Monthly Archives: September 2023

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Cryptocurrencys Rise in Cuba: Hope Shines in Tough Economical Waters

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Cryptocurrency's Rise in Cuba: Hope Shines in Tough Economical Waters

For many years, Cuba has faced serious economic challenges that have deeply affected the daily lives of its people. These challenges include trade restrictions, shortages of basic goods, and a lack of foreign investment. However, amidst these difficulties, Bitcoin offers a glimmer of hope to Cubans.

Although Bitcoin is still relatively new in Cuba, it's slowly gaining popularity among the population. One significant reason for this is Cuba's unique dual currency system, which has made Bitcoin an appealing alternative to traditional financial systems. Additionally, more Cubans are turning to Bitcoin to receive remittances from family members living abroad, further solidifying its role in their daily lives.

The increasing use of Bitcoin has sparked optimism that it could help revitalize Cuba's economy and empower its people. This digital currency holds the potential to bring about economic resilience and financial independence for Cubans. In this article, we'll explore the growing adoption of Bitcoin in Cuba and its potential to shape a brighter economic future for the nation. Join us as we uncover how a digital currency is influencing the destiny of an island nation in pursuit of better economic prospects.


Image source: Dialogo Americas

The Evolution of Cuba’s Economy

Cuba currently faces one of its most severe economic crises since the early 1990s, a period characterized by the collapse of the Soviet Union, which had been the primary source of support for the island nation. During this era, Fidel Castro, the enduring dictator, called upon citizens to unite and endure what he termed a "special period." It was marked by food shortages, frequent blackouts, a significant exodus of Cubans to Florida on perilous rafts, and a devastating devaluation of the Cuban peso, pegged to the Soviet ruble. Between 1991 and 1994, Cuba's economy contracted by a staggering 35%, resulting in a substantial decline in the people's quality of life.

The summer of 1994 witnessed the Maleconazo uprising, a notable anti-government protest in Havana fueled by the failure of the state's ration system, which depended heavily on Soviet support. Essential goods suddenly became accessible only through the use of dollars, a currency increasingly elusive for Cubans with peso-based incomes. In a desperate bid to sustain its faltering economy, the regime abandoned its collectivist principles and imposed unprecedented taxes on the population. In response, tens of thousands of protestors converged along the Malecon waterfront, demanding an end to the government's rule.

During this period, the internet was non-existent, allowing the regime to suppress the movement through brutal police tactics, ensuring that most Cubans remained unaware of the scale of the protests. State-controlled media dismissed the events as a small gathering of delinquents and troublemakers. In reality, the Maleconazo represented a significant display of dissent, the most substantial since the Cuban Revolution in 1959.

Fast forward to today, and Cubans are again referring to a new "Special Period." This time, it is driven by currency reforms and decades of frustration stemming from political repression and bureaucracy. Shortages, frequent power outages, rampant inflation, and widespread protests mark the outcome. The key difference today is the presence of mobile phones and internet access, which keeps the world informed about the situation. On July 11, 2023, Cuba experienced its largest anti-government protest since 1959 in Havana and across cities nationwide.

Cuba, with its scorching climate, grapples with daily electricity shortages. Essential food items like beef, fish, chicken, and eggs are scarce or unobtainable. Obtaining necessities such as food, medicine, and sanitation supplies has become a daily challenge. The power grid is in disarray, and the healthcare system is on the brink of collapse. Oxygen and fans are in short supply, and an increasing number of elderly citizens are losing their lives. At the heart of the government's failures and the unprecedented uprising of its citizens lies a financial crisis.

In January, the Communist Party of Cuba initiated a "monetary purification" process. Since 1994, the government has been issuing two types of currencies: the CUP (Cuban peso), pegged to the dollar at a rate of 24:1, and the CUC (Cuban convertible peso), pegged at 1:1 to the dollar.

While public sector salaries and pensions were paid in pesos, citizens needed CUCs to purchase essential items such as medicine, non-basic foods, clothing, cleaning supplies, and electronics. The regime designed this system to drain value from the population by selling CUCs for 25 pesos at state-run money exchanges (cadecas) while repurchasing them at 24 pesos. 

The government understood that it had to continually print and inflate pesos to sustain its centrally planned economy, even as the agricultural and industrial sectors collapsed. This dual-currency system maintained the purchasing power of the elite and well-connected while creating an economic disparity.

This system created a stark contrast where state employees, including teachers, police officers, and healthcare workers, were at a severe economic disadvantage compared to those involved in the tourist industry, such as waitstaff and taxi drivers.

As of January 1, 2021, the CUC was officially phased out, and Cubans were given six months to exchange their CUCs for pesos at the official exchange rate. This transition effectively robbed Cubans of their hard-earned CUCs, as they were forced to exchange them for rapidly depreciating pesos. Even before January, CUCs traded at a 15% discount to the dollar.

The government extended the window for Cubans to redeem CUCs for a few additional months. Still, usage has dwindled, replaced primarily by the MLC (moneda libremente convertible, or "freely convertible currency"). Introduced by the regime in 2019 as the future monetary system of the island, the MLC operates like a reusable gift card. A plastic MLC card is available at banks, along with two mobile apps for transactions. However, MLC lacks banknotes, coins, or interest-earning capabilities. Its functionality primarily revolves around Cubans receiving hard currency from contacts abroad, which the regime confiscates, replacing it with MLC credit for citizens to spend at government-run stores.

In a cruel irony, Cubans, who are predominantly paid or pensioned in pesos, cannot purchase MLC with their own currency. To officially top up their MLC accounts, they must use foreign hard currency, often sent by family or contacts abroad. Initially, this could be done with dollars, but due to the Trump administration's crackdown on remittances to Cuba, MLC is now mainly acquired through pounds, euros, and Canadian dollars.

Building upon a trend that began 25 years ago when better goods were only available in dollar stores, today's MLC stores are essentially the sole source of quality food, medicine, cleaning supplies, appliances, and other essentials. Peso stores regularly face shortages and offer limited and low-quality products. Cubans with family abroad can obtain MLC top-ups and purchase necessities to sustain their lives. In contrast, those without such connections must resort to the black market to acquire MLC, where the exchange rate is approximately 65 pesos for one MLC.

The Cuban regime effectively prints pesos through the MLC system to acquire hard currency. It's a massive deception perpetrated on the Cuban population and a major driving force behind the historic protests we witness in Cuba.


Image source: Crypto News

Finding Freedom Through Bitcoin

Bitcoin, a symbol of freedom and a reminder of American liberty, traces its origins back to the American Revolution. It was born out of a desire to break free from Britain's control of war and monarchy.
Now, let's jump to 2023, where a new kind of tyranny is on the horizon in every part of the world. Bitcoin offers us an opportunity to escape the control of central bankers, a chance to choose a different path. Its popularity is growing to the point where these financial authorities can no longer maintain their grip. This isn't just about changing our monetary system; it's about reclaiming control, securing financial freedom, and building generational wealth.

Cuba has a history of rebels and resilient spirits. Brave individuals who resisted the iron grip of the Castro regime are now at the forefront of a different kind of revolution—Bitcoin. In the past, talking about Bitcoin in Cuba had to be done secretly. Today, it's open, a topic of discussion, and offers hope through the Lightning Network. 

