, citing risks to financial stability. However, speaking to local Indian reporters on Oct. 15, she confirmed, “That (crypto) will also be part of India’s thing (agenda during G20 presidency).”

“But if it’s a question of platforms, trading of assets which have been created, buying and selling making profits and, more importantly in all, these countries are in a position to understand the money trade, are we in a position to establish for what purpose it’s being used?”

Sitharaman further highlighted the use of crypto assets in money laundering as detected by India’s law enforcement agency, Enforcement Directorate.

On Oct. 7, the Reserve Bank of India released a list of proposed features and reasoning behind its in-development central bank digital currency (CBDC).

What is the economic impact of cryptocurrencies?

Cryptocurrencies spur financial inclusion, protect against inflation and enhance the global economy despite the recession.

How do cryptocurrency investments impact the broader crypto-economy?

Although the cryptocurrency market appears to grow in a positive feedback loop, that does not mean that (un)expected events may not impact the trajectory of the ecosystem as a whole.

Although blockchain and cryptocurrencies are fundamentally meant as ‘trustless’ technologies, trust remains key there where humans interact with one another. The cryptocurrency market is not only impacted by the broader economy, but it may also generate profound effects by itself. Indeed, the Terra case shows that any entity — were it a single company, a venture capital firm or a project issuing an algorithmic stablecoin — can potentially set into motion or contribute to a “boom” or “bust” of the cryptocurrency markets.

The impact of such crypto-native events with systemic impact mirroring traditional finance domino effects, and the consequential falls of Celsius and Three Arrows Capital, all indicate that the crypto-economy is not immune to failures. Indeed, while traditional finance has institutions that are too big to fail, the crypto sector does not.

Looking in retrospect is always easy, but the Terra project was fundamentally flawed and unsustainable over time. Nevertheless, its downfall had a systemic impact as many projects, venture capital and standing companies were exposed and heavily impacted. It indicates that investing in cryptocurrencies is all about thinking about risks and potential rewards.

The fall and domino effect across the board indicate the lack of maturity of the very sector itself.

Since innovation and prices are inherently connected and the early-stage development of the crypto-economy offers lots of untapped potential, the said economy may continue to see events that temporarily undermine growth.

Yet, many working in the sector have a “trustless” conviction that strong projects will keep up during temporary corrections and that the cryptocurrency winter will clean up the path for a cycle of unlimited, novel disruptive innovation.

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Will cryptocurrency survive an economic recession?

Cryptocurrency prices, industry developments and innovation are arguably enhancing one another through a positive feedback loop, despite the temporary crypto winter.

The downward pressure in the cryptocurrency markets may correlate with the slipping of traditional markets and geopolitical factors. Cryptocurrency investors go through difficult times. The financial climate has changed considerably. High inflation, for example, is causing central banks to adjust their policies: They raise interest rates and thus ensure a tighter financial market. The rising interest rates make it more interesting to invest in bonds, for example.

When the stock markets suffer a correction, risk-aversion strategies are also toning down cryptocurrency investments. It is often stated that crypto winter is approaching, understood as something similar to a bear market cycle in the stock market but then regarding the prices of digital assets on the crypto markets. The winter goes along with some painful (individual) effects. For instance, some crypto-related companies have been cutting their costs through layoffs.

The cryptocurrency market capitalization being correlated with the traditional markets indicates institutionalization, but that is not necessarily bad. It indicates adoption and acceptance as the first steps toward broader acceptance of cryptocurrencies and their underlying technological foundation.

Indeed, prominent thought leaders argue that the cryptocurrency market develops in cycles and that those cycles can appear chaotic from an external point of view. But, in reality, there is an underlying logic in which prices, industry developments and innovation are connected to one another in a positive feedback loop.

Are there any problems with cryptocurrency?

There are narratives about cryptocurrencies that highlight their use for criminal activities, their supposedly harmful impact on the environment (and the economic impacts related to it) and cryptocurrencies’ volatile nature.

Much like cash, it’s no surprise that some (cyber) criminals use cryptocurrency. Interestingly enough, with the growth of legitimate cryptocurrency usage far outpacing the growth of criminal usage, illicit activity’s share of cryptocurrency transaction volume is very low, as transactions involving illicit addresses represented just 0.15% of cryptocurrency transaction volume in 2021.

Next, cryptocurrencies are said to be bad for the environment. Specifically, BTC’s proof of work (PoW) consensus mechanism is said to cause negative (environmental and economic) impacts. However, estimating studies show that BTC contributes 0.08% t to global co2 emissions. In return, BTC spurs a whole sector and the very financial inclusion of millions of people globally.

Another disadvantage is that most cryptocurrencies cope with: volatility. As a result, some currencies may quickly lose their value. Economists, who tend to look at “money” through a traditional lens, may argue that cryptocurrencies are thus unsuitable as a means of payment and that users run greater risks.

Economists may also argue that the value of cryptocurrencies is not guaranteed because of the lack of commercial or central bank involvement. An economist may hold that a central bank digital currency (CBDC) can be a good solution because governance remains in the hands of the central bank.

