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Wall Street's elites have, for the longest time, sneered at digital assets, but their disapproval has barely stood in the way of institutions in the traditional finance setting from exploring this volatile asset class. While some have preferred the speculative investment approach, most financial services companies have placed long-term bets on the sector.
Various jurisdictions worldwide have equally made inroads in the space, specifically accelerating their initiatives that underpin blockchain technology. These include stablecoin projects and central bank digital currencies (CBDCs). Here are all the latest legal and business developments from banks, fintech companies, and other institutions invested in the sector.
Regulatory crackdown in the US
Crypto-friendly banks, even federally-regulated ones like Signature Bank, have recently faced increasing scrutiny owing to their association with the now-bankrupt FTX group. In a Feb 9 opinion post delving into this apparent clampdown on crypto companies, Castle Island Ventures general partner Nic Carter cautioned that the US government is aggressively seeking to restrict access to banking services. The Bitcoin advocate pointed to a series of ‘oversight' activities in the last three months which he said constitute a plan to sunder the banking sector from the crypto world.
The anti-authoritarian tech investor singled out “the administration itself, influential members of Congress, the Fed, the FDIC, the OCC, and the DoJ” as some of the agencies looking to pour cold water on the digital assets space. Carter opined that the implications of the government's attempts at reviving the ‘Obama-era Operation Choke Point' could potentially include a constrained business environment with banks.
IMF advises El Salvador against expanding the scope of its Bitcoin policy
Meanwhile, the International Monetary Fund (IMF) over the weekend reiterated its stance against El Salvador's Bitcoin adoption policy, warning that the risks presented by the exposure could materialize if it scales up the use of the cryptocurrency as legal tender. The monetary watchdog institution once again urged the country's administration to reconsider reversing the decision citing the prevailing volatility in the market. In the latest cautionary advice, the IMF urged the Central American country to turn around on the policy to protect its citizens and secure its financial integrity and fiscal sustainability.
“Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to Bitcoin, including by issuing tokenized bonds,” the IMF wrote in a Feb 10 statement.
El Salvador President Nayib Bukele approved the move as law in September 2021 against local resistance, criticism from economists, and recommendations from global financial institutions, including the World Bank. The international financial authority also called for transparency from Bukele's administration regarding the initiative, including the state-owned Bitcoin wallet offering, Chivo.
To learn more about Bitcoin, check out our Investing in Bitcoin guide.
Brazil embraces digital assets, one of the country's top banks to accept tax in crypto
The Banco do Brasil announced Friday that its users could now settle taxes in crypto through an exclusive program initiated in a joint partnership with Bitfy. The latter will serve as the bank's collection partner enabling the conversion of crypto in a user's account into the local currency instantly to clear their tax bill. This tax payment service will only be available to users of the Bitfy App.
“This partnership makes it possible to expand the use and access to the ecosystem of digital assets with national coverage,” Bitfy CEO Lucas Schoch remarked in a Feb 10 statement.
The development is the latest in Brazil, whose financial landscape has proved relatively favorable for digital payment innovations.
Russia's Sberbank is working on an Ethereum-based DeFi platform
Last week, local news agency Interfax reported that Russia's largest bank and financial services company Sberbank was working on releasing a decentralized finance platform. The bank's application will be based on Ethereum's blockchain infrastructure and is expected to be released by May. Konstantin Klimenko, who leads the bank's blockchain unit, said the Ethereum-compatible platform is in beta and being tested by the internal team ahead of public testing in March. Bank customers will be able to leverage the platform using the MetaMask wallet extension upon launch.
In a similar development last month, the National Australia Bank (NAB) announced its plans to mint stablecoin on Ethereum and Algorand in the summer. This AUD-pegged [1:1] stablecoin offering will allow institutional clients – whom it is targeted – to settle transactions on the chain almost instantly. Dubbed AUDN and backed entirely by the bank's capital, it will facilitate overseas money transfers. Perth-based technology and digital assets investment company Digital X already disclosed plans to use the AUDN, whose first mint on Ethereum was on Dec 2022, to prove its reserves.
The stablecoin from NAB, one of the big four banks in Australia, would be the second in the domestic financial landscape. The New Zealand Bank (ANZ) previously released its A$DC stablecoin, whose first transaction was completed in March 2022. The top four banks intended to collaborate on a nationwide stablecoin. The plans, however, failed to take off reportedly due to the discrepancies in the advanced levels of the individual bank's crypto strategies and concerns arising from the competition viewpoint. Worth noting, the Australian central banking authority is working to debut its own central bank digital currency sometime this year.
