Friday, 27 January 2023

Market Summary

Market Summary 27 January 2023

Bitcoin Price: US$ 23,009.65 (-0.22%)
Ethereum Price: US$ 1,601.09 (-0.67%) 

 

Market Note: SOL Surges and Stalls

  • SOL failed to hit the monthly (meme) support area between $3-$5. This region was etched in every market participant’s memory thanks to the infamous SBF tweet, thus acting as a psychological attention zone and potential support area for SOL upon a retest. Every trader was salivating at the opportunity to bid at this level. As we know, when everyone eyes a specific level of support or resistance, the market either front-runs or overreacts. In the case of SOL, buyers began stepping in closer to $8 rather than $3-$5.
  • SOL doesn’t have enough price history for its monthly chart to be of significant use. That said, SOL is approaching the first trouble area, which spans from roughly $31-$43. If SOL is able to overcome this region, the next area spans from $80-$99, coinciding with the pre-LUNA collapse consolidation range low.
  • SOL has already pulled a 245% move from its bottom of $8 last month. Similarly to how the support region was front-run by buyers, it shouldn’t be of surprise to anyone if the same happens with the monthly resistance. Simply put, people who found the will to bid SOL during peak FTX collapse contagion fears have performed extremely well and will likely become sellers at some point. As with any looming monthly resistance zone, it is more than likely a time to exercise caution rather than get overzealous and overexcited.
  • ETH is generally used as the benchmark for other L1 tokens. For SOL, we multiply the ratio of SOL/ETH by 100. The reason for this is that it allows us to better read the ratio with legible numbers.
  • SOL/ETH is at its first zone of resistance spanning from 1.54-1.70. This coincides with the top of the range from SOL found support at a level that isn’t historically relevant to prior price action. The recent low was followed by an aggressive rally into the weekly resistance zone spanning from $24-$31. This region is arguably the most important one on the entire chart. It served as support during the market crash of May 2021 as well as the Terra-led deleveraging event in June 2022. The breakdown from this range was aggressive, as SOL dropped 62% within a week. The sell-off was led by growing concerns surrounding FTX’s solvency, collapse, and potential market contagion, with a heavy skew toward the SOL ecosystem.
  • SOL has rallied from a low of $7.7 (December 2022) to a high of $26.6 (January 2023). The merciless rally has now stalled as it battles its first major resistance.
  • The support/resistance zones for SOL on various timeframes are as follows:
  • Key resistance to the upside:
    • R1: SOLUSD: $26-$28 / SOLETH*100: 1.8-2.28
    • R2: SOLUSD: $49-$58 / SOLETH*100: 2.04-2.36
    • R3: SOLUSD: $175-249 / SOLETH*100: 4.15-5.41
  • Key support to the downside:
    • S1: SOLUSD: $3-$5 / SOLETH*100: 0.32-0.36
    • S2: SOLUSD: same as above / SOLETH*100: 1.03-1.13
    • S3: SOLUSD: $15-$18 / SOLETH*100: 1.22-1.36
  • SOL’s rally is starting to show cracks as perp aggression cools off. This, coupled with a divergence on the spot CVD, is likely symptomatic of momentum loss. When we factor in the ask-dominated bid/ask sum for spot markets, prudent long positions may see this as an ideal area to de-risk after such a strong move.
  • The short squeeze playbook is characterized by increased appetite for shorting → negative funding rates → price going up → shorts getting blown out → funding normalizing → price reaching resistance → ???. Whether this resistance gets taken out or the price corrects is something that remains to be seen.

