Crypto III – Return of the DeFi

The future is promising yet unclear; a watchful eye on cryptoassets and their underlying technology is certainly reasonable for the time being.

August 2020

It’s been over a year since I first looked into the world of cryptocurrencies with a two-part extravaganza (1,2). In a sector that’s ever-growing, you could probably write an update every week, day or even hour. I think, however, that a year is a natural enough timeframe over which to look back at cryptoassets and, perhaps more importantly, look forward.

Old dog

For all that’s changed in the space, there are many factors that remain unaltered. For example, ongoing concerns about cryptocurrencies’ use in nefarious activities. Nearly £300m of cryptocurrency has been confiscated by UK police in the last two months alone (3). Losses to illegal deeds are also not uncommon, be it through scams (4) or theft. A reported $1.9bn of cryptocurrency was stolen via hacking in 2020 (5,6).

Yet the dark side of Bitcoin has been labelled by some as a ‘false narrative’ (7). One report suggests that only 0.34% of cryptocurrency transactions were associated with illegal activity in 2020 (8) – a falling percentage that’s eclipsed by the amount of illicit funds involved in conventional finance. Another report found “little evidence” that the secrecy offered by ‘privacy coins’ such as Zcash was being exploited by those with malicious intent (9). Other common arguments against cryptocurrencies have been countered too (10). Overall, a “fact-based discussion of the issue” would probably be more beneficial than mere mud-slinging (11).

Bitcoin mining uses energy commensurate to a nation state. Source: Cambridge Bitcoin Electricity Consumption Index

The negative ecological impact of cryptoassets is also a hot topic. The energy used for mining Bitcoin contributed to Tesla’s infamous volte-face on the archetypal cryptocurrency. There are, however, an ever-growing number of cryptocurrencies to choose from, many with green(er) credentials (12). One can ‘do good’ with crypto too as more charities accept cryptocurrency donations, including the RNLI (13).

As an investment choice, cryptocurrencies remain beset by their nature of having no underlying asset. The sheer spectrum of choice can be confusing. They continue to be highly volatile and are plagued by other issues such as high fees for buying/selling, risk of loss (through user error or malicious intent) and potential tax uncertainty.

New Tricks

Misgivings about cryptoassets haven’t stopped the space growing significantly. Widening adoption has played a part in the rise of crypto’s market cap, from $10.7bn to over $1.5T in the past five years (14).

Total Cryptocurrency Market Cap 2016 – 2021. Source: Coin Market Cap

In addition to Las Vegas strip clubs (15), a growing number of distinguished companies are facilitating use of digital currencies. Visa processed over $1bn of transactions on crypto-linked cards in the first half of 2021 and plans to support Central Bank Digital Currencies (CBDC) (16). Their arch-nemesis Mastercard is following close behind (17), collaborating with Island Pay to provide a card that can be used with the Sand Dollar, the world’s first CBDC (18). A whole host of other household names are increasing their accommodation of cryptoassets.

Other financial establishments are also getting in on the act. JP Morgan will now allow its advisors to perform crypto trades on behalf of its clients (19), while Goldman Sachs has a blockchain ETF in the pipeline – the ‘Goldman Sachs Innovate DeFi and Blockchain Equity ETF‘ (20). There are whispers on the wind of integrated Bitcoin payments at Amazon (21) and Twitter (22), while historic auction house Sotheby’s will allow purchases to be paid in Bitcoin for the first time (23).

These institutional changes appear to be in line with consumer desire, rather than mere ‘pump and dump’ schemes by the companies concerned.

Global scale

Endorsement of cryptoassets isn’t just at the corporate level either. El Salvador made headlines in June as it announced Bitcoin would become legal currency (24). Other Latin American countries are following suit (25), with varying degrees of acceptance in Argentina (26), Paraguay, Mexico, Panama and hyperinflation-maligned Venezuela (27). Not everyone is on board, however, with Ecuador banning Bitcoin back in 2014.

El Salvador became the first country in the world to announce it would accept Bitcoin as legal tender.

There are signs of future adoption on other continents too. Tanzania’s treasury has been told to ‘prepare for cryptocurrency’ (28); it is one of the top five African nations with regards to crypto trading volumes. Kazhakhstan is planning crypto bank accounts (29) and The Bank of Israel are using Ethereum technology as part of their digital Shekel programme (30).

