Governments worldwide are rushing to develop central bank-backed digital currencies (CBDCs) as a direct response to the booming cryptocurrency market. This article will provide readers with an overview of recent developments in the CBDC sector. 

China Leads the Way for CBDC Development and Adoption

China is well known for being the first country to show utter seriousness in the development of its CBDC - the Digital Yuan. At this point in time, core development is essentially concluded, as China has already started testing and early-phase adoption efforts. Multiple events have happened since our last coverage of China’s CBDC development.

At this point in time, market data showcases that bitcoin is going through yet another bull run. In fact, it managed to surpass most of its recent yearly records, thus getting incredibly close to its previous all-time high of $20,000.

Right now, bitcoin is trading a little above $18,600. It is expected that this bull run will not end up in a massive correction that crashes the price and leads to another bear market. Things are drastically different this time around, and as part of this article, we will explore the main reasons behind bitcoin’s massive uptrend. 

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Recently, the bitcoin price surpassed the $13K threshold, as part of an unexpected uptrend. What makes this jump so special is the fact that it represents the highest value BTC has reached over the last 16 months. Many believe that this is the start of yet another bull run - although there may be some truth to this claim, it is too early to determine whether higher values will be reached in the near future.  

This article will go over some of the reasons that caused this recent uptrend. 

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So far, several countries have expressed tangible interest in the idea of developing central bank-backed digital currencies (CBDCs). The European Union has also talked about the potential release of a digital euro, although no actual plans were publicly announced. 

Recently, the European Central Bank (ECB) published a 50-page report highlighting the main challenges that the institution would have to deal with, in order to make the digital euro a reality. 

According to a statement made by the President of the ECB, Christine Lagarde, “Europeans are increasingly turning to digital in the ways they spend, save and invest (...) Our role is to secure trust in money. This means making sure the euro is fit for the digital age. We should be prepared to issue a digital euro, should the need arise.”

At this point in time, most of the world’s countries have issued some form of regulatory framework for digital currencies. Research on the matter has shown that there’s an overall lack of standardization in terms of cryptocurrency and blockchain regulation, thereby giving way to uncertainty, especially for crypto-related business ventures operating globally.

Recent reports indicate that a standardization of cryptocurrency regulations for EU member countries is on the agenda of the European Commission. A copy of a legislative draft was recently leaked on the internet, thus showcasing the institution’s vision concerning crypto regulation.

The main point worth keeping in mind is that crypto assets will be regulated in a similar manner to most other financial instruments. Most of these rules are centred towards service providers and token issuers, rather than users. The regulatory draft kicks off with a definition of crypto-based assets and highlights the main regulations that EU companies should respect. Emphasis is placed on stablecoins, which have been actively gaining popularity over the last couple of years.

Despite the worldwide economic slowdown caused by the Covid-19 pandemic, it seems like the cryptocurrency market is entering a new phase of economic stimulation, price increases, and overall market interest.

This statement is backed by a statistical report released by Apptoppia, according to which a record-breaking number of cryptocurrency wallet app downloads were logged during July 2020. With this in mind, 3.5 million wallets were downloaded to mobile devices during this month, which is 81% more when compared to July 2019. Furthermore, throughout this year, the number of active digital currency users increased by approximately 110%.

For the sake of comparison, app wallet downloads averaged about 2 million during the last year.

It has often been said that mainstream adoption of cryptocurrencies can be attained through an integration with the payment systems that people are already familiar with. Recent reports indicate that Visa understands this concept, given the fact that the company has announced that they are working towards integrating digital currencies with their payment network.

In a recent blogpost, Visa has stated that alternative means of payment, such as fiat-backed stablecoins, have the potential of revolutionizing the world’s payment systems. According to the company, “We’re reshaping how money moves across the globe, and that means pursuing a broad array of technologies and partnerships. In that regard, digital currencies offer an exciting avenue for us to continue doing what we do best: expanding our network-of-networks to support new forms of commerce”.

Over the last couple of months, countries throughout the world have been exploring the concept of central bank-backed digital currencies, a digital alternative to fiat that would completely digitalize everyday spending and largescale inter-state/inter-bank/inter-corporation monetary transfers. It only makes sense that nation-states agree with this concept, given the centralized nature of CBDCs.

Several countries such as China are already beta-testing their CBDCs, whereas others are actively-developing these financial instruments. For instance, recent developments suggest that the United States is currently working on the conceptualization and creation of a Digital Dollar. In a recent Banking Committee Senate hearing, Senator Tom Cotton mentioned that: “The U.S. dollar has to keep earning that place in the global payments system. It has to be better than bitcoin… it has to be better than a digital yuan”. During the senate hearing, debates were also held on a series of other crypto-related topics, including but not limited the regulatory oversight upon stablecoins, the advantages of blockchain-based financial markets, and the dawn of a new financial architecture.