Investments

Fixed interest rates to create a DeFi 2.0 for institutions, says former bank exec

In its latest seed funding, Infinity Exchange investors allied behind the need for more secure institutional investment.

Infinity Exchange, a new platform providing institutional grade capital efficiency in decentralized finance (DeFi), announced a $4.2 million seed round in a bid to boost institutional adoption for DeFi.

Infinity Exchange is led by ex-Morgan Stanley executive Kevin Lepsoe, who left the world of traditional finance with sights set on the possibilities provided for investors through DeFi.

However, the founder says that institutional investment is critical for providing strong economic foundations for the next iteration of DeFi 2.0.

According to Lepsoe, with access to a full rates product suite, with fixed-to-floating rates, there will be more secure opportunities for institutional investors and an equality in rates for individuals.

“The beauty is now individual investors will have comfort knowing they have access to the same markets that institutional investors do, and it doesn’t matter if they’re lending or borrowing $100 or $10 million.”

Lepsoe highlights that a major downfall of the current DeFi 1.0 space is the disconnect between floating rate and fixed-rate markets. In such instances, like the current DeFi setup, capital can’t flow easily, preventing markets from working k in union with one another. 

Funds obtained from the latest round will go towards Infinity’s development of product offerings, including fixed and floating rate markets, along with futures and spot trading markets, among other things.

Related: Crypto’s correlation with mainstream finance could bring more bleeding soon

In providing elements of TradFi, such as a financial markets protocol with fixed and floating interest rates, Infinity encourages large institutions to step into the unfamiliar. Lepsoe told Cointelegraph that this also helps to compensate for the current shortcomings of current DeFi protocols, like those mentioned above.

“By integrating the product features, and introducing more efficient collateral management, we enable more players to access the markets and trade it in many new ways not previously possible.”

Lepsoe estimates that such tools for large-scale investors are a major part of the foundation of potential market growth of up to “1000 times what it is today.”

This development comes as institutional investors eye the space. Some surveys show around 8% of institutional investors believe crypto will surpass traditional investments in the next 10 years.

Crypto’s correlation with mainstream finance could bring more bleeding soon

Since the start of the year, the crypto market’s performance has been considerably poorer than the S&P 500 and other popular indexes.

There’s no denying the fact that the crypto market has been faced with an obscene amount of bearish pressure over the last eight odd months. Despite this, September has been especially turbulent for the industry, with the price of Bitcoin (BTC) dropping below the all-important $20,000 psychological threshold before forging a comeback. 

While these dips have called into question the asset’s status as digital gold and a hedge against inflation, a key question worth examining is how deeply intertwined the crypto market with the global economy is.

To this point, historic inflation numbers have driven the price of everything under the sun — from fuel to food — to record highs. And, despite the S&P 500, a stock market index tracking the performance of 500 large companies listed on exchanges in the United States, being down year-to-date (YTD), its performance has been better than that of the crypto market by a decent margin.

Charmyn Ho, head of crypto insights for cryptocurrency exchange Bybit, pointed out to Cointelegraph that just like any other market, the crypto industry is currently being subject to volatilities brought about by macroeconomic factors, adding:

“It is definitely fair to say that the global financial landscape has placed a strain on Bitcoin’s prices. With continued liquidity pressure due to quantitative tightening and uncertainty, investors are tending to shy away from risk assets, which in turn is limiting any upside momentum for the crypto market.”

On the recent recovery above $20,000, Ho noted that whether this is a trend reversal — after a recent confluence of on-chain metrics hinted at a bottom formation — or just a temporary attempt to flush out excessive leverage is still too early to tell. Reflecting on historical data, she believes that the prolonged duration of BTC’s current dormancy may indicate the formation of a reliable floor price, which can help pave the way for the next bull trend.

Is crypto’s link with the global economy now inextricable?

Ajay Dhingra, head of research and analytics at crypto exchange Unizen, told Cointelegraph that rising inflation has dramatically decreased the risk appetite of investors for crypto and weakened the global economy to a point where Bitcoin has not been able to keep its promise of a safe haven against inflation. This is largely due to its high correlation with the stock market and unpalatable volatility. 

He added that while the future remains as promising as ever for blockchain technology, due to the crypto market’s deepening link with the broader economy, there may be even more pain for investors in the near term. Dhingra noted that it is always consumer sentiment that dictates any market, adding:

“Right now, the world is going through a massive crisis because of the Ukraine war, rising prices and weak economic activity, which has irked the retail sector. But in the long run, the innovation brought forward by blockchain technology will inevitably break the correlation.”

In Ho’s opinion, the existing correlation is likely to persist. However, it is hard to predict its extent since the economy’s recent downturn has had implications of unimaginable proportions on investors and traders worldwide.

