The Banking Executive Magazine - October Issue 2022

Virtual Assets Market Growth and Adoption governments to accelerate digital transformation of their economies. Security and transparency: The transactions of virtual assets are recorded on transparent public ledgers that create an information flow for all transactions done. Therefore, tracking transactions and establishing audit trails is relatively easy. Financial equity and inclusion: The evolutionary technology behind virtual assets makes it quite appealing to drive and possibly achieve greater financial inclusion in the economy. Virtual assets can potentially expand the reach of financial institutions and close gaps by providing opportunities to reduce fees and eliminate middlemen, as well as attract foreign investors. Reduced cost and complexity: The complexity of existing processes can be reduced with virtual assets and the automation of controls lead to process improvements that reduce cost. Efficiency: Asset digitisation and blockchain technology improves existing transaction processes through reduced cost, increased transparency and asset liquidity, thereby enabling greater operational efficiency. VIRTUAL ASSETS MARKET CRASH IN 2022 In March 2022, a crash in cryptocurrency prices has wiped away more than $300 billion in value. The price of Bitcoin plunged to its lowest point since 2020. Coinbase, the large cryptocurrency exchange, that promoted itself as a stable means of exchange collapsed, and more than $300 billion was wiped out by a crash in cryptocurrency prices, according to New York Times news. The crypto world went into a full meltdown in March 2022. This ascertains the risks of the experimental and unregulated digital currencies. The accelerating declines of virtual currencies like Bitcoin and Ether show that, in some cases, two years of financial gains can disappear overnight. The falling prices had broad impact because more people and institutions hold crypto currencies. Critics said the collapse was long overdue, while some traders compared the alarm and fear to the start of the 2008 financial crisis. GRASSROOTS ADOPTION OF CRYPTOCURRENCY Chainanalysis developed a grassroots Global Crypto Adoption Index which is made up of five sub-indexes, each of which is based on countries’ usage of different types of cryptocurrency services. Chainanalysis ranks countries according to each of the five metrics, take the geometric mean of each country’s ranking in all five, and then normalize that final number on a scale of 0 to 1 to give every country a score that determines the overall rankings. The closer the country’s final score is to 1, the higher the rank. In order to calculate sub-indexes, Chainanalysis estimated countries’ cryptocurrency transaction volumes for different services and protocols based on the web traffic patterns of those services’ and protocols’ websites. The five sub-indexes of the Global Crypto Adoption Index are: On-chain cryptocurrency value received at centralized exchanges, weighted by purchasing power parity (PPP) per capita: The goal of this sub-index is to rank each country by total cryptocurrency activity occurring on centralized services, and to then weight the rankings to favour countries where that amount is more significant based on the wealth of the average person and value of money generally within the country. On-chain retail value received at centralized exchanges, weighted by PPP per capita The goal of this metric is to measure the activity of non-professional, individual cryptocurrency users at centralized services, based on how much cryptocurrency they’re transacting compared to the wealth of the average person. Peer-to-peer (P2P) exchange trade volume, weighted by PPP per capita and number of internet users P2P trade volume makes up a significant percentage of all cryptocurrency in emerging markets. For this sub-index, countries are ranked by their P2P trade volume and weighted to favour countries with lower PPP per capita and fewer internet users, the goal being to highlight countries where more residents are putting a larger share of their overall wealth into P2P cryptocurrency transactions. On-chain cryptocurrency value received from decentralised finance (DeFi) protocols, weighted by PPP per capita Decentralised finance (DeFi) has been one of the fastest-growing areas of cryptocurrency over the last two years. Given the importance of DeFi to innovation in cryptocurrency, the adoption index highlights countries where users are concentrating a disproportionately high share of their financial activity in DeFi protocols. On-chain retail value received from DeFi protocols, weighted by PPP per capita The Global Crypto Adoption Index incorporates the activity of non- professional, individual cryptocurrency users on centralized services. the BANKING EXECUTIVE 34 ISSUE 166 OCTOBER 2022