In a country where the once-powerful peso has become nearly worthless, Bitcoin provides a lifeline. The average salary in Cuba is barely enough to survive on. When the cost of coffee beans for your morning espresso exceeds a Cuban's monthly wage, something is seriously wrong. Bitcoin offers a way out, a path to a better future.

Bitcoin transactions in Cuba occur through Telegram groups and the Lightning Network. They're nearly feeless and shrouded in secrecy to avoid government scrutiny. Traditional institutions have failed the Cuban people, but they've found new hope in Bitcoin. It's a way to preserve their energy, wealth, and hard-earned money over time.

For many Cuban businesses struggling to pay foreign suppliers, Bitcoin is the solution. It's a lifeline for acquiring essential goods that Cuban pesos or MLCs cannot buy. Bitcoin's presence is everywhere, from the heart of Havana to the bustling streets of Santiago. It's a revolution, a declaration, and a defiant response to a history of tyranny, oppression, hyperinflation, and despair.

Historical revolutions were led by visionaries but driven by the courageous. In modern-day Cuba, that courage is reflected in satoshis stored in Bitcoin wallets—a dream of an unburdened and unrestrained Cuba. Cuba is embracing Bitcoin wholeheartedly, educating its people, and making it a part of their future. They understand that in the long run, Bitcoin will remain while the Cuban peso may not.

The Cuban Bitcoin community is growing, and Bitcoin is their symbol of hope. They don't worry about market ups and downs; they worry about the survival of the Cuban peso. Bitcoin is their lifeline and their path to financial freedom. In this quest for freedom and defiance, we salute the rebels, the dreamers, and the trailblazers. The Bitcoin Revolution is here, and it won't wait for anyone. Join in or step aside.


Image source: CNBC 

A New Era Dawns in Cuba

Much like other closed regimes such as North Korea and the Soviet Union, Cuba is experiencing a profound transformation thanks to technology and access to outside information. The nationwide protest movement on July 11 wouldn't have been possible without the digital tools that enable people to organize and connect.
In Cuba, the internet is dismantling the consensus held by the ruling elites, who rely on controlling information. If the internet continues to thrive in Cuba, it could eventually lead to the fall of the Cuban government. However, despite nearly two decades of economic reforms and half a decade of an increasingly connected population, the Cuban communist party maintains its grip on power.

The government's resistance to change and its conservative nature have helped it endure for decades. While Bitcoin offers a way for the government to accumulate the world's hardest currency, those in charge may not consider it a risk worth taking. On the U.S. front, the Biden administration is reviewing remittances to Cuba to find ways for people in the U.S. to send money to their families on the island without supporting the regime.

During the recent turbulent weeks, one thing has become evident: a growing number of Cubans are no longer willing to wait for their government to implement reforms or for the Biden administration to ease sanctions. They are taking control of their financial destinies through Bitcoin.

While the current political protests may demonstrate that Cubans are weary of dictatorship, they might not be enough to bring down the regime. Many have predicted the fall of the Castro regime over the decades, only to be proven wrong. In the meantime, Cubans will continue their peaceful protest by opting out of the exploitative peso and MLC systems and embracing Bitcoin. After six decades of economic hardship, they have finally found a way out. Bitcoin has become a quintessential Cuban movement and a solution that appears unlikely to be halted.

Conclusion

As Cuba grapples with a severe economic crisis and restricted access to traditional financial systems, the emergence of Bitcoin provides a beacon of hope for the nation's future prosperity. Adopting this decentralized cryptocurrency opens up a world of possibilities for Cubans to explore alternative monetary solutions and seize control of their financial destinies.

In a landscape marked by trade embargoes, commodity shortages, and limited foreign investment, Bitcoin represents a lifeline to economic resilience. Its borderless nature transcends the constraints of traditional banking, offering Cubans a pathway to financial empowerment. By embracing Bitcoin, they can break free from the shackles of economic instability that have persisted for decades.

However, the journey toward widespread Bitcoin adoption in Cuba has its challenges. Limited internet access poses a significant hurdle, hindering the ability of many Cubans to fully participate in the digital economy. Regulatory ambiguity also looms as a potential impediment.

Yet, the potential benefits for the Cuban people are nothing short of transformational. Bitcoin empowers individuals to take control of their wealth and participate in the global economy on their own terms. It represents an opportunity for financial inclusion, economic self-determination, and the pursuit of brighter economic horizons. 

As we witness the early stages of Bitcoin's journey within Cuba, it's clear that this digital currency has the power to reshape the nation's economic destiny. It offers a glimmer of hope amid adversity, a lifeline for those seeking financial stability, and a symbol of resilience for a country with a rich history of overcoming challenges. 

In closing, let us remain hopeful and watchful as Cuba navigates this transformative path. With each Bitcoin transaction and each step towards financial independence, the Cuban people inch closer to a future where economic prosperity knows no bounds.

 

 

About: Prince Ibenne. (Nigeria) Prince is passionate about helping people understand the crypto-verse through his easily digestible articles. He is an enthusiastic supporter of blockchain technology and cryptocurrency. Find me at my Markethive Profile Page | My Twitter Account | and my LinkedIn Profile.

 

 

 

 

 

 

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Emotional Whirlwind: Chinas Real Estate Saga Casts a Tentative Mood Over Financial Markets

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Emotional Whirlwind: China's Real Estate Saga Casts a Tentative Mood Over Financial Markets

China's real estate market has become a focal point of global attention, generating uncertainty and raising concerns about the overall financial landscape. The economic situations of major property developers in China have been a cause for worry, leaving the world in suspense. This ongoing saga has evoked strong emotions and carries significant implications.

The consequences of a collapse in China's real estate market extend far beyond financial territory. It would have a profound impact on the lives of millions of people, including homeowners, investors, and those employed in the construction and related industries. The social and psychological implications cannot be overlooked.

Moreover, the interconnectedness of the global financial system means that any significant disruption in China's real estate market could have ripple effects worldwide. International investors, financial institutions, and markets are closely monitoring the situation, aware of the potential implications for their economies.

The stakes are undeniably high, and the outcome of this situation will shape the future trajectory of China's economy and reverberate throughout the global financial landscape. By understanding the complex factors and underlying emotions, we can gain a deeper appreciation for the significance of this unfolding event, the multifaceted factors at play, and the feelings underpinning this gripping narrative.


Image source: The Plaid Zebra

The Weight of Uncertainty, Fear, Anxiety, and Hope

Have you ever wondered what's happening in China's economy? A new twist keeps us on the edge of our seats every week. From massive property companies teetering on the brink of bankruptcy to sprawling construction sites sitting empty and skyrocketing youth unemployment rates, China's financial situation is anything but stable. And remember, this isn't just a problem for China alone. The global economy is closely tied to China's fate, like a ship anchored to its economic performance. So, what's the next wave of challenges that China is facing?

Let's start by painting a picture of China's current economic landscape before we delve into its implications for the global economy. It's a big task, but let's dive right in. When the COVID-19 restrictions were lifted late last year, many expected China's economy to bounce back like a sprinter out of the starting blocks. However, it has been more of a limp in recent months instead of a leap.

Disturbing economic data has been emerging, particularly in the housing sector. One major player in the news is Evergrande. This colossal property developer made headlines in 2021 when it defaulted on its debt, earning the title of the world's most indebted developer with over $300 billion in debt. Unfortunately, the company is facing even more bad news. According to the latest estimates, its liabilities have now climbed to $340 billion, and it has recently filed for Chapter 15 bankruptcy protection in the United States. But Evergrande is not the only troubled developer in China.

