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Why DeFi plus asset tokenization will take crypto to new heights

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In previous years, we have seen numerous attempts to bring real-world assets to the crypto market. However, none of them has proven to be massively adopted among retail crypto users and traditional financial players.

So, why hasn’t real-world asset tokenization become a massive trend?

You’ve probably heard how almost anything can be tokenized — securities, art, real estate, to name a few. And there were so many projects that promised to change the way we invest in assets, no matter the type. At the same time, no projects managed to get massive adoption on the market.

Traditional market professionals haven’t really found proof that tokenization improved current fundraising processes for them. Although, an overview of real-estate tokenization has been already discussed.

You may also struggle to find real retail investors who bought the rights to a famous art piece or a portion of Dracula’s castle. While most successful offerings were focused on private investors, basically nothing has changed in the process for the crypto market, even for the owners of tokenized assets.

Why didn’t these offerings manage to gain mass adoption? While the concept of tokenization promises a better and cheaper way to raise funds for issuers, there are almost no real benefits for the crypto market.

I’ve covered problems of tokenization in the form of security token offering before, but in short, it boils down to regulation (tokenized assets are regulated by the traditional rules) and a lack of a secondary market. Retail crypto investors can’t profit from these two issues, and there is basically no need for them to adapt to something new, especially now with the emergence of DeFi protocols.

What corporations are looking for while raising funds

Corporate institutions have to exist in a world with complex and outdated rules. Therefore, a clear legal model to attract or borrow funds is vital for them. With over $20 billion locked in decentralized finance at the moment, it might attract some interest from corporate institutions and make them consider entering the market — especially if we consider that the common annual percentage rate in DeFi protocols is just 2%–10% with no additional costs to attract funding.

Yes, there are no ready-to-go legal models built for corporates to attract or borrow funds from DeFi protocols on the market today. But it’s possible to build one with minimal effort, as the benefits of DeFi borrowing easily cover the efforts of building such a system. DeFi might be able to provide borrowing on perfect terms for corporate institutions, which is something that might make them consider entering the market. Meanwhile, corporate institutions will be willing to provide several types of stable assets to be used as collateral for their loans.

However, there is a real need for real-world assets to be used as collateral in DeFi protocols to prevent more market falls in the future, fixing the over-collateralization issue along the way.

Can current market players operate like this?

Right now, there are several attempts to bring real-world assets to the DeFi market. Most of them seem to accept a wide range of assets, mainly tokenized invoices.

The main issue related to using those assets in a protocol is an absence of publicly available sources for pricing. This relates to the lack of transparency and the need to rely on a centralized party (valuation firms, underwriters, etc.) in order to determine the price of the collateralized asset. There is also no mechanism to monitor the pricing in real-time (as it is done, for instance, when using crypto as collateral). Those assets are generally illiquid; they are not traded on any marketplace or digital OTC platforms; and there is no source for periodically updating information on their pricing — a crucial point to determine the moment in which the collateral will be liquidated.

There is no doubt that some of those assets could be insured, such as payment under invoices, meaning that the insurance company will pay in case of a default of the debtor. But again, the insurance process lacks transparency and lives completely off-chain, providing no real warranties for the investors or real-time knowledge whether or not the insured event has occurred.

Additionally, current solutions allow borrowing strictly in crypto, which won’t suit everyone. It’s not a bad thing, but it reduces the chance of attracting large institutions that need to receive financing in fiat, which is used for their day-to-day operations.

But the main question that arises is the possibility for big protocols to adapt and use real-world assets as collateral. And it will be extremely difficult, as they will have to change the borrowing process, build a system that will update the price of collateral, issue new assets, cooperate with regulated entities, and, generally, receive approval from the majority of current participants. Talks regarding the adoption of such a solution by Aave and Maker have been ongoing for over six months, with no clear date when it will actually go live.

What kind of infrastructure must be built to bring traditional institutions to the DeFi market?

A perfect solution that will allow the tokenization of traditional stable assets and that will be suitable for the DeFi market must meet several criteria.

  1. Real-world assets used by the protocol must have a transparent source of pricing available on demand by any user of the protocol. This requires not only selecting an asset capable of fulfilling this requirement but also building a price oracle that will transfer information regarding the collateral. Such an oracle should be connected to a transparent and trusted pricing source, such as Bloomberg Terminal, rather than receiving proprietary data from a centralized party.
  2. Real-world assets used by the protocol should be as less volatile as possible, generate fixed income to provide real cash flows to liquidity pools, and have a certain level of liquidity and market in the real world to be able to process the liquidation event in case it occurs.
  3. The protocol must allow users to borrow money in fiat. For such purposes, there is a need for yet another intermediary to be connected to the protocol, to cover the exchange needs of users who want to borrow money in fiat, and fulfill the role of a payment agent for them.
  4. Real-world assets used by the protocol should have a digital presence, for example, be held on a secure accounting system. To achieve that, there is a need for an intermediary that operates such systems connected to the protocol.
  5. In order to defend the decentralized nature of the protocol and maintain the trust at the highest achievable level, intermediaries connected to the protocol must be regulated, insured, selected and overseen by the community of the protocol under established requirements. In addition, the community will decide any other crucial matters for the protocol’s development and economic sustainability, including selecting assets that may be admitted as collateral.