Similarly, she pointed out that prevailing macroeconomic conditions have taken an unprecedented toll on the market sentiment of risk-on and risk-off investments as well, adding that if the economy sees a further decline, investors across the board will continue to lay off assets like crypto and move toward fiat-centric offerings like government bonds. She added:

Recent: How adoption of a decentralized internet can improve digital ownership

“I think with cryptocurrencies becoming more widely accepted, links between traditional finance and the crypto economy can definitely be drawn. However, these two still maintain some form of independence from one another since they have vastly different features and uses.”

Frederic Fernandez, the co-founder of DEXTools — a blockchain data aggregation platform — believes that even though economic conditions across different markets are affecting Bitcoin quite heavily, when the dust finally settles, not only will people understand the advantages of crypto as a refuge from the traditional finance sector but the market at large could see a solid uptrend. He added:

“Big players are now into crypto too and are building their future portfolios, they are taking advantage of this market to create good strategies for their funds and customers, but it will take time to see the consequences when the market will be more mature.”

What happens now for the crypto market?

Despite Bitcoin rallying over the last few days, many analysts believe that it is highly unlikely that the currency — as well as the crypto market at large — will be able to muster the kind of momentum that it needs to move past this dull phase any time in the foreseeable future. 

For example, Akeel Qureshi, chief marketing officer for decentralized finance (DeFi) protocol Hubble Protocol, told Cointelegraph, “According to the Bitcoin maxis, this is the environment in which the asset was meant to thrive. While that theory was formulated long before players like JPMorgan bought in, currently, there just does not seem to be much good news on the horizon,” adding:

“Bitcoin is tied to the policies of the Federal Reserve.”

He noted that while Bitcoin has long been touted as an inflation-proof asset — a narrative which still holds true depending on when one bought the token — at the moment, it is witnessing falling prices, especially as the job market continues to weaken.

Qureshi, however, stated that not all cryptocurrency prices are as inextricably linked to the global economy as Bitcoin. He believes that Ether (ETH) has already started to pull away from BTC ahead of its long-awaited merge to a proof-of-stake consensus model, which is set to take place next week, adding:

“This is potentially heralding the so-called ‘flipping,’ where growth in ETH begins to outpace that of Bitcoin. Meanwhile, active traders are finding good opportunities among altcoins and smaller cryptocurrencies on the vast array of blockchains and decentralized networks that now exist.”

Lastly, he noted that the stablecoin market remains incredibly strong regardless of rising interest rates because it is still impossible to find a bank capable of giving an interest rate on cash that is higher than the prevailing inflation. “In decentralized finance this is possible on U.S. dollar-backed stablecoins. As such, for those willing to explore, crypto has boundless opportunities.”

Could a trend reversal be possible for BTC?

According to some analysts, the recent decline in crypto prices hasn’t been spurred by rising inflation but by soaring interest rates that have been hiked to help wipe out excess liquidity in the market, clamp down on inflation and strengthen the U.S. dollar. Furthermore, higher interest rates also equate to better treasury yields and increased investment from foreign bond buyers. Therefore, a trend reversal in the near term may be difficult, albeit not impossible.

That said, over the past decade, Bitcoin has largely outperformed most stocks while gaining mainstream acceptance by many entities in traditional finance. Investment giant BlackRock recently started pumping its client’s money into the digital asset, suggesting a potential uptick in crypto’s future. Also, it is worth noting that the last time BTC dipped below $10,000, it swiftly proceeded to scale to an all-time high of $69,000.

Lastly, some experts believe that Bitcoin could soon continue to lose its strong correlation with the stock market, highlighting that over the last 14-day stretch, people have been selling on the S&P 500 while BTC has gained nearly 10% value. Another thing that seems to be favoring Bitcoin is that major fiat assets such as the euro, the Great British pound and the Japanese yen are sitting at record lows in comparison with the U.S. dollar.

Recent: How GameFi contributes to the growth of crypto and NFTs

Regarding this point, Ben Caselin, vice president of global marketing and communication for cryptocurrency exchange AAX, told Forbes that there is currently a very strong relationship between the U.S. dollar’s price action and that of Bitcoin, adding that while the dollar has shown decent strength over Q2 2022, any drawdowns could spur a rally for Bitcoin in the near term. 

Thus, as we head into a future fueled by financial uncertainty, it will be interesting to see how things play out for the crypto market, especially since there seems to be little respite coming from the traditional finance front anytime soon.

Stone Ridge board approved plan for ‘liquidation and dissolution’ of its Bitcoin fund

“Effective after the close of business on October 3, 2022, the Fund’s shares will generally no longer be available for purchase,” said a Stone Ridge filing with the SEC.

