Tuesday, 12 July 2022

Market Summary

Market Summary 12 July 2022

Bitcoin Price: US$ 1,9963.61  (-4.31%)
Ethereum Price: US$ 1,096.40 (-6.16%) 


BNB Outperforms, NFT Insights, Crypto Winter Bleeds Into Summer

  • Since the beginning of 2022, crypto markets have been in turmoil due to looming uncertainty in the macroeconomic landscape. Insolvency issues at large crypto firms have further perpetuated the drawdowns, resulting in a liquidity crisis across the industry.
  • Amidst the bloodshed, BNB has relatively outperformed BTC, ETH, and all other major layer-1 protocols. While BTC has experienced a 69% drawdown since all-time high in Nov-2021, BNB is down by 64%. In comparison, ETH, SOL, AVAX, ATOM, and DOT are down 72-85%, within the same time period.
  • The relative outperformance of BNB may be attributed to large token burns, alongside an almost fully diluted token supply. Since the implementation of BEP-95 (a real-time burning upgrade that went live in Oct-2021), more than 101k BNB (worth roughly $42 million) has been burned.
  • During the previous bear market, BTC eventually found its bottom after falling 85% from its 2017 high, whereas ETH experienced a 94% drop. This indicates that there may be further pain ahead during this cycle, even as past performance may not guarantee future results.
  • ENS is seeing large amounts of speculative trading. Just this week, there was a massive 300E sale for 000.eth. Now, 3-digit numerical .eth domain names are selling for 30E, while even chinese and arabic versions of the 3-digit numerical .eth domains are going for over 1E each. Other large sales this week include porno.eth (184E) and٠٠٠.eth (100E). I am a big fan of ENS and its ability to make web3 more friendly to navigate. However, this activity appears to be domain squatting rather than actual intentions to use these domain names. At these prices, I consider it very risky if the only intention is to sell to someone else at a higher price in the near future.
  • Q2 was an absolute bloodbath for crypto markets. BTC finds itself ~70% off of its all-time high, ETH is down 75%, and many smaller crypto assets are down 85-90%. The total crypto market cap down has dropped from $3T to $991M, a drawdown of nearly 67%.
  • In fact, bitcoin’s nearly 40% decline in June marked one of its worst calendar months on record.
  • The macro backdrop continued to worsen in the weeks following. CPI prints came in hotter than expected and risk assets began to take another plunge, with crypto and BTC leading to way. Shortly after, news began to surface of 3AC insolvency and possible contagion. It did not take long for many of these rumors to transition to fact as several counterparties publicly spoke out about the liquidation of 3AC accounts. BTC and crypto markets began yet another liquidation cascade, slipping through the low volume void that we have been discussing for the last several weeks. BTC found itself retesting the 2017 all-time highs, and briefly traded as low as $17.7K.
  • The price of BTC fell ~85% from peak-to-trough in each of the last two major bear markets. Right now it’s down ~72% from its high, but if history repeats it would imply a low just above $10K and another 50% drawdown from current levels.
  • On the macro front, we believe there’s still more pain ahead for risk assets. After the FOMC’s mid-June meeting, the market started pricing in less rate hikes in 2H 2023 as the aforementioned risks became more apparent. But inflation is still a huge problem, which puts the Fed in a precarious place.
  • Consumer sentiment is the worst it’s been in decades as is the number of people who expect their financial situation will be worse a year from now.


Analysts say Bitcoin range ‘consolidation’ is most likely until a ‘macro catalyst’ emerges

  • From a historical perspective, the loss in value realized across the cryptocurrency market over the past several months has been one for the record books and the total cryptocurrency market cap has declined from $3 trillion to $991 million. 
  • June was especially painful for investors after the price of Bitcoin (BTC) fell nearly 40% to mark one of its worst calendar months on record according to a recent report from cryptocurrency research firm Delphi Digital.
  • In light of the strong market correction, a number of BTC price and on-chain metrics have begun to reach levels similar to those seen during previous market bottoms, but this doesn’t mean traders should expect a turnaround anytime soon because history shows that periods of weakness can drag on for months on end.
  • One of the most significant factors weighing on cryptocurrencies and other risk assets has been the strength of the United States Dollar.
  • Combined with rising inflation and falling economic indicators, DXY strength is a signal that an economic slowdown is all but inevitable, with forecasts now predicting a recession in early to mid-2023.
  • This current cycle marks the first time in Bitcoin’s history that its price has fallen below the all-time high set during a previous bull market cycle. Should BTC fail to hold support near $20,000, Delphi Digital pointed to an expected “support around ~$15K, and then ~$9K to $12K if that level failed to hold.”


Lido DAO price moves higher as the Ethereum Merge moves a step closer to completion

  • The upcoming Ethereum (ETH) Merge is one of the most talked about developments in the cryptocurrency ecosystem as the world’s second-largest cryptocurrency by market cap undergoes the difficult transition from proof-of-work (PoW) to proof-of-stake (PoS). 
  • One protocol whose fate is largely tied to the successful completion of the Merge is Lido DAO (LDO), a liquid staking platform that allows users to tap into the value of their assets for use in decentralized finance and earn yield from staking.
  • Three reasons for the sharp turnaround for LDO include the successful Merge on the Sepolia testnet, the continued increase in Ether deposits on the platform and the slow recovery of staked Ether (stETH) price in comparison to Ether’s spot price.
  • Migrating to proof-of-stake has been a challenging process, but it came one step closer to completion on July 6 with the successful Merge of the PoW and PoS chains on Ethereum’s Sepolia testnet.
  • Following this development, there is only one more Merge trial to conduct on the Goerli testnet, and if that goes down without any major issues the Ethereum mainnet will be next.
  • Since Lido specializes in providing liquid staking services for Ethereum, each step closer to the full transition to PoS benefits the liquid staking platform because Ether holders who want a less complicated way to stake their tokens can utilize Lido’s services and not have to worry about token lock-ups.


