Thursday, 18 August 2022

Market Summary

Market Summary 18 August 2022

Bitcoin Price: US$ 23,342.66 (-2.15%)
Ethereum Price: US$ 1,834.25 (-2.26%) 

 

ETH Borrow Rate On Aave Rises As Users Position For The Merge

  • Vitalik says he is in favor of burning the staked ETH of any validator that hypothetically complies with regulators and censors Ethereum at the protocol level.
  • Do Kwon, CEO of Terraform Labs, sits for an interview for the first time after UST de-pegged in May-22.
  • Jump Crypto announces it will build a new, open-source validator client for Solana, independent from the one built by Solana Labs.
  • Genesis, crypto lender and broker, says its CEO Michael Moro will step down in a leadership shuffle. The company will also fire 20% of its 260-person workforce.
  • FT reveals that Alex Mashinsky, CEO of crypto lender Celsius, shorted BTC with customer assets ahead of the Jan-22 Fed meeting and incurred losses. Celsius also says it has several offers to inject cash into the company.
  • On August 14, the variable interest rate for borrowing ETH from Aave v2 climbed up to reach 2.90%, the highest rate since February 2021.
  • Meanwhile, the utilization rate of the ETH money market reached an all time high of 52%. This is the percentage of the pool that has been borrowed by other users.
  • This comes as a sharp increase from the beginning of this year when the borrow rate was 0.27% and the utilization rate was 2%. This increase is likely the result of users positioning themselves to profit off a potential hard fork of the Ethereum chain.
  • When the Merge goes through, many suspect that some miners will fork a new chain that retains Ethereum’s proof-of-work consensus mechanism. If this happens, ETH holders will be airdropped an equivalent ETH-PoW token on the new chain.
  • To profit from such a hard fork, users are borrowing as much ETH as they can in order to maximize the number of ETH-PoW tokens airdropped to them. Subsequently, this pushes up the borrowing rate and utilization of ETH on Aave v2.
  • Surprisingly, the ETH money market on Compound Finance is offering a net rate of only 0.15% to borrowers (after COMP incentives) with only 3% utilization rate.

 

Fed adds a new layer of bureaucracy for US banks engaging in crypto asset activities

  • The United States Federal Reserve Board issued a letter Tuesday to its supervisory officers, staff and the banks they supervise regarding activities with crypto assets. The letter covers the preliminary steps a bank must go through before engaging in activities with crypto and instructs banks to notify the board before proceeding with those activities.
  • The letter, signed by the directors of the regulatory and community affairs divisions, applies to all banks supervised by the Fed with no threshold of minimum assets. It begins with a warning about the risks associated with crypto, specifically mentioning evolving technology and its governance, Anti-Money Laundering and transparency and the stability of assets such as stablecoin.
  • The Fed is monitoring banks’ activities, the letter noted:
  • “Given the heightened and novel risks posed by crypto-assets, the Federal Reserve is closely monitoring related developments and banking organizations’ participation in crypto-asset-related activities.”

 

Quebec Pension Fund loses almost entirety of its Celsius investment in less than ten months

  • According to local news outlet LaPresse on Wednesday, the Caisse de dépôt et placement du Québec (CDPQ), an institutional investor chartered with managing retirement assets in Canada’s predominantly French-speaking province of Quebec, wrote off almost the entirety of its CA$200 million ($154.7 million) investment in troubled cryptocurrency lender Celsius Network. 
  • The move came just ten months after the CDPQ and growth equity firm WestCap made a joint investment of $400 million into Celsius at a valuation of $3 billion. At that time, Celsius boasted over 1,000 employees, $25 billion in total assets and $850 million in cumulative interest paid to depositors.
  • However, as an unregulated and centralized entity, a depositors’ assets are not protected in the event of losses, nor is the firm subjected to any restrictions on the use of leverage. During the onset of this year’s crypto winter, the sudden and violent crash of Bitcoin (BTC) and other digital assets left a $2.85 billion gap in Celsius’ net assets. As a result, it suspended withdrawals on the accounts of nearly 1.7 million customers in June.

 

Economic design changes will affect ETH’s value post-Merge, says ConsenSys exec

  • As the Ethereum Merge draws near, many are speculating on its economic effects. To provide a clearer view to those who anticipate the major upgrade, Lex Sokolin, the head economist at ConsenSys, shared his insights in an interview with Cointelegraph. 
  • The expert discussed the effect of the Merge on users, developers and businesses. Additionally, Sokolin also cleared up some misconceptions about the Merge and explained how the new development can have an impact on the price of Ether (ETH).
  • On the user level, the economist said that the average user will be able to use the chain as they normally do, but one significant impact for users post-Merge is having a less risky way to stake ETH. He explained that:
  • “Right now, staking on the beacon chain carries the risk that the Merge doesn’t happen. But once it does, participation in staking is more accessible and has less technical risk.”
  • In terms of effects on businesses and developers, the expert shared that the Merge may standardize the notional interest rate for the entire Web3 space through the ETH yield. This could potentially remove the need for speculative financial engineering projects, according to Sokolin.
  • “We expect that risks of projects and business opportunities can be evaluated against merely staking ETH on a risk-adjusted basis.”

 

Binance assures users after 3rd-party glitch briefly halted withdrawals

  • Cryptocurrency exchange Binance announced a temporary freeze on withdrawals on Wednesday morning. The suspension took place across multiple networks as a result of a technical issue by a third-party provider, according to Binance. 
  • In a tweet, the exchange said the incident took place around 7:00 am UTC and was resolved by the team within an hour.
  • Binance also assured users that despite the freeze, funds are “SAFU.” This acronym stands for the exchange’s monetary fund, Secure Asset Fund for Users (SAFU). The fund was created in 2018 by Binance to compensate customers in light of a hack on the exchange. It holds 10% of all trading fees.
  • After questions about the fund from Twitter users, the exchange promptly clarified the purpose and its $1 billion value.

