Payments company Square Inc on July 8 said it will make a hardware wallet for bitcoin

July 09, 2021 / 08:07 AM IST

Most cryptocurrencieswere trading in the red, with bitcoin down 2 percent, early on July 9. The global cryptocurrency market is currently $1.35 trillion, a decline of 4.84 percent over the past 24 hours.

Bitcoin, the world's largest cryptocurrency by market capitalisation, is trading at over $32,700. The price of ether is down 9 percent, trading at over $2,000.

Payments company Square Inc on July 8 said it will make a hardware wallet for bitcoin.

"We have decided to build a hardware wallet and service to make bitcoin custody more mainstream...", Jesse Dorogusker, head of hardware at Square said in a series of tweets.

The news comes amidUS Senator Elizabeth Warren raised concerns abouttherisks posed to consumers and financial markets by the cryptocurrency market.

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Cryptocurrency Prices Today on July 9: Bitcoin, ether trade in the red - Moneycontrol.com

Circle, the company behind digital currency USD Coin, is to float in the US in a $4.5bn (3.27bn) merger deal with a company chaired by former Barclays chief executive Bob Diamond.

It will merge with Concord Acquisition Corp, which is chaired by Diamond, with the combined business to be taken over by a newly formed Irish holding company that will then list on the New York Stock Exchange.

The deal with Concord a special purpose acquisition vehicle (Spac), also known as a blank cheque shell company that raises money first and seeks businesses to buy later gives Circle an enterprise value of $4.5bn.

Circle runs USD Coin, a so-called stablecoin pegged to the US dollar used for digital transactions, and has backed $785bn in deals recorded on its blockchain.

Circle is the true pioneer of trusted digital currencies, an increasingly critical part of the global financial system, said Diamond, who will join the board of the new company, which will trade under the ticker CRCL.

Circle, which launched in the UK with the backing of Diamonds former employer Barclays in 2016, is the latest firm in the world of cryptocurrencies to seek to float on the stock market.

In April, Coinbase, the USs largest cryptocurrency exchange, floated on the Nasdaq stock exchange. Bakkt, a platform majority owned by Intercontinental Exchange, is also planning to list after a deal with Victory Park Capital.

The number of UK adults who hold cryptocurrencies such as bitcoin has risen to 2.3 million, despite warnings from the Financial Conduct Authority and Andrew Bailey, the governor of the Bank of England, that people should be prepared to potentially lose all their money.

Circle co-founder Jeremy Allaire, who previously launched online video platform Brightcove, promised that the move to go public is a critical step in providing greater transparency.

As part of our transformation from private to public company, that also creates an opportunity for Circle to also provide significantly more transparency about the business we are building and about the reserves that back USDC [USD Coin], he said on Twitter. Circle intends to become the most public and transparent operator of full-reserve stablecoins in the market today.

Earlier this year a federal court in Massachusetts authorised the US Internal Revenue Service to serve summons to Circle, seeking information about US taxpayers who conducted transactions of at least $20,000 in cryptocurrency during 2016 to 2020. Circle has not been accused of any wrongdoing.

Under the terms of Circles flotation, institutional investors Marshall Wace, Fidelity, Daniel Loebs Third Point and Ark Investment Management have committed $415m of capital, while Diamonds Concord will inject $276m, mostly from its own flotation in December.

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Cryptocurrency firm Circle to float in US in $4.5bn merger deal - The Guardian

The Tether price displayed on cryptocurrency exchange Kraken's website.

Tiffany Hagler | Bloomberg via Getty Images

Tether is the third-biggest cryptocurrency in the world by market value. And it's got some economists including an official at the U.S. Federal Reserve worried.

Last month, Boston Fed President Eric Rosengren raised the alarm about tether, calling it a potential financial stability risk. Meanwhile, some investors believe a loss of confidence in tether could be crypto's "black swan," an unpredictable event that would severely impact the market.

The issues surrounding tether hold significant implications for the nascent cryptocurrency world. And economists increasingly fear that it could also impact markets beyond digital currencies. Here's what you need to know:

Chances are you've heard a thing or two about bitcoin. But what about tether?

Like bitcoin, tether is a cryptocurrency. In fact, it's the world's third-biggest digital coin by market value. But it's very different from bitcoin and other virtual currencies.

Tether is what's known as a stablecoin. These are digital currencies that are tied to real-world assets the U.S. dollar, for example to maintain a stable value, unlike most cryptocurrencies which are known to be volatile. Bitcoin, for example, rose to an all-time high of nearly $65,000 in April and has since almost halved in value.

