The COVID-19 crisis has done little to dampen China’s interest in becoming the first major economy to distribute a central bank digital currency. Quite the contrary, its digital currency/electronic payment project appears to be picking up speed.
In the Shenzhen region, for example, 100,000 local citizens this month received for free a total of $31 million digital yuan via lottery, and now residents can use ATMs to convert digital yuan to cash on a test basis.
Meanwhile, the Postal Savings Bank of China has reportedly developed physical wallet cards on which to store digital yuan, something useful for the elderly who aren’t always comfortable with electronic currency. The government, which seems to be covering all eventualities, recently enlisted payment-platform Alipay in the construction of digital yuan systems in the Shanghai area as well.
Why all the rush?
Kevin Desouza, professor of business, technology and strategy at Queensland University of Technology, told Cointelegraph: “China is accelerating its pace of development of its CBDC. Simply put, they see this as a critical competitive advantage in the digital economy.” Given the nature of China’s markets and governance and its determination to gain a “first-mover” advantage in the CBDC race, “we can expect China to triple down on this effort going forward.”
Eswar Prasad, a professor of economics at Cornell University and senior fellow at the Brookings Institution, told Cointelegraph: “China has made significant progress in establishing and refining the design and conceptual frameworks for its CBDC” and has brought “the shift from physical to digital versions of central bank retail money that much closer to reality.”
When fully rolled out, the digital yuan will be used as an M0 currency — i.e., as cash in circulation like coins and banknotes, according to an official of the Peoples Bank of China. The preparation has been extensive, with 2020 pilot tests in four regions — Shenzhen, Suzhou, Xiong’an and Chengdu, plus the Winter Olympics scene — while the 2021 agenda calls for tests in five regions — Shanghai, Hainan, Changsha, Qingdao, Dalian and Xi’an. There has been an emphasis on usability in these test areas, according to the Beijing Review.
A key phrase from the report stated that “both mobile phones were offline.” China’s digital yuan will not require an internet connection, something viewed as critical in a land where many remote areas still have no or spotty internet access.
Challenges like interoperability and privacy remain
China has not solved all the problems attached to a CBDC, though. “There are still important issues to be tackled in terms of scalability, interoperability and transactional privacy for users of the DC/EP,” as Prasad told Cointelegraph.
Yu Xiong, international associate dean at Surrey University and chair of business analytics at Surrey Business School, told Cointelegraph: “There will still be some technical issues remaining before full rollout, however, the main issues have already been addressed in the test period.” The matter of usability has been largely settled.
Chinese consumers are flexible when it comes to applying new payment methods, and the digital yuan wallet is expected to be similar to those already being widely used in China on non-bank payment platforms like Alipay or WeChat Pay, explained Xiong. Users will download digital yuan wallets to their smartphones where the digital currency can be stored. “All the major online trade and communication platforms will follow, so the infrastructure will not be an issue,” he added.
Crucially, a user won’t have to open a bank account to get started — just provide a unique form of identification, like a driver’s license or a cell phone number. A digital yuan would be an event of some social importance for China, suggested Xiong, because it could bring many poor people into the financial system and alleviate poverty.
Elsewhere, China is already mostly cashless, so a digital yuan isn’t going to bring dramatic changes to the retail sector. But as for the reasons beyond social equity for why China is so committed to a digital yuan, Desouza told Cointelegraph:
“The reason for China’s investment in this is to increase the credibility and universality of their currency. Today, the yuan is not seen as a major currency. However, in the future, they see the CBDC taking a leadership position in the digital currency market.”
There’s a practical reason, too. Desouza suggested that a CBDC would give the central bank an enhanced ability to surveil and control the flow of money between the citizens. Indeed, a digital yuan appears to be a double-edged sword. Enabling the government to track the money flow might be useful for clamping down on corruption, as Xiong noted, and would also “help the government to monitor the finance system and reduce the chance of a financial crisis.”
A digital yuan could reduce certain investment risks, for instance, when the government continued to build mammoth residential complexes in so-called “ghost” cities — i.e., under-occupied developments.
But perhaps these advantages come at the price of sacrificing privacy and even some basic freedoms. Political critics or dissenters could more easily be denied access to the finance system if all money flows can be tracked — as they could with a CBDC.
During recent protests in Hong Kong, demonstrators waited in long lines to purchase subway tickets with cash — fearing that, otherwise, the authorities might trace them to the demonstration site and take punitive action, Marta Belcher, a Ropes & Gray attorney, told Fortune magazine, adding: “A cashless society is a surveillance society.”
Sidharth Sogani, CEO of crypto and blockchain research firm Crebaco, even sees a Bitcoin (BTC) aspect in China’s drive toward a digital yuan. He believes that China has not taken to decentralized crypto, however, the software, hardware and mining industries were allowed to grow. “Currently, a majority of Bitcoin is mined in China — so I see an ulterior motive behind being aggressive with their CBDC. Maybe it would enable China to trade BTC more efficiently,” he told Cointelegraph.