What should we expect in the future?

I expect that we will see several initiatives on building new, real-world, asset-backed protocols in 2021, and hopefully, they will be the ultimate solution to finally connect traditional financial and crypto markets. Existing protocols are more likely to adopt them in their current ecosystems only after new protocols will prove to be operational.

Another area in which real-world asset-based protocols could make an important impact is stablecoins. There is a current trend among regulators mostly in the United States that targets all stablecoins that have centralized issuers — such as Tether (USDT) or USD Coin (USDC) — with discussions about the potential need to impose the requirement for any of such issuers to have a banking license. Decentralized stablecoins backed by real-world assets might solve this issue; however, it is a topic for a separate discussion.

But what about other tokenization attempts and STOs? Of course, there have been successful cases before. Large financial institutions are still slightly interested in launching such products, as they may potentially save them money. But most likely, these initiatives will be focused on private offerings due to the aforementioned flaws.

It’s naive to believe that many crypto investors will be willing to make long-term investments in unfamiliar markets. Especially with great investment opportunities in the DeFi space. Until new regimes for the offering of tokenized instruments are built (and there are no bright signs in this direction), I believe real-world assets tokenization in a form of an STO will still be limited to closed offerings with no attention from the global market.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Artem Tolkachev is the founder and CEO of Tokenomica. For over six years, Artem has been a key blockchain and tokenization opinion leader in the CIS region. Since 2011, he has been an intellectual property and information technology lawyer and entrepreneur. In 2016, Artem founded and headed Deloitte CIS Blockchain Lab. As part of that initiative, he led a range of innovative projects involving the implementation of enterprise blockchain solutions, tokenization of real-world assets, tax and legal structuring of security token offerings, development of cryptocurrency, and blockchain legislation.

Source: https://cointelegraph.com/news/why-defi-plus-asset-tokenization-will-take-crypto-to-new-heights

Blockchain

TA: Bitcoin Price Back Below 100 SMA, Why BTC Could Retest $45K

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Bitcoin price failed to stay above $50,000 and $49,000 against the US Dollar. BTC is now below the 100 hourly SMA and it is likely to continue lower towards $45,000

  • Bitcoin started a fresh decline below the $50,000 and $49,000 support levels.
  • The price is now trading well below $50,000 and the 100 hourly simple moving average.
  • There is a connecting bearish trend line forming with resistance near $49,000 on the hourly chart of the BTC/USD pair (data feed from Kraken).
  • The pair could extend its decline towards $45,000 as long as it is below $50,000.

Bitcoin Price Turns Red

After forming a short-term top near the $52,600 level, bitcoin started a fresh decline. BTC traded below the $51,200 and $50,000 support levels to move back into a negative zone.

There was also a break below a major bullish trend line with support near $49,500 on the hourly chart of the BTC/USD pair. The pair even broke the $48,000 support level. There was a clear break below the 50% Fib retracement level of the upward wave from the $43,050 swing low to $52,650 high.

It is now trading well below $50,000 and the 100 hourly simple moving average. It seems like the bulls are trying to protect the 61.8% Fib retracement level of the upward wave from the $43,050 swing low to $52,650 high.

Bitcoin Price

Source: BTCUSD on TradingView.com

If they fail and the price trades below $46,500, there are chances of more losses. The next key support is near the $45,000 level, below which the bears might aim a test of the $43,000 support zone.

Fresh Increase in BTC?

If bitcoin stays above $46,500, it could correct higher. An initial resistance on the upside is near the $48,000 level. The first major resistance is near the $49,000 level and the 100 hourly simple moving average.

There is also a connecting bearish trend line forming with resistance near $49,000 on the same chart. To move into a positive zone, the price must clear the trend line resistance and then gain pace above the $50,000 barrier.

Technical indicators:

Hourly MACD – The MACD is now gaining momentum in the bearish zone.

Hourly RSI (Relative Strength Index) – The RSI for BTC/USD is now well below the 50 level.

Major Support Levels – $46,500, followed by $45,000.

Major Resistance Levels – $48,000, $49,000 and $50,000.

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Source: https://www.newsbtc.com/analysis/btc/bitcoin-btc-could-retest-45k/

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Blockchain

Analyst tells Tesla to dump Bitcoin for buybacks as shares plunge alongside MSTR’s

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A former equities CIO of Goldman Sachs drew an strong response on Twitter after suggesting Tesla should sell its Bitcoin and buy back company shares.

The price of TSLA shares have fallen 28% from $863.42 to $621.44, since news broke on Feb. 8 that Tesla had made a $1.5 billion BTC acquisition.

