Stablecoins: 2020 in review, what happened, why and the future.

The year Crypto broke into Institutions.

 

Whilst Stablecoins were born this year (PBoC trail in China and numerous other Central Bank studies and experiments), Crypto became a teenager and got to drive Dad’s car for the first time.

BTC Lowest price this year was on March 16th at $USD 4,994 to the highest $USD 24,061 at the time of writing this, really does say it all.  Have we been here before and this is just deja vu? To some extent yes, except this time is different, note the increased participation by Institutions.   

To me the important signal of Institutions putting serious money into Crypto was not the direct purchasing of coins (as important as that is) but the “Skin in the Game” investment in the ecosystem.  The best example of this is the Japanese Financial group SBI buying B2C2.  

For those who are not familiar with B2C2, they are the largest global Institutional Crypto Liquidity Provider with customers such as Crypto Exchanges, Retail Brokers and Hedge Funds.  They achieve this by aggregating as much Liquidity as possible and Trading in a proprietary sense, taking positions for short periods of time and thereby offering 24 by 7, two way (buy and sell) streaming tradeable prices or wholesale rate.  This is vital as it enables institutions, including those who deal with the retail marketplace, to trade in and out of positions as and when they choose.  This is essential infrastructure for Institutions, who cannot just Hodl and must have a functioning wholesale market before they can be serious players.

“LONDON (Reuters) – SBI Financial Services, has acquired UK-based cryptocurrency trading firm B2C2 and will become the first major financial group to run a digital asset dealing desk.”

Japanese financial group SBI acquires cryptocurrency trading firm B2C2

 

In the meantime, Regulators, Central Banks and market structure Institutions are starting to understand the potential in stablecoins.  This paper from the IMF demonstrates how far they have come on the journey of discovery of this new asset class.

Reserve Currencies in an Evolving International Monetary System

 “Private stablecoins such as libra (now rebranded as diem) could emerge as international reserve currencies, according to an International Monetary Fund (IMF) report.”

Global Stablecoins Could Eventually Become Reserve Currencies: IMF Paper

 

Why are both of these signals important?  Once Crypto is a permanent portfolio component on Institutional Trading floors, the requirement for a number of stablecoins will increase dramatically.  As Traders move in and out of various Crypto assets they will need a parking lot.  This in turn will drive Central Banks to meet the emerging retail interest (Facebook et al) and wholesale interest of Hedge Funds and Asset Managers.

So, now for 2021.  I believe as we move out of this Pandemic it will be a year of rapid evolutionary change and growth, built on the progress of 2020.

  • Facebook’s Libra/Diem will be launched in a limited way at the start of the year, progressing to a larger rollout as the year unfolds.  Other big Tech and Fintech start-ups will follow the regulatory path that they will have established.
  • Banks will begin developing or purchasing infrastructure such as custody and trading systems as demand from Institutions and competition from Big Tech and FinTech increases.  
  • Central Banks, being pushed by a developing wholesale market for Institutions, will move from experiments and studies to limited trials (except for China which will be ramping up it’s roll-out).

Regardless of these predictions and the fun of watching this new asset class emerge, importantly, I trust everyone has a happy and joyous holiday season.

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

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