CBDCs and Centralization

In this edition: Crypto markets overview, and Dr. Malmgren’s dramatic forecast for CBDCs & surveillance

Efficient Frontier

Published in

Efficient Frontier

6 min readSep 19, 2021

Published on Substack August 31

From Deloitte’s 2021 Global Blockchain Survey

Hi everyone! After a brief hiatus, we’re back covering the cryptocurrency markets, in this edition:

* Markets overview

* Dr. Malmgren’s dramatic forecast for CBDCs & surveillance

* News and themes

Market overview

Since our last edition the price of Bitcoin went up steadily, from around $31,500 to a peak of $51,500 on August 23rd. Since it has been trading in a range between $49,700 and $46,300.

The recent price peak saw much less exuberance, leverage and hype, as well as less volume and less on-chain activity. The continued market rise of the last 7 weeks came with a moderate rise in trading volume and lackluster on-chain transactions and active addresses. The number of Bitcoin addresses with over 1,000 coins remains low, while the Kimchi premium is low and the GBTC premium is still negative. All of this demonstrates the market isn’t over hyped — yet.

1) Open Interest for Bitcoin futures rose by $3.7 B in the last month, touching $17.4 B. Source: TheBlockCrypto

2) Perpetual funding rate has been slightly positive since July 26th when the price broke above $40k, after two months of neutral to negative funding. Source: CryptoQuant.

3) Futures trading volume in August was $1.67 trillion compared to $1.47 trillion in July, and $0.9 trillion lower than in record setting May. Source: TheBlockCrypto

4) Active Bitcoin addresses are at levels similar to last summer, when Bitcoin was around $10,000 per-coin. Source: Arcane

A look at the on-chain realized profits and losses chart indicated a market in advanced stages of ‘clean up’. Source:GlassNode

When Bitcoin moved above $40,000 on July 29th, On-chain analytics showed the highest level of profit taking since April, with $4.5 Billion in estimated losses.

In conclusion: Low/stable volumes, muted participation and high profit taking build expectation for a continued period of consolidation. Encouragingly, low leverage and low hype in general indicates a relatively healthy Bitcoin market with less potential for extreme volatility.

Cryptoland

The wider crypto markets enjoyed the rally as well. Over the last 30 days the FTX Altcoin/USD Index rose by 64%, DeFi Index rose by 50% and the Shi*coin Index grew by only 44%.

Weekly USD chart for DEFI-PREP, ALT-PREP, *HIT-PREP, Source:FTX. Altcoin price growth, source: Coinmetrics

The biggest story lately is the NFT and collectibles market, which has reached all time highs.

1. Collectibles weekly volume. **Source:** TheBlockCrypto. 2. NFT exchange volume. Source:Arcane. 3. OpenSea daily volume. 4. OpenSea sales VS ETH price. Source:CoinMetrics

The number of sales on the largest NFT marketplace, OpenSea, reached an all-time record last week in volumes and unique participants, with over $3 billion in volume in August compared to $280 million in July. Coinmetrics pointed out 3 catalysts for the recent rally: A single purchase of 104 CryptoPunks for $7M on July 30th , the announcement that Christie’s auction house will sell a Bored Ape Yacht Club NFT and Three Arrows Capital’s buying spree.

With more utility than the average 2017 ICO, a clear purpose (‘art’), and continued interest despite the drop in Bitcoin and Ether’s prices, digital art and collectibles look like they’re here to stay.

Decentralization VS centralization: the final battle

In the following section we summarized the forecast of former US presidential advisor, economist and author Dr. Pipa Malmgren. Malmgren is known for forecasting the 2008 financial crisis, Trump’s election, Brexit and for coining the word “shrinkflation”.

“There’s a huge crackdown on the crypto space with pressure on Binance… Governments will not be happy about people moving around money anonymously. It’s also part of the broader context of understanding all of one’s data.” explained Malmgren.

What does the bigger picture hold for cryptocurrency and the state?

Malmgren said that this regulatory pressure must be seen in the wider context of large political and technological trends: Surveillance and computer warfare are replacing physical warfare, while surveillance capitalism is being pioneered by the Chinese state. In these trends decentralized cryptocurrency plays a small but important role. According to Malmgren’s forecast, these trends naturally culminate in CBDC.

Surveillance Capitalism uses extreme data collection and computation to try and predict and influence the choices of individuals and groups. In China these abilities are openly used. E.G. — a citizen who purchases a lot of alcohol may not be allowed on a train. “Just think about CBDCs like a surveillance system that is disguised to look like money”. In this setup, the government could track all your financial transactions, and give your bonuses or fines for good or bad behavior. China, according to Malmgren, aims to integrate digital currency (CBDC) into its social credit system, leading the trend for many other regions.

Two reasons surveillance and control of cryptocurrency is important to the CBDC project:

1) For CBDCs to fulfill their potential

Surveillance capitalism relies on a race to understand and track all data including money. This is why it is important for competing governments to track all money transfers (KYC, AML) and combat privacy technology. Part of this push is to get all main cryptocurrency exchanges into compliance. Tracking and understanding financial flows is essential in implementing effective CBDC policy.

2) Preventing competition

Noncompliant and privacy-enabled cryptocurrency transactions, privacy tech, cash, encryption and black markets all stand in the way of complete surveillance capitalism. Malmgren forecasts a clear split between compliant and noncompliant digital financial activity in the coming decades. She predicts that noncompliant financial activity will not only need its own physical devices but also maybe even its own networks.

Things to watch

Is there really an ability today to make sense of all the data collected, e.g. in China? In order to really control ‘everything’? With computing being today’s biggest defense expense, perhaps not. These abilities will affect the timing of CBDC roll out.
Governments will be experimenting with the new money systems. “It’s going to be volatile and bumpy and really hard for people who aren’t paying close attention to what’s going on.”