REPORT: Binance allegedly continued to serve Iranian customers, despite ban and sanctions

  • Global cryptocurrency exchange Binance is under the spotlight as a report claims it continued serving Iranian clients despite a company ban and economic sanctions against the country.
  • According to an investigative report from Reuters, individuals inside the country continued to trade on Binance after the company itself had shifted Iran onto a blacklist of jurisdictions in which it would not operate.
  • The use of the exchange by Iranians also brings into question capital controls instituted against the country after U.S. economic sanctions were ramped-up in 2018. Binance, itself, operates out of the Cayman Islands and is not subject to sanctions banning U.S. entities from doing business in Iran.
  • However, Binance’s U.S. based business Binance.US does throw a spanner in the works, possibly facing secondary sanctions for doing business in a sanctioned state and by providing a means for Iranians to bypass trade embargoes.


G20 regulator to present global crypto rules in October 2022

  • The Financial Stability Board (FSB), a global financial regulator including all G20 countries, is preparing to propose international regulations for cryptocurrencies and stablecoins in October.
  • The FSB on Monday issued a statement on the international regulation and supervision of crypto asset activities, announcing a major crypto regulation effort.
  • The watchdog is planning to report to the G20 finance minister and central bank governors in October 2022 on regulatory and supervisory approaches to stablecoins and other crypto assets. By that time, the FSB targets a public consultation report on the review of recommendations, including “how existing frameworks may be extended to close gaps and implement the high-level recommendations.”


US crypto regulation bill aims to bring greater clarity to DAOs

  • On June 7, United States Senators Cynthia Lummis and Kirsten Gillibrand launched the much anticipated Responsible Financial Innovation Act, proposing a comprehensive set of regulations that address some of the biggest questions facing the digital assets sector. By providing holistic guidance to the rapidly growing industry, the bill offers a bipartisan response to President Biden’s call for a whole-of-government approach to regulating crypto.
  • Among its many proposals, the bill establishes basic definitions, provides an exemption for digital currency transactions and harmonizes the roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), delineating regulatory swim lanes and granting a significant jurisdictional expansion to the CFTC.
  • The bill is perhaps most productively seen as an invitation for further dialogue. In the coming months, its success or failure will largely be determined by the strength of the debates it generates. It has already engendered strong reactions from the industry. One of the most hotly debated — and potentially impactful — sections of the legislation pertains to decentralized autonomous organizations (DAOs). While the act helpfully clarifies elements of DAO policy, further action is required to answer the remaining questions around legal status, applicable laws and jurisdictional authority.


PoS gives Ethereum the economic structure to overtake Bitcoin, says DeFi researcher

  • As Ethereum shifts into proof-of-stake (PoS), a decentralized finance (DeFi) researcher has argued that the platform can overtake Bitcoin’s (BTC) throne as the top dog in crypto. 
  • In a Twitter thread, researcher Vivek Raman highlighted that the upcoming Ethereum Merge could create a better economic structure for the smart contract platform. According to Raman, the shift into PoS lowers Ether (ETH) inflation, gives better security and positions the crypto as a digital bond.
  • Raman said that after the Merge, ETH inflation will drop from 4.3% to 0.22%. The researcher explained that this gives the ecosystem a 95% reduction in issuance, limiting the number of ETH that can be sold in a day. 
  • Additionally, the researcher also explained that the platform would be running on better security after the Merge. Citing a post by Ethereum co-founder Vitalik Buterin, Raman highlighted that it would cost more to attack the network once it runs on PoS.
  • Apart from these, Raman also believes that the Ethereum Merge will allow ETH to complement Bitcoin’s use cases as a store of value and a collateral asset. While BTC will function as digital gold, Raman argues that ETH will position itself as a digital bond and DeFi’s main asset used as collateral.


Grayscale legal officer says Bitcoin ETF litigation could take two years

  • Asset management firms continue to fight for a spot Bitcoin (BTC) exchange-traded fund (ETF) in the United States as regulators remain skeptical of the idea.
  • Craig Salm, chief legal officer at asset manager Grayscale, discussed the firm’s lawsuit with the United States Securities and Exchanges Commission (SEC) regarding the conversion of the Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. 
  • Salm explained the basis for Grayscale’s argument against the SEC while answering the most-asked questions regarding the lawsuit. According to the legal officer, the SEC’s denial of the spot Bitcoin ETF separates futures and spot trading for Bitcoin ETFs and draws a distinction between the two.
  • However, Grayscale argues that the differences have no correlation with Bitcoin ETF approvals, as both futures and spot Bitcoin ETF prices are based on the same spot Bitcoin markets. 
  • Thus, the Grayscale legal team believes that the disapproval of spot Bitcoin ETFs amid the approval of Bitcoin futures ETFs can be considered “unfair discrimination.” Salm claimed that this violates several laws including the Administrative Procedure Act and the Securities Exchange Act of 1934.

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