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bitcoinadmin December 21, 2021 No comments News permalink

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News Summary 12/21: NFT, Polkadot, Bitcoin ETF, Stablecoins, and FED

A lot has happened in the NFT sector in recent weeks! Global sports brands Nike & Adidas are also involved. Polkadot finally introduced its first parachains. SEC has postponed spot Bitcoin ETF approvals. Stablecoins have had a great year. Fed made the expected decision to tighten the monetary policy.

NFT news: Bitwise, Nike, and Adidas

Let’s start from the NFT world. Although there isn’t an NFT boom going on, there has been some interesting news lately.

Bitwise, an American asset management company, announced its first NFT fund last week. It’s called the Bitwise Blue-Chip NFT Index Fund. As the name suggests, the fund invests in high-quality and well-known NFT projects. Some examples of these are CryptoPunks and Bored Apes Yacht Club.

Bitwise CIO Matt Hougan commented on the announcement on Twitter.

Unfortunately, Bitwise’s fund is only available to accredited investors in the United States. In the future, such funds are hopefully available in Europe too. These funds provide an easy way to invest a couple of percent of the portfolio in the NFT market.

Adidas also entered the NFT world last week. Adidas released an NFT collection titled Into the Metaverse which raised $23.4 million in a single day. It also emerged as the hottest collection in the entire NFT market.

You can check the sales of NFT collections from cryptoslam.io.

Adidas rival Nike has also prepared its Metaverse revolution. Nike registered several new trademarks and slogans already in November. The company ended up in the headlines last week after buying RTFKT studio. RTFKT (pronounced artifact) already had a valuation of $33 billion six months ago, so Nike’s investments are significant.

First parachains launched on Polkadot

Polkadot was seen as one of Ethereum’s biggest competitors at the beginning of 2021. However, it has been overshadowed by Solana, Avalanche, and Terra lately. Now Polkadot has taken an important step forward as the first parachains have been launched.

Polkadot is trying to build an “internet of blockchains” where dozens of different blockchains would be linked together in one ecosystem. Each parachain can set different parameters for the functionality of the blockchain. In the heart of this network lies Polkadot’s consensus mechanism.

Blockchains of the Polkadot’s ecosystem are called parachains. The number of parachain slots is limited to 100 and each slot is being auctioned. The first five winners of the auctions are projects called Acala, Clover, Moonbeam, Astar, and Parallel.

What is surprising is the price development of the DOT token. Many investors speculated on the DOT price when the parachain auctions began. DOT is used for bonds issued by parachain developers. In other words, investors can loan DOT tokens to projects they like to fund in exchange for yield.

The ongoing development locks DOT tokens out of circulation and increases the demand. However, this has not been reflected in DOT price in any way, leaving many investors disappointed.

Nevertheless, this is an important step for the Polkadot project. At the end of December, six new auctions will be launched for the slots 6-11.

SEC postponed decisions for two Spot Bitcoin ETFs

Bitcoin ETF has been a popular topic in the crypto industry this year. Two months ago, a historic decision was done when the SEC approved the first Bitcoin ETFs. Now there are three different Bitcoin ETFs trading in the United States.

The market only got excited about these products momentarily, as each of them is futures-based. In other words, these ETFs do not buy bitcoins from the market. Investors are demanding Spot ETF products from the SEC. These products are already available in Canada for both Bitcoin and Ethereum.

The SEC, which oversees the market, has a number of applications on the table. It will eventually accept or reject the applications. The SEC may also postpone the decision for a couple of months, and this was done last week for Bitwise and Grayscale applications.

The Bitcoin spot ETF is therefore waiting for approval in 2022. The pressure on SEC is getting so great that approval is likely to be seen next year. Neighbor Canada is also doing its part, as several funds investing in bitcoins have already been approved in 2021.

A strong year for stablecoins

Popular news site The Block has published a comprehensive report on the crypto market. The 2022 Digital Asset Outlook can be found in PDF format via this link. The documentary contains a lot of interesting information. Now we focus on the stablecoin market.

The price of stablecoins is usually pegged to the US dollar. Other fiat currencies are also used in some stablecoins. Stablecoins have succeeded excellently in 2021.

The market capitalization of stablecoins was nearly fivefold during 2021 from about $29 billion to more than $140 billion. The growth was driven by two significant factors.

The popularity of the DeFi market exploded in 2021. Many investors chose stablecoins instead of fiat currencies and transferred their coins to DeFi platforms for earning yield. CeFi lending platforms such as Celsius and BlockFi also brought their share to the pot. An increasing number of institutions have done the same.

There have been a lot of changes inside the stablecoin sector. A year ago, Tether’s market share was over 75%. Now it’s just 54%. Especially USD Coin (USDC) has grown enormously and doubled its market share to 28%.

The winner of the past months has been Terra platform’s UST. Its market share has already gone up to $9 billion. UST has also fueled the LUNA token’s wild price performance.

Federal Reserve tightens monetary policy as expected

Jerome Powell, the chairman of the Federal Reserve, gave an expected speech about the U.S. monetary policy. Investors were carefully listening to how the Fed was planning to tackle the increasing inflation threat.

Inflation has been the number one subject in the investment world. Records numbers were reported last week in the United States and in Europe.

High inflation has become a threat to investors, and it also hurts average consumers a lot. This puts pressure on politicians to solve the problem. The only weapon for central banks against inflation is the tightening of monetary policy and the raising of interest rates. This gives a headwind for the stock market and cryptocurrencies.

Former Fed insider Danielle Dimartino Booth commented on the situation.

The United States is still the heart of the world’s economy, which is why investors are tightly following the monetary policy of the Fed.

Last week we finally received the expected announcement. Jerome Powell announced that Fed will reduce securities purchases to zero in the coming months. Three interest rate increases are planned for next year, but only 0.25% at a time.

At this rate, Fed’s key interest rate would be between 0.75% and 1% in a year’s time. Many investors are wondering what such a rate hike does against 7% inflation.

After the announcement stock market and cryptocurrency market got green for two reasons. Firstly, the market received exactly the announcement it was prepared for. This always calms investors.

Second, many analysts do not believe that the Fed can actually do these rate hikes. Central banks know that interest rate increases will push the stock market downhill, and this goes straight against the central bank guidelines. Even high inflation might not be a reason good enough for Powell to destroy the stock market.

Overall, the situation is very uncertain. High inflation is present everywhere giving pressure on monetary policy tightenings globally. Stocks and assets such as cryptocurrencies will be hurt. These asset classes have benefited enormously from loose monetary policy and the zero-interest-rate environment for more than a decade.

The future has not looked this uncertain for many years. There seem to be potential scenarios in all directions. For everyone (investors, central banks, citizens), it would be best if the inflation would drop to a much lower level.