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Shifting sands: How trade fears and crypto hopes are redefining markets

Shifting sands: How trade fears and crypto hopes are redefining markets

As I sit down to unpack the whirlwind of events shaping global markets on March 5, 2025, it’s hard not to feel the weight of uncertainty pressing down on us all. The headlines are buzzing with escalating trade tensions, bold economic proposals, and a crypto landscape that’s both thrilling and divisive. Let’s dive into this market wrap and explore what’s driving these shifts, what the data tells us, and where I think this rollercoaster might take us next.

The big story dominating the financial world right now is the trade standoff sparked by US President Trump’s decision to slap 25 per cent tariffs on goods from Canada and Mexico, alongside an additional 10 per cent on China. True to his campaign rhetoric, Trump has followed through, and the fallout has been swift.

Canada and China didn’t waste a moment, hitting back with their own retaliatory tariffs, while Mexico’s president has promised to join the fray by Sunday. The result? Global equities took a beating, with the MSCI US index dropping 1.2 per cent, dragged down by a bruising 3.5 per cent plunge in financials. It’s a grim picture, and you can almost feel the collective sigh from Wall Street as fears of a full-blown trade war loom large.

But here’s where it gets interesting. After the US markets closed, Commerce Secretary Lutnick dropped a hint that talks with Canada and Mexico might yield a compromise. That’s a lifeline for markets desperate for some stability, though I’m skeptical about how quickly this can be resolved.

Tariffs aren’t just numbers—they’re bargaining chips in a high-stakes game, and unwinding them could take time. Still, the mere suggestion of a deal nudged US equity futures upward, hinting at a brighter open today. My take? This feels like a temporary breather rather than a resolution. Trade wars don’t end with a single press conference—they fester, and I’d wager we’re in for more volatility before clarity emerges.

Over in the bond market, the reaction was equally telling. The benchmark 10-year Treasury yield climbed over 3 basis points to 4.21 per cent, reversing an earlier dip, while the 2-year yield slipped 3 basis points to 3.94 per cent. This widening gap—known as a steepening yield curve—screams uncertainty to me.

Investors seem to be betting on inflation from tariffs pushing up long-term yields, while the drop in short-term yields suggests some are seeking safety or anticipating a slowdown. It’s a classic push-and-pull, and I can’t help but think it reflects a market grappling with mixed signals.

Shifting gears to Europe, Germany’s conservatives and Social Democrats have unveiled a jaw-dropping plan: a 500 billion euro fund for infrastructure and a rewrite of borrowing rules to ramp up defense spending. It’s a bold move, and the markets loved it—the EUR/USD shot up to 1.0627 overnight. Other European currencies like the Swiss franc, British pound, Norwegian krone, and Swedish krona followed suit, flexing their muscles as the US Dollar Index stumbled 0.9 per cent to 105.49.

This feels like Europe seizing a moment to assert itself amid global chaos, and I’m impressed by the ambition. If Germany pulls this off, it could spark a ripple effect, boosting infrastructure and jobs while shoring up defenses—a win-win that might just give the eurozone an edge.

Meanwhile, commodities are painting a different picture. Brent crude slipped 0.8 per cent to below US$70 a barrel, the lowest since last October, thanks to OPEC+ signalling output hikes in April. That’s a supply glut waiting to happen, and with trade tensions clouding demand, I’m not surprised oil’s taking a hit.

Gold, on the other hand, rose 0.7 per cent, buoyed by a weaker dollar and its timeless appeal as a safe haven. It’s a tale of two commodities—one sinking under practical pressures, the other shining as a hedge against the unknown. I’d argue gold’s climb is a sign that, despite some optimism, fear still lingers in the market’s underbelly.

Across the Pacific, China’s National People’s Congress kicked off with a gutsy 5 per cent growth target for 2025, tariffs be damned. Investors are laser-focused on spending plans, especially around AI, which could be a game-changer for China’s tech sector.

Asian equity indices mostly rose in early trading, and with Trump set to address Congress today, all eyes are on what he’ll say about trade and beyond. My gut tells me China’s playing a long game here—pushing growth while quietly adapting to external pressures. That 5 per cent target might be ambitious, but if they lean into AI and innovation, it’s not out of reach.