Conversely, Middle Eastern neighbours Iran have called for greater regulation (31). Other countries such as Egypt, Nigeria, Ghana and Turkey have restricted cryptocurrency transactions to try and keep them within their regulatory control. There’s an outright Bitcoin ban in China and legislation facilitating confiscation of crypto pending in Russia, so some of Asia’s biggest players are yet to enter the fray. Adoption in Europe is slower, although Hungary is halving tax on Bitcoin (32) and Germany recently announced certain funds will be allowed to consist of up to 20% cryptocurrencies (33).

Nearly two thirds of surveyed central banks are analysing the potential impact of stablecoins on monetary and financial stability (34) and many countries have launched their own cryptocurrencies, including Japanese J-Coin, Emirati Emcash, Estonian Estcoin and sanction-swerving coins such as the Venezuelan Petro and Russia Cryptoruble. The global trend is definitely towards greater adoption of Bitcoin and its brethren, although the IMF are pessimistic about long-term use of crypto as national currencies (35).


The use of cash continues to decline, whilst Covid-19 has increase the use of digital payments. Related to this, there has been a growing interest in CBDC’s in the past five years (35).

The trend of adoption doesn’t stop at use of existing cryptoassets, however, as there’s also been a sharp rise in interest in CBDC (36). Only the Bahamian Sand Dollar and the (pilot) East Caribbean Dcash are live, however, and the remaining countries’ CBDC are in various stages of development (37). For example, The Bank of Japan say they have “no plan” to issue a CBDC (38) and the USA is still exploring CBDC’s as a way of “improving payment efficiency and robustness, facilitating financial inclusion, and maintaining financial stability” (39).

The UK launched its own CBDC task force in April this year, although “The Government and the Bank of England have not yet made a decision on whether to introduce a CBDC” (40). The BoE have said that future digital money could take the form of either stablecoins or a CBDC (41).

Research into a UK CBDC is exciting, but for the love of god can it please not be called ‘Britcoin’.

Simply cricket

UK public perceptions of cryptoassets are evolving as well. Compared to years gone by, there’s greater awareness [78%] and the majority had a positive experience of crypto [53%], with fewer regretting their investment [11%] (42). Fewer people see cryptocurrency as a gamble, although more consumers are using it as a speculative investment [47%] than as part of a balanced portfolio [25%] (43).

Demographics of UK cryptocurrency ownership. Perhaps unsurprisingly they’re more popular among younger individuals. Those with greater disposable income and level of education were more likely to own crypto. (44)

Perhaps worryingly there is lower understanding of cryptocurrencies than before. 1 in 7 of those buying cryptocurrency has borrowed money in order to do so (42). Yet only 10% are aware of FCA consumer warnings on the subject and 12% thought crypto investments were protected, which they are not (45)!

Cryptocurrencies remain a polarising topic, a no-mans land of reasoned discourse between trenches filled with “grumpy grandpa[s]” and “laser-eyed cultist[s]” (46). Yet whether it’s individuals, companies or countries, the trend in sentiment is clear. Curiosity. Investigation. Awareness. Acceptance. Adoption. Normalisation. Progression.

Cryptoassets aren’t going away anytime soon, so it’s only prudent to inform yourself as best possible. Although researching and citing these posts is time-consuming, I do so in the hope of providing balanced and clearly-sourced information. Having access to impartial material can only help increase understanding and improve dialogue in a space that may be of increasing importance in years to come.

In that vein, the potential role of cryptocurrencies in an investment portfolio is something I will look at in a future post.