Stone Ridge Asset Management, whose holding company is behind the New York Digital Investment Group, has filed notice with the United States Securities and Exchange Commission that it will liquidate its Bitcoin Strategy Fund.

In a Monday SEC filing, the asset manager said the Stone Ridge Trust board of trustees approved a Friday plan to liquidate and dissolve its Stone Ridge Bitcoin Strategy Fund, first filed with the SEC in July 2021. According to the plan, the asset management firm will continue to operate the fund through Oct. 3, after which time it will “reduce the fund to cash” in preparation for liquidation and distribution to shareholders.

“The liquidation of the Fund is expected to take place on or about October 21, 2022,” said the filing. “Effective after the close of business on October 3, 2022, the Fund’s shares will generally no longer be available for purchase.”

According to its July 2021 prospectus, the Bitcoin (BTC) strategy fund aimed to offer exposure to the cryptocurrency via futures markets, as the SEC has not approved spot investment vehicles linked to BTC. The asset manager said at the time the objective of the fund was “capital appreciation.”

Data from Yahoo Finance showed the fund held roughly $2.8 million in net assets at the time of publication. A Stone Ridge semi-annual report from April 2022 said more than half — 50.5% — of the funds were allocated to foreign government agency bonds and the fund had more than $10.9 million in total net assets.

Related: Simplify files with SEC for Bitcoin Strategy Risk-Managed Income ETF

In October 2020, Stone Ridge purchased 10,000 BTC through the NYDIG as part of a post-pandemic investment strategy, making it one of the largest BTC holders among private companies. At the time of publication, the price of Bitcoin was $22,230, hitting a three-week high on Monday.

SBF and the Mooch tie the knot as FTX Ventures takes 30% stake of SkyBridge Capital

Scaramucci calls Bankman-Fried part of the “small universe of outside investors SkyBridge would ever consider partnering with,” promises SkyBridge’s investment strategy will not change.

FTX Ventures, an arm of Sam Bankman-Fried’s FTX crypto exchange, will acquire a 30% stake in alternative asset manager SkyBridge Capital, the firms announced Sept. 9. The terms of the deal were not disclosed, but SkyBridge will use $40 million of the proceeds to purchase cryptocurrencies to hold as a long-term investment, according to a statement. 

SkyBridge founder and managing partner Anthony Scaramucci said about the deal on Twitter, “There’s a small universe of outside investors SkyBridge would ever consider partnering with, and @SBF_FTX is one of them.” He added separately, “This won’t significantly impact our day-to-day business and doesn’t change our strategy. […] We will remain a diversified asset firm, while investing heavily in blockchain.” SkyBridge managed about $2.5 billion, including over $800 million in digital assets, as of June 30, according to its website.

The two firms collaborated on the SALT (SkyBridge Alternatives) Conferences and the Crypto Bahamas conference for the past year. Bankman-Fried told CNBC:

“We’ve gotten to know the team over the last year. […] We’ve been really excited about what they’ve been doing […] from the investment angle, growing out the community — the digital assets community and the traditional asset community — bringing them together.”

SkyBridge began investing in Bitcoin (BTC) in 2020 and Scaramucci has become a vocal proponent of crypto since then. The firm has been relatively untouched by the meltdown of the crypto market, although it announced the suspension of withdrawals from its crypto-exposed Legion Strategies fund in July.

Bankman-Fried’s firms have entered into a flurry of acquisition activity since the crypto winter began. Bankman-Fried bought a 7.6% share in online brokerage Robinhood in May. FTX US extended a $400 million revolving credit to BlockFi, and FTX offered to buy out some of the debts of bankrupt Voyager Digital in July. It has also made inroads into traditional finance.

Animoca confirms $110M round led by Temasek, plans new acquisitions

Singapore government-backed investor Temasek is known for crypto-related investments but is yet to do its first direct investment in crypto.

Animoca Brands, a major player in the metaverse and blockchain gaming, has officially disclosed details of a funding round led by Singapore’s state-owned investor Temasek.

Animoca announced on Thursday that it closed a strategic funding round of $110 million from the issuance of convertible notes to a small number of institutional investors. Completed at a conversion price of AU $4.50, or about $3.0, the new round values Animoca similarly to its previous funding round, the firm said.

The notes round included new investors like Temasek, the private equity firm Boyu Capital and the global venture capital firm GGV Capital. These companies have established a strategic consortium of new investors, aiming to provide advice to the company as it continues to grow and build its organizational structure.

Temasek, Boyu and GGV are now expected to engage and advise Animoca on a wide range of business issues as well as provide input on its business and capital gains, the announcement notes.

