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Gu Yanxi: Is Diem a wolf in sheep's clothing for the euro?



According to a Reuters report, German Finance Minister Olaf Scholz expressed his view that Diem's recent name change was just a cosmetic change after a recent G7 finance ministers' video meeting. "A wolf in sheep's clothing is still a wolf. It is very clear to me that Germany and Europe cannot and will not accept Libra entering the market until compliance risks are properly addressed. We must do everything in our power to The monopoly of securing money remains in the hands of the state."

The interaction between the EU and Diem is a very interesting process. In Diem's original stablecoin design, it has included the euro as the second major currency in its basket of fiat currencies. The first US dollar accounted for 50%, and the second euro accounted for 18%. Diem was originally designed as a single digital stablecoin circulating globally. So the euro area is the market it plans to operate in. But the EU has maintained a vigilant and opposed attitude towards Libra from the very beginning. In order to meet the requirements of global financial regulation including the European Union, Libra has made essential changes in its version 2.0. It has adopted a neutral attitude to cooperate with various financial regulators and operate in accordance with the requirements of financial regulation.

Gu Yanxi: The entry of institutional funds pushes up the market value of Bitcoin, and its value consensus is completely different from the value consensus of the Internet era: On December 22, Gu Yanxi, a researcher of blockchain and encrypted digital assets, published a column saying that Bitcoin is now The market capitalization of China has surpassed the market capitalization of JP Morgan Chase, the largest commercial bank in the United States, and has also surpassed the market capitalization of Visa, a network that provides global credit card clearing services. This shows that the market has formed a consensus on the value of Bitcoin on a global scale. If only ordinary retail investors around the world form a consensus on the value of Bitcoin, it will be difficult to push the market value of Bitcoin to the current height. The reason why Bitcoin has reached its current market value is because institutional funds have begun to enter Bitcoin. He said in the article that a common view still exists in the market is that the value of Bitcoin is the result of market speculation, and the value caused by such speculation will not last. This view often compares Bitcoin's value to similar bubbles in history, such as the most recent dot-com bubble. However, the current value consensus of Bitcoin is fundamentally different from the value consensus of the Internet era. The value of Bitcoin is not at all dependent on underlying ownership or expected returns. The characteristic of Bitcoin value is that it is its value itself. The size of this value is completely judged by the market, and it is completely people's subjective judgment. Gu Yanxi finally pointed out that the market is not very optimistic about the current currency circulation mechanism, so it is possible to use Bitcoin as a value storage and transfer tool, which leads to the continuous rise of Bitcoin prices. [2020/12/22 16:03:48]

In order to win the support of the European Union, the Libra Association has taken a series of measures to weaken the influence of the United States, the US dollar and Facebook in Diem, including changing the original English-based name to a Latin-based name. Such an effort is clearly aimed at gaining support from EU regulators. However, judging from the statement of the German Minister of Finance, Diem still needs to do a lot of work in order to issue a digital stable currency based on the euro. If we look at it from another perspective, is Diem really a wolf in sheep's clothing to the euro? If the EU takes the same view against Diem as Germany's finance minister, what effect will Diem have on the euro?

Gu Yanxi: BTC miners can use options as a trading tool to hedge market risks and obtain stable income: On December 15, Gu Yanxi, a researcher of blockchain and encrypted digital assets, published a column saying that in dealing with the market risk of Bitcoin At present, the most commonly used financial instrument is futures. Miners can use futures to ensure that they sell the bitcoins they can produce at an appropriate price. He pointed out that futures, as a hedging tool, have their advantages. These advantages include the characteristics of leverage, the continuous change of the underlying price, the huge number of transactions that can be supported, and so on. But futures also have their limitations, including relatively single functions and very large unilateral risks. He stated in the article that compared with futures, options are more suitable for individual Bitcoin miners as a trading tool to hedge market risks and obtain stable returns. The downside risk of a trader using an option to go long is only the premium paid for it. Only the short side has huge risks. Moreover, options can be used to formulate various trading strategies to achieve the purpose of arbitrage or hedging. For bitcoin miners, it is possible to find a more suitable trading tool for them if they understand the characteristics of bitcoin options offered by the market. They can use their bitcoins to earn steady income, or protect against downside risk. [2020/12/15 15:13:08]

