๐Ÿš€ China fuelling the bull run?

All Things Flooz newsletter is for innovators, creators and traders.

Flooz

7 min read โ€ข Aug 12, 2023


Talking points

  • ๐Ÿ‘€ Crypto traders anger FTX

  • ๐Ÿš€ China to lead the bull run?

  • ๐Ÿ’ต Circle with $1 Billion package

๐Ÿ‘€ Quick market update

The markets has been moving a bit more this week and it seems like something is certainly brewing... Could we be about to see that move we have all been waiting for?

Here's some extra insight ๐Ÿ‘‡

Could the weekend provide us with some volatility to push us in either direction? It is looking more likely that we get a drop. We might see an opportunity to add to long term portfolios. So prepare for that and have a plan.

๐Ÿ‘€ Crypto traders anger FTX

This fiasco unfolded in response to the draft reorganization plan presented last month by FTX's freshly appointed management led by Chief Restructuring Officer John J. Ray III.

The official committee of unsecured creditors promptly raised objections, citing a lack of consultation and a perceived missed opportunity for greater returns from FTX's considerable cash and token holdings.

In a counterargument lodged recently, legal representatives for FTX's administrators revealed that extensive discussions had taken place between both sides. They went on to assert that the objections from the creditor panel are "laden with an undisclosed agenda specific to the individual members of the committee."

The tension escalated further as FTX's legal team claimed that the creditor panel's stance foreshadows a preference for an "unrepresentative plan" that would grant unrestrained crypto traders and market makers control over the substantial liquid assets held by the debtors.

FTX, once an empire helmed by Sam Bankman-Fried, crumbled dramatically in November, with allegations of being a part of one of the largest financial frauds in US history. With approximately $8.7 billion owed to customers at the time of its bankruptcy filing, FTX(dot)com has managed to recover about $7 billion in liquid assets since.

The official committee of unsecured creditors has advocated for FTX to invest a portion of its nearly $2.6 billion cash reserves in short-term Treasuries, aiming to garner greater income for the bankruptcy estate. This move is intended to offset the hefty professional fees that have already exceeded $330 million in the first eight months of this battle.

The panel's stance also pressed for the adoption of a "proper staking, hedging, and monetization process" for FTX's coin holdings, which involves using tokens to support blockchain operations in return for rewards.

In response, FTX's advisers contended that the creditor panel's reluctance to engage in asset sales that could yield liquidity for the estate, and their delay in token monetization, reveal a bias towards maintaining significant crypto holdings.

The proposal to invest in Treasuries necessitates court approval and carries inherent risks. FTX's advisers rebuffed the creditor panel's notion of gambling with estate assets for higher returns. They stated that the debtors and their independent board do not concur with such a precarious approach.

Beneath the surface, frustrations within FTX's camp also emerged. It was noted that members of the creditor panel often declined in-person meetings, cloaking themselves in the anonymity of Zoom calls. Allegedly, certain members also displayed "unprofessional conduct."

This legal wrangle spotlights the complexity of FTX's bankruptcy, particularly in controlling access to confidential information about potential token sales. Market makers and traders on the creditor committee find themselves straddling the line between unrestricted trading and their roles on the panel, stirring a dilemma that encapsulates the broader tensions within the crypto realm.

๐Ÿš€ China to lead the bull run?

It seems we have a digital revolution brewing in the world of finance, and it's all centered around China's audacious mBridge project.

If you thought the days of dollar domination were unshakable, think again. This bold move is poised to reshape global payments and raise eyebrows across the financial landscape.

Picture this... A clique of countries - China, Thailand, Hong Kong, and the United Arab Emirates have teamed up with the Bank for International Settlements (BIS), the big boss of central banks. Their mission? To birth the mBridge project, a digital concoction that could send shivers down the spine of dollar-denominated transactions.

The mBridge project aims to bridge the gap in cross-border transactions, and it's already ruffling feathers. The digital prototype, a brainchild of Beijing-backed innovation, is rapidly morphing into a contender in the arena of global finance. How rapid, you ask? Word on the street is they're looking to have a basic working version ready by year-end! If successful, mBridge could emerge as a formidable challenger, offering an alternative to the dollar for large corporate transactions.

But hold on... Isn't the dollar practically the kingpin of the financial world, you wonder? Indeed, it wields immense power. Think $6.6 trillion in daily foreign exchange transactions and around half of the $32 trillion global trade each year invoiced in dollars.

So, what's the deal with mBridge?

Well, it could dance its way into the global stage by using blockchain technology to facilitate digital currency transactions, a move that could revolutionize the way money moves across borders.

