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BIS Releases Report On ‘Project Icebreaker’ — Develops Cross-Border Retail CBDC Payment Model

BIS Releases Report On ‘Project Icebreaker’ — Develops Cross-Border Retail CBDC Payment ModelThe Bank for International Settlements (BIS) has released a report summarizing the “Project Icebreaker” trial, which explored the potential advantages and difficulties of utilizing a retail central bank digital currency (CBDC) in cross-border payments. The experiment was designed to test “the technical feasibility of conducting cross-border – cross-currency transactions between different [distrubuted ledger technology]-based CBDC […]

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

BIS wraps exploration project on retail CBDC payment system

The bank concluded that a ‘hub-and-spoke’ model between CBDC domestic systems could “reduce settlement and counterparty risk" and complete cross-border transactions in seconds.

The Bank for International Settlements, or BIS, has reported it has concluded a project exploring international retail and remittance payments use cases for central bank digital currencies, or CBDCs, with the central banks of Israel, Norway and Sweden.

In a March 6 report, the BIS said it had finished Project Icebreaker, an initiative involving the bank’s Innovation Hub Nordic Centre testing key functions and the technological feasibility of interlinking domestic CBDC systems through the Central Bank of Norway, the Bank of Israel, and Sveriges Riksbank. According to the report, the BIS concluded that a ‘hub-and-spoke’ model between domestic systems could “reduce settlement and counterparty risk by using coordinated payments in central bank money and complete cross-border transactions within seconds”.

“Without a hub-and-spoke approach, each [retail CBDC, or rCBDC] system would need to make individual specific network and infrastructure configurations to communicate with other rCBDC systems,” said the report. “Communication between these rCBDC systems may not be standardised via a common interface and would instead be a bespoke integration between each pair of rCBDC systems. This would be not only complex to support and maintain but could also introduce cyber security risks.”

The report could provide the groundwork for a cross-border payment system should the central banks of Israel, Norway and Sweden move forward with issuing a digital shekel, digital krone, and digital krona, respectively. In October 2022, the bank reported that a CBDC pilot involving the central banks of Hong Kong, Thailand, China and the United Arab Emirates was “successful” after a month-long test facilitating $22 million worth of cross-border transactions.

Related: Some central banks have dropped out of the digital currency race

In 2020, the Central Bank of the Bahamas became the first in the world to make a central bank-issued CBDC called the Sand Dollar available to all residents of the island nation. Other countries have been moving forward on large-scale trials of digital currencies, including China — the nation’s central bank reportedly distributed millions of digital yuan over the Lunar New Year holidays.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Crypto distribution is uneven among banks as prudential exposure rises: BIS report

One bank accounts for almost 62% of all crypto asset prudential exposure; almost two-thirds of banks holding crypto are in the Americas.

Around 20% of banks have exposure to crypto assets, a Bank for International Settlements (BIS) report released Feb. 28 found. The majority of those banks are in the Western Hemisphere. 

According to the report, which is based on data from the first half of 2022, 17 Group 1 banks reported approximately 2.9 billion euros in crypto asset prudential exposure and 1 billion euros in crypto assets under custody. A Group 1 bank is one that has Tier 1 capital of more than 3 billion euros and is internationally active. Tier 1 capital is a bank's equity capital and disclosed reserves.

The 17 banks make up slightly less than 20% of the total monitored. Eleven of them are in the Americas, with four in Europe and two in other parts of the world. Thus, crypto asset holdings represented a tiny fraction of the banks’ holdings:

“In relative terms, prudential exposures make up only 0.013% of total exposures on a weighted average basis across the sample of banks reporting cryptoasset exposures, while cryptoassets under custody make up only 0.005% of total exposures.”

The BIS has instituted standards limiting banks to 2% crypto reserves by the beginning of 2025.

Among the entire set of banks monitored, crypto asset exposure represents 0.003% of total exposures and crypto assets under custody represent 0.001% of the total. Prudential exposure rose 30% over the first half of the year, and custody decreased by 66%. The latter figure was particularly impacted by banks dropping out of the study, the report noted, while the rest of the decrease was down to falling crypto asset market values.