You might be wondering why a crisis in China's housing market is such a big deal. In most economies, the housing sector plays a significant role in the gross domestic product (GDP), which is a key indicator of a nation's financial health. But in China, housing is even more crucial, accounting for 25% to 30% of its GDP. That's practically double the figure for the United States. Why is this the case? In China, people have limited options for investing their excess cash. Stock markets are complicated to access and nearly impossible to tap into international trades.


The central plaza of Kangbashi district in Ordos City, Inner Mongolia. Dubbed China's
signature ghost city, the district is less than 10 percent occupied. Qilai Shen/Getty Images

As a result, people park their savings in housing, which has traditionally been seen as a safe investment. This explains the phenomenon of ghost cities and massive clusters of vacant apartment buildings. These empty flats are not just abandoned; they are investment properties that owners choose not to rent out, fearing it would decrease their value. Estimates suggest a staggering 65 to 80 million vacant apartments across China. The sight of these desolate urban landscapes is similar to a dystopian movie.

For many years, house prices in China were on a steady upward trajectory. However, in recent years, the situation has changed. Officially, new home prices have seen a 2.4% dip since August 2021, with existing homes faring even worse, experiencing a 6% decline. But other sources of evidence suggest that the situation is much worse than official figures indicate. Reports from property agents and private data providers show drops of at least 15% in prime neighborhoods in major metropolitan areas like Shanghai and Shenzhen.

This is not good news for real estate companies, private investors, or the economy. It creates an atmosphere of economic uncertainty and leads to reduced spending. It's also a nightmare for aspiring homeowners who worry that they have invested their life savings into projects that may never be completed. You may recall the protests last summer when displeased investors refused to pay their mortgages due to delays in completing their homes. Such outbursts are rare in China.

So, what has caused this drop in house prices? The reasons are complex, but let's unpack them as succinctly as possible. First, let's consider China's urban migration statistics. From 1990 to 2020, the urban population exploded from around 301 million to a massive 848 million. This rapid urbanization and relatively cheap credit led developers to go into overdrive, constructing buildings as fast as possible. However, despite the construction boom, housing soon became unaffordable for many, especially in major cities.

For example, in 2020, buying an apartment in Shenzhen could cost you about 43 times the average annual salary. The government implemented a series of regulatory measures around 2020 to cool down the housing bubble. These measures included higher mortgage down payments, restrictions on buying multiple properties, and stricter credit conditions for developers. While well-intentioned, these steps now appear to have been too aggressive. Developers hit the brakes; many defaulted on their debts, and potential buyers were spooked, leading to decreased demand and prices falling drastically.


Created with an investment of $161 billion in the early 2000s, Kangbashi can house over 
300,000 people. So far, only 30,000 have moved in. Qilai Shen/Getty Images

Assessing the full extent of this crisis is challenging because reliable data in China is hard to come by. The Chinese government wants to control the narrative and minimize the data release that could cause market panic and reflect poorly on the government. For example, in August 2023, the government stopped publishing youth unemployment data after it reached an unprecedented level of over 21% in June of this year. However, some facts cannot be hidden. Big companies are in trouble, and markets worldwide are paying attention.

While Evergrande has been grabbing headlines, it is not the only player in China's deteriorating real estate landscape. For example, Country Garden, a property developer four times larger than Evergrande with an estimated one million apartments under construction, missed bond payments in early August. Country Garden has until September 2023 to make payments or risk default. Regardless of whether it can come up with the money, the damage has been done. Confidence in China's housing market, which was already shaky, has taken another hit.

A Balancing Act of the Government’s Intervention

The Chinese government's interventions in the real estate market stimulate a range of emotions and frustration as homeowners face stricter regulations and hope these measures will bring stability. It's a delicate balancing act between economic growth and preventing a bubble from bursting. The world watches with bated breath to see if these measures will lead to a safe landing or a turbulent crash.

So, where does China go from here? What can the government do to steer the economy out of troubled waters? One straightforward solution might be a robust fiscal stimulus, such as slashing interest rates dramatically to encourage borrowing and stimulate exports, which have traditionally been a cornerstone of China's economy. However, this tactic has its risks. It could potentially trigger capital flight as corporations and households seek higher interest rates abroad. 

This would cause China's currency, the Renminbi, to weaken further against the dollar. So far, the government's steps have been more cautious than transformative. For example, on August 21, China's central bank modestly reduced its one-year loan prime rate from 3.55 to 3.45%. However, market watchers generally agree that this move is like bringing a pocket knife to a sword fight. Bolder reforms are urgently needed.

Fortunately, China has tools at its disposal to mitigate the crisis. For example, the government could compel banks to lend more, which, while not a magic bullet, could act as a firewall against a full-scale financial meltdown and a subsequent credit crunch. The Chinese government has been trying to prevent a disorderly default by imposing stricter regulations on the property market, injecting liquidity into the banking system, and urging Evergrande to negotiate with its stakeholders. 

However, the government has also clarified that it will not bail out Evergrande or other troubled firms, as it wants to avoid moral hazard and promote market discipline. The outcome of this crisis will depend on how well the government can balance its conflicting goals of maintaining stability and reforming the economy.


Image: Markethive.com

Fear, Excitement, and Optimism Grip

If Country Garden can't sort out this debt issue by September, it could have severe repercussions for the property sector and the broader Chinese economy, which will have a ripple effect on the financial markets. The fact that bond trading for them has already stopped is a clear sign that significant challenges lie ahead. Investors, policymakers, and homeowners are all bracing for a turbulent ride.

The potential fallout from Country Garden's troubles is substantial. Around 145,000 families anxiously await their homes; their dreams and investments hang in the balance. This situation is a stark reminder that even the mightiest companies can stumble, shaking confidence in the market. Small suppliers in the property development chain are also feeling the heat as they rely on timely payments from these giants. If things continue this way, it could reshape China's property development industry and lead to higher unemployment. 

Now, you might be wondering if state-backed firms are safe from this turmoil. Even they are showing signs of vulnerability. This isn't just a problem for China; it is a global problem. American investors, for example, have stakes in Chinese assets and debts, and any loss of confidence in the Chinese market can lead to sell-offs and affect U.S. portfolios.

So, in a nutshell, the story of Country Garden and Evergrande's financial struggles is not just about the two companies debts; it's about how it could send shockwaves through the Chinese and even the global economy. It's a situation being closely watched, and the outcomes will have far-reaching implications.

 

 

About: Prince Ibenne. (Nigeria) Prince is passionate about helping people understand the crypto-verse through his easily digestible articles. He is an enthusiastic supporter of blockchain technology and cryptocurrency. Find me at my Markethive Profile Page | My Twitter Account | and my LinkedIn Profile.

 

 

 

 

 

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BRICS Alliance Expanding Sets A Challenge For The World Reserve Currency Crypto In Good Stead

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BRICS Alliance Expanding Sets A Challenge For The World Reserve Currency. Crypto In Good Stead 

In August 2023, the BRICS countries had their annual summit in South Africa, where some expected a new reserve currency to be unveiled backed by commodities, primarily gold. However, this was not on the agenda for this meeting. The BRICS revealed something arguably more significant when they invited six essential countries to join the coalition. This is in addition to the dozen other countries that have applied to join the BRICS. 