MicroStrategy’s shares have fared even worse in the short term. The company, which is headed by Bitcoin bull Michael Saylor and just completed its latest acquisition of $15 million in BTC on Mar. 3, is now down 50% from its all-time high of $1,315 from Feb. 9.

Tesla’s share market woes are likely due to a number of factors. In early February, it was reported that Tesla had been reprimanded by the Chinese government over quality control issues after receiving consumer complaints. The broader stock market has also experienced volatility, with the S&P 500 down 4.1% in the last 30 days. 

But the tweet from longtime Tesla analyst Gary Black, who has several decades of financial management experience, sparked a debate on whether Tesla’s purchase of $1.5 billion in Bitcoin last month had benefited investors.

“I don’t want them buying back stock,” said Twitter user Techgnostik. “I want them investing in growth, and making another billion on their BTC position.”

Black countered by suggesting TSLA would also draw inclusion by more fund managers with a share buyback program, considering it of greater value to the investor than buying BTC “with excess cash.”

Some users on Twitter agreed that a stock buyback seemed to be a more appropriate use of funds, while others felt too much attention was being paid to what Tesla did with 8% of their cash reserves.

It’s not easy to ascertain the impact buying Bitcoin has had on a company’s bottom line. While MicroStrategy’s share price has halved in a month, shares of MSTR are still up 340%, (from $146.63 to $645.66), since the company announced its first purchase of 21,454 BTC on Aug. 11, 2020. The price of BTC is currently up 310% from the same date.

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Source: https://cointelegraph.com/news/analyst-tells-tesla-to-dump-bitcoin-for-buybacks-as-shares-plunge-alongside-mstr-s

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Blockchain

Experts divided on BTC predictions: Bullish or super bullish?

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Despite the current battle between Bitcoin bulls and bears around the $50,000 price mark — and an 8.7% pullback over the past 24 hours — a raft of analysts and commentators have got out their crystal balls to tip a glittering future for Bitcoin prices.

On Mar. 4, Senior Commodity Strategist for Bloomberg Intelligence Mike McGlone pointed to historical data to suggest that Bitcoin is on the way to $100,000.

McGlone’s logic revolves around the growing discount for shares in the Grayscale Bitcoin Trust which is at the same level as last year’s Black Thursday collapse. The discount refers to when shares in the Grayscale Bitcoin Trust trade for less than the value of the underlying Bitcoin (normally they trade at a premium).

Looking at historical data, said that

Twitter user “Lee Hendricks” wasn’t convinced, suggesting the catalyst for Grayscale’s discount could be the result of pressure from upcoming ETFs and other crypto funds. (Although that’s arguably bullish too.)

The Bloomberg strategist isn’t the only expert with high expectations for BTC, with influencer and YouTuber Lark Davis stating on Mar. 4 that “we are just now past the first major price wave,” with two more, larger waves to come.

On March 2, technical analyst Kaleo posted a chart predicting BTC will hit $100,000 near the start of April this year.

It’s a follow-up on his “Bitcoin Halving Reward Era Price” analysis chart two years ago predicting the price would reach $200,000 around mid-2021. He tweeted two weeks ago that he still has faith in it:

“It is by far the most accurate, long-term chart prediction I’ve ever seen for Bitcoin… $BTC will hit $200K+ this cycle.”

Another analyst who goes by the Twitter name MasterChangz, told his 10,000 followers he believes Bitcoin will hit the $200,000 mark even earlier than mid-2021, potentially at the start of April. The next rise, he said, is to $77,000 over the next two weeks.

Other predictions are even bolder with Kraken CEO Jesse Powell stating the cryptocurrency could reach $1 million or even “infinity” in a Bloomberg television interview on Mar. 4, adding that it will eventually become the world’s currency.

“We can only speculate, but when you measure it in terms of dollars, you have to think it’s going to infinity,” he said. “The true believers will tell you that it’s going all the way to the moon, to Mars and eventually, will be the world’s currency.”

Kraken Head of Growth Dan Held, echoed this prediction on Mar. 5, claiming on Twitter that:

“Bitcoin is more likely to hit $1,000,000 than $0.”

Even past Bitcoin skeptics are becoming crypto converts with investment firm Sanders Morris Harris CEO George Ball admitting to Yahoo Finance on Mar. 4 that he believes cryptocurrencies are now “attractive” as a “small part” of any portfolio.

“With the cryptocurrencies, I think there is a fundamental hydra-headed shift that makes them attractive as a part, a small part, of almost any portfolio,” Ball said.

Despite this wave of optimism, history also suggests March could be a bloody month, with Bitcoin’s price falling across the month in six of the past nine years by an average of 5.8%. The most recent of these occurred last year on Black Thursday when the price plunged by 50%. That said, the second-biggest monthly candle in BTC history happened in March 2013, when the price shot up 179%.

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Source: https://cointelegraph.com/news/experts-divided-on-btc-predictions-bullish-or-super-bullish

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