The Fed Raises Rates Again As Crypto Struggles To Find Direction

Weekly News Wrap Up

Banking crisis fears continued last week despite JPMorgan Chase’s acquisition of First Republic Bank, the fourth regional lender to collapse this year and the second-largest in U.S. history. Shares of PacWest Bancorp (PACW) tumbled more than 75% in the week hitting a low of $2.48 after a report that it was considering selling itself. Elsewhere, Treasury Secretary Janet Yellen warned that the U.S. government may default on its debts as soon as 01 June 2023, calling for urgency in resolving the U.S. debt ceiling debate. Lastly, the U.S. Federal Reserve raised rates to 5-5.25%, its 11th rate-hike since March 2022, and signaled a potential pause.

In Crypto, Coinbase goes international amid continued U.S. regulatory scrutiny and Liquid Staking Derivatives (e.g. Lido, RocketPool) overtakes Decentralized Exchanges (e.g. Uniswap, SushiSwap) as the top category in DeFi by Total Value Locked (TVL).

U.S. equities remained under pressure as recession risks increased from banking related concerns exacerbated by the U.S. Federal Reserve’s continued commitment to its tightening policy amid stickier inflation: SPX-0.80%, DJIA -1.24% and NASDAQ +0.07%. The broad U.S. regional bank ETF (KRE) -10.10% for the week. Crypto continued its rangey-trend with BTC -2.63% and ETH +0.14%, trading between $27K-$30K and $1,800-$2,000 as the markets struggled to find direction.

On-chain, the monthly net position change of young supply reveals a consistent and stable net sell pressure at a rate of +250k BTC per month, resulting in an increase of 366K BTC in total young supply. The proportion of both BTC and USD-denominated wealth held by recent buyers, particularly those in the young supply age bands (<6-months) can shed light on market demand.  An increasing share of young supply during a rally indicates a flow of capital into the market. This also suggests that old supply (>6-months) is spending and transferring cheap/old coins to new buyers at higher prices due to increased demand liquidity. This current pattern is similar to the 2019 uptrend and may indicate an impending period of equilibrium before another bullish cycle, similar to what was observed in the 2020-21 market trend (@glassnode ).

Cryptocurrency News

• White House pushes for a punitive tax on crypto mining. The Biden administration is campaigning for a tax first sought in a recent federal budget proposal, advocating that crypto miners pay an amount equal to 30% of their energy costs.

• Jury convicts former OpenSea manager in NFT-insider trading case. Prosecutors claimed Nathaniel Chastain profited from inside information about which NFTs would be featured on the marketplace. This marks the first time someone has been officially charged with insider trading specifically on NFTs.
  Our View: the outcome of the case could set a precedent for labeling NFTs as a security, allowing the U.S. SEC to claim regulatory oversight on the asset class.

• Poloniex agrees to a $7.59 million fee to settle sanctions violation charges. The U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) said the cryptocurrency exchange had nearly 66,000 violations, allowing customers from Crimea, Cuba, Iran, Sudan and Syria to trade up to a collective $15 million between January 2014 and November 2019.

• Cryptoverse: digital coins lure inflation-weary Argentines and Turks. Ownership of digital currencies in Turkey was the highest in the world at 27.1% followed by Argentina at 23.5% – well above global crypto ownership rate estimated at 11.9% – according to data from research firm GWI. What is common to Turkey and Argentina is high inflation, which has led to crumbling currencies and capital controls to deter local residents from taking money out. Turkey’s annual inflation was 50.51% in March, Argentina’s was even higher at 104%.
  Our View: we have long touted cryptocurrencies’ appeal as a viable alternative to FIAT, especially in countries with unstable banking systems and persistently high inflation, eroding citizens’ long-term wealth. 

• Coinbase International Exchange launches amid SEC crypto crackdown in the US. The cryptocurrency exchange launched its global derivatives platform that will be available only to institutional clients in eligible, non-U.S. jurisdictions. It will start by listing BTC and ETH perpetual futures, and all trading will be settled in USDc, requiring no FIAT on-ramps.

• Venmo will enable FIAT-to-crypto payments in May. PayPal, the parent company of Venmo, announced the new feature “which is basically connecting two of the largest networks and wallets in the country.” Users will be able to buy cryptocurrencies and send them to other Venmo users or external wallets.

• Mastercard launches Web3 user-verification solution to curb bad actors. The solution, dubbed “Mastercard Crypto Credential”, was announced at Consensus23. As part of the solution, users will be issued a “Mastercard crypto credential unique identifier,” which, in theory, enables people to instantly verify that an address they want to send funds to has been vetted by Mastercard and has been operating in compliance with the firm’s standards.
  Our View: the global payments company has been continually upping its exposure to the crypto sector over the last couple of years. This announcement comes just a few weeks after it launched a non-fungible token (NFT) gated musician accelerator program in collaboration with Polygon.

• DefiLlama: Liquid Staking solutions now have more Total Value Locked (TVL) than Decentralized Exchanges (DEXs). According to data from the crypto analytics platform, Liquid Staking solutions such as Lido and Rocket Pool now have more TVL than decentralized exchanges, making them the top category of DeFi protocols. TVL is a metric that measures the dollar value of all cryptocurrencies locked within a protocol’s smart contracts.
  Our View: the data point above highlights the growing popularity of liquid staking derivatives and the success of Ethereum’s recent Shapella upgrade, where despite withdrawals being enabled for staked ETH, we are still seeing staking inflows.

• Justin Sun to reverse $56 million Binance transfer after CEO Changpeng Zhao warns against potential SUI token grab. After the substantial transfer made in trueUSD (TUSD) got flagged by Whale Alert, CZ tweeted to warn Sun it will take action if he used any of the funds to buy up large amounts of SUI tokens from Binance’s Launchpool.

Investment Consideration

Our best strategy for the moment is to take at least 1-3 years in Moderate Portfolio because it has a good defense with 50% Fixed Deposit , 30% In DCD and 20% in Staking.  After  all,  we  still  have  potential  returns  in  DCD  and  Staking,  especially in BTC.

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