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Key regulatory measures to reduce cryptocurrency risks should come from developed countries

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Between September 2019 and June 2021, the crypto ecosystem expanded by 2,300%, especially in developing countries, the United Nations reported in a paper titled “Not All That Glitters Gold.” According to some estimates of digital currency ownership, 15 of the top 20 economies in the field in 2021 were emerging and developing countries.

Using cryptocurrencies has become attractive regarding the price and speed of sending a transfer. Cryptocurrencies are mostly owned by middle-income people in developing countries. In countries facing currency depreciation and rising inflation, cryptocurrencies were perceived to protect household savings.

Regardless of the reasons for using cryptocurrencies, exchanges play a crucial role in enabling their wider use. There are now more than 450 crypto-exchanges, which reached a joint peak daily trading volume of $500 billion in May 2021.

Risks. The UN cautions that using cryptocurrencies could lead to risks of financial instability. If prices fall, monetary authorities may need to intervene to restore financial stability. It is important to note that in developing countries.

Crypto use also undermines the effectiveness of capital controls, a critical tool in developing countries that can help contain the build-up of macroeconomic and financial vulnerabilities, as well as expand policy space.

Finally, if left unchecked, cryptocurrencies could become a widespread means of payment and even informally replace national currencies (a process called cryptocization), which could threaten countries’ monetary sovereignty.

Regulation. All of these risks have forced politicians around the world to start regulating. The proliferation of cryptocurrency has served as a wake-up call for central banks, some of which have begun to discuss creating public alternatives to private digital currencies. Developing countries have also begun to take steps to regulate. 

As of November 2021, 41 countries, up from 15 in 2018, had banned banks and other financial institutions from conducting cryptocurrency transactions or prohibited exchanges from offering services to individuals and businesses. Nine developing countries, namely Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia, have completely banned cryptocurrencies. Some other countries have imposed income taxes on capital gains derived from trading. Finally, crypto exchanges are subject to national anti-money laundering and terrorist financing laws in jurisdictions such as Australia, the Bahamas, Greece, Romania, the Philippines and Uzbekistan.

Despite the recent regulatory response, cryptocurrencies remain in a legal gray area in most developing countries. The ecosystem is global in nature, and many of its components are outside the jurisdiction of states, making regulation of cryptocurrencies a challenge. Accordingly, the main regulatory measures to mitigate the global risks associated with cryptocurrencies should come from developed countries, where most of these providers are headquartered.

Developing countries may have less room to maneuver, but regulation is possible. The UN has highlighted measures that could curb the further spread of risks:

  • Require mandatory registration of crypto exchanges and digital wallets and make using cryptocurrencies less attractive;
  • Prohibit regulated financial institutions from holding stablecoins and cryptocurrencies or offering related products to customers;
  • Regulate decentralized finance;
  • Restrict or prohibit advertising of exchanges and digital wallets in public places and on social media;
  • Create a public payment system, such as a central bank digital currency. 

There is no universal policy response to the growing use of cryptocurrencies in developing countries, the UN summarized. Countries need to adapt to recommended policies, considering the specifics of their national financial systems, regulatory infrastructure and enforcement capacity. Also, regarding financial regulation, policymakers should consider that the crypto ecosystem is constantly evolving.


Bitcoin onchain metric are stronger than ever

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bitcoin onchain metrics

Galaxy Digital analysts published a report that examined key bitcoins onchain metrics (BTC), compared the world’s main cryptocurrency to other asset classes and explained what events could be the catalyst for the coming price rally. The company is confident that the bulls have plenty of reasons to remain optimistic – even despite difficult macroeconomic conditions.

BTC has become the best performing asset of 2023

Bitcoin is the best performing asset in 2023 compared to a lot of stocks, fixed income securities, indices, and commodities. It shows the best or some of the best performance over various time horizons (except for 1 year), and it looks even stronger over the long haul.

In addition, bitcoin’s correlation with the Nasdaq and S&P 500 stock indices has begun to decline, while its correlation with gold, which is considered a classic haven asset, has risen sharply. This happened against the backdrop of the crisis that engulfed U.S. banks and led to the closure of Silicon Valley Bank, Silvergate and Signature.