Additionally, existing investors in the round included major South Korean investment firm Mirae Asset Management and the venture capital firm True Global Ventures.

Animoca is planning to use the new funds to continue to make strategic acquisitions investments, develop new products and secure licenses for intellectual properties. The company also targets advances in the open metaverse, including efforts to promote digital property rights for online users.

Yat Siu, co-founder and executive chairman of Animoca Brands, pointed out the importance of the round’s participation by major global institutions, stating:

“Our new investors will contribute strategic advice and perspective as we build the world’s leading company furthering digital property rights in the Web3 industry.”

Some initial reports on Animoca’s funding round first surfaced in late August, with anonymous sources claiming that Temasek would lead a $100 million round for Animoca.

Related: Blockchain incubator valued at $100M following NGC Ventures-led Series A

Temasek is a high-profile crypto-related investor, participating in multiple investment rounds for big crypto companies, including Binance and Amber Group. Temasek International chief investment officer Rohit Sipahimalani stressed that the government-backed firm did not directly invest in crypto but rather is focused on investing in a crypto-related business.

“We don’t directly invest in crypto, but some of the funds we have invested in may have crypto exposure,” Sipahimalani reportedly said in July 2022. He added that, at that point, the firm felt more comfortable with exposure “more in the picks and shovels of the entire system, the enablers rather than the currencies.”

Crypto investment product firm 21.co raises $25M to reach $2B valuation

Founded during the major market slump of 2018, 21Shares holds its vision that solid crypto products only grow stronger during crypto winters.

21.co, the new parent firm of exchange-traded products (ETP) provider 21Shares, has become “Switzerland’s largest crypto unicorn,“ the firm announced on Tuesday.

It raised $25 million in a funding round led by London-based hedge fund Marshall Wace. The new funding brings the firm’s valuation to $2 billion.

21.co is designed to unite 21Shares with third-party token provider Amun and other upcoming crypto projects aiming to build bridges into the crypto world, 21.co founder Hany Rashwan told Cointelegraph.

All crypto ETP products launched by 21Shares will maintain the same nomenclature, Rashwan said. He also said that the new name won’t change much about the way 21Shares does business.

According to Rashwan, the newly raised funds will help 21.co to continue expanding its business globally. The firm is specifically focused on gaining more traction in 21.co’s core markets in Europe and is preparing its entry into the Middle East, the CEO noted.

Rashwan also pointed out that 21.co recorded significant growth metrics this year despite the ongoing cryptocurrency winter.

Related: 21Shares responds to bear market with crypto winter ETP

According to the CEO, 21.co posted more than $650 million in net new assets between September 2021 and September 2022, hitting a peak level of assets under management at $3 billion in November 2021. The firm has increased its overall headcount by 75% over the past year, Rashwan said, adding:

“These milestones demonstrate the confidence investors hold in the future of crypto, even during crypto winter.”

Offering a total of 39 crypto ETP products in seven countries so far, 21Shares is itself a venture that was born during a bear market. Rashwan co-founded 21Shares with Ophelia Snyder during a major bear crypto market in 2018. The same year, the company launched its first physically-backed crypto ETP, 21Shares Crypto Basket Index ETP. The ETP was subsequently listed on the SIX Swiss Exchange under the ticker symbol HODL.

Crypto noobs: What to tell newcomer friends about digital currency

A look at some of the questions that friends, family and acquaintances may have about crypto and some appropriate responses.

Interest in crypto has been growing since the 2017 bull market and has increased even further since 2021, which saw the nonfungible token (NFT) boom and Bitcoin (BTC) hitting its highest price so far. 

So, what can a crypto investor tell family and friends who are interested in cryptocurrency? Here are some common and important questions that one can come across regarding crypto and some appropriate responses with opinions from experts in the industry.

What is cryptocurrency?

One of the most common questions a crypto investor might get asked is what cryptocurrency is in the first place. Cryptocurrency is a digital currency that is designed to be used as a medium of exchange. This exchange can come in the form of peer-to-peer (P2P) payments and retail purchases. 

Lucaz Lee, CEO of Affyn — a mobile-based metaverse platform — told Cointelegraph, “A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions, making it difficult for anyone to create fake transactions or counterfeit money.”

Lee continued, “Additionally, cryptocurrencies are decentralized and use distributed ledger technology, meaning no central bank or government is controlling them.”

Cryptocurrencies exist on the blockchain, which is a public ledger that records all transactions that take place, making it possible for anyone to see how money moves through the network. While anyone can see how much money a user owns and how it is spent. Users need a wallet to send and receive crypto, and these wallets use alpha-numerical identifiers, which add a layer of anonymity to the users.

What purpose does cryptocurrency serve?