But as with all good things, there's a flip side. Some critics fret that mBridge could open doors to evading taxes, skirting sanctions, and, ultimately, fragmenting global payments into a tangled web of competing systems. This tech-driven twist could have geopolitical ramifications, folks!

Surprisingly, this bustling development is taking shape at none other than the BIS headquarters. Now, that's got Washington scratching its head, wondering if this might tilt the scales of power. Some officials are curious about China's ambitions and the potential to upset the dollar's dominion.

Josh Lipsky, the maestro of the Atlantic Councilโ€™s GeoEconomics Center, highlights how China's not alone in this digital dance; dozens of central banks are doing their crypto cha-cha with the BIS.

So, where does this whirlwind journey end? Who will be in control? Well, the International Monetary Fund (IMF) might have some ideas. There's chatter that the IMF is mulling over a plan to oversee mBridge and ensure it doesn't transform from a tech solution to a geopolitical grenade. Smart move, considering the power plays at stake!

While the road ahead remains uncertain, one thing's for sure... the digital arena is heating up, and China's mBridge is center stage, ready to disrupt and dazzle. Will the dollar's reign survive the crypto revolution, or are we witnessing a financial evolution of epic proportions?

๐Ÿ’ต Circle with $1 Billion package

Circle Internet Financial, a key player in the cryptocurrency space, is strategically leveraging a substantial cash reserve of over $1 billion to counter growing competition from traditional giants.

This comes at a crucial juncture as the company grapples with a decline in the market share of its USD Coin USDC, the second-largest stablecoin in circulation.

A noticeable drop in the circulation of USDC, from $45 billion at the year's outset to around $26 billion, has been observed. In stark contrast, Tether, the leading stablecoin, has been witnessing growth during the same period. This decline in USDC circulation is partially attributed to a decision taken about a year ago by Binance, the world's largest cryptocurrency exchange, to decrease its reliance on USDC, Jeremy Allaire, the CEO of Circle, explained this in an interview with Bloomberg News.

Stablecoins, cryptocurrency tokens pegged to real-world assets like the US dollar, have predominantly facilitated seamless asset transfers between exchanges for traders. However, they have encountered difficulties in gaining traction for consumer payments. The sector's credibility took a hit after industry scandals led to market turmoil. In March, Circle's exposure to the collapsed Silicon Valley Bank led to a temporary depegging of USDC

Allaire pointed out, "We were meaningfully generating cash," acknowledging that various "tail-risk events" within the crypto industry have influenced USDC's adoption. The collapse of Terra, Binance's forced conversion, the FTX collapse, and regional bank failures have all left their mark on the stablecoin's trajectory.

Circle draws its revenue primarily from interest income generated by assets supporting the stablecoin, including short-term Treasuries and dollar deposits. This revenue stream, coupled with its solid performance, has yielded impressive results. The company recorded first-half revenue of $779 million for the current year, surpassing the $772 million from the entire previous year. Moreover, Circle achieved $219 million in adjusted earnings before interest, taxes, depreciation, and amortization during the same period, outperforming the $150 million of 2022. Bolstered by a cash reserve exceeding $1 billion as of June, the company is well-equipped to invest in growth opportunities, product diversification, and global expansion.

Allaire envisions a future where stablecoins become the currency of the internet era, with mainstream adoption gaining momentum. He anticipates that PayPal's recent entry is merely the beginning, predicting broader involvement from both internet payment firms and various financial services companies.

Despite a contraction in the sector's overall market value, Circle's proactive stance shines through. The company is addressing transparency concerns by regularly sharing financial reports and engaging Deloitte as its auditor. This move comes in the aftermath of the abandonment of a planned merger with Concord Acquisition Corp.

Circle's strategy focuses on partnerships to bolster USDC adoption. In contrast to some competitors, who embrace a white-label approach, Circle is charting a distinct course. Allaire remains optimistic about the company's prospects, even with the potential shift by the Federal Reserve toward lower interest rates, citing the historical correlation between low-rate environments and increased crypto activities.

Furthermore, Circle's diversified revenue streams, exemplified by the recent launch of a crypto wallet service following the CYBAVO acquisition in 2022, fortify its position. Notably, Allaire foresees that numerous stablecoins might not withstand the test of time due to tightening global regulatory measures. Recent developments, including Federal Reserve guidance on digital asset activities and impending European Union rules, underscore the significance of regulatory compliance.

The competition is certainly heating up and with a backfall for Circle, having a plan to help counter any potential situations is a great idea. For the whole crypto space this is healthy competition and will only help to push the adoption even further. Now we just need to wait and see what moves are made next!

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