I pointed out in a previous article (“The Euro vs. U.S. Dollar Controversy in Digital Currencies”) that the competition between the Euro and the U.S. dollar in the field of digital stablecoins has begun to show a gap. There are already several dollar-based branded digital stablecoins in the market. Diem now expects to launch a U.S. dollar-based digital stablecoin as early as January 2021. Issuing its own digital dollar stablecoin is also a viable strategy for other U.S. companies (see my articles "Should Amazon Issue Its Own Digital Dollar Stablecoin?" and "Why Google Pay's Strategic Choice Is Wrong of?"). In addition, the U.S. banking regulator OCC has actually adopted a regulatory attitude that encourages the market to issue digital dollar stablecoins. If more U.S. companies issue dollar-based digital stability, the gap between the euro and the U.S. dollar in the digital currency field will widen, thereby widening the competitive difference between the U.S. dollar and the euro in the market.

Gu Yanxi: Bitcoin will grow significantly in 2021: According to news on December 1, Gu Yanxi, founder of the American Liyan Consulting Company, said in the circle of friends that Bitcoin's new high is fundamentally different from the previous one. This time it is mainly the beginning of recognition by American financial and commercial institutions: Grayscale and Microstrategy have bought heavily, CME Bitcoin futures positions have become the highest, PayPal has begun to provide Bitcoin trading services to its users, and Fidelity provides Bitcoin custody services , The OCC clearly stated that the Federal Bank can provide legal services to encrypted digital currency companies. These factors all indicate that Bitcoin is becoming a mainstream asset class in the US market. In addition, Libra may be launched as early as January next year, which is also good news for Bitcoin. Bitcoin options positions in the trading market also indicate that the market expects Bitcoin to grow significantly in 2021. [2020/12/1 22:41:21]

For the EU, they clearly see such a development trend very clearly. Therefore, the German Finance Minister also believes that the EU should issue a Euro CBDC. But even if the Euro CBDC is issued, the EU still needs to address the impact of the Diem digital stablecoin on the euro.

Gu Yanxi: Bank of America's custody of encrypted digital currency can help the market achieve more growth: On August 7, Gu Yanxi, a researcher of blockchain and encrypted digital assets, published an article "The Significance of Bank of America's Beginning to Manage Encrypted Digital Currency" , U.S. regulation began to allow U.S. banks to host encrypted digital currencies, which has a far-reaching impact on the encrypted digital currency and encrypted digital asset industry. The main impacts are as follows: 1. There are more choices for the encrypted digital currency custody business; 2. The encrypted digital currency market realizes more increments; 3. The market providing encrypted digital currency custody services will change; 4. The encrypted digital currency in the United States The asset market infrastructure has been further strengthened; 5. Custody business is the beginning of the US banking industry's entry into the digital financial business. [2020/8/8]

If Switzerland's FINMA approves the establishment of Diem and approves its discovery of its digital stable currency based on some fiat currencies, while the European Union rejects Diem's issuance of digital stable currency based on the euro, then the strategy adopted by the Diem Association is likely to be based on its basket of fiat currencies. Issue digital stablecoins based on other fiat currencies sequentially. That is to say, the corresponding digital stable coins will be issued sequentially based on the Japanese yen, British pound and Singapore dollar. Then the scenario that will appear is that the only digital currencies circulating in Europe are the Euro CBDC and the CBDCs of other central banks, and the CBDCs of various central banks and digital stable coins such as Diem are circulating outside Europe.

