HK’s First Licensed Crypto Fund
By Kenetic Trading on The Capital
An important milestone was reached this past week in Hong Kong with Arrano Capital announcing it had cleared the local regulator’s licensing conditions to deal with virtual assets. This marks a satisfying breakthrough of a 2.5 year journey that began within the walls of Kenetic in late 2017. We wish Avaneesh Acquilla and the team much success and good fortune for the next leg in the launch of their cryptocurrency funds. Congratulations!
After a rather brutal dismantling in October ’19 of Mark Zuckerberg’s lofty plans to launch a new global currency — Libra — the project has now published a second version of their White Paper, which highlights a change in direction and a possible softening of the previously combative position of the US Congress.
US political and economic global dominance is clearly coming under increased pressure and scrutiny with the somewhat erratic and panicked global leadership (or lack thereof) from the current administration. This combined with the double whammy of 1) the economic fallout of COVID-19 highlighting how crucial USD foreign monetary policy is and 2) the Chinese rolling out their own digital currency, DCEP, then it is not a surprise that progress has been made in the Libra Project. The project is arguably more important than ever for the US, should they wish to continue maintaining their position and authority on the global financial system.
Progress has come at a cost for the libertarian values of the Libra project as it has been forced to pivot to a more regulated and centralized venture that looks set to serve Central Banks across the world (rather than focusing on banking the unbanked) and provide the US with the oversight they require. Rather than aim to become a permission-less, ‘’decentralized’’ basket of currencies creating the new Libra for everyone or access via a digital wallet, the project will now offer digital EURO, GBP, USD, SGD as well as their originally planned Libra basket. Central Banks will likely call the regulatory shots whilst leveraging the Libra project and Facebook’s network as they launch their respective CBDC’s. New wallet integrations into the Libra network will now likely be controlled by centralized governance all in the name of complying with international financial regulations.
Vice Chair of Libra, Dante Disparte was quoted in the Financial Times as saying:
“There are certain things you could do with a blockchain payment system [like Libra’s] that you cannot with alternatives, such as geofencing politically sanctioned countries, blocking suspicious addresses, identifying suspicious activity in [close to] real time,”
Although Bitcoiners and crypto enthusiasts will balk at this very idea, this poses no threat to likes of Bitcoin. Libra, despite its change in direction, is essential for the US to remain relevant as China accelerates the development of tools and systems that undermine the USD and expand its surveillance. As discussed by The Block, Libra 2.0 should now really been seen as a custom software development kit (SDK) for Central Banks to leverage rather than a new currency for the unbanked.
Blockchain Service Network, BSN and DCEP update
Later this week, China will launch the Blockchain Service Network, BSN. In a further signal to the world that China wishes to lead in not just government-issued digital currencies, but also the blockchain application infrastructure space, the BSN aims to create the ‘’internet of interoperable blockchains.’’
The Whitepaper is explicit in its aims and should raise eyebrows and blood pressures across the blockchain community.
‘’As the BSN takes hold in countries around the world, it will become the only global infrastructure network autonomously innovated by Chinese entities.’’ excerpt from the BSN Whitepaper.
The BSN is a low-cost infrastructure and developer ecosystem (for anyone who complies with the BSN) to build, deploy, and operate blockchain applications. The differentiator and selling point for the BSN is that it plans to reduce the cost of entry of building a blockchain application massively. This should open up the BSN globally for small businesses and individual developers to innovate and build alongside enterprise users. According to the BSN whitepaper, the network will be compatible and support both public and permissioned blockchains outside of China, including Ethereum, EOS, and the Linux Foundation’s Hyperledger Fabric.
Initiated by the State Information Center of China, the BSN is a so-called Consortium Blockchain (essentially a permissioned blockchain). Whilst it’s hard to deny the enthusiasm and will of China to drive the blockchain industry forward, the whole project could be just be interpreted as an attempt to standardize blockchain application development under Chinese regulatory control, ultimately gaining greater oversight via deeper surveillance. What developers and users may benefit from in terms of cost and time savings they will give up in terms of privacy and ultimately control of their product.
Nonetheless, this is a significant move from the Chinese and combined with the rapid progress of the DCEP implementation, the Chinese are doing everything that the US is not.
Running parallel to the BNS, last week, we saw that China is now also in late stage testing of the initial first round of DCEP applications as screenshots were ‘’leaked’’ showing the GUI for the DCEP application from Agricultural Bank of China. Trials are now being conducted across 4 provinces, and even government officials in Suzhou will start being paid, in part, with DCEP starting next month.
The Communist Party of China is miles ahead of the US in implementing a rival to the USD as a global currency, and despite warnings from both Zuckerberg and Head of Libra, David Marcus, Congress appears to still be asleep at the wheel as China cruises through the gears.
“China is moving quickly to launch a similar idea in the coming months,” “We can’t sit here and assume that because America is today the leader that it will always get to be the leader if we don’t innovate.” Zuckerberg, October 2019
Last week in Crypto
Bitcoin is continuing to observe the log long term trend line, much akin to the 1st quarter of 2019 before Bitcoin rallied ~350% from $4,000 to $14,000. Not that history repeats itself entirely, but establishing a consolidated base on the decade long trend line prior to halving does feel bullish. A move to 10k and resistance from the downward slope of the triangle would certainly attract some much needed mainstream media attention to the Bitcoin market, media attention that seems all too lacking in 2020.
Hashrate looks strong this week with network capacity sitting around 111 million TH/s with only 22 days until the block rewards halving. The difficulty adjustment due in tomorrow is estimated at a +8–9% increase (source https://diff.cryptothis.com/) reflecting the increase of hashrate added to the network during the past 2 weeks. One could make the following assumption that the majority of new hashrate joining the Bitcoin network will be next-generation ASIC miners, led by Bitmain’s S19. With the block reward halving and mining profitability soon to be heavily reduced, new hardware technology must be deployed by mining businesses in order to stay profitable. The goods news? The cost of production is considerably lower when mining with the more efficient S19’s, therefore we could conclude that less selling pressure will occur in the market overtime.
It has now been several weeks since the Bitcoin Cash and Bitcoin SV halving’s, and as anticipated, much of the hashrate from these SHA-256 competing chains have moved over to Bitcoin (BTC) where mining profitability and security is magnitudes stronger.
The percentage distribution of hashrate is near all-time lows for both BSV and BCH (as see above), and one has to wonder when investors and exchanges quantify the risk of a 51% attack too high to warrant continued support.
Currently, the cost of a 1hr 51% attack on the BSV chain is just over $24K and $33K for BCH compared to over $2m for BTC. Will the smaller SHA-256 hashrate’s strength post BTC halving? If not, then these 2 chains could be in trouble, and price will catch up to reflect this risk.
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