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Cryptocurrency in 2021: Bitcoin Nears $70,000, Memecoins Roar, China Cracks Down

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By Reuters | Updated: 30 December 2021

Bitcoin close to $70,000 (roughly Rs. 5,211,600), “memecoins” worth billions of dollars, a blockbuster Wall Street listing and a sweeping Chinese crackdown: 2021 was the wildest yet for cryptocurrencies, even by the sector’s volatile standards.

Digital assets started the year with a stampede of cash from investors large and small. And Bitcoin and its kin were rarely out of the spotlight since, with the language of crypto becoming firmly entrenched in the investor lexicon.

Here is a look at some of the major trends that dominated cryptocurrencies this year.

Bitcoin: Still no.1

The original cryptocurrency held its crown as the biggest and most well-known token – though not without a host of challengers biting at its heels.

Bitcoin soared over 120 percent from January 1 to a then-record of almost $65,000 (roughly Rs. Rs. 4,839,600) in mid-April. Fuelling it was a tsunami of cash from institutional investors, growing acceptance by major corporations such as Tesla and Mastercard and an increasing embrace by Wall Street banks.

Spurring investor interest was Bitcoin’s purported inflation-proof qualities – it has a capped supply – as record-breaking stimulus packages fuelled rising prices. The promise of quick gains amid record-low interest rates, and easier access through fast-developing infrastructure, also helped attract buyers.

Emblematic of Bitcoin’s mainstream embrace was major US exchange Coinbase’s $86 billion (roughly Rs. 640344.82 crore) listing in April, the biggest yet of a cryptocurrency company.

“It’s graduated into the sphere where it is traded by the sort of people that are taking bets on treasuries and equities,” said Richard Galvin of crypto fund Digital Capital Asset Management.

Yet the token stayed volatile. It slumped 35 percent in May before soaring to a new all-time high of $69,000 (roughly Rs. 5,137,500) in November, as inflation spiralled across Europe and the United States.

Prominent sceptics remain, with JPMorgan boss Jamie Dimon calling it “worthless”.
The rise of the memecoins

Even as Bitcoin remained the go-to for investors dipping their toes into crypto, a panoply of new – some would say joke – tokens entered the sector.

“Memecoins” – a loose collection of coins ranging from Dogecoin and shiba inu to squid game that have their roots in web culture – often have little practical use.

Dogecoin, launched in 2013 as a Bitcoin spinoff, soared over 12,000 percent to an all-time high in May before slumping almost 80 percent by mid-December. Shiba inu, which references the same breed of Japanese canine as Dogecoin, briefly muscled its way into the 10 largest digital currencies.

The memecoin phenomenon was linked to the “Wall Street Bets” movement, where retail traders coordinated online to pile into stocks such as GameStop Corp, squeezing hedge funds’ short positions.

Many of the traders – often stuck at home with spare cash during coronavirus lockdowns – turned to crypto, even as regulators voiced warnings about volatility.

“It’s all about the mobilisation of finance,” said Joseph Edwards, head of research at crypto broker Enigma Securities.

“While assets like DOGE and SHIB may in themselves be purely speculative, the money coming into them is coming from an instinct of ‘why shouldn’t I earn on my money, savings?”.
Regulation: The (large) elephant in the room

As money poured into crypto, regulators fretted over what they saw as its potential to enable money laundering and threaten global financial stability.

Long sceptical of crypto – a rebel technology invented to undermine traditional finance – watchdogs called for more powers over the sector, with some warning consumers over volatility.

With new rules looming, crypto markets were skittish to the possible risk of a clampdown.

When Beijing placed curbs on crypto in May, Bitcoin tanked almost 50 percent, dragging the wider market down with it.

“Regulatory risk is everything because those are the rules of the road that people live by and die by in financial services,” said Stephen Kelso, global head of markets at ITI Capital. “The regulators are making good progress, they’re catching up.”
NFTs

As memecoin trading went viral, another formerly obscure corner of the crypto complex also grabbed the limelight.

Non-fungible tokens (NFTs) – strings of code stored on the blockchain digital ledger that represent unique ownership of artworks, videos or even tweets – exploded in 2021.

In March, a digital artwork by US artist Beeple sold for nearly $70 million (roughly Rs. 521339 crore) at Christie’s, among the three most expensive pieces by a living artist sold at auction.

The sale heralded a stampede for NFTs. Sales in the third-quarter hit $10.7 billion (roughly Rs. 79690.39), up over eight-fold from the previous three months. As volumes peaked in August, prices for some NFTs rose so quickly speculators could “flip” them for profit in days, or even hours.

Soaring crypto prices that spawned a new cohort of crypto-wealthy investors – as well as predictions for a future of online virtual worlds where NFTs take centre stage – helped fuel the boom.

Cryptocurrencies and NFTs’ popularity may also be linked to a decline in social mobility, said John Egan, CEO of BNP Paribas-owned research company L’Atelier, with younger people drawn to their potential for swift gains as soaring prices put traditional assets like houses out of reach.