Can it be replicated elsewhere?
At this point, the PBoC has accumulated heaps of data about how consumers would actually use a digital currency. The central bank provided employees in a Shanghai hospital with the aforementioned plastic cards holding digital yuan to order meals in the staff restaurant, for example; and at the start of January, Alipay was testing the digital yuan in a Shanghai shopping center, placing signs in beverage shops where consumers could employ the usual Alipay scan code function — only here selecting a yuan pay option. Will other countries now draw on China’s experience as they build their CBDCs?
A DC/EP-type project could be reproduced elsewhere, said Xiong, but it would take time to gain acceptance, as with mobile payments. China can adapt to the new payment method quickly because its banks and e-commerce platforms can be easily synchronized. As Xiong outlined for Cointelegraph:
“But most of the Western countries could not enforce a new policy/technology smoothly. So, the DC/EP model will be carried out first in China, and other countries will have to gradually grow the users and infrastructure, which will take time.”
Is the U.S. dithering?
Does it really matter if China comes to market first among large economies with a digital currency? The Bahamas, a small West Indies nation, launched the first CBDC available to all residents in October — so China won’t be the first country overall. “In CBDCs, it will have the first-mover advantage,” said Sogani. “If a U.S. [digital] dollar comes after two years, they may lose the market.”
Others aren’t so sure. “It will hardly put a dent in the dollar’s status as the dominant global reserve currency,” Prasad told Cointelegraph. “The dollar’s strengths lie not just in the depth and liquidity of U.S. financial markets but also the institutional framework that underpins the currency’s status as a safe haven.”
Neha Narula, director of the Digital Currency Initiative at MIT Media Lab, noted in November: “They will be able to see all of the payments that people are making and collect information about all of those payments. That is — [it] might make sense in China. But I don’t think that makes sense in the United States… And we have to think about how to architect the system so that isn’t the case.”
In sum, even if China is already a mostly-cashless society, especially in its cities, it continues to methodically roll out a central bank digital currency on a scale not previously seen, both for internal reasons — like broader social equity and the ability to exert more financial and political control — but also because it realizes, arguably, that global leadership entails having a world-class currency and the DC/EP project provides the fastest way to get there.
Déjà vu: Ethereum’s First Month of CME Futures Overwhelmingly Bearish
Futures contracts allow institutional investors to hedge against future price movements of an asset with the possibility of shorting them. Just like with Bitcoin, the Chicago Mercantile Exchange launched its products when Ethereum was trading on its way to an all-time high.
It is unsurprising then that the first month of trading futures has been bearish as the asset’s price has retraced heavily and those shorting it on CME would have been correct to do so.
— frxresearch (@frxresearch) February 28, 2021
Déjà vu For Crypto Futures
CME launched its Ether futures on Feb. 8, and at the time the asset was trading at around $1,600. As reported by CryptoPotato at the time, a bearish reaction was expected.
Ethereum prices hit an all-time high of $2,050 on Feb. 21, but have corrected by 30% since then to today’s prices of around $1,450 – 10% lower than when the futures were launched.
ETH has underperformed BTC since the CME futures launch but a similar situation occurred with BTC, which underperformed ETH after its CME futures launch.
For #CME notes:
8 hours before CME’s first ETH 26 February 2021 expiration at 1600 UTC,
– Exchanges’ Feb futures expired at 0800 UTC
– Notable options expiry
– CME front month hit a -10% price limit, price reversed instantly and dumped at CME expiry
CME Feb closed -14.23%
— NeoButane (@NeoButane) February 26, 2021
When Bitcoin futures were first launched in December 2017, the asset hit an all-time high a week or so later then pulled back heavily resulting in a similar effect on futures markets. Exactly the same has happened with Ethereum a little over three years later.
Of course, BTC has recovered and entered a new bull market and the same will happen with Ethereum regardless of how deep this correction goes.
In terms of volumes, the CME is reporting its highest ever day as Feb. 23 with 2,092 contracts traded. That volume has slumped to around 749 contracts on Feb. 26.
Longer-term contracts are likely to be bullish as the rollout of ETH 2.0 and the growth of staking opportunities is likely to push ETH prices to new highs whilst alleviating those epic transaction cost issues.
Ethereum Price Outlook
Currently, Ethereum has gained 4% on the day but has declined almost 30% since its peak last weekend. The asset fell to a monthly low of $1,300 on Feb. 28 but has since recovered a little to trade back over $1,400 again at the time of press.
There is strong support at current levels so ETH needs to remain above it to maintain the current momentum. A fall below could see ETH settle at just over $1,200 but a sustained move higher would need to see resistance at $1,600 broken again.
Kraken Daily Market Report for February 28 2021
- Total spot trading volume at $1.82 billion, down from the 30-day average of $2.06 billion.
- Total futures notional at $594.6 million.