This article explains the BRICS alliance, including how it got started, why it’s more potent than people think, how it could challenge the US dollar as the reserve currency, and how crypto fits into this picture in the next ten years. 


Russian President Vladimir Putin delivers his remarks virtually at the 2023 BRICS 
Summit in Johannesburg on August 24. Source: CNN

The BRICS Background

BRICS is an acronym for Brazil, Russia, India, China, and South Africa. The term was coined in 2001 by Jim O'Neill, the former chairman of Goldman Sachs’ asset management division. Back then, the acronym was BRIC; South Africa wasn't part of the original lineup. Naturally, Jim was interested in the BRIC countries because he believed that they would be the fastest-growing economies of the coming decades and the most significant economies by 2050.

Jim believed this would be due to their low labor costs, rapidly growing populations, and abundant natural resources. Today, this prediction seems crazy to many, but back then, it made perfect sense to most. For context, many of these countries had started joining US-affiliated organizations at the time, notably China, joining the World Trade Organization. Note that the Commodity markets were also booming, which is significant.

In a 2012 interview, Jim revealed that the performance of the BRICS countries had exceeded his expectations. By then, it was the BRICS because South Africa had joined in 2010. Jim had predicted that the BRICS would account for 14% of global GDP by 2010. They ended up accounting for over 18%. By then, Goldman Sachs had introduced a BRICS investment fund that had accumulated almost $1 billion in assets under management, which was a lot back then. 

Wall Street was exceptionally bullish on the  BRICS, but this sentiment had turned bearish by 2014. This shift in sentiment has been due to two factors. The first was that Xi Jinping became the president of China in 2013. Xi immediately began embarking on various initiatives that were more in the interests of China and less in the interests of the United States, such as the Belt and Road Initiative. 

The Belt and Road initiative marked the end of the so-called age of debt, wherein the West benefited from Eastern countries' purchasing debt. Instead of buying Western debt, China started building global infrastructure. It's possible, if not likely, that Wall Street giants, like Goldman Sachs, were pressured by the US government to stop investing as heavily in the  BRICS because of China going rogue. 

The other factor that caused Wall Street sentiment on the  BRICS to flip was that commodity prices collapsed in 2014, primarily oil. This was caused by an oversupply of oil coming from the United States. US oil producers had discovered new reserves in Texas a few years earlier. You may recall the subsequent decline in oil prices decimated Nigeria’s economy. The same was true for other commodity-reliant economies in the global South. By 2015, the BRICS narrative was as good as gone, and all the BRICS-related funds on Wall Street had closed or consolidated. 

In a recent interview regarding the most recent BRICS conference, Jim O'Neill revealed that China was the only BRICS country that had continued to grow according to his expectations. Jim said that the growth in the other BRICS countries was disappointing and said the same about BRICS’s evolution as an organization. In retrospect, he said it made no sense that South Africa was added and that it made no sense that all the countries under consideration by the BRICS also had weak economies. But that is just the US side of the story. 

The BRICS Side Of The Story

The BRICS view on things sounds very different, and what It suggests about the BRICS economies and their evolution is much more nuanced. For starters, the BRICS technically isn't an official organization. It has yet to have an official website or social media. The current website for The BRICS appears to be run by Russians. 

Russia was the one that turned the acronym into an actual thing driven by President Vladimir Putin. At a United Nations meeting in 2006, the Foreign Ministers of the BRICS countries gathered for their first informal meeting. However, it wasn't until 2009 that the BRICS countries held their first formal meeting in Russia. Interestingly, it's possible that the 2008 financial crisis was the catalyst that brought the BRICS together. 

For reference, it's believed that 2008 shook global confidence in the US-led system. In 2012, things started to get truly interesting for the BRICS. The countries collectively pledged to give $75 billion to the International Monetary Fund (IMF) in exchange for reforms. Note that the IMF is an international organization closely affiliated with the US that gives USD loans to developing countries, and these loans come with unfavorable conditions; hence, the BRICS wanted reforms.


NEW DEVELOPMENT BANK – The headquarters of the BRICS-founded New 
Development Bank is in Shanghai. Source: DN Africa

Not surprisingly, the BRICS didn't get these reforms. The result was India proposing that the BRICS set up its versions of the IMF and the World Bank, another international organization closely affiliated with the US that issues USD loans to developing countries for infrastructure development. So, in 2014, BRICS countries created the BRICS Contingent Reserve Arrangement (CRA) and the New Development Bank, colloquially called the BRICS Development Bank.  

Whereas the CRA is just a framework, the BRICS Development Bank is an official organization headquartered in China. BRICS countries have an almost equal stake in both. The framework includes a capital contribution of $100 billion, primarily meant for a payment emergency in a member country.

It’s understood that the bank can issue up to $100 billion of loans for infrastructure development. This is significant because the IMF and the World Bank were the international organizations that set the stage for the US-led world order. Both were created at the famous Bretton Woods conference in 1944, where the US dollar was established as the world's reserve currency. 


Image source: DN Africa

In the following decades, other international organizations closely affiliated with the US were established, such as the United Nations (UN), and many countries were corralled into these organizations by the IMF and the World Bank. This was done using those conditions mentioned earlier on loans, which favor US policy. 

The BRICS are in a different position than the US was in the 1940s. The majority don’t believe that the Chinese Yuan, the Russian Ruble, the Indian Rupee, or a combination of these currencies will become the world's reserve currency. However, the BRICS wants to compete with other US-affiliated international organizations like the UN. The CRA and the BRICS Development Bank are precursors to this, but if the BRICS genuinely want to compete first, they must become an official organization. 

The BRICS Shows The World Its Serious

This ties into the BRICS' most recent Summit in South Africa, where Xi Jinping was physically in attendance. It’s significant because Xi has only left the Chinese mainland once since January 2020. Not only that, but Xi was there when the Chinese economy was reportedly on the brink of collapse, suggesting that the BRICS is even more important than China to Xi. 

Regardless, Xi’s presence was significant, and it begs the question of why he made the effort. The answer seems to be that Xi wanted to show the world that the BRICS is serious, notably to the countries that the BRICS invited to join their coalition. These countries are Saudi Arabia, the United Arab Emirates, Iran, Egypt, Ethiopia and Argentina. All six countries will join the BRICS starting January 2024 if they accept the invitation. 

These new countries are significant for many reasons. The main one is that they are all major oil or agriculture producers. Saudi, UAE, Iran, And Egypt are the major oil producers, while Ethiopia and Argentina are the primary agricultural nations. 

As a fun fact, Argentina is the most self-sufficient country in the world. It's estimated that it could feed its entire population with just a fraction of its resources. It's a shame that inflation is ruining everything. They also aren't being helped by the IMF, which recently forced the Argentine government to curb crypto adoption. 


The Chinese President Xi Jinping addressed the BRICS summit in Johannesburg. 
Source: The Guardian

There are other reasons why these countries are significant. In Saudi Arabia's case, it's because it has supported the so-called Petrodollar system since 1974. For those unfamiliar, the Petrodollar system ensures that all oil is bought and sold using US dollars. More recently, Saudi Arabia is reportedly looking into de-dollarization from the Petrodollar. This is evident in its experimentation with accepting payment for oil in other currencies, namely the Chinese Yuan. Oddly enough, every country trying to move away from the US dollar has been in conflict. 