Needless to say, the cryptocurrency markets can be extremely volatile and chaotic indeed, but zooming out there appears to be an underlying logic at work. Looking at the logarithmic chart of BTC (see below) instead of its linear chart, for instance, it shows that volatility and drawdowns have remained fairly consistent over time.

How does crypto protect from inflation?

The answer to whether cryptocurrencies and specifically BTC, protect from inflation may depend on your stance. Some may choose to only involve themselves with well-backed stablecoins.

Cryptocurrencies like BTC have traditionally been considered hedges against inflation. The capped supply of BTC and its decentralized nature have been believed to contribute to the increasing value of readily available BTC and those yet to be mined over time.

Falling cryptocurrency prices and high inflation rates today may make some wonder whether BTC delivers to the high expectations of and hedging against inflation. One may want to distinguish between “owning” BTC and “using” it. Does one consider BTC as a means of payment, potentially meeting the needs of a real economy or does one see it as an investment vehicle as a haven against inflation? Depending on that answer, one can analyze if cryptocurrencies work as hedges.

The alternatives matter, too. Some may choose to only involve themselves with well-backed stablecoins. And, whether cryptocurrencies are valid ways to flee from rising inflation depends on if one considers them true alternatives to (failing) monetary policy. A BTC maximalist may argue that allowing for a non-fixed money supply, post-1971 and certainly post-2008, has proven to not match the needs of a real economy. Staggering inflation rates globally arguably spur the curiosity about and need for cryptocurrencies.

The benefits of cryptocurrency over fiat and their utility are especially significant in countries suffering 50% or more devaluation against the U.S. dollar (over the last ten years). Think Venezuela, Lebanon, Turkey, Surinam or Argentina. Individuals living in those countries were more than five times as likely to say that compared with those who experienced less than 50% inflation over the same period.

What is the impact of cryptocurrencies on the economy?

Cryptocurrency is far more than just a financial innovation — it’s a social, cultural and technological form of progress. Through its accessible character, cryptocurrencies have the potential to spur the economy immensely.

Cryptocurrencies are digital assets managed with cryptographic algorithms. There are different types of cryptocurrencies. Bitcoin (BTC) is probably the most well-known cryptocurrency, but thousands of others have emerged over time. Naturally, these also include stablecoins, cryptocurrencies whose value is pegged to, for example, a fiat currency, debt paper or commodities like gold.

When cryptocurrency prices are correcting and the fear and greed index bounces, it is important to take a breath and grasp that the wider impact of cryptocurrencies goes beyond daily price fluctuations. Cryptocurrency use cases and their underlying blockchain technologies are being developed at an exponential speed. The tremendous economic impact of cryptocurrencies on the global economy cuts through sectors across national boundaries and goes beyond what was impossible not that long ago.

Cryptocurrencies have pros and cons, like any tool or technology. The positive impacts of cryptocurrency are profound. One of the greatest advantages is arguably accessibility. With cryptocurrencies, one can pay or get paid without the intervention of third parties such as banks. The status quo of the current financial system has arguably failed many individuals globally. Indeed, more than 1.7 billion people don’t have bank accounts.

Due to their accessibility, cryptocurrencies may spur financial inclusion globally. For underserved and unbanked populations — one billion of whom have mobile phones — the use of cryptocurrencies offers a shot at financial inclusion. Therefore it can be argued that cryptocurrencies are inherently good for the economy.

Global think tank suggests blockchain in public finance can help reduce fraud

Modernizing public finance management through blockchain could help governments identify potential corruption and waste by providing additional transparency and traceability.

The Official Monetary and Financial Institutions Forum, or OMFIF, an independent global think tank for central banking and economic policy, has released a report suggesting that blockchain technology in a public finance management system could provide information essential to “formulate and design fiscal policy.”

According to a Tuesday report, the OMFIF said modernizing public finance management through blockchain could help governments identify potential corruption and waste by providing “enhanced transparency and traceability of payments.” The report suggested the technology could facilitate the prevention of embezzlement of funds given the global rise in fraud from cases including ransomware and cybersecurity attacks.

In addition to helping reduce the risk of theft from invoice fraud — allowing users to send payments with “the click of a button” rather than providing personal information — the think tank reported that with the system set up for a central bank digital currency, “the government’s financial position” could be made clear. A system updated using blockchain could provide transparency for government spending.

“While a digital currency would mesh well with this kind of system, it is certainly not a necessity,” said the report. “Many of the benefits can be achieved without changing payments rails, simply by improving the [public finance management] architecture. Governments would also be more effective at efficiently managing their cash and forecasting their future cash position.”

Ernst & Young Global commented within the report:

“Blockchain for public finance can reduce the administrative effort associated with financial reconciliations, tracking and reporting. Business terms or eligibility and compliance rules can be embedded into the system to automate transaction controls via smart contracts. Automated tracking and reporting can significantly reduce the cost for partners of interacting with government.”

Founded in 2010, the OMFIF has released many reports on blockchain and digital assets. In 2020, the think tank launched the Digital Monetary Institute, aimed at bridging digital currencies with traditional financial institutions and a CBDC’s potential use in payments among wholesale and retail markets