Author: Yueqi Yang
Compiled by: Block unicorn
Introduction
In the past four months, cryptocurrencies have swept through the traditional financial system, penetrating deeper into banks and stock markets than ever before. These dizzying changes have created billions of dollars in profits for the industry while also bringing more risks for investors and regulators.
The changes have come so quickly that it’s hard to keep up. We review the past few months to help readers understand the four major trends driving the cryptocurrency boom. We will also tell you what to watch for in the remaining months of this year. Will stablecoins thrive or collapse? Will there be more cryptocurrency trading on the stock market? Will stocks be traded on cryptocurrency exchanges? Can the good times continue?
The biggest factor driving these four trends is President Donald Trump’s support for cryptocurrencies. He transformed regulators from adversaries of cryptocurrencies into friends and pushed Congress to pass the first-ever cryptocurrency legislation.
The result has been an explosive growth in cryptocurrency products, trading, and strategies. This shift has resonated strongly in the stock market, banking, and fintech industries. Here’s what has specifically happened.
Stablecoin Legislation
Event Review: In July this year, President Trump signed legislation regarding stablecoins. Stablecoins are blockchain-based currencies used as cash in the cryptocurrency market. They are the category of cryptocurrencies most closely linked to the mainstream financial system. These tokens are pegged to the US dollar on a one-to-one basis, maintaining their price by holding liquid assets such as cash and short-term government bonds. They are similar to money market funds but typically do not pay interest to investors. Nowadays, cryptocurrency traders mainly use stablecoins to store funds on the blockchain as collateral or for international payments.
Importance: The new law legitimizes stablecoins and is expected to promote their use. This has caught the attention of banks, fintech, and payment companies, which are exploring whether stablecoins can make transactions faster and cheaper than traditional wire transfers. In emerging markets, individuals and businesses have already been using dollar-backed stablecoins to hedge against inflation, cope with local currency fluctuations, and receive remittances from family members working abroad.
The new rules may increase demand for government bonds that back stablecoins. The increased use of stablecoins could reduce the deposits investors hold in banks, potentially decreasing the funds banks have available for loans.
What’s next: In the coming months, regulators will negotiate the details of stablecoin regulation amid intense lobbying from the cryptocurrency and financial industries. One point of contention is whether cryptocurrency platforms can pay yields to investors holding stablecoins. Banking industry groups oppose this, claiming…
Read More: How Cryptocurrency Disrupts Financial Markets and Future Outlook
