On this episode of “This week in the markets”, Anton Golub, CEO, Flovtec returns for a review of markets over the past week including MicroStrategy issuing more debt for BTC, El Salvador adopting Bitcoin as legal tender and the BOE firing another shot across the bow of Stablecoins with host Paul Gordon.
In the past few weeks, there’s been a lot of liquidation across the industry and earlier, a few exchanges were down. Surprisingly, DeFi protocols held up well in the correction. Anton continues to be bullish about the overall market, indicating that this is the right time for long-term holders to buy more.
Volumes of DeFi Market
(02:22) Before this correction, a lot of the AUM (Assets Under Management) was leaking from the centralized exchanges towards DeFi protocols, especially for those offering either synthetic or wrapped coins. From conversations Flovtec has had, leverage that was building up in DeFi was and continues to be high.
On liquidation, if mechanisms had not been placed in these DeFi protocols to reduce mass liquidation, the correction would have been much steeper, Anton added.
(03:45) Overall, ethereum is relatively outperforming bitcoin which is a good sign for the DeFi market, as more people are recognizing the season as a good buying opportunity.
(05:14) The price of bitcoin is relatively still high compared to prices from 2018 when was there the last all-time high before the recent run, Anton said.
The downing in price has resurrected conversations about the impact of bitcoin mining on the environment as well green mining solutions. Anton believes that a lot of bitcoin mining is done in cutting-edge factories in isolated places around the world, and although concerns about mining haven’t evolved, he couldn’t be more positive about the market.
Future of Proof of Stake Coins
Anton’s conviction is that proof of stake networks might have more opportunities going forward because of the impact of proof of work and how it is becoming economically unreasonable to it. Yet, Bitcoin would continue to be the primary cryptocurrency for both retail and institutional allocations, Anton added.
MicroStrategy Debt Allocations
(08:02) MicroStrategy has been one of the biggest and most vocal allocators of bitcoin, having already purchased 1.6 billion of convertible debt over the last year. They announced this week a plan to buy another USD 500 million worth of convertible debt.
Anton thinks MicroStrategy is averaging in and taking advantage of the correction to buy at the right price.
(08:37) “I think MicroStrategy is becoming like a quasi-ETF as the holdings they have allows big allocations towards people who want to have quasi-bitcoin exposure since we are not getting a bitcoin ETF anytime soon, in the US at least…they couldn’t have bought it at a better time came than now at cheap prices…They can also support the price as they buy up..” Anton added.
Bitcoin as Legal Tender in El Salvador
Bitcoins’ acceptance as legal tender in El Salvador is another step in the right direction of crypto adoption, Anton said.
The backstory of the adoption in the country is that company called Strike, recently launched their application actually in to help transition the 70% of the population still using cash for the transactions to bitcoin payments, Anton added.
(10:43) Anton added that the immediate impact of the adoption would be minimal, considering El Salvador is not a global powerhouse but it would propel interest from other countries, especially those in Latin America to consider bitcoin adoption, not as a payment method but rather, a store of value.
(11:13) “…talking about bitcoin as a payment method, I think that’s not reasonable. It can be more of a store of value so maybe going forward, it sits on the balance sheets of the central banks one in the future…maybe that’s the way how it’s going to be used on a bigger scale,” Anton added.
Bank of England Paper on Stable Coins
(14:10) The paper about stable coins raised concerns about crypto in
general about their impact on commercial banks as they would eliminate them from the banking value chain. According to their modelling, the Bank of England projects a fifth of retailer customer adopting stablecoins to the detriment of the banks.
(14:22) Although Anton was positive about the innovation and technology that stablecoins could bring to the banking ecosystem, between the lines, he sees central banks wanting to regelate retailers from the chain.
(14:33) “The Central banks don’t want retail to touch stable coins. They want an intermediary in between, a commercial bank would hold them..I was at a conference of BIS, a Swiss International bank a few years ago where they clearly stated that they see stablecoins being used in the wholesale money market, meaning the big transaction that happens between the financial purse…They’re not keen on having me having my digital pounds or Swiss ranks in my wallet and not having a bank in between,” Anton explained.
As space grows, and with the radical adoption of stablecoins, it’s going to be much harder for regulators to ignore the rise of these digital assets, Anton concluded.