February 2022
Happy Lunar New Year!
Crypto prices have experienced a significant correction since the beginning of this year. Almost all crypto assets were down double-digits year-to-date, with altcoins performing worse than Bitcoin and Ethereum.
Crypto markets are complicated and fast-moving, so it is difficult to make conclusive statements about cause and effect. However, it is important to note that this selloff is largely not due to anything inherent to the crypto industry. We have often seen that crypto tends to correlate strongly with macro risk assets during downturns. Historically, when the Fed contemplates an interest rate increase, equity markets tend to sell off along with all other risk assets. We are currently experiencing the same Fed rhetoric as inflation concern takes center stage in the market narrative.
Conceptually, Bitcoin’s inflation-resistant design is a strong selling point for this asset class to become the world’s digital gold. When Bitcoin hit an all-time high near $69,000 in November 2021, the U.S. also reported its highest inflation rate in forty years. Although uncertainty still prevails in the market, the inevitable fact is that fiat money is doomed to lose value over time. While the crypto bear is currently hibernating, it might wake up early this time. As we look at the increases in venture investments, developer activities, transaction volumes, layer2 technological breakthroughs, and regulatory dialogues, the crypto ecosystem seems to be well-supported fundamentally. As a result, we believe this market correction is a cyclical downturn, not a structural one. We anticipate the Year of the Tiger will bring us positive surprises, and innovation should continue to accelerate.
Christian Hsieh, CEO of Tokenomy
The Biden administration is preparing to release an executive action that will task federal agencies with regulating cryptocurrencies as a matter of national security. The national security memorandum, expected to come in the next few weeks, would task parts of the government with analyzing digital assets and assembling a regulatory framework that covers cryptos, stablecoins, and NFTs, or non-fungible tokens.
Facing strong regulatory scrutiny, the Diem Association has decided to sell its intellectual property to Silvergate and find a home for its development team to return money to investors. The Diem stablecoin (formerly Libra) was founded by Facebook (Meta) in June 2019 and encountered massive regulatory pushback both in the United States and from central banks worldwide.
An internet blackout in Kazakhstan also likely exacerbated Bitcoin’s selloff. According to Coinbase research, the country accounts for nearly 20% of the world’s mining power (second only to the U.S.’s 35%) so when political unrest rocked the Central Asian country in January and prompted internet blackouts, many miners were forced offline. Though Bitcoin’s total mining power, or “hashrate,” has declined since the blackout, it remains near all-time highs.
While the U.S. inflation rate continued to rise as the Consumer Price Index was 7% higher year over year in recent months. Billionaire investor Bill Miller announced that 50% of his personal wealth is now in bitcoin. Bill Miller, who is known for outperforming the S&P 500 15 years in a row, has been accumulating the asset with a majority of his personal holdings and recommends other investors to have at least 1% of their assets in BTC.
Crypto funds outperformed traditional hedge funds and digital asset benchmarks. In aggregate, hedge funds eked out a return of just over 10% last year, underperforming the S&P 500 index’s return of 26.9% as well as the aggregate performance of hedge funds in 2020. On the other hand, according to data provided by Hedge Fund Research, the crypto index suggests crypto hedge funds returned, on average, 214% in 2021.
A group of U.S. banks plans to offer its own stablecoin called USDF, in a move to tackle concerns about the reserves behind nonbank-issued equivalents. Founding members of the USDF Consortium include New York Community Bank, FirstBank, and Sterling National Bank. USDF is a bank-minted alternative to USDT and Circle’s USD coin (USDC), which account for the lion’s share of the $170 billion stablecoin market. The consortium has successfully completed the first USDF transaction.
Switzerland is ready to launch a wholesale central bank digital currency (CBDC). The Bank for International Settlements (BIS), the Swiss National Bank (SNB), and the country’s stock exchange, SIX, have test-driven the integration of wholesale CBDC settlement. Five other commercial banks also tested the prototype, including Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS.
