The recent macroeconomic conditions further support the argument for investing in digital assets relative to fiat currencies. The unprecedented global liquidity increase across all major currencies starting with the US dollar raises the question of the long term viability of fiat currencies. In an attempt to stem off the economic risks of the coronavirus pandemic and the subsequent global recession, all major central banks and governments have engaged in a coordinated effort to print money and buy assets. The sheer volume of the 2020 liquidity infusion has never been seen before. In comparison, the Federal Reserve expanded its balance sheet by about $1.3 trillion in six months in 2008, which corresponded to an increase from 6% of US GDP to 15% at the peak. However, this time around the Fed increased its balance sheet by almost $3 trillion in only three months, which equates to an increase from 18% of US GDP to 33%. Central Banks have even ventured into new ways of stimulus buying corporate credit and equities, assets that have traditionally been left to market forces. The Fed took a page out of the European Central Bank’s book and announced that it would buy both investment grade and junk bond ETFs. Afterward, the Fed decided to create its own index of bonds which gives the central bank power to purchase more bonds that are outside of the ETF market — some of which are not even American companies. Here are the top constituents of this index:
Therefore alternative assets that are both unlevered and of limited supply such as gold and bitcoin appreciated dramatically and will likely continue to appreciate. In April last year, we predicted that Gold Will Outperform Both Equities and Bonds and indeed, gold has appreciated spectacularly reaching $2080 and is likely to continue to appreciate.
Bitcoin, however, despite our prediction and the macroeconomic backdrop has not appreciated as expected and has maintained a correlation to equities.
In recent weeks, we have seen an increase in the adoption of blockchain services, among traditional banks. First, U.S. based banks were given the green light to custody cryptocurrencies by the Office of the Comptroller of the Currency (OCC). Now, we learn that one of the largest banks in South Korea, KB Kookmin Bank, is already working to develop similar services.
Future Asset Expansion
While initial services will centre on the custody of cryptocurrencies, it is believed that this support will eventually grow, encompassing various types of digital assets. More specifically, it is expected that in time, these custodial services will support digital securities.
In commentary released by Hashed, this expansion of supported assets was touched upon. Hashed states that through this collaboration, participants anticipate, “…that the digital asset industry will not only involve cryptocurrencies, but also other traditional assets such as real estate, artwork, and other reified rights that will be issued and traded on blockchain platforms.”
Although cryptocurrencies stand to benefit first, the development of such custodial services has the potential to transform and usher forth new growth among the digital securities sector.
Office of the Comptroller of the Currency
In the weeks preceding the news surrounding KB Kookmin Bank and its forthcoming custodial service, we saw the OCC release of an interpretive letter on the subject.
In this letter, the OCC breaks down, not only what digital assets are, but how banks can support the growing use. The OCC summarized its stance, stating,
“The OCC recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers. By providing such services, banks can continue to fulfill the financial intermediation function they have historically played in providing payment, loan and deposit services.”
It continued,
“…we conclude a national bank may provide these cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency. This letter also reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.”
Bank Adoption
Which came first, the chicken? Or the egg? This old saying could easily be applied to the current world of blockchain. Are these traditional banks jumping on board the train due to the recent resurgence being seen in the sector? Or is the sector surging due to banks jumping on board. Regardless of the answer, signs of blockchain adoption within traditional industries is a definite positive.
Hopefully, this swing in sentiment among banks continues to gain momentum, as banks have not always viewed digital assets in a positive light. Only months ago, we were reporting on difficulties being faced by German companies, as they were refused services by traditional banks.
KB Kookmin Bank
Founded in 2000, KB Kookmin Bank maintains operations in Seoul, South Korea. Since launch, KB Kookmin Bank has grown to employ over 25,000, while providing customers on a global scale with access to commercial banking services.
CEO, Hur Yin, currently oversees company operations.
Office of the Comptroller of the Currency (OCC)
The OCC is a U.S. based regulatory body, tasked with supervising national banks. This supervision is undertaken with the goal of ensuring fair and transparent financial services to all customers.
Acting Comptroller, Brian P. Brooks, currently oversees operations at the OCC.
About UPRETS:
UPRETS is a platform focused on simplifying investment in real estate by advising on and digitalizing assets and securities.
We are dedicated to providing a convenient, legally compliant and advanced real estate digital securitization platform for property developers, asset owners and investors globally.
By utilizing our UPRETS platform, real estate developers and assets owners can create digital securities for their properties, providing investors with various low-barrier, secure and convenient forms of investments.
Backed by a publicly listed real estate conglomerate (NYSE:XIN) and our award-winning, patented blockchain technology, Xbolt, we bring a network, experience and luxury assets to the platform.
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