Scoop: El Salvador May Issue Bonds on Liquid Bitcoin
  What you need to know today in crypto and beyond June 29, 2021 Sponsored By:  Welcome to The Node.
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Today's must-reads Top Shelf  JOINING THE RACE: Cathie Wood's ARK Investment Management submitted an application with the SEC for a new bitcoin ETF. The firm partnered with investment product firm 21Shares, SEC filings show. With this move, ARK has joined multiple other companies hoping to get their applications approved this year after the SEC has swatted down dozens of proposals in recent years.
BIG MOVES IN GERMANY: Deutsche Börse Group said it will buy a two-thirds stake in Crypto Finance AG, enabling the stock exchange to offer custody and other crypto-related services to clients. The German financial giant will pay at least $108.6 million to receive access to more than 200 digital assets in combination with in-house custody. On Monday, Germany also issued a crypto custody license to Coinbase, allowing the company to continue serving the country's market.
CAN'T GET ENOUGH: Morgan Stanley has bought 28,289 shares of Grayscale Bitcoin Trust, moving deeper into the cryptocurrency space after seeing increased demand from its clients. Shares were purchased through the banking giant's Europe Opportunity Fund, filings show. Grayscale is owned by CoinDesk parent company Digital Currency Group. Morgan Stanley started offering bitcoin investment fund products in March for high-net-worth clients.
–Helene Braun
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 "We have a long way to go before our parents and grandparents use DeFi."
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A message from CoinDesk  EIP 1559: Ethereum's Fee Market Upgrade Explained CoinDesk Research's newest report dives into the economic impacts and investment implications of Ethereum Improvement Proposal (EIP) 1559. At its core, the code change is designed to make transaction fees on Ethereum less volatile and more predictable.
At the same time, EIP 1559 also poses several risks to Ethereum including risks of miner capitulation or revolt, technological risk in the form of unexpected bugs, and risk of user disappointment. In this report, CoinDesk Research gives an overview of how EIP 1559 works and its intended impact for investors, miners and users. Download the full report.
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Putting the news in perspective The Takeaway  Private and Public Sector Monetary Innovators "We do not need to fear stablecoins," Randal Quarles, vice chair for supervision at the Federal Reserve, said in a speech yesterday.
Which doesn't sound like a particularly remarkable statement. Except it came from a Fed official, who might be suspicious about stablecoins but was surprisingly bullish on them.
In a statement to the Utah Bankers Association Annual Convention, Quarles said that privately issued stablecoins (or assets typically pegged to fiat currencies underwritten by a bundle of other financial instruments) could help solve some of the inefficiencies and inequalities in the current payments system. He's taken by the instantaneous and cross-border settlements offered by a blockchain-based technology. Quarles' comments were explicitly framed by the ongoing debate over central bank digital currencies (CBDC) and the role of the U.S. government in fostering financial innovation. The big question: Should the U.S. undertake a massive public project to digitize cash – through an alternative consumer deposit infrastructure at the Federal Reserve – or should it be left to the private sector? Quarles remains skeptical of CBDCs, which he described as a fad, as do many central bankers. The Fed is currently engaged in CBDC research and expects to publish a report on the way forward this summer. Several senior Fed officials have raised concerns about the risks that stablecoins – which are now worth in excess of $108 billion – present.
"I read [Quarles'] speech as basically a free-market oriented person making the best case they can to let private actors continue doing what they're doing and to hold off on any public alternative," Willamette University College of Law professor Rohan Grey said in an email. "That's what links the enthusiasm for stablecoins with the pessimism towards CBDCs, in my opinion." (Grey has argued for an open-source approach to a digital dollar.)
CBDCs, according to Quarles, could introduce stressors to the U.S. banking system as well as cybersecurity risks.They might also limit competition between banks that benefits consumers. At the practical level, there may be a host of legislative roadblocks and administrative costs to setting one up. These are just a few of his concerns. Crypto pundits have become anxious about CBDC privacy, with some taking to calling them state-mandated spyware.
Stablecoins are one of the fastest-growing sections of the crypto-native economy. It's a financial revolution underway that also raises serious doubts. In Quarles' own words:
But Quarles' quickly responded to his own questions: "The Federal Reserve has traditionally supported responsible private-sector innovation." What's more, he said, "our existing system involves – indeed depends on – private firms creating money every day."
Although the analogy isn't perfect, the rise of stablecoins may end up resembling the explosion of consumer credit cards. These cash-equivalents rapidly entered the market and reshaped the economy. Between 1945 and 1960, consumer credit increased from $2.6 billion to $45 billion. In 1970, about a decade after Bank of America mailed out the first 60,000 charge cards, it stood at $105 billion. About one in six U.S. families held one, according to the Fed. This growth was entirely a form of private-sector money creation, giving select families the ability to buy now and pay later. There are many criticisms of this debt-driven system – some even pointed to by Quarles – but it's impossible to say it wasn't a revolution.
Grey's line is to advocate for strong consumer protections in face of private-sector money creation. He argues that stablecoins are akin to skinny or shadow banks that issue deposits, and should therefore fall under some regulatory scheme.
For him, there is a sense of urgency. "The problem is precisely that stablecoins aren't waiting until those concerns have been addressed, they're in circulation now," he said.
Indeed, the money printer has been let out.
–D.K.
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