The main purpose behind cryptocurrency is the ability for anyone to send and receive money through a decentralized P2P network. This works as a digital version of cash. For example, when users pay with cash, they pay directly to another person without having to go through an intermediary such as a bank or payment processor.

Cryptocurrency does this on a digital level, allowing anyone to transfer money directly to another person, entity or organization while retaining control of their funds at all times. Lee agreed with this take, stating, “cryptocurrencies can be used as a medium of exchange or payment for specific services without any intermediary or centralized control. It removes the limitations of traditional finance, enabling the globe’s large numbers of unbanked and underbanked users to access financial services.”

Cryptocurrencies are also being used as investment vehicles, with users being able to make high returns due to their limited supply, high volatility and high level of speculation.

Lee added, “With each passing day, cryptocurrencies are becoming more attractive investment options. Certain variations also support opportunities to generate passive returns, helping investors expand and diversify portfolios.”

If crypto isn’t backed by anything, how is it worth anything?

Most cryptocurrencies aren’t backed by any traditional assets apart from stablecoins like USD Coin (USDC) and Tether (USDT), which have a large portion of their tokens backed by reserves of fiat money and bonds. Some people may wonder why cryptocurrency has any value if they aren’t backed by anything. 

First, a lot of the value comes from the utility of a cryptocurrency. The more a cryptocurrency is needed for a particular task, the more demand there will be for that cryptocurrency. Examples include using crypto as a store of value and uses for particular protocols within sub-industries like decentralized finance (DeFi) and NFTs.

Recent: Armenia aims to position itself as a Bitcoin mining hub

Igor Mikhalev, partner and head of emerging Tech at EY and decentralized autonomous organization chairman of Blueshift — a decentralized exchange — weighs in on this question, telling Cointelegraph, “cryptocurrencies built well are worth increasingly more because they exhibit the foundational functions of traditional currencies: scarcity, medium of exchange/account and store of value. It is possible due to advances in the underlying tech, legislation and people’s general attitude toward it.”

It’s also worth noting that fiat currencies like the United States dollar, euro and Great British pound aren’t backed by anything (hence the term “fiat” currency). Mikhalev spoke on this, adding, “the USD is not backed by real assets such as gold and is only backed by people’s trust in the U.S. as the issuer. So, why should we not want to support, own and exchange currencies issued by other mission-driven collectives backed by their value and utilities? This is the foundation of the new decentralized economy.”

Lee gave his opinion on the value of cryptocurrency, adding, “cryptocurrency is not backed by anything, but it is intrinsically worth something because people believe it has value. Market forces of supply and demand determine the price of a cryptocurrency.”

Speculation and investment also play a role in the value of cryptocurrency. If investors believe the value of a coin will increase over time, they’re more likely to buy and hold that coin, expecting to turn a profit in the future.

Lee added, “the more people want to buy a cryptocurrency, the higher the price will be. The more people want to sell the cryptocurrency, the lower the price. Blockchain technology has proven reliable and secure; accordingly, many people believe in its longevity and therefore invest in cryptocurrencies.”

Can cryptocurrency replace real money?

In a broad sense, no, as cryptocurrency isn’t regulated, and there are a lot of services, products and commodities that will always need traditional cash. However, governments are looking into creating their own digital tokens known as central bank digital currencies (CBDCs) and there are growing uses for decentralized cryptocurrencies.

“You can’t walk into a Starbucks in America and pay with Swiss francs or pounds. Yet, both of these are real money. Context matters.” Rockwell Shah, co-founder at Invisible College — a Web3 learning community — told Cointelegraph, adding:

“Similarly, the major cryptos are native currencies of their own digital nations. They have relevancy in their own blockchain borders. If the use cases of crypto are so compelling that people use them instead of traditional currencies even outside of their digital borders, then great. Welcome to the free market.”

Lee also believes the answer to this question is context-based. “The answer to this question is not a simple yes or no. It depends on the country and the corresponding economic system. In countries like Venezuela, where the government has mismanaged the economy and sparked high hyperinflation, cryptocurrency has become a way of life for many people.”

“Compared with traditional money, cryptocurrency is very new and its implications on the larger society are yet to be tried and tested. Nevertheless, central banks are exploring the idea of transition to digital currencies, known as central bank digital currencies,” he added.

Some experts believe that the underlying principles behind cryptocurrencies actually put them ahead of traditional currencies when it comes to adoption.