Now, let’s talk crypto, because this is where things get wild. Vietnam’s Prime Minister Pham Minh Chinh has ordered a legal framework for digital assets, with a draft due this month. It’s a big deal—right now, cryptos like Bitcoin and Ethereum exist in a legal no-man’s-land there, forcing businesses to register in places like Singapore or the US.

A clear rulebook could unleash a wave of activity, and I’m excited to see Vietnam stepping up. Indonesia’s crypto scene is already on fire, with transactions soaring to 44.07 trillion rupiah (US$2.68 billion) in January 2025—a 104.31 per cent jump from last year. With 1,396 assets tradable as of February, it’s clear Southeast Asia is becoming a crypto hotspot.

Hong Kong’s not sitting idle either. On February 19, its Securities and Future Commission rolled out the ASPIRe Framework—five pillars and 12 initiatives to grow and secure its virtual asset industry. It’s a smart play to cement Hong Kong’s status as a financial innovation hub, and I’d bet it’ll draw in more players. But the real crypto drama is brewing in Washington.

Trump’s pushing for a strategic cryptocurrency reserve, originally pitched as a way to use seized assets like the US’s US$16.4 billion in Bitcoin and US$400 million in other tokens. The twist? He now wants XRP, SOL, and ADA included—tokens the US doesn’t even hold yet.

That’s sparked a firestorm, with critics crying foul over government meddling in markets and supporters cheering a bold embrace of crypto. Personally, I’m torn. It’s a visionary idea, but buying those tokens could spike prices and invite accusations of favoritism. The logistics alone are a nightmare—how do you stockpile volatile assets without distorting the market?

Stepping back, what strikes me most is the sheer breadth of these developments. Trade tensions are shaking equities and bonds, Europe’s flexing fiscal muscle, and Asia’s charging ahead with crypto and growth targets. The data backs this up: the MSCI US down 1.2 per cent, EUR/USD at 1.0627, Indonesia’s crypto boom, Brent at US$70—all pieces of a puzzle showing a world in transition.

My view? We’re at a tipping point. Trade wars could drag us down, but compromises and innovation—like Germany’s fund or Asia’s crypto push—offer hope. The US crypto reserve is a wild card; if executed poorly, it could backfire, but done right, it might signal a new era for digital assets.

I think markets will stay jittery until trade talks clarify—watch Canada and Mexico closely. Europe’s plans could stabilise things if they deliver, and Asia’s crypto momentum might just steal the spotlight. Trump’s speech today could set the tone, but I wouldn’t hold my breath for miracles. This is a marathon, not a sprint, and as a journalist digging into the facts, I’d say buckle up—we’re in for a ride that’s as unpredictable as it is fascinating.

 

Source: https://e27.co/shifting-sands-how-trade-fears-and-crypto-hopes-are-redefining-markets-20250305/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

How upcoming CPI data could influence fed policy and cryptocurrency prices

How upcoming CPI data could influence fed policy and cryptocurrency prices

Key points:

– Federal Reserve’s Caution: The Fed, led by Powell, holds rates steady, awaiting CPI data. Strong labor market and slightly high inflation delay rate cut expectations to mid-year.
– Market Shifts: US Treasuries sold off; 10-year yields hit 4.54%, 2-year at 4.28%. US Dollar Index fell 0.3%, gold steady at US$2,900/oz. Consumer staples up 0.9%, Asian markets down.
– Energy Risks: Brent crude rose 1.5% after US inventory increase, but sanctions on Russian oil exports add geopolitical uncertainty.
– Crypto Challenges: Bitcoin at US$97,053.0, down slightly due to tariffs, CPI wait. High US rates pressure crypto; World Liberty Financial’s token reserve aims to stabilize.
– Investment Outlook: Fed caution, trade disputes boost gold, consumer staples. Cryptocurrencies resilient, CPI data key for future strategies.

I watched closely monitoring the global economic landscape and the recent developments, particularly the Federal Reserve’s cautious approach to monetary policy, which provided a compelling narrative regarding the nuanced relationship between central bank decisions, investor sentiment, and the burgeoning sector of digital currencies.