Related: BIS head claims fiat won battle with crypto, Bitcoin community disagrees

A single, unidentified bank accounted for 61.7% of all crypto asset prudential exposure, and four other banks make up 35% of exposure. Clearing and trading created almost three-quarters of all prudential exposure. Bitcoin was the largest underlying exposure, at over 40%, with Coinbase coming in second slightly with under 30%. Ether was a distant third with less than 5%.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Bitcoin price continues to fall, but derivatives data hints at a short-term rally to $25K

This week regulators joined hands to highlight the crypto sector’s inherent risk, but pro traders fought back by adding leverage to their long positions.

It’s possible that many people have already forgotten that Bitcoin’s (BTC) price closed 2022 at $16,529 and the recent rebound and rejection at the $25,000 level could raise concern among certain investors. Bears are pushing back at the $25,000 level and there has been multiple failed attempts at the level between Feb. 16 and Feb. 21. Currently, it looks like the $23,500 resistance is continuing to gain strength with every retest. 

Pinpointing the rationale behind Bitcoin’s 45.5% year-to-date gain is not apparent, but part of it comes from the United States Federal Reserve’s inability to curb inflation while raising interest rates to its highest level in 15 years. The unintended consequence is higher government debt repayments and this adds further pressure to the budget deficit.

It’s virtually impossible to predict when the Fed will change its stance, but as the debt to gross domestic product ratio surpasses 128, it should not take longer than 18 months. At some point, the value of the U.S. dollar itself could become endangered due to extreme debt leverage.

On Feb. 23, the Fed, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a joint statement encouraging U.S. banks that rely on funding from the crypto sector to prevent liquidity runs by maintaining strong risk management practices. Regulators said the report was spurred by “recent events” in the industry due to increased volatility risks.

Let's look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Bitcoin margined longs were used to defend the $24,000 level

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

For example, one can increase exposure by borrowing stablecoins to buy (long) Bitcoin. On the other hand, Bitcoin borrowers can only bet against (short) the cryptocurrency. Unlike futures contracts, the balance between margin longs and shorts isn’t always matched.

OKX stablecoin/BTC margin lending ratio. Source: OKX

The above chart shows that OKX traders' margin lending ratio increased between Feb. 21 and Feb. 23, signaling that professional traders added leverage long positions as Bitcoin price broke below $24,000.

One might argue that the excessive demand for bullish margin positioning seems a desperate move after the failed attempt to break the $25,000 resistance on Feb. 21. However, the unusually high stablecoin/BTC margin lending ratio tends to normalize after traders deposit additional collateral after a few days.

Options traders are more confident with downside risks

Traders should also analyze options markets to understand whether the recent rally has caused investors to become more risk-averse. The 25% delta skew is a telling sign whenever arbitrage desks and market makers overcharge for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put options premium is higher than risk call options.

In short, the skew metric will move above 10% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 10% skew.

Related: IMF exec board endorses crypto policy framework, including no crypto as legal tender

Bitcoin 30-day options 25% delta skew: Source: Laevitas

Notice that the 25% delta skew shifted slightly negative since Feb. 18 after option traders became more confident and the $23,500 support strengthened. A skew reading at -5% denotes a balanced demand between bullish and bearish option instruments.

Derivatives data paints an unusual combination of excessive margin demand for longs and a neutral risk assessment from options traders. Yet, there is nothing concerning about it as long as the stablecoin/BTC ratio returns to levels below 30 in the coming days.

Considering regulators have been applying enormous pressure on the crypto sector, Bitcoin derivatives are holding up nicely. For example, on Feb. 22, the Bank for International Settlements general manager Agustín Carstens emphasized the need for regulation and risk management in the crypto space. The limited impact of the BIS statement on the price is a bullish sign and it possibly increases the odds of Bitcoin price breaking above $25,000 in the short-term.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

BIS head describes ideal ‘unified ledger’ for central banks and other financial users

peaking in Singapore, Agustín Carstens described a ledger that would accommodate a variety of public and private projects in discrete but connectable parts.

General manager of the Bank for International Settlements Agustín Carstens spoke at the Singapore FinTech Festival on Feb. 22 and described the digital financial infrastructure he believes would best suit central bankers’ needs. He called that infrastructure a “unified ledger.”