On that note, Iran is significant because it's been heavily sanctioned by the United States due to its alleged involvement in terrorist activity. Therefore, Iran's admission to the BRICS could cause geopolitical issues for its other member countries and potentially discourage other prospective applicants. The main likely reason the BRICS has yet to become an official organization is because its members are concerned about pushback from the US. 

India is the outlier as it's been the most hesitant to side with the other BRICS countries on issues like a new currency, yet a dozen other nations have formally applied to join the BRICS over the last year or so. This list includes Algeria, Bangladesh, Belarus, Bolivia, Cuba, Honduras, Kazakhstan, Kuwait, Palestine, Senegal, Thailand, Venezuela, and Vietnam. 

Over a dozen other countries have expressed interest in joining, too. The BRICS is already bigger than many people think. “The five existing BRICS countries account for almost 31.5% of global GDP compared to 30.7% for the G7.” Furthermore, with 3.14 billion people, BRICS nations account for 41% of the world's population. 

It's believed that BRICS will establish a formal organization once it becomes large enough, and the recent and future additions could do the trick in that respect. If the six invited countries join the BRICS, the bloc will account for almost 40% of world GDP. Also, if the applications from other countries are approved, they will account for more than 50% of the world's population. 


Source: Adobe Stock

Commodity Market Prices Crucial For The Rise Of BRICS 

It could also account for most of the world's commodity exports by that point. The only thing missing in the BRICS’ rise is commodity prices. You'll recall that one of the main reasons Jim was bullish on the BRICS was their abundant resources and high commodity prices. You'll also remember that the BRICS narrative fell apart when commodities crashed. But the other reasons Jim was bullish on the BRICS haven't changed. The labor cost in these countries is still very cheap, and most of their populations continue to grow. When you realize this, adding South Africa and the other countries makes sense; all that's missing is commodity prices. 

Prices follow a cycle that repeats every 20 to 30 years. As the image below indicates, oil prices, agriculture, livestock, and base metals are highly correlated, although they peak and trough at slightly different times. Even so, they follow a trend of 10 to 15 years up and 10 to 15 years down. The last commodity cycle peaked in the early 2010s. This means the next peak could happen as soon as the mid-2030s; however, commodity prices could continue to fall until the mid-2020s. The caveat is that commodity prices will likely vary by type and region, with some rising first and others rising later.


Image source: Visual Capitalist

The BRICS narrative will likely flip back to bullish during the next commodity cycle, not just because they have many natural resources. The profits from extracting resources and turning them into commodities are much higher in current and future BRICS countries. It’s due to many factors, such as developed countries having exhausted the most accessible resources. They also have higher labor costs and fewer people. Developed countries also have more regulations. 

The BRICS countries are at the opposite end of the spectrum for all these factors. If the BRICS Coalition manages to add all the major commodity exporters, it could establish monopolies on the most valuable commodities and force countries to side with the BRICS in exchange for these commodities, the same way that the US has forced countries to side with it in exchange for US Dollars. 

Of course, the US and some of its allies also have lots of natural resources. Again, the difference is that the US and select allies have less accessible resources, higher costs of labor, and more regulations. 


Image source: The Washington Post

The Commodity Monopoly

Investors will see this dynamic and take their money to the BRICS for more significant profit margins. At the same time, US allies, unable to secure most of their resources, such as Europe, will face extreme pressure to buy less expensive commodities from the BRICS. The inevitable result is that the BRICS will have a de facto monopoly on commodities outside of everywhere except North America. This pertains to an essential question that nations worldwide must ask themselves when the next commodity cycle inevitably occurs. Which do they value more, the US dollars used to buy commodities or the commodities themselves? 

Again, the answer will ultimately depend on geography. Countries that produce most of their commodities will likely be the first to ditch the US dollar. Most of the BRICS countries produce their own commodities and have been actively trying to ditch the US dollar in recent years. This is not a coincidence from a commodity perspective. 

Conversely, countries that import most of their commodities will likely continue to value US dollars more if it's commercially viable. The inflation of the US dollar, high commodity prices from US allies, and geopolitical tensions with the BRICS will likely force them to side with the BRICS in the end. Many speculate the EU will be the first to fold. Large European countries, like France, have already hesitated to side with the US regarding China. So, an EU country could break ranks and join the BRICS in the coming years. 

Crypto To The Rescue

So, where could crypto fit into this picture? As the US dollar continues to decline, an alternative currency will rise. The BRICS want a common currency they can use for commodity payments instead of the USD. As mentioned earlier, it's doubtful that any of the BRICS currencies could play this role and even less likely that a combination of BRICS currencies could either. That's because there will be constant disagreement about the composition and governance of these currencies. 

Case in point, BRICS countries apparently couldn't agree on the details of the CRA and the BRICS Development Bank when first proposed, never mind that many of the BRICS countries also have significant geopolitical tensions, such as China and India, over disputed territory. The BRICS countries require a credibly neutral currency, preferably digital, so it's easy to store and transfer across borders. 

Now, as impressive as having a gold-backed currency of some kind would be, it would not be very user-friendly. Believe it or not, the ideal BRICS currency would be Bitcoin’s BTC. That's because BTC is created by proof-of-work mining, which requires lots of commodities for computers. The Bitcoin blockchain is secured by the energy commodities that computers use. Notably, BRICS countries have most of both. 

This makes BTC a credibly mutual currency that the BRICS can collectively control, albeit to a much lesser extent than a fiat currency. In furtherance, BRICS countries must account for most of Bitcoin’s mining power and collectively agree on changes with Bitcoin developers and the community. 

By contrast, if the BRICS adopted a proof-of-stake cryptocurrency, the US could easily print the dollars required to buy up the stake to maintain blockchain control. So long as the US dollar retains its supremacy, it could undermine any proof-of-stake crypto adopted by the BRICS.


Amid Sanctions, Bitcoin Mining Machines Are ‘Flowing’ Into Russia, as Industry Thrives
Image source: CoinDesk

Interestingly, the BRICS have been discussing using crypto for payments since at least 2017. In 2019, BRICS countries discussed creating a unified crypto payment system, with Russia proposing a unified stablecoin less than a year later. Interestingly, this push for the BRICS to adopt crypto comes primarily from Russia. This could be because of Russia's immense development of crypto-related technology. Whatever the reason, Russia seems more open to adopting crypto than ever. Multiple reports have mentioned Russia considering using crypto for international trade and mining its own BTC for these purposes. 

One Russian bank is using crypto for international trade already. Of course, Russia's recent willingness to adopt crypto is reinforced by the unprecedented sanctions imposed on it by the US and its allies after the Ukraine/ Russia war last year. This is a position that Iran was familiar with and probably why Iran is also reportedly using crypto for international trade as of August 2022. 

Incidentally, Iran joining the BRICS in 2024 could be one of the catalysts that opens the door to BTC adoption within the bloc. The fact that central banks worldwide will be allowed to hold up to 2% of their balance sheets in crypto starting in 2025 sets the stage for non-BRICS countries to follow suit, and then Bitcoin will be just a few steps away from becoming the world's next reserve currency. 

 

 

 

Editor and Chief Markethive: Deb Williams. (Australia) I thrive on progress and champion freedom of speech. I embrace "Change" with a passion, and my purpose in life is to enlighten people to accept and move forward with enthusiasm. Find me at my Markethive Profile Page | My Twitter Account | and my LinkedIn Profile.