On February 12, 2025, the atmosphere surrounding global risk was notably cautious, a direct consequence of Federal Reserve Chair Jerome Powell’s recent comments suggesting a period of patience before further interest rate reductions would be considered. This stance has set the stage for investors now eagerly awaiting the release of the upcoming Consumer Price Index (CPI) data, which could offer critical insights into inflation trends, potentially influencing the Fed’s next steps in monetary policy.

The Federal Reserve’s choice to maintain current interest rates is a calculated move, aiming to observe more concrete advancements in reducing inflation before taking action. This decision is set against a backdrop where the labor market remains strong, and inflation, while trending downward, still slightly exceeds the Fed’s target.

It’s understandable, therefore, that market participants have adjusted their forecasts, now anticipating a potential rate cut, perhaps not until mid-year. This shift in expectation was reflected in market movements on Tuesday, where US Treasuries saw a sell-off across various maturities, with the yield on the 10-year Treasury note increasing by 3.9 basis points to 4.54 per cent and the two year note by 0.9 basis points to 4.28 per cent. These yield changes indicate that while money markets still anticipate one rate cut by the Fed this year, the timing has become less certain.

The US Dollar Index experienced a modest decrease of 0.3 per cent, signalling a consolidation phase as the market absorbs the implications of the Fed’s policy direction. Traditionally viewed as a refuge during times of uncertainty, gold held steady near US$2,900 per ounce, demonstrating its resilience despite the Fed’s indication of no immediate rate adjustments.

In the energy market, Brent crude oil prices found stability, rising by 1.5 per cent after reports highlighted a significant increase in US crude inventories. However, this stability was somewhat tempered by US sanctions impacting Russian oil exports, introducing an element of geopolitical risk into the equation.

In the equity markets, the MSCI US index concluded the day unchanged, with the consumer staples sector leading the pack with a 0.9 per cent gain, suggesting a move towards sectors considered less volatile in uncertain economic times. Conversely, Asian stock markets started the day on a lower note, indicative of broader global economic concerns, while US equity futures suggested a flat opening, reflecting an indecisive market sentiment.

Shifting the focus to the cryptocurrency sector, Bitcoin, the leading digital currency, saw a slight decrease, trading at US$97,053.0 by mid-morning. This minor decline continues a trend of subdued performance, influenced by the ongoing trade tensions sparked by tariffs from President Donald Trump and the anticipation of the forthcoming inflation data.

Since last week, when concerns about a global trade war escalated due to China’s retaliatory tariffs and Trump’s subsequent tariffs on steel and aluminium, Bitcoin has been confined to tight trading ranges, signalling investor hesitance. The market’s attention is now fixed on the imminent CPI data release, which could provide clarity on the Federal Reserve’s future rate decisions, particularly after its hawkish posture in December.

This cautious environment has somewhat offset the previous optimism that had propelled Bitcoin to a peak above US$108,000, driven by hopes of a more crypto-friendly regulatory environment under Trump.

A recent article by Reuters indicated that the Federal Reserve might postpone additional rate cuts until the following quarter, driven by concerns over inflation potentially rising due to recent trade policies. Economists, who had previously forecasted a rate cut in March, have revised their predictions, suggesting the Fed might adopt a more conservative approach in response to inflation risks.

Elevated US interest rates can have a dampening effect on cryptocurrencies by diminishing the allure of riskier investments, increasing the cost of holding non-interest-bearing assets like Bitcoin, and bolstering the US dollar, which typically exerts pressure on crypto valuations.

In an interesting development, World Liberty Financial (WLF), a new platform in the cryptocurrency space with a financial interest from President Donald Trump, announced the launch of a strategic token reserve. This initiative is designed to support Bitcoin, Ethereum, and other cryptocurrencies, positioning them as pivotal in the transformation of global finance.

WLF’s statement on X highlighted that this reserve would help in mitigating market fluctuations, enable investments in cutting-edge decentralised finance projects, and establish a robust financial reserve. Furthermore, WLF plans to forge strategic alliances with financial institutions to enhance its reserve with tokenised assets.

From my perspective, this cautious economic climate presents a complex scenario for investors. The Federal Reserve’s deliberate approach, combined with uncertainties arising from international trade policies, creates an environment where traditional safe-haven assets like gold and sectors like consumer staples gain traction.

