Bank of America: Cryptocurrencies Continue to Act As Risk Assets

The Bank of America stated in a research paper this Friday that digital assets continue to operate as risk assets, decreasing when global interest rates climb.

Still, stablecoin inflows are a hint of an eventual comeback. Stablecoins are cryptocurrencies whose value is tied to another asset, such as the US dollar or gold.

The report stated that the cryptocurrency’s inflow went up by 58%, in comparison to the previous week.

According to the report, the four largest stablecoins saw exchange net inflows for the third week in a row, with large Binance USD (BUSD) inflows/USD coin (USDC) outflows possibly due to investors “preemptively rotating” into BUSD from USDC to avoid disruptions following Binance’s decision to auto convert some stablecoins into its own stablecoin.

Bank of America anticipates that regulatory certainty will facilitate the adoption of decentralized financing. DeFi refers to lending, trading, and other financial operations conducted on a blockchain without the need for traditional middlemen.

How Does It Affect Ethereum

The increase in the price of ether (ETH) from mid-July to mid-August has continued to reverse as investors digest the fact that the Ethereum blockchain’s switch to proof-of-stake (PoS) does not address scalability concerns or high fees, and these investors are taking a “wait-and-see approach regarding future upgrades,” according to the note.

The Merge is the first of five updates to the Ethereum blockchain, moving from proof-of-work (PoW) to a more environmentally friendly proof-of-stake consensus method.

Ethereum developers state that the transition to a staking mechanism will be the first step in order to produce future updates which will highly increase the blockchain’s scalability, and decrease Ethereum’s fees.

For now, Ethereum is still waiting on the SEC’s decision on wetter the cryptocurrency should be considered as a security or not. The SEC chairperson Gary Gensler argues that the staking consensus of Ethereum makes the cryptocurrency look more like an investment, rather than a currency.

The argument is that Ethereum now monetarily rewards its stakers, similar to how a private company pays dividends to its investors.

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