Given the nature of the current crisis, in which the system of partial bank reserves is tested for strength, the fundamental characteristics of the BTC favorably distinguish it from traditional assets.

Accumulation, not driving price rally speculation

A number of key market indicators indicate that bitcoin’s price rally is driven by the accumulation of coins on the spot, not speculation in the derivatives market. The futures funding indicator has remained virtually unchanged since the beginning of 2023 – meaning that the market is net-neutral regarding speculative positioning. The same can be said about volume and open interest in the CME.

The total number of addresses with non-zero balances also continues to grow rapidly, with more than 45 million wallets holding BTC today. At the same time, most of them have never spent coins, but only received new ones.

The approaching halving will affect the level of inflation in the BTC network

The next bitcoin halving will occur in April 2024 and will cause the network’s inflation rate to fall below 1%. The halving events of 2012, 2016 and 2020 catalyzed a price rally and reached a new all-time high as investor demand for BTC quickly exceeded the declining supply level.

This event will put bitcoin among the most stable assets and make it less susceptible to inflation than gold and silver.

Early we reported that Whales are interested in Litecoin, again.

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Whales are interested in Litecoin, again: will it help LTC price return to the $100 mark

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Litecoin price forecast

In February, Litecoin, albeit briefly, returned to the $100 level for the first time since the collapse of the Terra ecosystem in May 2022. In early March, the price of the asset dipped below the $70 mark again. But that didn’t seem to hinder the whales’ plans, as large holders actively bought LTC during the correction.

Whale activity continues to rise

According to analyst firm IntoTheBlock, the average LTC transaction size increased more than 600% in March 2023, from $13,355 to $81,022.

The increase in average transaction size as the price pulls back signals an influx of large investors looking to buy back the decline in the asset. Given the financial strength of the whales, this could push LTC to another rally in the coming weeks.

Litecoin price forecast – could reach the $110 mark

Santiment’s Market to Realized Value Ratio (MVRV) shows that investors who bought Litecoin in the last 30 days made a 10% profit. According to historical MVRV readings, LTC holders have often captured profits of around 20%. This means that the $100 level is likely to be the next resistance zone.

If the price of the asset can combine above $100, the coin may continue its upward movement towards $115. However, bears can reverse the situation if the LTC falls below $80. With further declines, LTC could fall back below $70.

Early we reported that China intends to work with crypto-businesses through Hong Kong.

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China intends to work with crypto-businesses through Hong Kong

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Banking for crypto-businesses

Hong Kong subsidiaries of major Chinese banks began to provide services for local cryptocurrency firms involved in projects related to Bitcoin, altcoins and various startups. It was reported by Bloomberg, citing sources in the region.

It is alleged that the local branches of Bank of Communications, Bank of China and Shanghai Pudong Development Bank have begun, or are working to provide banking services to crypto-businesses. According to the publication, a representative of an unnamed Chinese bank even visited the office of a crypto firm to promote the services of the financial institution. A top manager of an unnamed large Chinese bank said in a media commentary that banks promote their services in Hong Kong due to the tacit approval of Beijing. The interest in the business is also due to the uncertainty around lending to the local market, they said.

Loyal attitude to the market of cryptocurrencies in Hong Kong has already “bounced back” to local investors with considerable losses. According to calculations by local law enforcement agencies, the region lost over $200 million in 2022 alone. 2,336 cases of crypto-fraud were registered in Hong Kong in 2022.

However, Chinese authorities’ interest is not limited to the crypto market. In early March, the South China Morning Post reported that China intends to stimulate the digitalization of the economy in Hong Kong with its own currency. The authorities are offering citizens a 20% discount for making payments in digital yuan. At the same time, the promotion is valid only for Hong Kong citizens and only in the southern technology center of Shenzhen (connecting China and Hong Kong).

Recall that in the fall of 2022, Hong Kong authorities announced plans to develop a cryptocurrency market in the region. According to the Hong Kong government’s website, the authorities will work with local regulators to create “favorable conditions” for developing the local cryptocurrency industry.

Early we reported that Cryptotraders lost more than $250,000,000 in liquidations after Fed rate hike.

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