Tether was designed to be pegged to the dollar. While other cryptocurrencies often fluctuate in value, tether's price is usually equivalent to $1. This isn't always the case though, and wobbles in the value of tether have spooked investors in the past.

Crypto traders often use tether to buy cryptocurrencies, as an alternative to the greenback. This essentially provides them with a way to seek safety in a more stable asset during times of sharp volatility in the crypto market.

However, crypto isn't regulated, and many banks avoid doing business with digital currency exchanges due to the level of risk involved. That's where stablecoins tend to come in.

Some investors and economists are worried tether's issuer doesn't have enough dollar reserves to justify its dollar peg.

In May, Tether broke down the reserves for its stablecoin. The firm revealed that only a fraction of its holdings 2.9%, to be exact were in cash, while the vast majority was in commercial paper, a form of unsecured, short-term debt.

That would place Tether in the top 10 biggest holders of commercial paper in the world, according to JPMorgan. Tether has been compared to traditional money-market funds but without any regulation.

With more than $60 billion worth of tokens in circulation, Tether has more deposits than that of many U.S. banks.

There have long been concerns about whether tether is being used to manipulate bitcoin prices, with one study claiming the token was used to prop up bitcoin during key price declines in its monster 2017 rally.

Earlier this year, the New York attorney general's office reached a settlement with Tether and Bitfinex, an affiliated digital currency exchange.

The state's top law enforcement official had accused the firms of moving hundreds of millions of dollars to cover up $850 million of losses.

Tether and Bitfinex agreed to pay $18.5 million in the settlement and were barred from operating in New York state, however the companies didn't admit to any wrongdoing.

Analysts at JPMorgan have previously warned that a sudden loss of confidence in tether could result in a "severe liquidity shock to the broader cryptocurrency market."

But there are also concerns that a sudden increase of tether withdrawals could lead to a potential market contagion, affecting assets beyond crypto.

In June, Rosengren mentioned tether and other stablecoins as one of several potential risks to financial stability.

"These stablecoins are becoming more popular," he said during a presentation.

"A future crisis could easily be triggered as these become a more important sector of the financial market, unless we start regulating them and making sure that there's actually a lot more stable stability to what's being marketed to the general public as a stablecoin," Rosengren added.

Last week, Fitch Ratings warned a sudden mass redemption of tether tokens could destabilize short-term credit markets.

"Fewer risks are posed by coins that are fully backed by safe, highly liquid assets, although authorities may still be concerned if the footprint is potentially global or systemic," the U.S. credit rating agency said.

"Whereas stablecoins that use fractional reserves or adopt higher-risk asset allocation may face a greater run risk."

Tether isn't the only stablecoin out there, but it's by far the biggest and most popular one. Others include USD Coin and Binance USD.

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Why tether, the worlds third-biggest cryptocurrency, has got economists worried - CNBC

Coinbase launched its own debit card in an effort to promote the use of cryptocurrencies in payments as well as investing.

Coinbase

Visa said Wednesday that more than $1 billion worth of cryptocurrency was spent by consumers globally on goods and services through their crypto-linked cards in the first six months of the year.

By comparison, Visa estimated crypto spending at only a fraction of that amount in the same periods last year and in 2019. The payments giant did not release exact numbers.

"We are doing a lot to create an ecosystem that makes crypto currency more usable and more like any other currency," Visa CFO Vasant Prabhu told CNBC. "People are exploring ways in which they can use cryptocurrencies for things they would use normal currencies for." He added, "There are lots of issues in terms of volatility, etc. But that's up to the owners of cryptocurrencies to manage and track."

According to recent research from Visa rival Mastercard, 93% of North American consumers plan to use cryptocurrency or other emerging payment technology, such as biometrics, contactless, or QR code systems, in the next year. The study also showed that 75% of millennials would use crypto currency if they understood it better.

"We see a lot of volume on our [network] of people buying crypto currencies at these various regulated exchanges and as far as we can see that trend continues," Prabhu said.

This summer, Mastercard will launch a card with crypto exchange Gemini, co-founded by billionaires Cameron and Tyler Winklevoss. The card will allow consumers to earn cryptocurrency as a reward. However, cardholders will not be allowed to access their digital wallet on the site.

Visa also announced Wednesday the FTX cryptocurrency platform, founded by billionaire Sam Bankman-Fried, would be added to its Fintech Fast Track Program, focused in part on making cryptocurrency more practical for consumer and business spending.

