Crypto Investor Briefing – August 2022

Crypto Investor Briefing

August 2022

The crypto market meltdown we witnessed recently was due to overleveraging and poor risk management practices in certain systemically important companies. Some experts even predicted this crypto winter could last as long as two years. However, we are already seeing promising evidence of stabilization, with the crypto market recapturing a market capitalization of $1 trillion. Well-managed crypto companies are strengthening themselves further through industry consolidation, which will improve the overall health of the ecosystem.

As with previous financial crises, we can expect regulations to follow a market crash in order to prevent aggressive market behavior. According to a report from Blockworks, Senators Cynthia Lummis and Kirsten Gillibrand recently introduced a bipartisan bill that proposes a comprehensive framework for regulating digital assets in the United States. In June 2022, the European Central Bank (ECB) produced a report on stablecoins, citing an urgent need to regulate based on their increasing threat to financial stability. The Bank for International Settlements (BIS) issued its final guidance on stablecoins earlier this month, calling for stablecoins to follow the same settlement rules as traditional finance. Meanwhile, a recent BIS survey shows that 90% of central banks are seriously considering CBDCs. All these regulatory initiatives are signs of a maturing crypto industry. It is foreseeable that all crypto companies will eventually be regulated as financial institutions. 

As stablecoins are supported by growing regulatory support to play a critical role in cross-border payment functions, blockchain tokens created purely for payment solutions (BCH, LTC, XMR, and the likes) might start losing favor. However, blockchain innovation does not stop there: smart contracts, DeFi, Web3, metaverse, and tokenization will continue to evolve, and the ultimate winners are yet to be revealed. What we have learned from this bear market is that every cloud does have a silver lining. Whenever signs of certainty emerge in an uncertain market, there is no better time to reposition your crypto portfolio for more long-term gains.  

 

Christian Hsieh 

CEO of Tokenomy

Ethereum’s “Merge” is projected for September according to a “soft” timeline from developers, as reported in a tweet from Beacon Chain community manager superhiz.eth. The timeline is largely dependent on results from the Goerli public test net that is scheduled between 4-12 Aug, says Lead Ethereum developer Tim Beiko.

Circle issued its first monthly full breakdown of USDC reserve assets (as of 30 June 2022) and plans to release this daily in the future. This addresses transparency concerns around stablecoins after UST’s implosion in May 2022 and should ease some nervousness.

The Bitcoin Mining Council (BMC) released a survey in Q2 2022 on electricity consumption, technological efficiency, and sustainable power mix. The survey collected data from over 50% of the global Bitcoin Network. The results show that the global bitcoin mining industry’s sustainable electricity mix is 59.5% and has increased approximately 6% year on year from Q2 2021 to Q2 2022, making it one of the most sustainable industries globally.

market news

JPMorgan predicted that crypto’s current deleveraging cycle wouldn’t last much longer, according to a group of strategists, including Nikolaos Panigirtzoglou. They commented that the liquidity crunch at hedge fund Three Arrows Capital “is a manifestation of this deleveraging process”, and “the current deleveraging cycle may not be very protracted”, given “the fact that crypto entities with stronger balance sheets are currently stepping in to help contain contagion” and that venture capital funding, “an important source of capital for the crypto ecosystem continued at a healthy pace in May and June.”

USD stablecoin premiums have surged in Argentina as annual inflation hits 60.7%.  Argentineans have been piling into crypto as a means to hedge against the country’s rising inflation and a continued fall of the Argentine peso against the USD. The current USDT/ARS exchange rate indicated a 116.25% premium compared to the current fiat USD/ARS exchange rate. Argentina has the sixth-highest adoption rate globally, with around 21% of Argentineans estimated to have used or owned crypto by 2021, according to Statista.