Recent: Crypto winter teaches tough lessons about custody and taking control

“Remarkably, crypto has already started surpassing national currencies on the foundational functions because of their democratic and transparent nature people intrinsically lean toward. Coupled with the decline in trust in government/official institutions, this presents fertile grounds for accelerated adoption,” Mikhalev said, continuing:

“One can see this awkward (for traditional money institutions) situation already today: The debate around the introduction of CBDCs (nation-level digital currencies) is stalling. Central, by nature, institutions do not want decentralization, as it will lead to their demise. However, there is no turning back. Once the technology is mature enough (and one can argue that it has already happened), it will only take one major geopolitical event for the explosive adoption to begin.”

Can cryptocurrency be hacked?

Blockchains themselves are largely impervious to cyberattacks. Lee spoke to this point:

“Blockchains, by design, are nearly impossible to hack because they are decentralized and rely on different security mechanisms. However, external variables such as hot wallets, centralized wallets, bridges and even smart contracts can be hacked.”

Therefore, the best way to secure users can secure their funds is by storing them in a noncustodial wallet, which is a wallet that allows them to own the private keys and wallet seed. This way, an attacker would need to know the private key and wallet seed to access their funds. Regarding platforms, hackers usually resort to phishing attacks to try and trick users into giving away information such as passwords and login info so the hackers can access their funds.

What causes cryptocurrency prices to increase?

Speculation and supply and demand are some of the main factors driving cryptocurrency prices. Most cryptocurrencies have a limited supply, and when there is a lot of demand for that coin (due to speculation of utility), the price usually surges in response to this.

Lee also believes supply and demand is the main reason a cryptocurrency’s price increases, stating that “the price of all assets, including cryptocurrencies, are determined by demand and supply. When the demand for an asset exceeds the supply, it creates a price surge. At times, macroeconomic and geopolitical factors also influence crypto prices.”

How cryptocurrency could help tackle global income inequality

A look at the many ways that cryptocurrency can help to solve the problems associated with global income equality.

Over the past few decades, the inequality of wealth distribution globally has become all the starker.

For example, as of 2022, the top 10% of Americans hold nearly 70% of the wealth in the United States. This means that 90% of the country only takes home 30% of the wealth. South Africa is another example, with the top 10% taking home 65% of the wealth.

Many citizens also lack access to general banking as well as high-class financial services (i.e., services limited to accredited investors) that are readily available to residents who are more well-off. Cryptocurrency can help to reduce wealth disparity by providing users with access to a means to earn, store, receive, send and invest their money. This analysis looks at how cryptocurrency can help close the income inequality gap.

How can crypto solve income equality?

Cryptocurrency gives users easier access to financial tools and a more affordable method of money remittance.

Many people in developing nations rely on their family members abroad to send money back to help with living expenses. Money remittances account for 20% to 38.5% of the gross domestic product of countries like El Salvador, Haiti and Tonga. U.S. dollar-pegged stablecoins like USD Coin (USDC) and Tether (USDT) can ensure that the recipients receive more of the transferred funds without intermediaries taking a cut in the form of transfer fees.

SWIFT transfers can be costly, with some banks charging 3% to 5%, while others charge a fixed fee of $25 to $45. Transfers via Western Union cost $25 on average for online transfers, $2.99 to $29.99 via credit/debit card and $7.99 when done in-store. On the other hand, stablecoins like USDC can cost $3 to $5 to send on Ethereum and less than $0.01 on the BNB Smart Chain, Tron and Cardano blockchains.

While saving an extra $20 to $44 on transaction fees might not seem like much to many people, this makes a big difference for people in developing countries or with lower incomes. For example, the average monthly salary in Venezuela is roughly $25.

These savings make it possible for people to make a better living from family members working overseas. In addition, family members will also be able to send money back home more frequently due to the very low fees and fast transaction times.

Ben Caselin, head of research and strategy at AAX — a cryptocurrency exchange — told Cointelegraph:

“Bitcoin, but also stablecoins, generally provides more accessibility than traditional banks, especially in emerging markets where large populations often find themselves unbanked either due to lack of infrastructure or documentation or exclusion on the basis of social standing, gender, religion or political viewpoints.”

“A shift toward Bitcoin and stablecoin payments can also be driven by sanctions or tight capital controls that make it virtually impossible for ordinary citizens and businesses to participate in the global economy either through trade, commerce or otherwise,” he added.

Caselin also noted the importance of the low costs when it comes to money remittance using cryptocurrency, saying, “Users in both developed and emerging markets can benefit from Bitcoin and digital assets when engaged in cross-border payments. This is not only because these are processed more efficiently on the blockchain but also at a much lower cost than through correspondent banks and money transfer operators such as Western Union.”

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“But it’s not just about accessibility and efficiency. Switching to digital assets and self-custody over holding funds with a bank and using their services is building toward a new, more mature financial culture and builds safety as societies continue to digitalize and threats to privacy and freedom proliferate.”