However, initiatives like WLF’s strategic token reserve could signify a maturation in the cryptocurrency market, offering stability against volatility and encouraging innovation in decentralised finance, potentially offsetting some negative impacts of higher interest rates on digital currencies.

Moreover, the ongoing trade disputes highlight the necessity for alternative financial systems, which cryptocurrencies are well-poised to fulfil. Despite its recent subdued performance, Bitcoin’s resilience in facing macroeconomic pressures is noteworthy. It continues to act as a hedge against inflation and currency devaluation, especially in a global economy where traditional financial policies might struggle under geopolitical strains.

In summary, as we approach the release of the CPI data on February 12, 2025, the financial markets are in a state of watchful anticipation, balancing between conventional economic indicators and the potential of digital currencies.

The Fed’s cautious stance, alongside geopolitical manoeuvres, crafts an investment landscape that demands vigilance, flexibility, and an openness to the evolving story of global finance, where cryptocurrencies might increasingly play a significant role. This intricate relationship between policy decisions, market sentiment, and technological innovation continues to redefine investment strategies, presenting both challenges and opportunities.

 

Source: https://e27.co/how-upcoming-cpi-data-could-influence-fed-policy-and-cryptocurrency-prices-20250212/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

MiCA’s Stablecoin Gamble: How Europe’s Bank Mandate Could Backfire

MiCA’s Stablecoin Gamble: How Europe’s Bank Mandate Could Backfire

The European Union’s Markets in Crypto-Assets (MiCA) regulation marks a pivotal moment in the global regulation of digital assets, particularly concerning stablecoins. This comprehensive framework aims to bring clarity and stability to the burgeoning crypto market within the EU. However, a closer examination of its specific provisions, especially those pertaining to stablecoin reserves, reveals a potentially problematic approach.

As a financial journalist with a keen interest in the intersection of finance and technology and having observed the evolution of digital assets and their regulatory landscapes, I contend that the MiCA stipulation requiring 60% of stablecoin reserves to be held within EU banks could inadvertently introduce instability and hinder the very innovation it seeks to foster. While seemingly aimed at enhancing security, this mandate may instead create new vulnerabilities and fragment the global stablecoin market.

The Stablecoin Landscape

Before dissecting the intricacies of MiCA’s impact, it’s essential to grasp the current dynamics of the stablecoin market. As of early 2024, this sector boasts a market capitalization exceeding $130 billion, a testament to the growing demand for digital assets that offer price stability. Tether remains the dominant player, commanding approximately 70% of this market share. This dominance isn’t accidental; it largely reflects market confidence in Tether’s reserve composition and its consistent ability to maintain its peg to the U.S. dollar.

The success of Tether can be directly attributed to its reserve strategy, which predominantly involves holding U.S. Treasuries and other highly liquid dollar-denominated assets. Tether’s transparency, albeit sometimes scrutinized, through its regular attestation reports provides insights into this strategy.

According to their latest reports, a significant portion, around 85% of their reserves, are held in cash and cash equivalents, with U.S Treasuries forming the lion’s share. This preference for U.S. Treasuries is not arbitrary. These instruments are backed by the full faith and credit of the United States government and offer unparalleled liquidity. The daily trading volumes in the secondary market for U.S. Treasuries routinely average over $910 billion, making them exceptionally easy to buy and sell without significantly impacting their price. This deep liquidity is a crucial factor in maintaining the stability of a stablecoin.

Other significant stablecoins, such as USD Coin, prioritize holding reserves in highly liquid and low-risk assets, including U.S. Treasuries and cash held in regulated financial institutions. This industry-wide preference for U.S. Treasuries underscores their perceived safety and liquidity within the global financial system. The ability to quickly convert reserves into fiat currency during periods of high redemption pressure is paramount for a stablecoin to maintain its peg.

Protectionism Masquerading as Security?

MiCA’s requirement that 60% of stablecoin reserves be held in EU banks appears to be more of a protectionist measure aimed at bolstering the European financial sector than a genuine enhancement of stablecoin security. This assertion becomes particularly compelling when comparing the liquidity of the European bond market to that of U.S. Treasuries. While the EUR government bond market is substantial, it pales compared to the U.S. Treasury market in terms of trading volume and depth. The lower liquidity and often wider bid-ask spreads in European government bonds raise concerns about the ease and cost of liquidating these assets during periods of market stress.