Traditional banks might be able to hold and conduct crypto-related services soon, within a certain threshold. The Bank for International Settlements Basel Committee proposed that conventional banks should have a cap on their crypto exposures to safeguard financial stability. The latest consultation paper states that there would be an exposure limit set at 1% of Tier 1 capital, or the core capital held in a bank’s reserve. For large banks like JPMorgan Chase (JPM), 1% of Tier 1 capital can amount to billions of dollars.

Crypto asset management firm Grayscale Investments has filed a lawsuit against the US Securities and Exchange Commission (SEC) after it again rejected their application to convert the Grayscale Bitcoin Trust (GBTC) into a spot bitcoin exchange-traded fund. Grayscale announced that it would challenge the regulator’s decision as the SEC is failing to apply consistent treatment to similar investment vehicles and is therefore acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934.

FTX, one of the largest crypto derivative exchanges, closed an anticipated deal with BlockFi to acquire the troubled crypto lender for up to $240 million, depending on the startup’s performance triggers. The agreement also involves a $400 million revolving line of credit, making a total price tag of $640 million. 

Thai cryptocurrency exchange Zipmex announced that it is pausing withdrawals on its platform following a “combination of circumstances” beyond its control. Speculation links the company’s troubles to funds extended to Babel to generate yield that is now at risk of default. Zipmex has compliant operations in Thailand, Indonesia, Singapore, and Australia.The company later filed for debt relief in Singapore, according to a press release.

Crypto broker Genesis Global Trading filed a $1.2 billion claim against Three Arrows Capital (3AC). According to court filings, loans to 3AC amounted to $2.36 billion, partly collateralized with 17.4 million shares of the Grayscale Bitcoin Trust (GBTC), 446,928 shares in Grayscale Ethereum Trust (ETHE), 2.7 million AVAX tokens and 13.9 million NEAR tokens – all of which have been liquidated by Genesis.

A Uniswap user lost over $8 million worth of ether (ETH) in a phishing attack where the attacker deployed an airdrop bait to trick users. It is reported that 73,399 wallet addresses connected to Uniswap were sent a malicious token masquerading as a Uniswap (UNI) token airdrop. When users interacted with the phishing message, the underlying smart contract permitted the transfer of assets and the attacker gained full control of the wallet.

The largest NFT marketplace, OpenSea announced on Twitter that it would be downsizing its staff by 20% due to an unprecedented combination of a crypto winter and broad macroeconomic instability. Recently the company received a cease and desist letter from the Recording Industry Association of America (RIAA). The letter claimed that several OpenSea-hosted ENS auctions were in violation of US trademark law

Shanghai has included blockchain, NFTs, and Web3 in its five-year plan, as shown in its draft “14th Five-Year Plan for the Development of Shanghai’s Digital Economy”. The plan suggests supporting enterprises that aim to construct NFT trading platforms and “research and promote the digitization of NFT and other assets.” It also includes a commitment to promote the development and application of “blockchain+” technology and exploration of Web3 opportunities such as multi-platform OpenID, distributed data storage, a decentralized domain name resolution system (DNS), and end-to-end encrypted communication technology.

A UK court is allowing lawsuits to be served via NFT, paving the way for other victims of crypto asset fraud to pursue persons unknown who have misappropriated their cryptocurrency, and setting a precedent for serving individuals via the blockchain. In June, a law firm in the US also served a defendant in an $8 million hacking case using an NFT by airdropping the NFT as a temporary restraining order into a hot wallet when the name of the served party was unknown.

Michael Barr, a former Ripple advisor and a key Treasury Department official during the Obama administration, won Senate confirmation to become vice chairman of the Federal Reserve, one of the most important US regulatory roles. Despite outranking Barr, the Fed’s Jerome Powell has publicly indicated that he will defer to the vice chair on financial oversight matters

How much does it cost now to mine one Bitcoin? In a recent report by Decrypt, investment bank JPMorgan estimates that the production cost to mine one Bitcoin has dropped from $24,000 at the start of June to just $13,000. According to other analysis from MacroMicro, production costs still hover at a little over $17,700

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