Carstens compared the theoretical unified ledger with a smartphone, saying they both work seamlessly with a variety of components. Unlike a smartphone, a unified ledger would have open architecture, however, and would show programmability and composability, that it, it would run and bundle smart contracts. There are over 2 million apps available to smartphone users, Carstens noted. He said:

“A unified ledger is a digital infrastructure with the potential to combine the monetary system with other registries of real and financial claims.”

A unified ledger would not have to be decentralized or permissionless, Carstens said, but could accommodate a variety of projects that “use of money as a means of payment and settlement” where the central bank plays a large role in the governance of the ledger and the consumer-facing sector is in private hands.

Central bank digital currency and tokenized deposits could exist in “partitioned” sections of the ledger, with smart contracts to facilitate their interaction, Carstens said. The ledger could be used for everything from micropayments on the Internet of Things to escrow in real estate transactions.

Related: BIS to launch stablecoin monitoring project and up focus on CBDC experiments

Carstens took the opportunity to express his current thinking on stablecoin. He said of stablecoin proponents:

“But what this view forgets is that what sustains fiat money is not the application of novel technologies but all the institutional arrangements and social conventions behind it.”

They also run the risk of depegging, he added. Stablecoins were developed because they were technically able to do things other forms of money could not. Central banks should take those roles over from them.

Carstens also raised the hackles of the crypto community Feb. 22 with a blunt assessment of the success of cryptocurrency.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Here’s What’s Driving Bitcoin (BTC) Adoption, According to Bank for International Settlements Research

Here’s What’s Driving Bitcoin (BTC) Adoption, According to Bank for International Settlements Research

The Bank for International Settlements (BIS) says that rising Bitcoin (BTC) prices spur much greater adoption just a few months later. In a new bulletin from BIS, the institution says retail investors pour into Bitcoin after the price begins to rise, in hopes of chasing high returns. “While the Bitcoin price and user numbers have […]

The post Here’s What’s Driving Bitcoin (BTC) Adoption, According to Bank for International Settlements Research appeared first on The Daily Hodl.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

BIS General Manager Casts Doubt on Stablecoins, Claiming Tokens Do Not Benefit From Regulations or Central Planning

BIS General Manager Casts Doubt on Stablecoins, Claiming Tokens Do Not Benefit From Regulations or Central PlanningAccording to Agustin Carstens, the head of the Bank for International Settlements (BIS), cryptocurrencies have lost the “battle” against fiat currencies issued by the world’s central banks. While speaking at the Monetary Authority of Singapore on Wednesday, Carstens stressed that stablecoins are not reliable because they lack the “institutional arrangements and social conventions behind them.” […]

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

BIS head claims fiat won battle with crypto, Bitcoin community disagrees

BIS General Manager Agustín Carstens reckons the war between fiat and crypto has been won by fiat. The community would tend to disagree.

The Bank for International Settlements (BIS) has long taken a cautious approach to Bitcoin (BTC) and cryptocurrencies. No need for caution anymore, however, as the “battle has been won” between fiat and crypto, according to BIS.

BIS general manager Agustín Carstens, who made the claim, highlighted that “technology doesn’t make for trusted money,” among further criticisms of crypto in an interview with Bloomberg.

As the central bank for central banks, the BIS has emphasized the need for regulation and risk management in the crypto space–but claiming the fiat battle has been won sparked outrage, satire and corrections among the Bitcoin and crypto community.

Ray Youssef, CEO of Paxful and vocal Bitcoin maximalist told Cointelegraph that it's "easy to get sucked into these battles but is all a distraction with no ROI." He continued, "We must focus on the battles in the global south and fight for every inch and every eyeball. What is happening in Nigeria now is vital for us all."

"Want to p*ss the clowns off? Ignore their FUD bait and focus all in on the global south and what is happening on the streets of nigeria."

Bitcoin author Saifedean Ammous brought the BIS story to his followers’ attention, provoking condemnation and concern in the comments. Florida-based Bitcoin advocate called SVN (not his real name), whose frozen bank account prompted a switch to going all in on Bitcoin, told Cointelegraph that "These people are clowns.”

Meanwhile, Lady Anarki, a Bitcoin advocate based who recently closed a Bitcoin Security Education company explained that “fiat and crypto are essentially the same exact scam.”