Circle, BlockFi and Coinbase, which went public in April on the Nasdaq, are current Visa partners that allow cardholders to spend from their cryptocurrency wallet at more than 70 million merchants globally. Visa estimated crypto-linked cards and other emerging payments including biometrics and QR code have the potential to disrupt the $18 trillion spent every year with cash and checks globally.

Bitcoin's market cap topped $1 trillion for the fist time in February and hit an all-time high near $65,000 per unit in April due to retail investor enthusiasm during the coronavirus pandemic as a store of value and an inflation hedge. However, bitcoin has fallen roughly 45% since then and last month, it plunged briefly below $29,000 where it started the year.

Prahbu said Visa has no near-term plans to add any cryptocurrency to its balance sheet like Tesla, MicroStrategy and other companies have done recently.

"We don't hold crypto currencies on our balance sheet today. We hold currencies on our balance sheet that we need to run our business. We hold currencies that we get paid in or we pay people in. That tends to be the dollar, euro, pound. So we don't have plans to hold crypto currency because it's not typically the way we get paid or the way we pay people," he said.

Visa is set to report quarterly earnings on July 27.

Correction: Visa is scheduled to report quarterly earnings on July 27. An earlier version misstated the date.

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Visa says crypto-linked card usage tops $1 billion in first half of 2021 - CNBC

Representations of cryptocurrencies Bitcoin, Ethereum, DogeCoin, Ripple, Litecoin are placed on PC motherboard in this illustration taken, June 29, 2021. REUTERS/Dado Ruvic/Illustration

WASHINGTON, July 7 (Reuters Breakingviews) - U.S. cryptocurrency businesses are riding out to the Wild West of Wyoming. The cowboy state has revamped financial rules to attract bitcoin startups, putting it ahead of the Federal Reserve and other D.C. regulators. But the measures for bitcoin banks are untested, making it the venue for cryptos first big rodeo.

Wyoming is trying to diversify beyond old school industries like coal, oil, and gas. In 2019, it came up with a charter for banks that deal mainly in digital assets called a special purpose depository institution. So far the state has approved three applications, including one to bitcoin trading platform Kraken Bank and another last month to Wyoming Deposit & Transfer.

The charters allow banks to have two parts. First, theres the traditional aspect: Customers can make cash deposits. Then there is the bitcoin part, where customers can store or transfer cryptocurrencies that may be traded on Krakens exchange. They can also deposit the winnings, if those exist, into the bank after it is converted into U.S. dollars.

The latter allows customers to more seamlessly put converted bitcoin into an account without tapping a middleman like JPMorgan (JPM.N), and the additional fees that come along with that. The Wyoming charter also gives banks the right to hold the bitcoin key, or the unique code that allows bitcoin owners to access their digital assets.

The trouble is that the bank itself doesnt have the full backing of traditional banks. Because of the cryptocurrency aspect, fiat deposits arent backed by the Federal Deposit Insurance Corporation though the firm has to retain liquid assets that fully cover those holdings. And its unclear if the bank will get typical privileges with the U.S. Federal Reserve, which allows the bank itself to not only safely park deposits at the central bank but transfer money in an efficient way.

And while bank charters should enable Wyoming authorities to check up on the security of a network, the digital currency market will have unforeseen challenges. Unlike a bank that stores a social security number, say, and has several steps before an account can be drained, it isnt hard to imagine a situation where a hacker gets her hands on several bitcoin codes and leaves depositors with empty accounts.

Still, the U.S. government isnt exactly organized on the matter. Agencies are squabbling about who should take control of the banking aspect of cryptocurrencies. Becoming the John Wayne of the digital currency market is an unusual look for Wyoming, but someone has to have a pioneering spirit.

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CONTEXT NEWS

- Wyoming-based Kraken Bank, the first digital currency business to receive a U.S. state banking charter, hopes to launch in the second half of 2021. It is waiting for a response from the Federal Reserve Bank of Kansas City on its application for access to a central bank master account and payment services.

- Wyoming revamped its rules in 2019 to establish a new kind of bank charter called the special purpose depository institution. Firms that deal mostly in digital currencies can apply for such a charter, which requires them to be fully reserved and generally prohibits lending using customer deposits of fiat currency.

Editing by Lauren Silva Laughlin and Amanda Gomez

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at http://www.breakingviews.com. All opinions expressed are those of the authors.

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Cryptocurrency's Wild West is in Wyoming - Reuters