Easier access to payment systems

While PayPal is one the most popular ways of receiving payments for freelancers, users need to have their account linked to a bank to cash out their payments. This is because users can only withdraw money to their bank accounts, with the only other option being to spend the money with a PayPal debit card. This can make it difficult for unbanked people to make a living online.

Conversely, blockchain technology has enabled users to receive payments without needing an intermediary such as a bank. Users only need to control a crypto wallet to receive compensation directly from another user. This can prove very useful for online freelancers. For example, if a freelancer is commissioned to develop a website or provide any other online service, they only need to provide their crypto wallet.

Dunstan Teo, co-founder of Philcoin — a blockchain-based philanthropy project — told Cointelegraph, “Cryptocurrencies typically need only a wallet and internet connection for someone to sign up and transact. They offer an opportunity for those in developing nations to store their assets somewhere else other than under a mattress or in a cupboard.” He continued:

“This helps to reduce income inequality by giving anyone, anywhere in the world, access to the same financial products so that they can reap the rewards of a rapidly growing asset. Quite simply, crypto levels the playing field for all.”

If freelancers cannot access a bank, they can withdraw their earnings through a Bitcoin ATM. Countries like Uruguay, Nigeria, India and Kenya have installed Bitcoin ATMs, providing an alternate route for unbanked users to buy and sell crypto, making it a viable option for cashing out.

Crypto wallets make it easier for workers to earn an income online as well as send and receive payments. Some wallets even let users receive payments via usernames instead of the usual alphanumeric crypto addresses. Solana-based Web3 payment platform PIP, for example, uses tags (e.g., user@solana) instead of wallet addresses to prevent users from making mistakes when sending or receiving payments. If users have the browser extension installed, they can send and receive crypto payments through social media by hovering over the tags to activate a payment box.

Access to protocols that simplify the user experience is crucial for users, given that an estimated 20% of Bitcoin (BTC) has been lost due to user error. In addition, a survey covered by Cointelegraph found that 75% of respondents said they found crypto transactions “stressful” and “unnecessarily complicated.” However, human-readable addresses can tackle this issue and help to increase adoption in developing nations.

The use of cryptocurrency and self-custody wallets within the gig economy can be instrumental in creating income opportunities for people from developing countries or low-income backgrounds.

Corbin Fraser, head of financial services at Bitcoin.com — a cryptocurrency exchange and wallet — told Cointelegraph, “Crypto is a good way for users to receive payments for services. This was one of Bitcoin’s original tenets. Removing middlemen, reducing fees and unlocking a globally connected population with new opportunities thanks to magic internet money.” Fraser continued:

“The silver lining on the COVID-19 pandemic was the widespread adoption of remote work. As companies naturally evolve to hiring with remote in mind, we expect those companies offering payment in crypto will attract an even more dedicated workforce.”

“International payments through traditional financial institutions are still a huge pain for everyone. Funds get caught in limbo for days or even weeks and leave people with sticker shock from high fees thanks to legacy systems. Those fees are felt most in developing nations,” Fraser added. “We’re seeing a rise in cryptocurrencies focusing on low fees, and even Ethereum post-merge has sub-$0.05 fees on the horizon. So, it’s no doubt that this is where it’s all heading.”

Easy access to financial tools 

Cryptocurrency can help to reduce the wealth gap by providing access to financial tools to a broader range of users. Centralized financial tools like stocks, bonds and indexes usually require users to sign up to platforms and provide legal documents, including proof of income and bank details.

Decentralized finance (DeFi), on the other hand, lets users engage with financial protocols such as staking, yield farming and lending/borrowing platforms using only their wallet. This makes it easier for low-income users and people in developing countries to earn interest on their holdings and lend out money or borrow money. DeFi essentially levels the playing field regarding accessibility for financial tools.

The DeFi sector offers multiple ways for users to earn an income with their crypto assets without the interference of any centralized entity, from providing liquidity on a decentralized exchange and earning a percentage of the tokens traded to earning up to 20% by staking stablecoins.

Ethereum co-founder and Cardano founder Charles Hoskinskin believes the DeFi revolution will take place in the developing world. When previously interviewed by Cointelegraph, Hoskinson predicted that developing nations would add 100 million new users to the DeFi sector in the next few years.

A currency that is resistant to inflation

Inflation reduces the spending power of a nation’s fiat currency. As a result, people in countries like Venezuela have adopted cryptocurrency to combat hyperinflation. Cryptocurrencies like Bitcoin are deflationary by nature, meaning their supply reduces over time, increasing their value and spending power. For example, 1 BTC was worth $0.40 in 2010, compared with the $21,000 for 1 BTC today.