While some of the world’s top brands, from Coca-Cola to Burberry, have sold NFTs, still-patchy regulation meant larger investors largely steered clear.

“I don’t see a situation where licensed financial institutions are actively and aggressively trading (these) digital assets in the next three years,” Egan said.

© Thomson Reuters 2021

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Cryptocurrency

Cryptocurrency Ban: Russia’s Central Bank Calls for Crackdown on Mining, Transactions

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By Agence France-Presse | Updated: 21 January 2022

The Russian central bank proposed Thursday cracking down on cryptocurrencies, a move which if adopted could disrupt the burgeoning virtual money sector as Russia is one of the largest crypto-mining nations in the world.

Russian authorities have for years criticised cryptocurrencies over fears they can be used for illegal activities and have called for regulation.

Authorities granted cryptocurrencies legal status in 2020, but their use in payments was never authorised.

The Bank of Russia called Thursday for reinforcing the ban on cryptocurrency payments, banning cryptocurrency mining, and tightening laws on trading virtual money.

“The use of cryptocurrencies creates significant threats to the well-being of Russian citizens and the stability of the financial system,” a report published by the central bank said.

It added that the swift growth of cryptocurrencies is driven by “speculative demand” that leads to the forming of a “bubble”.

The report added that cryptos resemble financial “pyramid schemes” because their value increases with the emergence of new players on the market.

It estimated the annual transaction volume of Russian citizens at $5 billion (roughly Rs. 37,270 crore).

Bloomberg earlier cited sources as saying that Russia’s domestic security agency, the FSB, had lobbied central bank head Elvira Nabiulina for a ban.

The FSB cited concerns over Russians frequently using the hard-to-trace transactions to support “undesirable organisations”, such as opposition groups.

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Twitter Debuts Hexagon-Shaped NFT Profile Pictures

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By Reuters | Updated: 21 January 2022

Twitter on Thursday announced the launch of a tool through which users can showcase non-fungible tokens (NFTs)as their profile pictures, tapping into a digital collectibles craze that has exploded over the past year.

The feature, available on iOS to users of the company’s Twitter Blue subscription service, connects their Twitter accounts to cryptocurrency wallets where the users store NFT holdings.

Twitter displays the NFT profile pictures as hexagons, differentiating them from the standard circles available to other users. Tapping on the pictures prompts details about the art and its ownership to appear.

Like other tech companies, Twitter is rushing to cash in on crypto trends like NFTs, a type of speculative asset authenticating digital items such as images, videos, and land in virtual worlds.

The social media platform last year added functionality for users to send and receive Bitcoin.

Sales of NFTs reached some $25 billion (roughly Rs. 1,86,250 crore) in 2021, according to data from market tracker DappRadar, although there were signs of growth slowing toward the end of the year.

Proponents of Web3 technologies like NFTs say they decentralise ownership online, creating a path for users to earn money from popular creations, rather than having those benefits accrue primarily to a handful of tech platforms.

Critics dismiss the decentralisation claims, noting that many of the services powering adoption of those technologies – like the six crypto wallets supported by Twitter’s NFT product – are backed by a small group of venture capitalists.

In a widely circulated tweet after the launch, security researcher Jane Manchun Wong highlighted one of those links, showing how an outage at venture-backed NFT marketplace OpenSea temporarily blocked NFTs from loading on Twitter.

OpenSea did not immediately respond to a request from Reuters for comment.

© Thomson Reuters 2022

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Singapore Central Bank Issues Guidelines to Discourage Crypto Trading by Public

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By Reuters | Updated: 17 January 2022 

The Monetary Authority of Singapore (MAS) on Monday issued guidelines that limit cryptocurrency trading service providers from promoting their services to the general public, as part of a bid to shield retail investors from potential risks.

Singapore is a popular location for cryptocurrency companies due to a comparatively clear regulatory and operating environment and is among the forerunners globally in developing a formal licensing framework.

But the city-state’s authorities have repeatedly warned that trading in digital payment tokens (DPT), or cryptocurrency, is highly risky and not suitable for the general public, as they are subject to sharp speculative swings.

The new guidelines clarify the expectations of MAS that companies should not engage in marketing or advertising of DPT services in public areas in Singapore or through the engagement of third parties, such as social media influencers, to promote DPT services to the general public.

They can only market or advertise on their own corporate websites, mobile applications or official social media accounts.

“MAS strongly encourages the development of blockchain technology and innovative application of crypto tokens in value-adding use cases,” Loo Siew Yee, MAS Assistant Managing Director (Policy, Payments and Financial Crime), said in a statement.

“But the trading of cryptocurrencies is highly risky and not suitable for the general public. DPT service providers should therefore not portray the trading of DPTs in a manner that trivialises the high risks of trading in DPTs, nor engage in marketing activities that target the general public.”

© Thomson Reuters 2022

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Dogecoin Jumps After Elon Musk Tweets Tesla Merchandise ‘Buyable’ With the Token

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By Reuters | Updated: 14 January 2022

Meme-based cryptocurrency Dogecoin jumped on Friday after Tesla chief Elon Musk said the electric carmaker will accept it as payment for merchandise.