 

 

 

 

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The Trailblazing Rise of the Chinese e-CNY and its Implication

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The Trailblazing Rise of the Chinese e-CNY and its Implication

Welcome to the world of digital currencies, where financial transactions unfold without the clink of coins or the rustle of banknotes. While cryptocurrencies are not a novelty, the spotlight is now on Central Bank Digital Currencies (CBDCs). These digital currencies, underpinned by central banks, are gaining momentum. China stands at the forefront of CBDC development, notably with its digital yuan (e-CYN). China has been paving its way towards a digital economy for decades. Its digital currency journey began in 2014, and has been testing its CBDC since 2017. The digital yuan outshines conventional currency with enhanced usability, efficiency, and traceability.

It is no secret that China’s economy is largely state-controlled. With the introduction of CBDC, China’s central bank will have complete control and power over all financial transactions. CBDC provides 100% traceability, which means the government can monitor everything an individual does financially. This makes the digital Yuan an instrument of control as much as a currency.

In a world perpetually evolving, the integration of digital currency aligns seamlessly with the contemporary digital lifestyle. Given the prevalence of smartphones, it's a logical progression for governments to consider incorporating digital currency into their frameworks. However, the big question is, do we want our every move monitored by the government? 


Image source: CoinDesk

What the Chinese e-CYN is all about

The Chinese CBDC, also known as the digital yuan, is the country's official digital currency. It operates similarly to physical currency but is stored in a digital wallet on a user's smartphone. Transactions can be completed offline and online, allowing for ease of use. The benefits of China's CBDC include increased financial inclusion, improved efficiency of payment systems, and reduction in cash handling costs for businesses.

It has been used for transactions totaling 62 billion yuan ($9.7 billion). The digital yuan platform is built on the Binance Smart Chain decentralized blockchain technologies, leveraging their security and transparency. China has taken aggressive steps to advance its e-CYN while simultaneously cracking down on cryptocurrencies outside state control. The digital yuan can potentially transform the financial industry and alter how people conduct financial transactions.

This could place China ahead of other countries regarding financial innovation and technological advancement. While these advancements seem beneficial, it is crucial to consider the implications of a government-controlled digital currency. The Chinese CBDC operates on a centralized system, meaning that the government stores and monitors financial data.

This kind of government surveillance could infringe on user privacy and financial freedom. It could also lead to a decrease in anonymous financial transactions. As we move towards a more digitalized world, it is essential to consider the impact of the technologies we implement. The Chinese CBDC brings with it new opportunities and potential dangers. It is important to proceed with caution and evaluate the long-term effects of these advancements on society.

The Impact of e-CYN on Society

The launch of the Chinese Central Bank's Digital Currency (CBDC) has been subject to much scrutiny from privacy advocates. The concerns raised, while valid, are seen by some as mere fear-mongering. The Chinese government has always had a reputation for monitoring its citizens, and the CBDC will make it easier to advance its surveillance efforts.

Installing the e-CNY is pretty straightforward. It can be downloaded as a standalone app or used through China's existing digital payment services, including Alipay and WeChat Pay. These two platforms dominate the sector with over 1 billion users each. Much like most banks these days, e-CNY users can pay for goods using their phones or a card. There's also a version for private users and businesses, and its usage has expanded to at least one Western bank.

But let's step back and look at CBDCs from the perspective of the Chinese government. Why is the People's Bank of China (PBOC), China's central bank, so desperate to roll out a CBDC? As you probably know, CBDCs are highly appealing to central banks worldwide for various reasons. These rationales range from practical benefits, such as instantaneous payments and lower costs, to more alarming implications. China shares these motivations. The advantages of CBDCs for governments and central banks include efficient and cheap emergency relief, greater access to financial services, and the ability to set rules for the digital money issued.

However, China's reasons go deeper than just efficiency. Data collection is a key factor. China is a surveillance state aiming to gather and centralize vast amounts of data on its citizens, using it to maintain authoritarian control. CBDCs offer programmability, which lets the central bank set rules for digital money, including restrictions and asset freezes for "bad actors." While this might seem like a good idea on the surface, it's concerning when the definition of "bad actor" is controlled by a totalitarian regime. This could lead to the suppression of political opponents and opposing voices.

China also aims to boost the international use of its currency through CBDCs, as the currency currently has a low share in global payments compared to the US dollar. The hope is that CBDCs could help China and its allies reduce their reliance on global financial systems, such as the SWIFT payment network, and evade sanctions.


Image source: South China Morning Post

Additionally, China's ambition to be a tech leader plays into this. The country is positioning itself as a leader in blockchain technology with initiatives like the Blockchain-Based Service Network (BSN). The BSN aligns with China’s vision of building a digital economy and a digital society, as well as advancing its global influence in the field of blockchain technology.

CBDCs are a part of this larger plan. However, while China's tech ambitions are commendable, the concern lies in giving a surveillance-heavy government like China's the power to shape behavior and control its citizens even more.

The good news is that e-CNY's widespread adoption isn't guaranteed. While it's been introduced in various cities, its technological limitations and practical issues have hindered its growth. Privacy, practicality concerns, and the potential risks they pose in the hands of governments with vast surveillance capabilities and limited checks and balances have kept adoption from skyrocketing.

The Bottom Line

Clearly, the emergence of Chinese CBDCs holds the power to reshape society's structure in a significant way. While the advantages are noteworthy, weighing the potential risks and their lasting effects is essential. Striking a balance between the benefits and drawbacks becomes paramount as digital currencies continue to progress. As history has shown, introducing new technologies isn't always without challenges.

The temptation of convenience and enticing features should not blind us to the potential consequences of these technologies. After all, if we aren't cautious, we might unknowingly trade our freedom for the ease of these modern innovations. Let's embrace the wave of digital currency with enthusiasm, yet let's do so collectively, ensuring we don't get overwhelmed by its influence. As we move forward, let's stand vigilant and witness what the future holds, such as the cost of being part of a dynamic world in this digital era.

The increased use of e-CNY has major implications for the financial world. It allows for the creation of a massive database of transactions centrally monitored and controlled by the People's Bank of China. This aligns with President Xi Jinping's vision of enhancing overall supervision, regulating various financial behaviors, and implementing programs for managing financial risks.

Beyond privacy and transparency issues, China is also looking to expand the use of e-CNY in cross-border payments to establish itself as a leading player in the global digital currency competition. This move might also aim to reduce the dominance of the U.S. dollar in international transactions and find ways to work around any sanctions imposed by the United States. China's innovations with e-CNY are reshaping its domestic financial landscape and making its competitors abroad recognize it as a strong and innovative force in the realm of digital currencies.

 

 

About: Prince Ibenne. (Nigeria) Prince is passionate about helping people understand the crypto-verse through his easily digestible articles. He is an enthusiastic supporter of blockchain technology and cryptocurrency. Find me at my Markethive Profile Page | My Twitter Account | and my LinkedIn Profile.

 

 

 

 

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FATF Out To Get Crypto FATF Travel Rule Expanded What Does It Mean For Crypto?

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FATF Out To Get Crypto. FATF Travel Rule Expanded. What Does It Mean For Crypto? 

The Financial Action Task Force (FATF) has been making portentous noises about crypto in recent years, and several countries are getting antsy. The most prominent concern is implementing the “travel rule,” designed to force crypto companies to collect information about any transfer of digital assets worth more than US$1,000. Some countries, notably the UK, have in the past pushed back against this ‘recommendation’ from the FATF, but their resistance now appears to be wavering. The FATF is on the warpath and has crypto firmly in sight.