Recent: What the Taliban crackdown means for crypto’s future in Afghanistan

Teo weighed in on how inflation is affecting people in developing nations:

“Let’s face it — everything is becoming more expensive lately and even more so for those in developing countries. Across the world, we’re dealing with higher petrol costs, inflation, food costs, housing, education and more. The disposable income we all once had is now being eroded by a higher cost of living. And since inflation is not showing any sign of slowing down, we can expect that disposable income to keep withering away.”

Users in developing nations can also hold stablecoins if they don’t want to deal with the volatility that comes with traditional cryptocurrencies. Tether and USD Coin are great alternatives for users who want to keep their funds in a cryptocurrency pegged to the dollar.

Binance Pay partnership allows UAE entrepreneurs to repay loans using crypto

Virtuzone joins the list of mainstream businesses in the UAE, such as JA Resorts and Hotels and Majid Al Futtaim, to officially accept cryptocurrencies following the integration of Binance Pay.

Binance marked its presence among the Middle East investors by running various licensed operations in Abu Dhabi, Dubai and other regions. Targeting efforts in United Arab Emirate’s (UAE) mainstream corporate sector, Binance partnered with business lender Virtuzone, allowing new entrepreneurs to repay loans using cryptocurrencies.

Virtuzone joins the list of mainstream businesses in the UAE, such as JA Resorts and Hotels and Majid Al Futtaim, to officially accept cryptocurrencies after integrating Binance Pay into its payment gateway. In addition, by providing businesses the option to repay seed and other forms of funding through cryptocurrencies, the company intends to reduce barriers to entrepreneurship and support the startup communities.

With blockchain venture capital funding going down over 43% in July, entrepreneurs are on the lookout for obtaining funds for new crypto ventures amid an ongoing bear market. In addition to serving this need, Virtuzone also revealed plans to expedite Web3 adoption in the Middle East. On this note, speaking to Cointelegraph, Richard Teng, head of Binance Middle East and North Africa (MENA), stated:

“The market that is developing in the UAE around the Web3 industry, thanks to a number of government initiatives, is one that will become a global hub for investors in digital assets.”

Binance also expects the MENA region to enjoy strong demographic growth in the next three decades. However, Teng believed that entering the untapped market requires the introduction of a regulatory framework for crypto and digital assets.

Related: Binance Aus ramping up measures to protect vulnerable users, says CEO

Binance CEO Changpeng ‘CZ’ Zhao’s intent to work with the regulators has been established as a well-known fact. In doing so, the exchange restricted the account of Tezos staking rewards auditor Baking Bad “as the result of a law enforcement request.”

“Binance is required to cooperate with such requests, the same as any other exchange. There is a process to contest the seizure with the agency should you wish to pursue that path. But that is done through the agency, Binance has zero control over that process,” explained the exchange while sufficing the move.

CME Group launches euro-denominated Bitcoin and Ether futures

First announced on Aug. 4, the euro-denominated Ether futures represent investment vehicles launched prior to the blockchain’s transition to proof-of-stake.

Derivatives marketplace Chicago Mercantile Exchange Group has launched trading for Bitcoin euro and Ether euro futures contracts.

In a Monday announcement, CME Group said that it launched contracts for euro-denominated Bitcoin (BTC) and Ether (ETH) futures sized at 5 BTC and 50 ETH per contract. Both contracts will be listed on CME, cash-settled and based on the CME CF Bitcoin-Euro Reference Rate and CME CF Ether-Euro Reference Rate, respectively.

“Our new Bitcoin Euro and Ether Euro futures will provide institutional clients, both within and outside the U.S., with more precise and regulated tools to trade and hedge exposure to the two largest cryptocurrencies by market cap,” said CME Group global head of equity and FX products Tim McCourt.

First announced on Aug. 4, the euro-denominated ETH futures represent investment vehicles launched prior to the Merge in which the Ethereum blockchain transitions to proof-of-stake — expected between Sept. 10 an20. Cointelegraph reported that countries in Europe, the Middle East and Africa represented 28% of all trading for BTC and ETH futures contracts.

Related: CME Group plans to launch options on ETH futures prior to the Merge

CME Group launched its first BTC futures contract in December 2017, followed by an ETH futures contract in February 2021. In 2022, the derivatives exchange expanded its offering of crypto investment vehicles to include micro BTC and ETH futures. The launch of euro-denominated BTC and ETH futures came as the euro remained at parity with the U.S. dollar — at the time of publication, 1 euro is worth roughly $1.

According to data from Cointelegraph Markets Pro, the price of ETH is $1,509 at the time of publication, having risen more than 3% in the last 24 hours. The BTC price fell below $20,000 on Sunday, hitting a 20-month low, but since rose 2% to reach $20,342.