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⚡US Dollar Faces Unprecedented Challenge

Croxroad

16 Jan 2024 — 4 min read

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In simple terms, Morgan Stanley is warning that the way people perceive and use digital assets, like Bitcoin, along with the rise of central bank digital currencies (CBDCs), could pose a threat to the dominance of the United States dollar globally. The head of digital assets at Morgan Stanley, Andrew Peel, points out that a significant shift in how we view and utilise digital assets has been accelerated by the approval of Bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC).

Bitcoin's widespread adoption and the increasing number of people holding it globally, along with the growing presence of Bitcoin ATMs in over 80 countries, indicate its remarkable growth. Peel also highlights that CBDCs from various countries could challenge the USD's dominance by facilitating swift cross-border payments without relying on a common currency like the U.S. dollar.

The approval of CBDCs in 130 countries, representing over 98% of global GDP, is seen as a significant development. Peel suggests that CBDCs could bring innovation to financial services, including the use of smart contracts for automated payments. However, he notes that stablecoins, particularly those pegged to traditional currencies like the U.S. dollar, might have a more positive impact on the financial sector, describing them as crypto's "killer app." These stablecoins could reshape how money is transferred across borders, according to Peel.

🤝 Renting in the Digital Age

In Rosario, the third-largest city in Argentina, a local landlord and tenant have entered into a groundbreaking rental agreement, marking the first of its kind in the country. The unique aspect of this arrangement is that the tenant will be paying their monthly rent in Bitcoin, which is currently valued at $42,712.

This innovative contract became possible due to recent amendments to Argentine rental laws made by the newly-elected President, Javier Milei, who assumed office after winning the general election in November 2023. The changes in the legal framework aim to adapt to the evolving landscape of digital currencies.

Under this rental agreement, the tenant will make a monthly payment of $100 in Bitcoin, and the funds will be transferred through Fiwind, a local cryptocurrency platform. Both the landlord and tenant are reported to be experienced users of cryptocurrencies.

President Milei's administration has been proactive in embracing economic reform and deregulation, paving the way for the use of Bitcoin and other cryptocurrencies in the country, subject to certain conditions. In addition to facilitating crypto transactions, the government has streamlined the process for legalising crypto holdings, even for those who have overdue tax declarations. As part of a regularisation scheme, taxpayers are offered a flat tax rate of 5% on assets if they declare holdings by the end of March 2024, with increasing rates of 10% from April and 15% from July until the end of September. These moves reflect Argentina's evolving stance towards embracing and regulating the use of digital assets in various aspects of economic life.

🦒 Bitcoin Spot ETFs

Bitcoin Spot ETFs, or exchange-traded funds, operate by holding actual bitcoin as a reserve corresponding to the number of shares issued by the ETF. In simple terms, if you own shares in a physically backed Bitcoin ETF, it means you indirectly own a portion of the real bitcoin held in secure custody by the ETF provider.

The critical aspect of these ETFs revolves around the security of the bitcoin held in custody. The custodian plays a pivotal role in safeguarding the underlying asset, and their security measures are paramount. This is due to the decentralised and irreversible nature of blockchain transactions – if the custodian were to face a security breach, it could jeopardise the integrity and ownership of the stored bitcoin.

To ensure the protection of investors' assets, it is essential for the custodian to implement robust security protocols. These measures may include encryption technologies, multi-signature authentication, secure physical storage facilities, and regular audits to verify the integrity of the stored bitcoin. The goal is to establish a level of trust and confidence among investors by demonstrating that the custodian has taken comprehensive steps to mitigate potential security risks associated with holding and managing digital assets like bitcoin.