 

The Wallet Wars

  • Before diving deeper into the wallet landscape, we wanted to touch on hardware wallets quickly. People will often compare a Ledger/Trezor to a wallet like MetaMask, but this is not the correct framing. A hardware wallet isn’t even really a wallet in the way we think about them, it is simply a device that allows one to safely and securely generate private keys, addresses, and sign transactions. Once these addresses are created, the user can use them securely in a variety of ways:
  • Official App: Most hardware wallets have their own app. This is where firmware updates take place and it also functions as a wallet interface to sign transactions. These apps can be slow to onboard integrations however, and users are restricted in what they’re able to do.
  • Using a HW With Web Extensions: This is a more secure way to use a web extension like MetaMask. Instead of generating a “hot” seed phrase directly in the MetaMask extension itself, users can let MetaMask read their addresses from the hardware device and request signatures from it. If a user’s computer is ever compromised, the hacker cannot gain access to funds, as the seed phrase was generated and kept offline. When you see MetaMask “hacks,” it is either someone entering their seed phrase on a site or a compromised computer and attackers extracting the “hot” keys stored on the computer.
  • Using a HW With a Smart Contract Wallet: Smart contract wallets like Safe require some threshold of signatures from EOAs (externally owned addresses, i.e., a standard Ethereum address). Thresholds can be set at any customization, but a common one is 2/3. This scheme requires signatures from 2 out of 3 designated addresses to authorize transactions. A scheme used could be a mobile key, a hot MetaMask key, and a hardware-generated key. What is decided is up to the user, and there’s always a tradeoff between security and convenience.
  • MetaMask is the most used wallet, and it’s not particularly close. As of March 2022, ConsenSys claimed over 30M monthly active users — the wallet game is theirs to lose. MetaMask has become so popular that if you even mention it on Twitter you instantly have multiple scam responses and quote tweets from “MetaMask support” within a few seconds. Ironically, the amount of scam bot replies when you mention a wallet on Twitter is a great signal for wallet adoption.
  • Backpack takes a similar approach to snaps with the “app-store,” but the main difference is that it is more focused on having the best consumer applications. They do this with xNFTs, also known as executable NFTs. Don’t let the name fool you, these aren’t monkey jpegs. An xNFT is similar to NFTs you see today, but instead of pointing to some image, you point to code instead. So, what does this enable? It enables developers to create apps as xNFTs that users can add to their wallets, giving them the ability to access any dApp straight from Backpack. Instead of connecting to various web interfaces (which increases the risk of phishing attacks), users can just add desired xNFTs to Backpack and access dApps directly from there. Not only is this more secure than the standard flow (by having verified apps actually held in one’s wallet), but overall makes the UX much cleaner. Developers don’t need to wait for wallet support either, they can just build an xNFT for what they want.
  • We talk about Keplr here not because it is more adopted than other wallets, but because it is the most adopted in Cosmos, an ecosystem we expect to see substantial growth over the next few years. Keplr is kind of the one stop shop for those in Cosmos, both with their extension and dashboard. Their dashboard has things like staking and governance voting on the majority of IBC chains, liquidity pool details for Osmosis, NFT portfolio tracking for Stargaze, and more. Keplr has added unique features like account abstraction (namely, paying for gas in any token). They’ve also added a lot of retail features like fiat onramp integrations through Transak, MoonPay, and Kado, and the ability to create a wallet, not just with a seed phrase or hardware wallet, but with Google as well. While “sign on with Google” is not something crypto natives will want, it does make the onboarding a lot easier and less overwhelming for new users. Keplr leverages Web3Auth for the Google sign-in, which already has MPC solutions and is also building a snap for MetaMask. In the future, you can envision an MPC version of this where one’s Google account is just a portion of the signing key.
  • Continue on Delphi…

 

FBI Infiltrated Hive Network, Blocking Over $130 Million in Crypto Ransomware

  • The U.S. Justice Department announced Thursday the results of a months-long operation with the Federal Bureau of Investigation that actively disrupted the activities of the Hive ransomware group, which the agency says had targeted hospitals, schools, and banking in over 80 countries.
  • “Last night, the Justice Department dismantled an international ransomware network responsible for extorting and attempting to extort hundreds of millions of dollars from victims in the United States and around the world,” U.S. Attorney General Merrick B. Garland said in a statement.
  • Since June 2021, the Justice Department says, the group has targeted more than 1,500 victims worldwide and received over $100 million in cryptocurrency ransom payments. The DOJ says the FBI’s operation to penetrate Hive’s network began in July 2022 and was able to provide over 1,300 decryption keys to help victims recover their data and systems—including critical infrastructure one.
  • The agency says the operation was coordinated with German and Dutch law enforcement, seizing control of the servers and websites used by Hive.