Tradeweb reported in September 2024 that the average daily volume for European government bonds was $49.5 billion. As I do not have the exact average daily trading data from the European Central Bank, I put fair estimated daily trading volumes of around €100 billion for this comparison. This figure is less than one-ninth of the daily trading volume observed in U.S. Treasuries, which is over $910 billion.

This significant liquidity disparity is not merely an academic point; it has real-world implications for stablecoin issuers who need to access their reserves quickly to meet redemption requests. During market turbulence, the ability to quickly and efficiently convert reserve assets into fiat currency is critical for maintaining the stablecoin’s peg. Lower liquidity in the European bond market could translate to higher transaction costs and potential delays in accessing funds, potentially undermining the stability MiCA aims to achieve.

Furthermore, the concentration of reserves within EU banks raises questions about the potential for systemic risk within the European financial system. While diversification is generally considered a prudent risk management strategy, forcing stablecoin issuers to concentrate a significant portion of their reserves within a specific regional banking system could amplify the impact of any localized financial instability.

The Silicon Valley Bank Lesson

The collapse of Silicon Valley Bank (SVB) in March 2023 is a stark and relevant case study highlighting the inherent risks associated with relying solely on the traditional banking system for stablecoin reserves. When SVB experienced a rapid bank run, Circle’s USD Coin, despite being considered a highly reputable stablecoin, temporarily lost its peg, plummeting to around $0.87. This dramatic event occurred even though only approximately 10% of USD Coin’s reserves were directly affected by the SVB failure. This incident underscored two critical vulnerabilities: firstly, bank deposits, even within seemingly well-regulated institutions, are not entirely risk-free, and secondly, the operational limitations of the traditional banking system, such as weekend closures and processing delays, are fundamentally incompatible with the 24/7 nature of cryptocurrency markets.

Imagine the amplified impact if, under MiCA’s regulations, 60% of a stablecoin’s reserves were caught in a similar situation. The inability to access a significant portion of their reserves during a critical period could have catastrophic consequences, potentially triggering a systemic crisis within the European crypto ecosystem and eroding trust in stablecoins more broadly. The SVB episode demonstrated the speed at which confidence can evaporate in the financial system and the potential for contagion to spread rapidly. MiCA’s banking-centric approach, while intended to provide security, could inadvertently create a single point of failure, making the system more vulnerable to such shocks.

The Liquidity Premium of U.S. Treasuries

U.S. Treasuries have earned their reputation as the world’s premier safe-haven asset for compelling reasons, primarily their unparalleled market depth and liquidity. This deep liquidity ensures minimal price slippage even during periods of large-scale liquidations. During the height of the COVID-19 market panic in March 2020, the U.S. Treasury market remained remarkably robust despite unprecedented volatility across global markets. While bid-ask spreads widened temporarily, the market continued functioning efficiently, allowing investors to buy and sell Treasuries relatively quickly. This resilience during extreme stress underscores the inherent strength and liquidity of the U.S. Treasury market.

Conversely, European government bonds, particularly those issued by smaller EU nations, have experienced significant liquidity challenges during various crises. During the Eurozone crisis of 2011-2012, some sovereign bonds became practically untradeable, highlighting the potential for liquidity to dry up during times of stress. For a stablecoin issuer needing to process large redemption requests quickly, such a scenario could prove disastrous, making it difficult, if not impossible, to access the necessary funds to maintain the peg. The historical data demonstrates U.S. Treasuries’ superior liquidity and stability compared to their European counterparts, making them a more reliable asset for backing stablecoins.

The Banking System’s Inherent Vulnerabilities

MiCA’s reliance on the traditional banking system introduces additional layers of risk beyond just liquidity concerns. The banking turmoil of 2023, which witnessed the failures of both SVB and Signature Bank and First Republic Bank in the United States, serves as a potent reminder that even seemingly well-regulated banks can collapse under stress. European banks are not immune to such vulnerabilities. The forced merger of Credit Suisse with UBS in 2023, orchestrated to prevent a broader financial crisis, stands as a recent and prominent example.