“Tesla merch buyable with Dogecoin,” Musk tweeted.

His mid-December tweet saying such use of Dogecoin will be allowed on a test basis sent the cryptocurrency up more than 20 percent. Dogecoin price in India stood at Rs. 15.02 as of 4:30pm IST on January 14.
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Dogecoin, popular among retail investors, raced up 18 percent to above $0.2 (roughly Rs. 14) after Friday’s tweet.

Musk’s tweets on the cryptocurrency, including the one where he called it the “people’s crypto”, buoyed the meme coin and caused it to soar roughly 4,000 percent in 2021.

In other Tesla-related news, Musk tweeted on January 13 that Tesla is “still working through a lot of challenges with the government” in India. Musk said this in response to a question on when it would launch its electric cars in the country.

Tesla had plans to begin selling imported cars in India last year and has been lobbying the government to slash import taxes on electric vehicles (EVs) before it enters the market. In October, it took its demands to Indian Prime Minister Narendra Modi’s office.

Musk didn’t identify the “challenges” being worked on in his Twitter post.

© Thomson Reuters 2022

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Jack Dorsey Fintech Firm Block Wants Bitcoin Mining for All

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By Agence France-Presse | Updated: 14 January 2022

Jack Dorsey on Thursday announced that his digital payments firm Block is building a system to make it easier for people to mine Bitcoin.

Dorsey said in a tweet that Block, formerly known as Square, is “officially building an open Bitcoin mining system,” following through on an idea floated publicly late last year. Bitcoin price in India stood at Rs. 34.11 lakhs as of 12:00pm IST on January

In November, Twitter co-founder Dorsey announced his departure from the social media platform, allowing him to concentrate on his digital payments firm as it expands into cryptocurrency.

Block changed its name from Square late last year to denote a broader mission that includes blockchain and economic empowerment.

Hardware and software teams at Block will openly collaborate with the cryptocurrency community outside the San Francisco-based company, aiming to create a mining system that could be used by anyone, according to Dorsey’s tweets.

Block hardware general manager Thomas Templeton said on Twitter that the project’s aim was: “To make mining more distributed and efficient in every way, from buying, to set up, to maintenance, to mining.”

“We see it as a long-term need for a future that is fully decentralised and permissionless.”

No timeline was given for when Block’s system might be ready. Block is also working on a wallet for storing cryptocurrency, using similar open collaboration.

“For most people, mining rigs are hard to find,” Templeton said in a tweet.

“How can we make it so that anyone, anywhere, can easily purchase a mining rig?”

The price of Bitcoin hit record highs in 2021 thanks to support from traditional finance. But it slid below $40,000 (roughly Rs. 30 lakh) on Monday, falling to its lowest level since the end of September as the world’s leading cryptocurrency showed no end to its volatility.

Created following the 2008 global financial crisis, Bitcoin initially promoted a libertarian ideal and aspired to overthrow traditional monetary and financial institutions such as central banks.

In more recent times, climate change watchers have shone a spotlight on the huge amount of electricity used to power computers required to unearth new Bitcoin tokens.

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Digital Pound Could Hit Financial Stability and Erode Privacy, UK Lawmakers Warn

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By Reuters | Updated: 13 January 2022

A digital pound used by consumers could harm financial stability, raise the cost of credit, and erode privacy, though a version for wholesale use in the financial sector demands greater appraisal, British lawmakers said on Thursday.

Britain’s central bank and finance ministry said in November they would hold a consultation this year on whether to move forward on a central bank digital currency (CBDC) that would be introduced after 2025 at the earliest.

Central banks across the world have stepped up work on CBDCs to avoid the private sector dominating digital payments as cash use falls. The prospect of widely-used cryptocurrencies issued by Big Tech has also galvanised such efforts.

But an e-pound used by households and business for everyday payments could see people move cash from commercial bank accounts to digital wallets, said the report by a committee in the House of Lords, parliament’s unelected upper chamber.

That could spark financial instability in times of economic stress and increase borrowing costs as a key source of lenders’ funding would dry up, it said.

A digital pound could also harm privacy, the report added, by allowing the central bank to monitor spending.

“We were really concerned by a number of the risks that are posed by the introduction of a CBDC,” Economic Affairs Committee Chair Michael Forsyth told Reuters.

Many benefits for the consumers could be “achieved by alternative means with fewer risks,” Forsyth said, pointing to regulation as a better tool to ward off the threat of crypto issued by Big Tech firms.

However, a wholesale CBDC used to transfer large sums could make securities trading and settlement more efficient, the report said. Britain’s central bank and finance ministry should consult on its advantages over the expansion of the existing settlements system, it said.

Britain’s parliament should have the final say on any decision to launch a e-pound, the report said, calling for lawmakers to also vote on its governance.

A CBDC would have “far-reaching consequences for households, business and the monetary system,” Forsyth said. “That needs to be approved by parliament.”

© Thomson Reuters 2022

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