The development of encrypted digital finance has promoted the market’s recognition of Bitcoin, and Bitcoin’s breakthrough of $20,000 to reach a record high, will in turn accelerate the development of encrypted digital finance.
Original title: “Bitcoin 20,000 USD, the tipping point for the development of encrypted digital finance”
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry
On December 16, 2020, the price of Bitcoin reached US$20,000, a record high since its launch in January 2009. This historical high of Bitcoin is not only a historical high of the transaction price of encrypted digital assets, but also shows that the development of encrypted digital finance has reached the tipping point. Encrypted digital finance will develop in an accelerated manner and will bring fundamental changes to the existing financial market.
The most direct factor leading to the new high of bitcoin prices is the supply and demand relationship of bitcoin transactions. The next-level influencing factors are those directly related to Bitcoin transactions. For example, Singapore and Hong Kong have recently approved compliant encrypted digital currency transaction services. Institutional investors and high-net-worth clients in these two regions can participate in bitcoin transactions in a legal manner. In the US market, CME plans to launch futures trading based on Ethereum next year. PayPal recently started to provide its users with bitcoin trading services. In addition, the increase in Bitcoin holdings by various mainstream financial institutions is also a further recognition of Bitcoin. The above factors all make the market expect a large amount of funds to flow into the Bitcoin trading market, thus pushing Bitcoin to a record high. Moreover, the rapid growth of Bitcoin price this time is fundamentally different from the growth in 2017. The growth factors that led to this time include a more friendly regulatory environment, a more stable market infrastructure and the entry of institutional investors. The increase in 2017 was mainly the result of retail users’ speculation in the market. So this time the growth has a more solid foundation. Although the price trend of Bitcoin will still fluctuate sharply in the future, its growth trend is certain.
At a more fundamental level that affects the price of Bitcoin, the global financial market is currently undergoing paradigm changes. Encrypted digital finance is being implemented in some regulatory jurisdictions. Encrypted digital finance will use digital currency to pay and trade digital assets based on the support of distributed accounting technology. The digital assets to be traded are not only limited to the trading products in the current market, but will include more types of new assets and virtual assets such as Bitcoin and Ethereum. Currently, separate banking and securities businesses will be conducted on the same market basis. These current developments in the financial market have indirectly pushed the price of Bitcoin to a record high of $20,000.
In terms of financial market infrastructure, the most striking thing is the Diem stablecoin. The Diem Association is waiting for Swiss FINMA to approve its establishment and operation. It may first launch the USD-based Diem stablecoin as early as January 2021. In view of the composition of the members of the Diem Association and the members it plans to develop, the Diem stablecoin will create an encrypted digital financial ecosystem independent of the current banking market in the future. In addition, in addition to the Diem USD stablecoin, there are already a variety of USD-based digital stablecoins in the US market.
In terms of the underlying technology of encrypted digital finance, it is still in the early stage of the development of encrypted digital finance, so the main supporting technology of this financial market infrastructure is still in competition and has not yet formed a dominant position. This is similar to the early development of the mobile Internet, with Symbian, BlackBerry, Windows, Android and Apple operating systems competing. With the development of the mobile Internet today, only Android and Apple systems have become the dominant underlying operating systems. The development of the encrypted digital financial world will follow the same development trend. One or two distributed accounting technologies will become the foundation of the encrypted digital financial world in the future.
In terms of supervision, in the US market, due to the different attitudes of different regulatory agencies, the development progress of encrypted digital finance in the US market is different. In the field of commodity derivatives, due to the CFTC’s leading regulatory stance, the US futures trading market is now in the leading position in global bitcoin derivatives trading. In the banking industry, the OCC, which regulates this field, clarified its regulatory policy in 2020, clearly stating that the U.S. Federal Bank can provide legal services to encrypted digital currency companies. It is also advancing a nationwide license for banking institutions that only provide payment functions. These actions of OCC have greatly promoted the development of encrypted digital finance in the US market. In the securities sector, the SEC has always held a very conservative position. Therefore, the development of encrypted digital finance in the US securities market is not fast. But the current SEC chairman has already proposed to leave at the end of this year. Who will be the chairman of the SEC in the new US government? His position in this regard will greatly affect the development of encrypted digital finance in the US securities industry. But in general, the development trend of encrypted digital finance is already very obvious, so it is unlikely that the newly appointed SEC chairman will completely ban this development.
Outside the US market, the development of encrypted digital finance in Switzerland is also very obvious. The SDX supported by the Swiss financial industry runs entirely on the basis of the support of distributed accounting technology. It will use digital currency to trade digital assets. The Swiss National Bank is also testing the issuance of its CBDC on the same financial market infrastructure as SDX. Given that SIX, the parent company of SDX, is actually the infrastructure provider of the Swiss financial industry, it is very likely that Swiss Bank will issue CBDC on this basis. SDX’s financial market infrastructure is therefore likely to become the underlying infrastructure for encrypted digital financial services in the Swiss financial industry. Switzerland’s development in this area will be supported by a unified infrastructure from the beginning. In this regard, the US market is still in a stage of free competition in the market.
So in general, the development of encrypted digital finance in the United States, Switzerland, Singapore, and Hong Kong has indirectly promoted the market’s recognition of Bitcoin, which in turn led to Bitcoin reaching a record high in the last month of 2020. This historical high of $20,000 in Bitcoin not only shows the market’s recognition of Bitcoin, but also shows that the development of encrypted digital finance has reached a new height and has reached a tipping point. After that, there will be an accelerated development trend in encrypted digital finance.