This article examines what the FATF is up to, what it could mean for your country, and what it all means for crypto. Although it may sound like more doom and gloom, there are reasons to believe that crypto could benefit from the FATF’s meddling in some ways.

Just recently, PayPal announced that it would prevent UK users from buying BTC until early 2024. PayPal reportedly did this because the Financial Action Task Force (FATF) so-called travel rule requires all crypto companies to collect detailed info about crypto transfers. The travel rule was set to go into effect in the UK on September 1st, 2023, and is being rolled out worldwide. This could have a profound impact on crypto companies and projects everywhere.


Image Source: Coindesk

What Is The FATF?

The Financial Action Task Force, or FATF, is an unelected and unaccountable international organization based in Paris, France. It was created by G7 countries in 1989 to combat money laundering, but its scope has expanded significantly since then. However, these recommendations have apparently done nothing to combat illicit financial activity over the last 30 years. 

The organization adopted a mandate in 2019 to “Combat any threats to the integrity of the financial system.” Of course, the FATF considers crypto a threat, probably because its purpose is to replace the financial system. The FATF started applying its so-called recommendations to the crypto industry in 2019, and any country that refuses to go along with these recommendations will find itself cut out of the international financial system. The FATF finalized its recommendations for cryptocurrency in October 2021.

FATF’s Crypto Recommendations

The FATF’s crypto recommendations involve labeling everything that doesn't involve a third party as “high-risk.” This includes holding your crypto in your wallet and sending crypto peer-to-peer. The FATF also considers any crypto privacy to be inherently high risk. If these recommendations are implemented as regulations, crypto will become another arm of the existing financial system. It will offer no financial freedom and no financial privacy. The only exception is NFTs, which are exempt from these recommendations for unknown reasons. 

On that note, you should know that the FATF crypto recommendations only apply to intermediaries working with crypto, which the FATF refers to as Virtual Assets Service Providers or VASPs. The FATF’s crypto recommendations do not apply to miners, validators, or crypto wallets, at least not yet. However, the scope of the FATF's requests seems to have expanded over time, so this could change. This expansion is especially true of the travel rule, which requires VASPs to collect KYC on everyone who buys or sells more than $1,000 of crypto. 

The Travel Rule Expanded

Crypto exchanges started collecting KYC in 2021. Since then, however, the travel rule has expanded to require VASPs to collect KYC-level information about crypto transfers to and from VASPs worth more than $1000. Note that it's not entirely clear when the scope of the travel rule was expanded. Research suggests this expansion happened after the FATF’s finalized crypto recommendations were published in October 2021. Some may recall that South Korean crypto exchanges started forcing users to provide KYC-type information for crypto wallet transfers in December 2021. 


Images source: Notabene

The good news is that some countries have pushed back against the expanded travel rule. You might remember that the UK announced that it would not force VASPs to track transfers to and from crypto wallets in mid-2022, stating that they did not pose any illicit activity risks. 

The not-so-good news is that these countries, notably the UK, seem to have pulled a 180⁰. As mentioned, the UK implemented this expanded travel rule starting September 1st. The announcement specified that it did this in response to a statement by the FATF in June 2023. The FATF announcement called on countries to implement its crypto recommendations as regulations “without delay.” Of course, this is not a recommendation; it's a demand. Comply with our crypto recommendations, or we will restrict your access to the global financial system. 

Some countries could not comply, so they had to ban crypto. Two countries that did this are Pakistan and Kuwait, both of which recently banned crypto in its entirety, citing the FATF’s crypto recommendations as the reason. It appears that the UK opted to comply instead. 


Image source: Notabene-Regulations 

Which Countries Are Now Affected 

So this begs the question of when the FATF's expanded travel rule is coming to your country. The answer depends on the country; a complete list of countries and their compliance with the expanded travel rule can be found on the website of Notabene, a crypto compliance company. If you look at the list, you'll notice that some have already implemented the travel rule. It shows that not all have implemented the expanded travel rule. You'll have to click the link on your country and look at the details. 

There's only one country we need to look at: the United States. That's because the US heavily influences the FATF. The travel rule has its roots in the United States’ Bank Secrecy Act. KYC, for financial transactions, originates in the infamous Patriot Act. The FATF’s finalized crypto recommendations were even co-authored by the US Treasury Department. As such, it's safe to assume that the FATF’s crypto recommendations are likely to mirror similar regulations that are being proposed or that have already been passed in the United States. 

The FATF's expanded travel rule seems rooted in an infamous FinCEN proposal from November 2020. The proposal was to lower the travel rule transaction threshold from $3,000 to just $250 and expand its scope to include any crypto transactions. This includes transfers between crypto wallets and VASPs, i.e., exchanges. There is also an outcry on the measure of invasion of privacy, 

Fortunately, this proposal has yet to be approved. Unfortunately, the US has influenced the FATF to implement this proposal in other countries instead. That's because the travel rule transaction threshold in jurisdictions like the European Union is $0, which the FATF suggested in its finalized crypto recommendations. This is more significant than you might think because it indicates the start of a very slippery slope. 

A Slippery Slope

First, the FATF just wanted VASPs to complete KYC on their users. Now, they want VASPs to get info on crypto transactions above a specific value. Eventually, they'll require VASPs to get information on all crypto transactions, and the countries that don't force VASPs to comply will be cut out of the global financial system. This ties into why some countries, such as Kuwait and Pakistan, ban crypto instead of complying with the FATF, like other countries, such as South Korea and the UK.  

The answer is likely because they lack the resources to comply with these recommendations. Take a second to consider that information about all these travel rule transactions will have to be shared with national regulators. In turn, these national regulators will have to make sense of this massive amount of information and understand which transactions could be illicit and which ones are legit. If they fail to do this to the standard that the FATF wants, they could just as easily find themselves on the FATF’s grey list or even black List. 

In other words, the outcome of attempting to comply will be almost the same as outright non-compliance. So why bother trying to comply? Not only that, but it's possible that the US would use this alleged non-compliance as justification to punish its geopolitical opponents. For context, it's believed that up to 40% of money laundering occurs in the United States, yet countries like the UAE are ending up on the FATF's naughty lists. 

Is it Geopolitical, for Profit, or Something Else?

Given this fact, one could argue that the primary purpose of the FATF is geopolitical, not regulatory. If this is the case, it's appalling because it means the US is using the FATF to push its allies to comply. Remember that the UK initially wasn't going to apply the FATF's expanded travel rule. This relates to why any country would take the risk of complying with the FATF crypto recommendations instead of just banning crypto. 

Some say the answer is probably profit. Crypto has unprecedented potential; dozens of countries are trying to capitalize on this by becoming crypto hubs. The paradox is that the FATF's expanded travel rule alone is likely enough to crush smaller crypto companies and startups. That's because they would need more financial resources to comply. This would mean that the large crypto companies left standing could become monopolies. 

At that point, it would be effortless for the FATF to expand the purview of its crypto recommendations again to outlaw self-custody, peer-to-peer transactions, and crypto privacy completely. Again, this would turn crypto into another arm of the existing financial system, making it much more dystopian. 

How Could It Benefit the Crypto Market?

The silver lining is that this outcome is years away from occurring and is not guaranteed. It could also benefit the crypto market in short to medium term. That's simply because institutional investors will likely invest more in crypto once all these FATF-based regulations are in place. This is because crypto would become ever so slightly more integrated with the existing financial system from a regulatory perspective. 

