Correction aside, cryptocurrencies have been practically unstoppable since the beginning of 2017. At one point, between the beginning of 2017 and Jan. 7, 2018, the aggregate market cap of all cryptocurrencies had increased by more than 4,500%, marking what could very well be the single best performance from an asset class in roughly one year's time.
The two primary focuses of cryptocurrencies
The cryptocurrencies that have led this charge higher tend to have two main focuses. They're either intent on developing the blockchain technology that underpins virtual currencies, and partnering with businesses to deploy that technology, or they're gung ho on pushing a paper currency out of the picture and using virtual coins as the primary means of money transmittance.
The former group (those focused on blockchain development) comprises the vast majority of cryptocurrencies. While virtual coins still play a role in blockchain, mainly as a means to pay transaction fees, they aren't the primary focus. Instead, Ethereum, Ripple, and Stellar, just to name a few, are angling their technology to help financial service companies, as well as other sectors (tech, energy, and retail), run more efficiently.
For example, blockchain technology is designed to resolve a few of the perceived flaws with the current banking system. To begin with, there's no third-party involvement with transactions processed through blockchain, thus eliminating the bank and (hopefully) reducing transaction fees in the process. More importantly, blockchain transactions are being proofed 24 hours a day, seven days a week, meaning we could see cross-border transactions processed in mere seconds, compared to waiting periods of three to five days that can sometimes occur with the current banking networks.
The second focus is for cryptocurrencies that are all about signing up as many merchants as possible to accept their virtual coin. This is where you'd find bitcoin and Litecoin duking it out, so to speak. The goal of this group is to replace cash, or whatever paper currency is the standard, as the primary means of money transmittance for goods and services.
Surprise, this global banking giant wants to establish its own cryptocurrency
Up until recently, global businesses that've paid attention to the rise of cryptocurrencies have been almost entirely focused on developing or deploying blockchain in some small-scale test or real-world capacity. However, that's not what's on the minds of the management team at Mitsubishi UFJ Financial Group (NYSE: MTU), Japan's largest bank by assets and the eighth-largest bank in the world by assets.
According to a report from Japanese online publication Mainichi, Mitsubishi UFJ has plans to launch its own cryptocurrency, to be known as the "MUFG Coin," as well as its own exchange for its MUFG Coin, before the end of the year. The banking giant, which has more assets than Bank of America, has already informed the country's Financial Services Agency of its decision, although regulatory hurdles for such a move still exist.
Mitsubishi UFJ Financial Group (MUFG) has plans to counter the wild volatility seen in cryptocurrencies by roughly pegging the value of an MUFG Coin to about 1 yen. However, the two won't be strictly tied together, with the MUFG Coin allowed to float independently of the yen. The reason? If coins are issued that are identically pegged to the yen, settlement laws prohibit a remittance of more than 1 million yen without regulatory involvement. This way, MUFG is able to work around the traditional bylaws and regulations present in Japan with its coin, but, in combination with its exchange, provide stability to its virtual currency by suppressing wild fluctuations in price.
Assuming MUFG succeeds in keeping volatility to a minimum, it's also possible that the MUFG Coin could move beyond simply being a means to buy goods and services. Instead, it could be used in trading pairs on non-fiat exchanges in place of Tether (USDT). There's a good chance that investors would love having the "backing" of MUFG instead of the relatively unproven Tether.
And that's not all...
Additionally, Bitcoin.com reports that the bank is working on another project, MUFJ Trust. This is a service that would be provided to Japanese cryptocurrency traders that will keep clients' holdings in accounts that can be linked to exchanges, but without actually sending that money over to the exchange. The reason for doing this is to protect clients from hackers who abscond with virtual coins, or from cryptocurrency exchanges suddenly declaring bankruptcy.
If this all sounds somewhat familiar, it's because it describes what happened to clients of Mt. Gox, which had been the leading bitcoin exchange back in 2013. Mt. Gox was allegedly hacked, with cybercriminals getting away with 850,000 bitcoin (worth about $10 billion today) and tens of millions of dollars in cash. Mt. Gox declared bankruptcy not long thereafter. The MUFJ Trust service would act to protect clients against such an event.
The service is expected to kick off in April 2018, or sooner if the Financial Services Agency recognizes bitcoin as an asset that can be placed in a trust. Initially, this service will only be available for bitcoin, but it could branch out depending on client demand and the determination of the Financial Services Agency of what can be placed into a trust.
While it remains to be seen just how successful MUFG will be in stabilizing its coin, as well as protecting clients from hackers, it's nonetheless an eye-opening move from one of the world's largest banks. For the time being, I'll remain skeptical until I see the MUFG Coin in action, but it's something I would strongly suggest crypto enthusiasts keep on their radars.