“For fiat, it is nefarious elite oligarchs creating a rigged game system to enrich themselves while making everyone else poorer. Bitcoin is a technology designed with incentives and sound economic principles that enriches anyone who brings value to the world.”

Bitcoin losing the "war" for money, as Carstens explained, is another reference to the fact that Bitcoin has been declared dead, dead and dead again. The 2022 and 2023 bear market is no different, and Bitcoin advocates on Twitter seized the opportunity to mock financial experts dancing on the imaginary grave of the decentralized currency. 

Nonetheless, Bitcoin is up over 40% from its 2022 lows, and Lightning Network adoption flourishes while the community appears increasingly vocal.

What Bitcoin Did, the popular podcast hosted by football club owner Peter McCormacknumber 38 on Cointelegraph’s Top 100–tweeted some handy statistics to correct another inflammatory statement published by the BIS this week. Notably, from August 2015 to December 2022, the BIS explained that “nearly all economies made losses on their Bitcoin holdings.”

As shown, the Bitcoin price continues to trend higher despite the BIS' best efforts to the contrary.

The BIS has been a vocal critic of cryptocurrencies in the past, citing concerns about their volatility, scalability, and energy consumption. However, the BIS has also researched stablecoins and central bank digital currencies, juxtaposing Carsten's comment in the Bloomberg interview that tech “doesn’t make for trusted money.”

Related: Coinbase staking ‘fundamentally different’ to Kraken’s — chief lawyer

Willem Middelkoop, author and Bitcoin advocate, highlighted that the war between fiat and crypto is far from over. A cursory scroll on the original Bloomberg Crypto tweet would suggest that the war is just heating up.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Most Retail Crypto Investors Lost Money Over the Last 7 Years, According to BIS Analysis

Most Retail Crypto Investors Lost Money Over the Last 7 Years, According to BIS AnalysisAccording to data from the Bank for International Settlements (BIS), published in the latest BIS Bulletin No. 69, researchers assessed that, on average, most users lost money on their investments over the past seven years. Onchain data, metrics from exchanges, and cryptocurrency application download statistics gathered by BIS researchers suggest that most median retail crypto […]

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Trading on major exchanges spiked following collapse of Terra, FTX: BIS report

The report suggested that whales with Binance, FTX, and Coinbase “probably cashed out at the expense of smaller holders” by reducing their BTC stockpiles as retail investors bought.

A report from the Bank for International Settlements (BIS) suggested that trading activity on major exchanges increased in the days following the collapse of crypto firms FTX and Terraform Labs.

According to a Feb. 20 bulletin on “crypto shocks and retail losses,” the BIS reported that while the price of Bitcoin (BTC), Ether (ETH), and other tokens dropped in 2022, the number of daily active users at some exchanges including Coinbase and Binance “increased markedly” following news of the collapse of Terra and FTX. The bank suggested that “users tried to weather the storm” by moving their investments into stablecoins and other tokens likely not looking bearish at the time.

Source: BIS

In contrast, the BIS reported that whales at the aforementioned exchanges “probably cashed out at the expense of smaller holders” by reducing their BTC stockpiles as retail investors bought crypto. The bank said analysts had looked at the number of downloads of crypto investment apps, noting that roughly 75% of users had downloaded an app when the BTC was more than $20,000 and assuming each user bought $100 in BTC the first month and each subsequent month.

Related: BIS-funded regulator to probe DeFi entry points like stablecoins

“Data on major crypto trading platforms over August 2015–December 2022 show that [...] a majority of crypto app users in nearly all economies made losses on their bitcoin holdings,” said the BIS report. “The median investor would have lost $431 by December 2022, corresponding to almost half of their total $900 in funds invested since downloading the app.” The bank added:

“While the crypto collapse may have affected individual investors, the aggregate impact on the broader system was limited.”

The market crash of 2022 has had industry leaders and regulators speak out on various concerns, from the lack of oversight at a major exchange like FTX to how the crypto market could grow to have the potential to impact traditional financial markets. In the United States, several bankruptcy cases are underway for firms including FTX, Celsius Network and Voyager Digital, while authorities have been moving forward with criminal charges against former FTX CEO Sam Bankman-Fried.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say