This means more crypto to fiat on and off ramps, more funding for crypto projects and companies, and more direct crypto investment. The consequence is that crypto would no longer become a niche asset class, making self-custody and peer-to-peer transactions more common. 

Under normal circumstances, this would result in an explosion of crypto-specific innovation, like new DeFi protocols, for instance. However, under the FATF's recommendations, any crypto projects or companies offering these innovations would be under extreme scrutiny. Unless they're perfectly decentralized, the FATF will label them all as VASPs and force them to comply with recommendations like the travel rule. 

Believe it or not, this will also benefit crypto because it will force new crypto projects and protocols to be as decentralized as possible to outmaneuver the FATF. This will be painful in the short term because crypto projects and companies are not very decentralized. An explanation of what it means to be genuinely decentralized can be found here.  

That said, if any genuinely decentralized crypto projects and protocols managed to gain significant adoption, the FATF would likely respond by further expanding the scope of its crypto recommendations. In a recent report, Notabene noted that the FATF left the door open to this possibility, citing,

“Transfers between self-hosted wallets, so-called peer-to-peer (P2P) transactions are not explicitly covered by AML/CFT rules. The FATF opens the door to a future paradigm change in case there is a distinct trend towards P2P transactions.” 

Translation: If actual cryptocurrency, that is, peer-to-peer trustless transactions, becomes too popular, then the FATF would respond by saying wallets that engage in crypto activities are high risk.  In practical terms, this could mean not being able to transfer crypto between such wallets and a compliant VASP. What's funny is that this would likely result in a parallel financial system, which is precisely the opposite of what the FATF is trying to achieve with its crypto recommendations.

On that note, fully decentralized crypto-based communities in social media, marketing, and digital broadcasting are rising and in the throes of building a parallel economy. Given the privacy and censorship issues of legacy social media, governments, woke agencies, and tech corporations, with their propensity to ban or suspend their services to individuals and companies that go against their narrative, have brought this imperative to the fore. 

Is the Crypto Industry Complying? 

So, what is the crypto industry doing about the FATF crypto recommendations? Well, at first glance, it looks like it’s complying; upon closer inspection, however, this compliance has been incredibly strategic. To explain, the crypto industry took its time complying with the FATF crypto recommendations. After all, compliance is an additional cost, and most countries were not pressuring them about compliance with the FATF until recently. 

There are technically no deadlines for compliance with the FATF’s recommendations. In theory, countries must apply the FATF recommendations within one year of their announcement. In practice, most countries don't. One expert explained that the travel rule was a bit of a myth. Just 10% had implemented the crypto travel rule in 2022, but in all fairness, this apparent non-compliance wasn't intentional. 

The FATF has constantly been adjusting its crypto recommendations to account for changes in the crypto industry. Everyone started taking them seriously only after the finalized crypto recommendations were published. This includes the crypto industry, which, according to Notabene’s survey, “seemed willing to adopt the travel rule in January 2022.” By then, some of the biggest entities had already started exploring travel rule compliance, like USDT issuer Tether and its sister exchange Bitfinex working with Notabene. 

Here's where things get interesting: Notabene, the crypto compliance company, has been referenced by the FATF on a few occasions. This is surprising, considering that the company has received most of its funding from the crypto industry, according to Crunchbase. 

Also, according to Notabene, the criteria used to determine which crypto transactions are considered high-risk from the FATF's perspective is determined by blockchain analytics companies, not Notabene itself. The largest is Chainalysis, which is very pro-crypto. In fact, Chainalysis pushed back against the FATF’s crypto recommendations when they were first proposed in 2019.

The institutions the FATF relies on to implement its crypto recommendations are all pro-crypto. To put things into perspective, companies like Notabene and Chainalysis have been advising governments and regulators. Put another way, the impact of the FATF crypto recommendations may not be as anti-crypto as they intend them to be because all the institutions required to implement them are pro-crypto. It's not just private companies; some countries are also trying to protect crypto. 

Crypto Privacy in Jeopardy?

There's only one place where the FATF could still cause a problem: privacy. As most of us know, financial privacy is required for financial freedom. You can be coerced in many ways if every transaction is tracked. e.g., by punishing the people you transact with.  Logically, it will be challenging for pro-crypto compliance companies and countries to defend crypto privacy from the FATF. This will be practically impossible when the FATF decrees that any exchange offering privacy coins is inherently non-compliant. It could result in the elimination of crypto privacy altogether. 

Some would say the recent sanctions against Tornado Cash are a prelude to the FATF's next moves. Luckily, the crypto industry has been working on a solution, too. Notably, the FATF claimed that there had been a considerable move towards privacy in crypto in its finalized recommendations, stating, “During recent FATF consultations, the industry highlighted data protection and privacy (DPP) issues as key considerations for travel rule implementation…. Going forward, FATF will continue to monitor these issues to ensure data privacy and other similar issues do not present barriers to implementation.”


Image source: Cointelegraph 

Crypto Privacy Predestined – The Solution

Besides the many crypto projects like Ethereum trying to preserve privacy through cutting-edge technology, like zero-knowledge proofs, Bitcoin has also been subtly working on privacy-preserving technology. The Taproot upgrade is one protocol developed in November 2021. 

One of the things Taproot did was introduce Key Aggregation with Schnoor Signatures. Put simply, it made every single Bitcoin transaction look like a regular transaction. This move means that transactions involving multisig wallets resemble regular transactions on the blockchain. It’s significant because multisig wallets are required for Atomic Swaps, i.e., swapping BTC for a crypto coin on another blockchain. Incidentally, Monero developers finally found a way to execute swaps between BTC and XMR in August 2021. 

Taproot means these swaps are now theoretically undetectable. Multisig wallets are also required for the lightning Network, Bitcoin's most significant Layer 2 protocol. As it so happens, US authorities offered bounties to anyone who could track XMR and Lightning Network transactions in September 2020. This implies that the Lightning Network has similar privacy levels to Monero. 

Interestingly, the three Bitcoin Improvement proposals that make up the Taproot upgrade, including Schnoor Signatures, were all proposed in January 2020, shortly before the first countries started implementing the crypto travel rule. Is this a coincidence, or perhaps something more? 


Image source: GitHub

Anyway, speculation aside, it's clear that crypto privacy is inevitable because nobody wants privacy more than high-net-worth individuals. When these investors get involved during the next crypto bull market, there will definitely be calls to increase crypto privacy, and many will be answered. Additionally, if these calls don't come from the 1%, you can bet they'll come from the central banks that will start accumulating crypto in 2025. 

The regulated crypto space will likely grow, but the unhosted ecosystem will remain a niche area with significant development and innovation. The crypto and blockchain projects that uphold the interests of entrepreneurs and advocate for free and critical thinking are paving the way and developing ecosystems that will have the financial freedom, liberty, and sovereignty that is fundamentally our right of passage, which seems to be all but forgotten by the monopolies and so-called authorities and their mandate to capture the crypto industry. 

 

 

Editor and Chief Markethive: Deb Williams. (Australia) I thrive on progress and champion freedom of speech. I embrace "Change" with a passion, and my purpose in life is to enlighten people to accept and move forward with enthusiasm. Find me at my Markethive Profile Page | My Twitter Account | and my LinkedIn Profile.