Summary: Federal Reserve chairman Jerome Powell stated that the US has no plans to ban cryptocurrencies, as we saw two weeks ago in China. Visa has initiated a research project to facilitate transactions between numerous stablecoins and central bank digital currencies.
US is taking a lighter stance than China
Two weeks ago, China announced a full-blown crackdown on cryptocurrencies, de facto making them illegal in the country. The crackdown was the most severe carried out on cryptocurrencies to date from the Chinese government, forcing countless crypto service providers including exchanges, brokers, and miners to exit China. Market participants likely expected the severe crackdown as a consequence of the Chinese mining crackdown in May 2021, which may be why the market only took a modest hit after the recent ban.
The US, on the other hand, had a more positive statement on cryptocurrencies last week as Federal Reserve chairman Jerome Powell confirmed that the US has no plans to ban cryptocurrencies. Alongside China, the US counts as the largest market for cryptocurrencies. On top of this, most innovation in crypto particularly within decentralized finance is taken place in the US, virtually meaning the country is crucial for crypto going forward. Jerome Powell stated however that cryptocurrencies need additional regulation, which is expected in one way or another, with particularly the US infrastructure bill to potentially have an immense impact on regulation in the US.
Visa is doubling down on cryptocurrencies and CBDCs
For the past year, Visa has been somewhat explicit about its involvement and plans within cryptocurrencies and central bank digital currencies, known as CBDCs. Visa doubled down on these plans last week by publishing a paper describing a project called “universal payments channel". The intention is to facilitate transactions between numerous stablecoins and central bank digital currencies. In essence, this enables users to pay in a CBDC while being deducted the amount from a stablecoin they hold or vice versa. This is essentially comparable to using a credit or debit card abroad while paying in the fiat currency belonging to one’s home country. The latter is managed by legacy bank systems, while the intention behind the “universal payments channel" is to achieve it decentralized through smart contracts. To accomplish this, Visa has deployed a smart contract to an Ethereum testnet. This project is notably interesting as it will allow CBDCs, cryptocurrencies, and later on decentralized protocols to interact with each other contributing to an increasing synergy across projects. Though, Visa pointed out that the project is still in an early stage, and it highly depends on the cooperativeness of central banks.
Stablecoins and CBDCs in spotlight
Speaking of stablecoins and CBDCs, there is an increasing focus on these matters. First, as the stablecoin supply has grown from $29bn to $126bn year to date, regulators are becoming increasingly aware of this topic. For instance, the Biden administration is allegedly considering regulating stablecoin issuers as banks to decrease the risk of them fueling financial instability. At the same time, between 80 to 100 central banks across the world are exploring CBDCs with US Federal Reserve to launch a CBDC review as early as this week containing public comments. In a fairly positive statement last week, the International Monetary Fund expressed that CBDCs are stable: “CBDCs are designed to be very stable, stable in value, low transaction cost and backed by the central bank for added consumer confidence – very different from bitcoins which fluctuate in value and are more like an investment asset”, adding to IMFs warning of global risks from an unregulated cryptocurrency market.
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