Furthermore, unlike U.S. Treasuries held directly, bank deposits are subject to counterparty risk. If the bank holding the stablecoin reserves faces financial difficulties or even fails, accessing those reserves could become problematic.

Additionally, under EU banking regulations, bank deposits are potentially subject to bail-in provisions. In a crisis, depositors (including stablecoin issuers) could see their funds used to recapitalize the failing bank. This introduces a level of risk that stablecoin issuers cannot directly control, which is not present when holding highly liquid government securities. Banks also typically reinvest deposits in various assets, creating additional layers of risk and complexity that are opaque to the stablecoin issuer.

Market Fragmentation and Innovation Barriers

MiCA’s stringent requirements could lead to fragmentation in the global stablecoin market. Major issuers like Tether, who have established their reserve management strategies based on global liquidity and the reliability of U.S. Treasuries, might find the cost and complexity of complying with MiCA’s requirements prohibitive. They might opt to limit their operations within the EU rather than fundamentally restructure their reserve management strategies. This could create a bifurcated market: globally accessible stablecoins operating largely outside the EU and smaller, potentially less liquid stablecoins operating within the regulatory framework of MiCA.

This fragmentation could hinder the seamless flow of capital and innovation within the European digital asset space. New stablecoin projects seeking to launch in the EU would face significant barriers to entry, needing to establish relationships with EU banks and navigate complex reserve requirements before even launching their product. This could concentrate power in the hands of established financial institutions, potentially stifling the decentralized ethos that underpins much of the cryptocurrency movement. The increased regulatory burden and operational complexity could also make it less attractive for innovative stablecoin projects to establish themselves within the EU, potentially pushing innovation to other jurisdictions with more accommodating regulatory environments.

Alternative Approaches to Foster Stability

Rather than imposing potentially risky banking arrangements, regulators could explore alternative approaches focusing on transparency, risk-based assessments, and a broader acceptance of high-quality collateral. One such approach would be enhancing transparency and mandating stablecoin reserves’ auditing regardless of geographical location. Independent audits conducted by reputable firms could provide greater assurance to users.

Another avenue would be to develop clear and objective standards for assessing the quality of reserve assets, focusing on criteria such as liquidity, credit risk, and market depth. This would allow for a more nuanced approach to reserve management, recognizing assets like U.S. Treasuries’ proven stability and liquidity. Regulators could establish a framework that allows for a more diverse range of high-quality collateral, including U.S. Treasuries and other highly liquid government securities from reputable jurisdictions, provided they meet stringent risk criteria. This approach would acknowledge the stablecoin market’s global nature and certain assets’ established role in maintaining stability.

The data and historical precedent are clear: U.S. Treasuries have consistently demonstrated their value as stable and liquid collateral through multiple periods of financial stress. MiCA’s attempt to artificially promote European alternatives through regulatory mandate does not alter this fundamental market reality. A more pragmatic approach would be to acknowledge the global nature of stablecoins and focus on establishing robust standards for reserve quality and transparency rather than imposing geographically restrictive requirements.

Balancing Innovation and Stability

While MiCA’s underlying intentions to protect consumers and ensure the stability of the stablecoin market are undoubtedly laudable, its current implementation risks achieving the opposite of its intended effect. By compelling issuers to hold a significant portion of their reserves in potentially less liquid and potentially riskier assets within the European banking system, the regulation may inadvertently increase, rather than decrease, systemic risk within the European crypto ecosystem.

The stablecoin market undeniably requires thoughtful and effective regulation. However, such regulation should be grounded in market realities, informed by historical data, and designed to foster innovation while mitigating genuine risks.

As the digital asset industry evolves rapidly, regulatory frameworks must strike a delicate balance between promoting stability and encouraging innovation without erecting artificial barriers that could ultimately harm the very users they are designed to protect. A more globally collaborative and less geographically prescriptive approach to stablecoin regulation would likely be more effective in fostering a stable and innovative digital asset ecosystem.

 

Source: https://intpolicydigest.org/mica-s-stablecoin-gamble-how-europe-s-bank-mandate-could-backfire/

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j