Top financial market stories of the week — Crypto crackdowns, NFTs & more…
Monday 21st June 2021 — Friday 25th June 2021
1. Crypto market update
China cracks down on crypto — Monday
China has enhanced its crackdown on cryptocurrencies as the top three mining regions in the country have started making moves against miners. Moreover, the government reportedly met with major banks again this week to reiterate that banks cannot be involved with cryptocurrency transactions. According to the Financial Times, the country’s central bank on Monday warned several of its largest state-owned banks and Alipay to “investigate and identify” bank accounts facilitating cryptocurrency trading and block all corresponding transactions.
The Chinese government says it’s acting now because of concerns around crypto’s volatile price, and its potential use for money laundering and illegal dealing
Bitcoin dips below $30,000 — Tuesday
Bitcoin plunged 12% at one point during U.S. trading hours Tuesday to hit $28,824. Bitcoin has not fallen below $30,000 since January, after reaching an all-time high of $60,000 in April. Other cryptocurrencies like Dogecoin, XRP and others also saw sharp drops on Monday and Tuesday. The drop was thought to have occurred because of China, one of the world’s most important digital currency markets, which has banned the mining of bitcoins in major provinces.
However, Bitcoin recovered slightly on Wednesday. The cryptocurrency rose as much as 4.5% and was trading at $33,837.
South Korean government seizes crypto-assets — Wednesday
More than $47 million of Bitcoin, Ethereum and other crypto assets has been seized from 12,000 people accused of tax evasion following a months-long probe. The crackdown is just one of many of the operations performed in provinces across South Korea in the last few months against evaders who rely on virtual currencies to bypass domestic tax rulings.
2. Equity market update
UK stocks rise ahead of Bank of England meeting — Thursday
The Bank of England held its latest Monetary Policy Committee (MPC) meeting on Thursday to decide the course for interest rates as inflation continues to rise. Analysts largely expected interest rates to stay near-zero. However, this meeting was also the last for Andy Haldane who is the Chief Economist for the B of E. He was expected to push for a rise in interest rates as his concerns were growing over inflation in the UK.
Ahead of the meeting, on Thursday morning, the FTSE 100 rose 0.2%. In the meeting the Bank said it expects inflation to rise to 3% as the economic recovery continues. However, as expected the Bank voted unanimously to keep interest rates at 0.1%. All members except Andy Haldane voted to continue with the Quantitative Easing (QE) programme.
US stocks rally as Biden secure $1 trillion infrastructure deal & Fed announces stress test results — Thursday
The $1.2 trillion plan includes $579 billion in new spending over eight years, focusing only on physical infrastructure such as roads, bridges, rail, broadband internet, water and sewer pipes, and electric vehicles. The Nasdaq Composite rose 0.7%, to finish at a record high and the S&P also hit a record, climbing 0.6%.
Bank shares also rose on Thursday after the Federal Reserve said lenders had passed stress tests and could resume stock buybacks and dividend payments. Wells Fargo and Citigroup among the biggest gainers, up 3.5% and 2.8%, respectively.
3. UK to negotiate deal to join Asia-Pacific CPTPP
This week, the Trans-Pacific Partnership opened talks for the UK to join the trading bloc. This presents an excellent opportunity for Britain as this trading bloc has 11 member countries including Japan, Australia, New Zealand, Canada and Mexico. Members of the bloc account for 13% of global GDP, 15% of global trade, with a population of 500 million people.
The CPTPP would enable the UK to secure higher-level agreements with its members and, where deemed beneficial, would replace the existing terms of bilateral trade agreements between the UK and its partners.
This is likely to boost exports significantly for the UK, and thus boost GDP in the future too. This agreement will eliminate or reduce 95% of import charges or tariffs. Exports have dwindled since the UK has left the EU. Food and drink exports to the EU fell by £2 billion in the first quarter of 2021 and overall UK trade with EU countries was almost a quarter lower in the first three months of this year. The UK’s future hopes with this agreement are that more countries will join, in particular the US, which will be a game-changer for the UK economy, although President Biden has yet to express an interest.
4. NFT’s: What are they? Why have they become so popular?
NFT stands for non-fungible token. Generally, something that is fungible means it is physical that can be easily exchanged. For example, money would be a fungible token because you can swap two £50 notes for 100 £1 coins. Therefore, a non-fungible token is a digital token that cannot be exchanged and is a one-of-a-kind asset. This asset can be bought and sold normally.
The token has a verified identity and ownership. This verification is done using blockchain, which is the same technology used for cryptocurrencies. The owner of the NFT does not purchase the copyright itself, meaning the artwork the NFT represents can still be shown wherever the original creator chooses.
During 2021, the market for NFT’s has exploded, especially within the art world and for other collectibles. Andy Murray recently got involved with the NFT craze, by selling the moment he won Wimbledon in 2013. The highest bidder will own Murray’s match-winning point. Fans can also purchase additional NFTs in larger editions of 20, 50, 100, and 500, starting at $49 and featuring Murray’s iconic ‘trophy lift,’ his victory interview, his 2012 runner-up speech, and a highlight reel of his best shots from Wimbledon 2013.
Another well-known example, is the viral video of ‘Charlie bit my finger’ on Youtube was sold as an NFT for £538,000 and taken off Youtube. The video had been watched more than 880 million times since it was put on YouTube in 2007.
One of the most expensive NFTs to have been sold is, “Doge”, the famous meme of a Japanese dog that became the image of Dogecoin, which sold for $4 million at the beginning of June. The winning bidder paid 1,696.9 Ethereum, which is equivalent to about $4 million.
So why has the growth of NFTs spiked?
The popularity of NFTs has surged during the pandemic, with the NFT market reaching a valuation of more than $250 million in 2020. Many artists have begun to use NFTs because this gives them the option to monetise their work, something which was difficult to do for paintings and other artwork previously. Fans of the artists are now able to directly support them with any intermediaries.
NFTs also represent an investment opportunity. NFTs possess potential for growth for artists and for people to tokenise collectibles. For example, the NBA’s platform for digital basketball cards has recorded sales of more than US$230 million. This can represent a store of value for investors which can be sold for s higher price in the future.
However, there does remain issues with NFTs. For example, the carbon footprint of Ethereum (the main crypto for NFTs). Therefore, it is likely that more eco-friendly solutions will have to be found for the growth of the kind we have seen in 2021 to continue.