The DeFi Frontier

Welcome back to this week's DeFi Frontier Newsletter. We are closing the month of October with intense anticipation of a possible ETF. The suspense, along with a few interesting occurrences, drove the price of BTC up by over 15% in 1 day. We will discuss this in greater detail, as well as new Mastercard and Web3 collaborations and a commentary article from Arthur Hayes! Without further ado…

Highlights ⭐

BitMEX co-founder Arthur Hayes suggests that the recent crypto market rally is driven by the costs of hawkish U.S. foreign policy, leading institutional investors to seek alternatives like Bitcoin and gold amid concerns about global wartime inflation, challenging the prevailing ETF-related narrative. [Link]

The price of Bitcoin could surge by over 75% with the approval of a BTC spot ETF. [Link]

JPMorgan warns that a rejection of spot bitcoin ETF applications by the SEC would bring legal challenges. [Link]

Mastercard is partnering with self-custody wallet providers like MetaMask and Ledger in the Web3 space, aiming to enhance user bases, loyalty, and global expansion through crypto-backed payment cards. [Link]

Deutsche Bank and Standard Chartered test an interoperability platform for USDC and CBDC. The Universal Digital Payments Network (UDPN) could create competition for SWIFT. [Link]

UDPN is trying to reshape blockchain communication between CBDC and stablecoins

Deutsche Bank and Standard Chartered are pioneering a project to facilitate communication between blockchain-based transactions, stablecoins, and central bank digital currencies (CBDCs), akin to the SWIFT messaging layer in traditional banking. Their tests are conducted on the Universal Digital Payments Network (UDPN), a permissioned blockchain system enabling interoperability and applying decentralized digital identity standards. UDPN merges elements of both permissioned and permissionless networks, ensuring secure and regulated cross-border transactions across a variety of messaging formats. With around 25 member organizations, including banks from the USA, Australia, Latin America, and Europe. UDPN is at the forefront of bringing digital currencies into a structured, regulated environment, promising to reshape how financial institutions engage in cross-border transactions. [Full Article]

Mastercard's Web3 Collaborations and Crypto Card Ventures

Mastercard is exploring collaborations with self-custody wallet providers like MetaMask and Ledger in the Web3 space. They see payment cards as a way for wallet firms to expand their user base and increase loyalty. To address the challenges of launching cards in new regions, Mastercard and its partners are stepping in, including exploring stablecoin-based global issuance. The company is actively entering the digital assets arena with initiatives like the Mastercard Multi-Token Network and Crypto Credential. Despite market challenges, Mastercard and Visa are advancing in the crypto realm, with plans for crypto card programs and streamlined cross-border payments. Mastercard aims to set franchise standards for partner firms and leverages its acquisition of CipherTrace for blockchain analytics. Their next step involves launching a card in the EU or U.K. once these standards are confirmed. [Full Article]

Opinion 🗯️

The new initiative by Mastercard to collaborate with Ledger and MetaMask holds significant potential for advancing the industry. It will set the stage to capture market share, get the attention of other institutions, and promote Web3 adoption like never before. The proposed concept will make transacting via self-hosted wallets seamless with less friction, providing an on/off ramp to crypto, especially since on/off ramps seem scarce lately. With a looming potential ETF and regulatory clarity, there is an obvious shift in sentiment from institutions and a promising future for the entire Web3 space.

Unlocking the Potential of a Spot Bitcoin ETF 🔓

The imminent arrival of a spot bitcoin ETF has everyone in the crypto industry buzzing. When comparing it to the impact of gold spot ETFs, experts see a bright future for a potential spot BTC ETF. Alex Thorn, Head of Firmwide Research at Galaxy Digital, predicts substantial inflows, potentially driving a 75% increase in BTC/USD in the year following approvals. This ETF is expected to create a chain reaction, sparking activity in options, futures, and volatility trading. Luke Nolan, a Research Associate at CoinShares, highlights the simplified access for institutional investors and a shift away from expensive futures contracts. While regulatory approval remains uncertain, the industry is eagerly anticipating the transformative potential of a spot bitcoin ETF on the American crypto landscape. [Full article]

Opinion 📝

A spot BTC ETF will undoubtedly be the beginning of improving the barrier to entry that currently exists today. The approval will greenlight more institutions to buy BTC and most certainly have a significant impact on price. Some of the price predictions in this article seem to be more on the conservative side. Bitcoin, when compared to gold, is still more accessible and easy to transport, given the absence of physical custody requirements.