UAE central bank to release CBDC as part of its financial transformation program
Initiatives around central bank digital currencies (CBDCs) have gained momentum in the last few months as banking authorities work to simplify cross-border transactions and promote innovation in the payments industry. Regulators in Asia, Europe, and South American regions have increasingly shown interest in deploying sovereign-issued virtual currencies.
The Central Bank of UAE is the latest to introduce a similar program to foster transformation in the financial sector. The initiative, established under a broader Financial Infrastructure Transformation program, seeks to develop a comprehensive system that will be adopted domestically and in cross-border settings.
“[FIT] embodies the directions and aspirations of our wise leadership towards digitizing the economy and developing the financial sector […] We are proud to be building an infrastructure that will support a thriving UAE financial ecosystem and its future growth,” Khaled Balama, the Governor of the Central Bank lauded the project entailing nine initiatives including a CDBC.
Meant to overcome “the problems and inefficiency of cross-border payments and help drive innovation for domestic payments respectively,” the unified platform will entail a domestic card scheme, an instant payments platform, and cloud support, as per the announcement from the bank. Earlier this month, Dubai's virtual asset regulatory authority (VARA) released the Full Market Product Regulations framework that provides guidelines on virtual asset activities in the region.
Deutsche Bank stages entry in crypto with plans to invest in a duo of local firms
DWS Group, the asset management division of investment banking company Deutsche Bank, is exploring new opportunities in cryptocurrency as it looks to revive growth and restore investor confidence. A recent report by Bloomberg has detailed that the DWS, led by CEO Stefan Hoops, is in talks to acquire a minority stake in two German crypto firms, one being Deutsche Digital Assets. The second is Tradias, the fintech arm of market maker and Frankfurt Stock Exchange specialist Bankhaus Scheich. Both are well-established in the local market – the former is a provider of crypto exchange-traded products, while Tradias is a market-maker with a strong reputation for its innovative approach to trading.
The news followed comments by Hoops to investors last week, detailing that DWS has started a systematic assessment to identify strategic partners and potential targets for acquisition in areas where the company seeks to augment its capabilities, particularly in the domain of digital assets – which may present opportunities for DWS to make strategic investments. Hoops has been quite the advocate for innovative technologies; in December, he gave a comprehensive strategy incorporating blockchain and digital currencies.
The discussions about investing in these companies are part of DWS Group's overall strategy to tap into the growing demand for digital assets and provide its clients with a comprehensive range of investment options. The company's focus on digital assets and blockchain further reflects the broader trend among traditional finance firms, such as Bank of New York Mellon and BlackRock, to invest in the crypto industry as it blooms.
Regaining user confidence
This news is also a significant development for DWS Group in efforts to revitalize its business and restore its reputation in the wake of recent allegations of greenwashing that tainted the company's name. Said allegations have even resulted in regulatory inquiries from US and German authorities.
Robinhood's crypto trading revenue slashed 24% in Q4 2022
Tech and other financial firms released their Q4 and end-of-year reports last week, the majority disclosing heavy losses tied to the market downturn intensified in November by concerning revelations around the FTX exchange's financial struggles. Online discount brokerage and trading platform Robinhood shared its Q4 2022 and full-year results in a Feb 8 earnings report. The mobile-first brokerage firms missed revenue expectations down to a slump in the returns from crypto trading.
Robinhood logged $380 million in revenue in the last quarter of the year, significantly lower than analyst estimates of $396 million. The platform's scale of crypto trading activity was affected by the bear market cycle as the revenue it generated from user trades of digital assets saw a substantial drop to $39 million. The figure represented a 24% decline from the third quarter and 19% lower than the same period in 2021. The online investing platform posted an adjusted net loss per share of $0.19, which was higher than the consensus estimates of a loss of $0.15 per share projected by analysts. The losses were reduced by more than $250 million, and the overall revenue was up relative to Q4 of 2021. Further, the co-founders canceled nearly $500 million in share-based payments.
In a recent communication, Robinhood confirmed that its board had authorized to buy back most, if not all, of the 55 million shares previously purchased by troubled FTX co-founders Sam Bankman-Fried and Gary Wang via a holding company, Emergent Fidelity Technologies, in May last year. However, this situation isn't direct as there are several claimants of the shares, worth about $500 million at the time of seizing by the Department of Justice, including BlockFi, FTX creditor Yonathan Ben Shimon, and SBF himself.
During an earnings call, Robinhood's CEO Vlad Tenev indicated that the company believes the repurchase of its shares will add value over the long term and mitigate distractions for the stakeholders. Tenev said that given the exceptional nature of the situation, it is unrealistic to predict the duration of the share buybacks but promised to provide regular updates to investors regarding the same.