The week in review: Bahamas set to launch CBDC next month

Team Luno
Back to blog


4 minute read

The latest DeFi trend has raised criticism in some quarters as a ‘fad’, and it looks like there could be choppy waters ahead if the latest leaked EU draft legislation is anything to go by. Stateside, Kraken is set to become the first crypto bank and elsewhere, the Bahamas is set to launch its digital currency next month – beating some of the world’s largest economies in the CBDC race.

 

Kick back and catch up with this week’s biggest crypto headlines.

 

Leaked EU draft proposes all-encompassing regulations for crypto assets

The Europe’s Markets in Crypto-Assets (MiCA) draft legislation - due to be issued later this month by the European Commission - was supposedly leaked this week. The draft proposes an all-encompassing set of regulations to cover the trading or issuance of digital assets across the 27-nation bloc.

 

If the leak is to be believed, Europe intends to treat crypto the same as any other regulated financial instrument. The MiCA proposals lay out a broad definition of crypto assets as well as a base set of rules that apply to the issuers of those assets and service providers.

 

There’s a clear emphasis placed on stablecoins in Europe, which are defined as either asset-referenced tokens or e-money tokens. Siân Jones, senior partner at XReg Consulting noted: “There can be little doubt MiCA will present significant challenges for those involved in DeFi projects.”

 

She added the broader regulatory clarity will likely entice more institutional investment and mused that the draft appears to favour the banks and traditional investment firms.

 

Among the other numerous regulatory obligations to be imposed on crypto asset issuers and service providers in the EU is the requirement to be incorporated as a legal entity and for service providers to have their registered office in a Member State.

 

The draft is set to come out in September but will likely only be transitioned into EU law by 2022 at the earliest.

 

Kraken set to become first US crypto bank

On Wednesday, the state of Wyoming granted crypto exchange Kraken a license to create a crypto bank in the state, dubbed Kraken Financial.

 

 

Kraken would be the first US crypto exchange to create a bank, more specifically referred to as a “Special Purpose Depository Institution”. This means Kraken can hold custody over digital assets, operate payment systems, and allow customers to switch between fiat and crypto with ease.

 

Kraken Financial’s customers – US residents only, barring New Yorkers – could pay bills and receive salaries in crypto, as well as hold crypto with the bank once it launches. It also intends to introduce new services like crypto debit cards and staking services.

 

The license does come with a few limitations – Kraken Financial would be a so-called “custody bank” meaning it’s not able to issue loans using customer deposits and has to maintain all of its customers’ reserves at all times.

 

David Kinitsky, Kraken Financial’s CEO, said the bank “expects to launch this either later this year, but most likely at the beginning of 2021.”

 

Bahamas to launch digital currency next month

According to Bloomberg, the Central Bank of The Bahamas is set to launch its sovereign digital currency, the Sand Dollar, next month.

 

The Sand Dollar will allow individuals and businesses to make payments via mobile even when they’re offline. "A lot of residents in those more remote islands don't have access to digital payment infrastructure or banking infrastructure," Chaozhen Chen, the assistant manager of eSolutions at the Central Bank of The Bahamas, told Bloomberg. "We really had to customize the effort and the solution to what we need as a sovereign nation."

 

Throughout its pilots in Exuma, the central bank had issued $48,000 worth of the Sand Dollar, valued 1:1 with the regular Bahamian dollar. Chen told Bloomberg new Sand Dollars would be “minted” as demand increases and will only be issued once physical Bahamian banknotes are halted.

 

The Bahamas central bank began researching digital currencies in 2018 and piloted the digital currency last December. The nation is set to beat some of the world’s largest economies, including China, in launching a national e-currency.

 

Bitcoin ATMs jumps by 87% in a year, surpassing 10,000 globally

According to Norweigan financial services company AksjeBloggen, the number of bitcoin ATMs (BTMs) has surged 87% in the past year, from the 5,336 recorded in September 2019.

 

In 2020 alone, nearly 3,900 new BTMs were added. CoinATMRadar indicated there are 10,014 BTMs in 71 countries allowing users to buy and sell BTC and altcoins for cash.

 

Currently, the US has a significant lead in the market with 7,800 BTMs. Adoption hasn’t spread everywhere though – Austria has actually shown negative installation growth since 2019, which could be attributed to tighter regulations. In Germany, machine owners are required to obtain a license from the country’s financial regulator.

 

Nonetheless, the general uptick suggests that consumers are after easier, more widely-available BTC/fiat payment methods.

 

Federal Reserve targets inflation above 2%

Federal Reserve officials announced on Wednesday they plan to hold US interest rates at close to zero and work to push inflation above 2% “for some time.”

 

The central bank will increase holdings of US Treasury securities and mortgage-backed securities “at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions.”

 

On average, officials don’t expect the 2% to last until 2023. Robert Kaplan, president of the Federal Reserve Bank of Dallas and a voting member of the panel, voted against the plan, saying he "prefers that the Committee retain greater policy rate flexibility."

 

Neal Kashkari, president of the Federal Reserve Bank of Minneapolis, also cast a dissenting vote, saying he prefers interest rates stay on hold "until core inflation has reached 2% on a sustained basis," according to the statement.

 

“The Fed kind of kicked the door open at their last meeting by indicating a more aggressive approach to inflation,” Mati Greenspan, founder of the cryptocurrency and FX firm Quantum Economics, wrote in an email to users a day before the Fed announcement. “Of course, now that they have everyone’s attention, followup will be critical.”

 

BTC traded around $11,067 at the time of the speech, having since dropped slightly to $10,938 at the time of writing (10.30AM SAST).

 

Keep reading...

Avatar Team Luno
Author

Team Luno

On our way to the moon, we write about all things crypto. And don’t forget we’re humans too. Our blog conveys the views of Luno and the many unique opinions and characters within our team. We’ll never provide you with financial advice, and we urge you to conduct your own research before purchasing or trading any cryptocurrencies. It’s a brave new world out there, and the market can be volatile at times, so never trade with funds you can’t afford to lose. Want to let us know how much you love our blog? Tweet us @lunomoney.

It’s never too late to get started

Buy, store and learn about Bitcoin, Ethereum, XRP and Litecoin now

Desktop Icon Apple App Store Logo Google Play Store Logo