 

UK hits double-digit inflation for the first time in 40 years

  • The inflation rate in the United Kingdom reached 10.1%, according to the Office for National Statistics (ONS). The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to July 2022. It’s a significant leap from 9.4% in June.
  • The ONS stated that housing and household services, including fuel and transport (fuel again), food and beverages are to blame for the surge in prices.
  • The price at the pump in the United Kingdom currently stands at roughly £1.72 ($2.08) per liter, having almost breached the £2 mark recently. For Diesel, the price sits at £1.84 ($2.23) per liter, having dropped under the £2 mark in June. The ONS reported that rising food prices were the largest contributor to the inflation rate.
  • Meanwhile, for Guy from Coin Bureau, the worst is yet to come for Brits like him. Winter gas surcharges are right around the corner, he tweeted. Paul Dales, chief U.K. economist at Capital Economics stated in July that inflation could “rise to 12% in October and that interest rates will be raised from 1.25% to 3%, although it’s finely balanced whether they rise by 25bps or 50bps in August.”

 

EthereumPoW team plans to freeze selected contracts, community pushes back

  • Ethereum is all set to transition to a proof-of-stake (PoS) network by Sept. 15 to 16, which will see the end of its current proof-of-work (PoW) consensus mechani and eliminate mining from the ecosystem.
  • In light of such a significant upgrade, Ethereum’s PoW proponents, especially its miners, have decided to keep the PoW chain alive. EthereumPoW, comprising the core PoW team, has recommended that Ether (ETH) holders withdraw their assets from liquidity pools (LPs) at places such as Uniswap, SushiSwap, Aave, Compound and other decentralized exchanges (DEXs).
  • The core team said they would temporarily freeze EthereumPoW (ETHW) tokens in certain liquidy pools of DEXs and lending protocols to protect user assets after the hard fork.
  • The core team believes that immediately after the Ethereum PoW hard fork, especially for the first several blocks, users’ ETHW tokens deposited in liquidity pools will be swapped or lent out by hackers and scientists using deprecated and valueless Tether (USDT), USD Coin (USDC) and Wrapped Bitcoin (WBTC), which would “create a huge mess to the whole network and community.”
  • The core team said:
  • “ETHW Core has to make the hard decision to temporarily freeze certain LP contracts to protect users’ ETHW tokens until the protocols’ controllers or communities find a better way.”

 

Another depeg: Acala trace report reveals 3B aUSD erroneously minted

  • High-profile security incidents continue to be a theme in 2022, with the Acala network joining a long list of stricken platforms to fall prey to exploits.
  • The Acala USD (aUSD) token, which acts as a native stablecoin for the Polkadot and Kusama blockchains, saw its value plummet 99% after a misconfiguration of the iBTC/aUSD liquidity pool was exploited after its launch on Sunday. Initial estimates from Acala noted that 1.2 billion aUSD was minted without the necessary collateral, seeing the token’s value depeg from its 1:1 peg with the U.S. dollar to a bottom of $0.01.
  • Acala put its network in maintenance mode to freeze funds and eventually managed to recoup a significant portion of the uncollateralized tokens. The Acala community proposed and voted on a referendum to identify and destroy the erroneously minted tokens to return its dollar peg to parity at $1.
  • 1,288,561,129 aUSD minted on 16 different accounts was returned to the network’s Honzon protocol to be burned. Another 4,299,119 erroneously minted aUSD remaining in the iBTC/aUSD reward pool was also destroyed.

 

For greater good: NY judge allows Celsius to mine, sell Bitcoin

  • Not even 24 hours after revealing a three-month cash flow forecast that threatens total exhaustion of funds, a New York judge allowed crypto lender Celsius Network to mine and sell Bitcoin (BTC) during its bankruptcy.
  • Since July 2022, Celsius Networks stands at the crosshair of United States officials after reports of bankruptcy surfaced, which risks losing the live savings of numerous crypto investors.
  • During the second day of the case hearing, chief bankruptcy judge Martin Glenn, Southern District of New York, approved Celsuis’ request for running BTC mining and selling operations as a means to reinstate financial stability.
  • However, Glenn raised concerns related to the immediate profitability of BTC mining as he rightly pointed out the high upfront investments needed for setting up mining infrastructure.

 

US Federal Reserve Minutes Show More Rate Hikes Coming, Concern About Stablecoin Risks

  • U.S. Federal Reserve governors anticipate announcing more interest rate increases in the coming months, but the pace of the hikes will likely slow if the inflation rate starts to come down, according to meeting minutes released Wednesday.
  • The minutes are from last month’s meeting of the Federal Open Market Committee (FOMC), which is the Fed’s monetary-policy panel, led by Chair Jerome Powell.
  • But more than interest rates came up during the meeting. The financial stability of digital assets, particularly stablecoins, was also discussed, according to the minutes.
  • Bitcoin (BTC) and most other major digital-asset prices changed little following the release of the meeting minutes. The largest cryptocurrency by market capitalization was trading 0.4% higher in the 30 minutes after the release but was down about 1% over the past 24 hours. Bitcoin has declined for four consecutive days, after rallying last week.

 

Glassnode

#Bitcoin RHODL Ratio compares the USD wealth of 1 week old coins, to those held by the 1y-2y old cohort.

The RHODL continues to trend lower, indicating the balance of wealth is now firmly back with longer-term holders.

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