The Central Bank of Iran and the Ministry of Industries, Mining and Trade have reached an agreement to allow businesses to make use of cryptocurrency to settle payments to foreign partners. This decision is an open challenge to the U.S. sanctions laws.
The mayor of Rio de Janeiro, Eduardo Paes, said he plans to allocate 1% of Brazil’s second-most populous city’s treasury reserves to cryptocurrencies. The city also plans to give discounts on tax payments made with bitcoin.
The Monetary Authority of Singapore (MAS) issued a new set of guidelines for digital payment token (DPT) providers, barring crypto companies from marketing their services in public areas. The new regulations only allow advertisements on native websites and mobile apps for DPT companies. In Europe, Spain is imposing restrictions on influencers’ promotion of cryptocurrencies as European authorities struggle to get to grips with the unregulated sector.
Crypto crime accounted for a record-setting $14 billion worth of blockchain transactions in 2021, according to a new report from blockchain research firm Chainalysis. The value of illicit transactions in 2021 was nearly double 2020′s figure of $7.8 billion in criminal blockchain activity. However, criminal activity only accounted for 0.15% of all blockchain transactions last year – down 75% from 2020 and down nearly 96% from 2019.
400 accounts of Singapore-based crypto exchange Crypto.com were hacked in mid-January after several layers of the firm’s security were breached. Approximately $15 million in ether (4,600 ETH) was stolen in the attack and being laundered via Tornado Cash. The CEO, Kris Marszalek, emphasized that all customer funds were not at risk. According to the onchain data, this hack was close to 33 million in total value.
NFT investors owe billions in taxes, and the Internal Revenue Service is setting its sights on evaders. Profitable traders of nonfungible tokens could face tax rates as high as 37%, and the IRS is gearing up for a crackdown.
A crypto payment survey conducted by Visa sampled 2,250 small business owners across nine countries suggests that cryptocurrencies may go mainstream as a means of payment. A quarter of small businesses plan to accept digital currencies as a form of payment in 2022, while 13% of consumers in those countries expect retail stores to begin offering crypto payments this year and beyond. The nine surveyed countries includes the United States, Canada, Brazil, Singapore, Hong Kong, UAE, German, Ireland, and Russia.
Julius Baer-backed crypto banking platform SEBA Bank AG raised 110 million Swiss francs in a funding round. The Series C round included existing investor Julius Baer Group Ltd. as well as Alameda Research, Altive and DeFi Technologies. It will use the money to expand in Asia-Pacific and the Middle East, and to bolster product offerings geared toward institutions.
Paypal is exploring the launch of its own stablecoin as part of its cryptocurrency push, according to the company, which confirmed the development after evidence of the move was discovered inside its iPhone app.
Fidelity Investments is looking to launch ETFs that would invest in companies involved in the metaverse and the broader crypto industry. The filings come hours after the SEC denied the group’s spot bitcoin trust application.
Vitalik Buterin, co-creator of Ethereum, shared in a recent tweet that he believes the future of blockchain will likely be a multi-chain world, instead of a cross-chain world. According to his latest argument on Reddit, the potential vulnerability of cross-chain protocols will be magnified as the transaction volume increases, which results in an anti-network effect.
- One of the largest venture capital firms in Silicon Valley, Andreessen Horowitz (known as “a16z”) issued a paper titled “How to Build a Better Internet”, and highlighted 10 principles for world leaders on how to shape the future of web3. You can read the report here.
- Pantera Capital partner Paul Veradittakit released his 2022 crypto market predictions. It highlights Layer 2 solutions, DAO, DeFi chains, NFT, and web3 breakthroughs. Read the details here.
- Bitwise Asset Management, a leading crypto index and ETF provider, conducted an annual survey that reveals the latest thinking from 600 financial advisors on crypto allocations, bitcoin ETFs, crypto equities, and more. The interest and allocation to crypto from traditional asset classes has increased by over 65% compared to 2020. Read the report here.
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