This is an article written by Jesse Knutson. He’s the Head of Operations for Bitfinex Securities.
Donald Trump’s re-election victory and the massive success of the Bitcoin ETFs earlier in the year have been major catalysts behind Bitcoin’s ascent towards $100,000. The anticipation that Trump 2.0 will make a comeback has driven gains over the past few weeks. the US the ‘crypto capital of the world’ and a financial services industry getting its first real taste of ‘number go up’.
While the full details are yet to emerge, the number of Bitcoiners in Trump’s inner circle – including D.O.G.E. head Elon Musk – suggest Trump could come good on his crypto election promises. A more accommodating approach towards banking, digital assets, and self-custody could have a massive impact on the global economy. Bitcoin ETFs have helped demonize Bitcoin in the eyes of institutional investors. US Government support will likely achieve the same effect.
It is almost certain that a pro-Bitcoin government will drive up prices and encourage more countries to follow suit. In my Bitcoin pitch, I always avoided the end game to people in suits—institutional investors, regulators, and policymakers—but suddenly, hyperbitcoinzation and hash wars look entirely possible.
What will this mean to Bitcoin early adopters like El Salvador? Are there Bitcoin enthusiasts in Argentina or El Salvador? Hard to tell. As the IMF’s largest shareholder and contributor, an accommodating US position on Bitcoin could end IMF’s opposition to laws like El Salvador’s Bitcoin 2021 law. It could also steal the thunder of smaller economies by leveraging Bitcoin as a way to attract financial and human capital.
The capital markets however, are an entirely different ballgame. As I have said before, the capital market opportunities for Bitcoins are primarily geared towards small- and medium-sized countries. Bitfinex Securities’ registration and licensing is not located in New York City, London or Singapore, but rather in El Salvador as well as Kazakhstan’s Astana international financial center. The two jurisdictions have not only the support of government officials at all levels, but also, perhaps more importantly, financial services make up a small percentage of GDP. The moats are smaller and there is less resistance from the established players of legacy markets. This is a great bet. There is a lot of upside, and very little downside.
I think the tokenization in major financial centres and institutions is tokenization. This month’s first week was a busy one. UBS Asset Management launches a USD Money Market Investment Fund The fund is built using Ethereum. The fund is built on Ethereum “seeks to open the door to the world of decentralized finance, reduce barriers and provide access to products and services to a broader range of market participants, bringing them closer together”This product is only sold through distributors who are authorized. It sounds like a corporate buzzword. This is more smoke and mirrors. The idea of authorized distribution partners sounds like it is the opposite of decentralized financing.
Several big banks are developing their own proprietary tokenization technologies. HSBC is one example. Orion. UBS uses Tokenize. Goldman Sachs Digital Asset Platform. These solutions are largely (or even all) limited to accredited and/or institutional investors. They settle in either fiat currency or CBDCs and do not integrate Bitcoin or Tether. Instead, they rely on traditional capital market players like transfer agents and custodians. Future finance is a lot the same as it was in the past.
El Salvador is a country that has a lot of potential. I believe it can benefit from streamlined capital markets. They could also disintermediate technology-ineffective roles. The alternative could allow investors and issuers to communicate more directly, be cheaper and faster and include more people.
Wall Street seems to be focusing almost exclusively on tokenized securities, while ignoring the opportunities to streamline markets or return greater control to investors. Or to encourage a wider range of issuers and investors to participate in the capital markets. My opinion is that it’s about getting rid of the back office, and increasing margins. It is difficult to envision tokenization on major markets following El Salvador’s model, even if Trump adopts a Bitcoin strategy. This would be hampered by the layers of existing companies and interests. Some people want change without innovation.
I think a race between the competing approaches to tokenization will emerge in the coming years, fuelled in part by a more digital-assets-friendly US administration: developed vs. developing economies, open source vs. permissioned chains, inclusion vs. institutional only, Bitcoin and Tether vs. CBDCs and fiat. Although it’s too soon to tell which approach will be dominant, I believe that there is a chance for freer, more frictionless markets.
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