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Denis Oevermann
Investment Analyst / Crypto Researcher
Control is the purpose of CBDCs, MiCA regulation causes VC boom in the EU and smart contracts on Bitcoin
May 12, 2023 - 5 min read
1. The “C” in CBDC stands for Control
The Facts:
- President of the European Central Bank (ECB) Christine Lagarde openly admitted and confirmed in a video call that Central Bank Digital Currencies (CBDC) will be used for control.
- Furthermore, she considers that not having control mechanisms for smaller transactions of around “300, 400 euros […] could be dangerous”.
Our Take:
- Ongoing fears of critics, especially from the crypto asset industry, have voiced concerns about the threats of control that would come with a CBDC implementation for a long time.
- The ongoing crackdown on the crypto industry, especially in the U.S. gets put into a new perspective, with the open admission from the European Central Bank’s president stating directly that their planned central bank “digital currency” will be implemented to expand monetary control and surveillance.
- However, compared to the low resistance against the open claim of control through CBDCs in the EU, certain U.S. states have move ahead in an attempt to prevent initial rollouts of a CBDC in the first place.
- Recently North Carolina has followed the state of Florida in passing anti-CBDC legislation in an attempt to push back against “overreaching federal government”.
- The more likely, and favorable, outcome in the long run is that the rollout of controlling, surveilling central bank digital currencies will not succeed against free, open and permissionless networks of true digital currencies, or compared to properly setup stablecoins or tokenized cash deposits.
Crypto bros ... made over a trillion dollars out of thin air. They'll accuse the U.S. government of making money out of thin air. Maybe we do, but we're the U.S. government.
U.S. Congressman Brad Sherman – via U.S. House Hearing claiming that creating trillions in crypto assets is not acceptable, whereas it is acceptable for the government to print trillions out of thin air.
2. MiCA regulation causing Crypto VC boom in the EU
The Facts:
- A few weeks ago, the European Union passed the Markets in Crypto Assets (MiCA) regulation, as reported in our Weekly Wrap, which marked the first fully comprehensive crypto regulatory framework established to date, allowing crucial regulatory clarity for the crypto industry.
- Following the regulatory clarity for the crypto industry, the venture capital (VC) funding in the EU increased its global share almost ten-fold in a single year, with the quarterly increase being roughly fourfold.
- Compared to Q1 2022, the VC funding for the crypto industry in Europe increased from 5.9% to 47.6% year over year.
Our Take:
- The MiCA regulation was generally well received by the crypto industry in and outside of the European Union as a milestone in enabling the crypto asset industry to develop.
- The recent data of the funds being invested in the EU are the quantitative proof that underlines the importance of regulatory clarity for the crypto industry to thrive.
- As the money and funds follow the regulatory clarity, a “build and they will come” narrative is starting to emerge.
- This can be seen across the globe, as the U.S. takes a generally hostile stance against crypto, certain U.S. states do the opposite, while nation-states such as the United Arabian Emirates (UAE) or Singapore and Hong Kong are also attempting to pass favorable crypto regulation.
- Going forward, the trend of where crypto and crypto related funding will thrive is apparent, and it will be those jurisdictions that enable businesses to operate under transparent regulatory frameworks.
- Therefore, future business, and large investments will be continued to be made in the EU, Switzerland, UAE and certain financial hotspots in Asia, enabling the crypto industry to further adopt, decentralize and grow globally.
47.6%
Of all global venture capital funds were invested in the European Union in Q1 2023, following the MiCA regulation being passed, compared to just 5.9% in the prior year.
3. DeFi and Meme Coins on Bitcoin
The Facts:
- With Ordinals, NFTs were introduced to Bitcoin, and, using the BRC-20 token standard, DeFi applications and meme coins are now being deployed on the Bitcoin network.
- So far, more than 11’000 BRC-20 tokens have been deployed on Bitcoin, amongst the deployed meme coins is the recently hyped-up Pepe token, which saw a surge after inflows from speculators.
Our Take:
- Past DeFi activity surrounding BTC has been confined to wrapping BTC and thus making BTC available on other Layer-1 blockchains, such as Ethereum, Solana, Avalanche and others.
- With the recently more used BRC-20 token standard on Bitcoin, DeFi applications are launched natively on Bitcoin itself at an increasing pace by DeFi protocols such as Uniswap (a decentralized exchange protocol) deploying smart contracts.
- The recent trend might be the beginning of an ongoing development, that makes Bitcoin an even more comprehensive crypto asset, going beyond its existing value propositions of cheap and near instant payments through the Lightning Network or being a long-term safe store of value and thus digital gold.
- The benefits are not only obvious for the price of BTC itself, if the network will be used increasingly for DeFi, NFTs and general smart contract activities – going forward, the synergies will expand to existing DeFi protocols, and their underlying Layer 1 blockchains.
- This implies that not only BTC will benefit, but all existing smart contract platforms such as Ethereum, including their DeFi and NFT protocols, as interactions and transactions are likely to increase overtime, due to eased interoperability and increased functionalities being offered in the crypto ecosystem overall.
- Generally, Bitcoin is finally moving ahead and starting to pick up not only on smart contract functionality, but also actual usage and implementation, which is bullish for BTC, and the crypto asset class overall.
- The second largest beneficiary are the DeFi applications on BTC, and DeFi protocols on other Layer 1s, such as Uniswap, while lastly their hosting Layer 1s, such as Ethereum will benefit.
Plotting the logarithmic price progression and adoption trend of BTC
(Data) BTC Index, TradingView (Chart) Bitcoin Suisse Research
In other news
- U.S. House Financial Committee set ultimatum for SEC’s Gensler to reply to inquiries (via CryptoSlate)
- Texas passes bill to enable BTC miners to benefit from green cheap energy (via CryptoSlate)
- SEC serves crypto miner Marathon Digital with another subpoena (via Decrypt)
- FedNow to integrate Metal Blockchain (via Cointelegraph)
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Denis Oevermann
Investment Analyst / Crypto Researcher