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Crypto SWOT: Canada has become a hotspot for cryptocurrency-related companies.

Commentaries & Views

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Axie Infinity, rising 136.77%.

  • Circle, a payments infrastructure company which also focuses on stablecoin development, announced its plan to go public via a special purpose acquisition company (SPAC). The company is set to merge with blank-check company Concord Acquisition Corp. in a deal valued at $4.5 billion and is expected to be listed on the New York Stock Exchange (NYSE) under the ticker "CRCL." Circle is the principal developer of the USD Coin (USDC), the second largest stablecoin after Tether (USDT), and is backed by Goldman Sachs, Fidelity Management, and Adage Capital Management.

  • Tetra Trust became Canada's first regulated custodian for cryptocurrencies after being registered by the government of Alberta. The company's CEO, Eric Richmond, mentioned that there was a pressing need for a regulated custody provider in Canada as the country has become a hotspot for cryptocurrency-related companies, exchange-traded funds (ETFs), and trading platforms. The firm is backed by Coinsquare, which is a Toronto-based crypto trading platform, Coinbase Ventures, and the Canadian Securities Exchange, among others.

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performer for the week was Telcoin, down 22.42%.

  • The Bank of Thailand (BoT) stressed that cryptocurrencies like Bitcoin and Ethereum are not legal tender in the country and that it will coordinate with Thailand's Securities and Exchange Commission to mitigate any risks to the country's financial system if cryptocurrency payments become widespread. Officials from the bank also noted that parties involved in such transactions could face risk of price volatility and cyber theft.

  • Scott Minerd, the chief investment officer at Guggenheim, believes that there is no reason for institutional investors to buy Bitcoin now and that the largest cryptocurrency could plummet to $10,000-$15,000 range. The latest tumble in Bitcoin's price is attributable to increasing regulatory scrutiny from China to the U.K. and the environmental impact of mining the cryptocurrency. Currently, Bitcoin is trading around $33,500, almost 50% lower than its all-time high of more than $64,000.

Opportunities

  • The Banque de France (BdF) and the Monetary Authority of Singapore partnered to test a cross-border central bank digital currency (CBDC) transaction using a permissioned version of Ethereum called Quorum, which is developed by JPMorgan. This marked the first use of a smart contract-based, automated liquidity pool for the digital EUR/SGD currency pair. After the experiment, the BdF stated that the automated liquidity pool and market-making service for EUR/SGD currency pairs could be scaled up to support participation of multiple central and commercial banks in different jurisdictions.

  • Square Inc. announced that the company is working on building a Bitcoin hardware wallet and service to make Bitcoin custody more mainstream. Although the project is in still in its early stages, the U.S. based financial services firm will continue to take input from stakeholders as it tries to bring a mobile-friendly, "assisted-self-custody" wallet to a global audience. Square's foray into Bitcoin custody could increase attention and investment into the industry.

  • Osprey Funds, a digital asset management firm, filed to register its Osprey Bitcoin Trust (OBTC) as a Securities and Exchange Commission (SEC) reporting company. The registration would increase OBTC's transparency and liquidity and will require it to file audited financial statements with the SEC. OBTC has an annual management fee of 0.49% and an additional 0.3% in other expenses from services like crypto custody, while the Grayscale Bitcoin Trust (GBTC) has a management fee of 2%. Meanwhile, Bitcoin mining difficulty decreased 28% after China's crackdown, increasing the profitability of miners. It reached levels last seen more than a year ago when Bitcoin was trading around $9,000. The chart below shows the progression of Bitcoin mining difficulty over the last 12 months.

Threats

  • A survey of 1,233 El Salvador's citizens, conducted by pollster Disruptiva, suggests that majority of the country's people are wary of the implementation of the legislated Bitcoin Law, which makes the cryptocurrency a legal tender within the country. Around 54% of respondents viewed the law as "not at all correct", while only 20% totally supported it. Further, 46% responded that they do not know anything about Bitcoin, and 65% would not be keen on being paid in the crypto. Although the Bitcoin Law is set to come into effect on September 7, 2021, there seems to a hesitancy amongst El Salvadorians regarding using the cryptocurrency for everyday purposes.

  • Santander Bank in the U.K. announced that it will no longer allow its customers to send payments to Binance, following the footsteps of Barclays and Natwest, citing warnings from U.K.'s Financial Conduct Authority (FCA). FCA warned consumers that Binance Markets Limited, which is a separate entity from Binance exchange, could not operate and engage in any regulated activity in the U.K.

  • The Economic Commission for Latin America and the Caribbean (ECLAC) warned that El Salvador's Bitcoin Law poses several systemic risks as well as money laundering risks. ECLAC, which is a United Nations' regional commission to encourage economic cooperation, added that Bitcoin does not fulfil some basic functions of money and is subject to extreme volatility. This warning comes on back of the International Monetary Fund stating that accepting Bitcoin as legal tender could pose legal and financial concerns, and the World Bank refusing to assist El Salvador in the country's transition to adopting the cryptocurrency.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.