- The top five traded coins were, respectively, Bitcoin, Ethereum, Cardano, Tether, and Polkadot.
- Most coins had losses, but Storj ended +1.9% over USD.
|February 28, 2021
$1.82B traded across all markets today
Crypto, EUR, USD, JPY, CAD, GBP, CHF, AUD
#####################. Trading Volume by Asset. ##########################################
Trading Volume by Asset
The figures below break down the trading volume of the largest, mid-size, and smallest assets. Cryptos are in purple, fiats are in blue. For each asset, the chart contains the daily trading volume in USD, and the percentage of the total trading volume. The percentages for fiats and cryptos are treated separately, so that they both add up to 100%.
Figure 1: Largest trading assets: trading volume (measured in USD) and its percentage of the total trading volume (February 28 2021)
Figure 2: Mid-size trading assets: (measured in USD) (February 28 2021)
Figure 3: Smallest trading assets: (measured in USD) (February 28 2021)
#####################. Spread %. ##########################################
Spread percentage is the width of the bid/ask spread divided by the bid/ask midpoint. The values are generated by taking the median spread percentage over each minute, then the average of the medians over the day.
Figure 4: Average spread % by pair (February 28 2021)
#########. Returns and Volume ############################################
Returns and Volume
Figure 5: Returns of the four highest volume pairs (February 28 2021)
Figure 6: Volume of the major currencies and an average line that fits the data to a sinusoidal curve to show the daily volume highs and lows (February 28 2021)
###########. Daily Returns. #################################################
Daily Returns %
Figure 7: Returns over USD and XBT. Relative volume and return size is indicated by the size of the font. (February 28 2021)
###########. Disclaimer #################################################
The values generated in this report are from public market data distributed from Kraken WebSockets api. The total volumes and returns are calculated over the reporting day using UTC time.
Crypto Exchange Mistakenly Sold Bitcoin for $6,000: Now Requests Users To Return It
What started out as a normal trading day for some PDAX customers led to a favorable turn of fortune, or so it seemed. Their euphoria may have been short-lived by a harsh reality check as the Philippine-based exchange prepares to take legal actions.
Philippine Digital Asset Exchange (PDAX) suffered a flaw that led to bitcoin trading 88% below its actual price. The exchange reported that a surge in trading activity was the cause. At the time, bitcoin was trading north of $50k, but traders were able to scoop some for $6k.
Although PDAX halted operations to fix the glitch, it was a bit too late by then. Some users capitalized on the loophole and withdrew bitcoins out of the exchange.
To avert the massive loss, PDAX has asked traders to return its bitcoin or risk facing legal proceedings. Many users claim to have received messages to this effect.
It remains unclear how the legal proceedings will play for PDAX, with users rightly pointing out that traders’ actions are within the agreed terms and conditions.
A #Cryptocurrency exchange glitch at PDAX in Southeast Asia allowed crypto traders to buy Bitcoin for $6,100 & were able to withdraw the discounted BTC. They may face legal action unless they return it. But PDAX’s terms and conditions say orders are “final and irreversible.”
— Luke D. (@lukedalu) February 25, 2021
Bitcoin Whale Responsible For Glitch?
Large volume transactions have become the order of the day as bitcoin whales step up activity. Their mass transactions often indicate strong bullish signals unless they get hooked while at it.
Reports surfacing on social media led to strong suggestions that the entire fiasco occurred due to an error by a bitcoin whale. who allegedly sold 316,000 BTC for PHP 300k (about $6100) instead of the actual price of PHP 2.3 million ($47,000). This prompted PDAX to cease trading activity and temporarily shut out users.
Users Outraged By Inability To Access Accounts
PDAX’s attempt to control the situation turned out to be counterproductive as it sparked outrage from many users on social media. The downtime, which lasted for 36 hours, left customers furious as they could not access their accounts.
They expressed frustration due to missed trading opportunities and accrued losses from not being able to close positions.
Dear Pdax, until now accounts cannot be accessed. Multiple promised broken. Aside from the bitcoin issue, our money is trapped in your platform. @ANCALERTS @pdaxph @BangkoSentral https://t.co/b5aJemxDIS
— Caldero y Realonda vda de Dolomite (@mikel_pangan) February 22, 2021
PDAX Clears The Air
PDAX eventually released a comprehensive report addressing the issue. It claimed that an “isolated unfunded order” infiltrated its system and affected the account of its users. It explained further that it had tracked and rectified the glitch and was in the process of fully restoring users’ accounts.
Speaking in a press conference, PDAX CEO Nichel Gaba said:
“It’s very understandable that a lot of users will feel upset they were able to buy what they thought an order was there for Bitcoin at very low prices. But unfortunately, the underlying Bitcoins were never in the possession of the exchange, so there’s never really anything there to be bought or sold, unfortunately.”
The BSP-licensed exchanged assured users that it will continue addressing their concerns and rendering support where necessary.
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