Another BTC ETF application rejection could have some legal consequences against the US SEC, says JPMorgan. 💫

Should the United States Securities and Exchange Commission decline approval for spot bitcoin exchange-traded fund applications, JPMorgan suggests that it may face legal action from applicants. Analysts led by Nikolaos Panigirtzoglou wrote in a report on Wednesday that "any rejection could trigger lawsuits against the SEC creating more legal troubles for the agency." However, such a rejection is deemed unlikely, according to Panigirtzoglou, who added that "we believe that a new legal battle on the issue of spot bitcoin ETF approval is not something that the SEC would be willing to face again." [Full article]

I created a call to action Poll for readers underneath this article, solely for engagement.

BlackRock Plans to Seed Spot Bitcoin ETF in October

BlackRock, the world's largest asset manager, is set to seed its spot Bitcoin ETF this month, as revealed in an S-1 amendment to the SEC. This significant move was identified by Eric Balchunas, Senior ETF Analyst for Bloomberg, and Scott Johnsson, an investor at Van Buren Capital, who highlighted the issuance of a CUSIP number for the ETF, a crucial identifier for securities. Seeding an ETF typically involves initial funding provided by a bank or broker dealer to acquire creation units in exchange for ETF shares, often signaling preparations for an ETF launch. [Full article]

Opinion

There are many signs that an ETF will likely be approved, but it's crucial to remain grounded until the SEC makes a final decision. Speculations are just that—speculation! The scale is indeed tipping towards an ETF approval, but it's essential to remember that a decision still needs to be made. Until that happens, we're in a state of anticipation and uncertainty.

The DeFi Learning Den 📓

^{Choosing a Network: Most DeFi protocols are built on networks like Ethereum, Polygon, or Binance Smart Chain. It's essential to select a network, considering factors like ease of use and transaction fees.}

^{Security Considerations: The DeFi space is experimental and carries risks such as scams and hacks leading to loss of funds. Users should conduct thorough research, check for smart contract audits, and exercise basic security practices. One should evaluate whether a DeFi application has been audited. Consider the credibility of the development team, transparency, and community engagement. Utilize tools like DeFi Scanner to assess risks in lending protocols.}

^{Native tokens: Native tokens of networks like Ethereum (ETH), Polygon (MATIC), and Binance Coin (BNB) are used for DeFi transactions. Users can purchase these tokens on centralized exchanges and transfer them to compatible wallets.}

^{How to DeFi: DeFi offers various services, including decentralized exchanges (DEX), lending, liquidity mining, yield farming, and asset management.}

^{Lending: DeFi allows lending and borrowing cryptocurrencies based on supply and demand. Borrowers are often required to overcollateralize loans to ensure repayment during market volatility.}

^{Liquidity Mining and Yield Farming: Users provide liquidity to decentralized exchanges' pools, earning fees in return. Yield farming involves earning governance tokens while interacting with DeFi protocols.}

^{Asset Management: DeFi asset management platforms enable users to manage positions across different protocols and execute complex strategies for higher yields.}

^{Complexity and Risk: DeFi's interconnected nature allows for complex strategies but also increases the risk. Security and project audits are crucial.}

Closing thought ✍️

In October, the crypto landscape witnessed a surge in Bitcoin prices, fueled by global concerns and the prospect of a spot ETF. Collaborations between industry giants like Mastercard, Ledger, and MetaMask are paving the way for broader Web3 adoption. Amidst this optimism, regulatory challenges persist, underscoring the need for clarity. The imminent arrival of a Bitcoin spot ETF is generating excitement and positive predictions, but we're still in a state of anticipation, waiting for regulatory approval. Notably, a rejected ETF application could bring legal consequences for the SEC. As we reflect on October's developments and the promise of the future, we must remember that we're navigating a world of speculation, patience, and uncertainty in the cryptocurrency realm. Vigilance, adaptability, and curiosity remain our greatest allies as we explore this evolving landscape. Until next time, friends!