Mr. MedFI

1 – Crypto commentary 1. MedFI. August 2020. Link
2 – Crypto commentary 2. MedFI. August 2020. Link
3 – Met Police seize record £180m of cryptocurrency in London. BBC News. July 2021. Link
4 – Beware of These Five Bitcoin Scams. Investopedia. September 2020. Link
5 – 3 Key Takeaways From Last Year’s Biggest Crypto Hacks. L Lamesh. Nasdaq. January 2021. Link
6 – Cryptocurrency Crime and Anti-Money Laundering Report. Ciphertrace. February 2021. Link
7 – The False Narrative Of Bitcoin’s Role In Illicit Activity. Forbes. January 2021. Link
8 – The 2021 Crypto Crime Report. Chainalysis. February 2021. Link
9 – Exploring the use of Zcash cryptocurrency for illicit or criminal purposes. Silfversten et al. Rand. 2020. Link
10 – Crypto is increasingly being used for criminal activity and is a haven for illicit finance. Coinbase. May 2021. Link
11 – An Analysis of Bitcoin’s Use in Illicit Finance. Morell et al. Crypto for Innovation. April 2021. Link
12 – The 16 Most Sustainable Cryptocurrencies for 2021. L Matthews. Leafscore. June 2021. Link
13 – RNLI Bitcoin Donations. Link
14 – Coin Market Cap. July 2021. Link
15 – Las Vegas Strip Club Now Accepts Bitcoin Payments Over the Lightning Network. S Sinclair. Coindesk. July 2021. Link
16 – Visa says spending on crypto-linked cards topped $1 bln in first half this year. Reuters. July 2021. Link.
17 – Why Mastercard is bringing crypto onto its network. R Dhamodharan. Mastercard. February 2021. Link
18 – Mastercard and Island Pay Launch World’s First Central Bank Digital Currency-Linked Card. Mastercard. February 2021. Link
19 – JP Morgan ready to jump into cryptocurrency trading. J Encila. July 2021. Link
20 – Goldman Sachs ETF Trust. SEC Listing. July 2021. Link
21 – Amazon To Integrate Bitcoin Payments And Launch Its Own Token By 2022, Insider Confirms. R Marquez. Bitcoinist. July 2021. Link
22 – Jack Dorsey wants Bitcoin as the “native currency” of Twitter. Tech HQ. July 2021. Link
23 – Sotheby’s diamond auction marks another bitcoin milestone. Reuters. June 2021. Link
24 – El Salvador announces Bitcoin will be legal tender. Twitter. June 2021. Link
25 – Support for making Bitcoin legal tender grows in Latin America. M Quiroz-Gutierrez. Fortune. June 2021. Link
26 – Member of Argentina’s National Congress Submits Bill to Allow Workers to Receive Salary in Bitcoin. N Hoffman. Bitcoin Magazine. July 2021. Link
27 – As Venezuela as economy regresses, crypto fills the gaps. B Ellsworth. Reuters. June 2021. Link
28 – President Samia gives cryptocurrency markets a boost, as Bitcoin closes on $40,000. The Citizen Tanzania. June 2021. Link
29 – Bank Accounts for Cryptocurrency Will Be Available in Kazakhstan As Country Expands Its Crypto Mining to Global Market. A Arystanbek. Astana Times. July 2021. Link
30 – Bank of Israel uses Ethereum blockchain for upcoming ‘digital shekels’. O Adejumo. Cryptoslate. June 2021. Link
31 – Iranian President Wants to Regulate Crypto ‘as Soon as Possible’. A Baydakova. Coindesk. June 2021. Link
31 – Hungary Plans to Cut Taxes On Bitcoin In Half. Bitcoin Magazine. May 2021. Link
33 – Germany to Allow Institutional Funds to Hold up to 20% in Crypto. S Kahl. Yahoo Finance. July 2021. Link
34 – Ready, steady, go? – Results of the third BIS survey on central bank digital currency. C Boar & A Wehrli. Bank for International Settlements. January 2021. Link
35 – Cryptoassets as National Currency? A Step Too Far. T Adrian & R Weeks-Brown. IMF Blog. July 2021. Link
36 – III. CBDCs: an opportunity for the monetary system. BIS Annual Economic Report 2021. Bank for International Settlements. June 2021. Link
37 – Central bank digital currencies for cross-border payments; Report to the G20. Bank for International Settlements. July 2021. Link
38 – Establishment of “Liaison and Coordination Committee on Central Bank Digital Currency”. Bank of Japan. March 2021. Link
39 – Building A Stronger Financial System: Opportunities of a Central Bank Digital Currency. N Narula. US Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy. June 2021. Link
40 – Bank of England statement on Central Bank Digital Currency. Bank of England. April 2021. Link
41 – New forms of digital money. Bank of England. June 2021. Link
42 – Research Note: Cryptoasset consumer research 2021. Financial Conduct Authority. June 2021. Link
43 – UK regulatory approach to cryptoassets and stablecoins: Consultation and call for evidence. HM Treasury. January 2021. Link
44 – White paper: cryptocurrency adoption across Europe and America 2021. Triple A. January 2021. Link
45 – FCA research reveals increase in cryptoasset ownership. Financial Conduct Authority. June 2021. Link
46 – In Praise of Bitcoin. B Hunt. Epsilon Theory. April 2021. Link

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