Voice | Gu Yanxi: A potential competitor of Libra is Twitter and Square CEO Jack Dorsey: Today, at the "Huoxun Facebook Libra Week" online salon hosted by Huoxun Finance, Gu Yan, Dean of CBX Research Institute West said that in terms of potential users, Facebook does have 2.7 billion registered users worldwide, and he does have an advantage in terms of quantity. However, when it comes to digital assets, the active-zce social group for enthusiasts of encrypted digital assets is Twitter, not Facebook, and Twitter users are all over the world. If a financial application based on encrypted digital assets needs to be promoted globally, Twitter is actually more suitable for this purpose. A potential competitor of Libra's stable currency is Jack Dorsey, the CEO of Twitter and square. He has advantages in social network and currency payment, so he is likely to be a big competitor of Facebook's stable currency, and he Always been a strong fan of cryptocurrencies, especially Bitcoin. At the Consensus conference held in New York in May 2018, he proposed that the Internet needs its own stable digital currency. [2019/6/21]

Since the future CBDC is likely not to use the same underlying infrastructure as Diem, Diem's digital stable currency will provide services in some areas that cannot be touched by CBDC. Various digital stablecoins based on Diem would thus be complementary to the corresponding CBDCs it supports. For the Euro CBDC, this lacks a means to compete with other fiat currencies in the basket. Therefore, for the EU, it is a more reasonable choice to formulate appropriate regulatory policies and limit the operation of Diem within a reasonable range. In September of this year, I proposed in an article ("European finance ministers may think about the strategy to deal with Libra from a different angle"), "For European finance ministers, they should adjust their strategies to allow Digital stablecoins like Libra operate within a controllable range. In this way, we can have a more accurate understanding of the impact of digital stablecoins on the currency market, and also help them develop a Euro CBC that can better meet market demand .”

Most importantly, the Diem stablecoin and its supporting infrastructure are a specific application of the development of blockchain technology applications. Other private institutions in the market will also use the same technology to develop similar payment mechanisms based on digital stable coins. So no matter what, the EU needs to formulate corresponding regulatory mechanisms in this regard.

But there are valid considerations in Germany's finance minister's view. An institution like Diem is likely to present itself as very neutral. But when it develops, it is likely to impose its own tendencies and interests on other groups in society. This directly violates the basic principles of financial supervision to ensure the interests of investors and protect the fairness and order of the market. Organizations like Diem will indeed have a huge impact on the issuance and circulation of the euro and overall economic activities.

First of all, if the Diem Association does not issue stable coins based on the euro, but can issue a large number of digital stable coins based on other fiat currencies, this in itself will have a significant impact on the economic activities of EU countries. Second, if the EU allows Diem to issue a euro-based stablecoin without corresponding appropriate regulatory policies, then the operation of Diem is likely to affect or even harm the monetary policy of the European Central Bank. After all, the monopoly position of big technology companies in the field of information circulation has begun to affect other activities in society. For such a big technology company that issues stable currency, its impact will be more extensive and far-reaching. So even if the EU allows the Diem Association to issue euro-based stablecoins, it also needs to put Diem under a strict and appropriate regulatory framework.

In terms of formulating corresponding financial regulatory policies, for a multinational international organization like Diem, it is not enough if only one financial regulatory agency adopts regulatory policies. Must be the financial regulatory agencies to jointly formulate common regulatory rules. Only in this way can organizations like Diem be effectively supervised. In this regard, how the Swiss FINMA approves the operation of the Diem organization is very worthy of attention. Switzerland is not a member of the European Union. So in theory, its policies are not bound by the EU. But the Swiss financial industry is an intimate part of the global financial industry. The Bank for International Settlements, known as the central bank of central banks, is also headquartered in Switzerland. Therefore, Switzerland's financial policy will definitely maintain close communication with the EU and other financial regulatory agencies, and its policies will definitely take into account the EU's basic position.

On the other hand, the EU will certainly also actively influence Swiss policy in this regard. Therefore, if the Swiss FINMA approves the operation of Diem in 2021, its approval policy is very likely to be the result of FINMA's communication with other financial regulatory agencies. Therefore, how FINMA approves the operation of Diem is very worthy of attention.


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