 

Phantom Wallet Claims It Thwarted Over 18K Attacks

  • After the latest high-profile NFT hack, this time taking down tech entrepreneur Kevin Rose, the security advantages of self-custody wallets were making the rounds on Crypto Twitter again.
  • On Wednesday, the creator of Proof and the Moonbirds NFT project was the victim of a phishing attack after the scammer sent Rose a message that leveraged permissions that he’d already granted to his MetaMask wallet on the OpenSea marketplace. When that message was signed, the thief used those privileges to drain over 40 NFTs, including an Autoglyphs NFT worth almost $500,000, from his wallet.
  • A tweet responding to Rose pointed out that the popular Solana cryptocurrency, Phantom, had warned its users of a malicious website and blocked the website that had snared Rose. The wallet developer responded, “we got your back.”
  • Like MetaMask, Phantom has a browser and mobile app that users can use to purchase, buy, or send their favorite NFT collections.

 

Senator Ted Cruz Wants Vendors to Accept Bitcoin at the Capitol

  • Senator Ted Cruz introduced a measure in the Senate Wednesday advocating for crypto payments within areas of the Capitol, a sign of Republicans’ continued focus on rules related to digital assets.
  • The new directive would apply to officials tasked with overseeing day-to-day operations within the House of Representatives and Senate, encouraging them to work with “persons that will accept digital assets as payment for goods” and food services.
  • The proposal references areas of the Capitol where digital payments could work, like at gift shops or vending machines. This past November, Cruz pushed for adopting cryptocurrencies such as Bitcoin as a form of payment within Capitol buildings through a similarly worded document.

 

SEC Rejects Another Spot Bitcoin ETF Bid by ARK and 21Shares

  • Another day, another refusal by the Securities and Exchange Commission (SEC) to allow a Bitcoin spot ETF to launch in the United States. 
  • The latest rejected proposal came from Cathie Wood’s ARK Invest and global crypto ETF provider 21Shares, which for a second time joined forces in an attempt to launch the ARK 21Shares Bitcoin ETF. It was initially filed last year on May 13, a month after Ark’s first attempt to list the product on BZX was turned down. 
  • An ETF—short for “exchange-traded fund”—is an investment vehicle offering indirect exposure to an underlying asset. This can be useful for investing in items that are difficult to own and store by oneself, such as gold, or for many, cryptocurrency. 
  • The SEC’s rationale for the decision is the same as last time: Ark has failed to demonstrate that the rules of its exchange are adequate to protect the investing public from “fraudulent and manipulative acts and practices.”

 

DeFi Protocol Aave Clears Bad CRV Token Debt from Exploit Attempt 

  • Decentralized finance (DeFi) protocol Aave eliminated the bad debt of 2.7 million of curve dao tokens (CRV) from a botched November trade by Mango Markets exploiter Avi Eisenberg, blockchain data on Etherscan shows.
  • The move came after Aave’s community approved the procurement of the necessary CRV tokens using the ParaSwap decentralized exchange aggregator in a governance vote concluded on Tuesday. The protocol is governed by a decentralized autonomous organization (DAO) and AAVE token holders vote on proposals.
  • The action also took place prior to the activation of a major tech upgrade called Aave v3.
  • In November, Avraham Eisenberg roiled Aave with a trading strategy that involved borrowing tens of millions of CRV tokens from the platform. After a sudden price spike due to a short squeeze, his position got liquidated, leaving Aave with bad debt in CRV that amounted to $1.6 million at the time.
  • Notably, an analysis by DeFi data platform EigenPhi found that the liquidator of the bad debt pocketed some $1 million profit due the recent upswing in crypto markets that helped lead to a 98% gain in CRV since the start of the year.

 

UK’s FCA Issues Advice for Crypto Firms After Only 41 of 300 Applicants Win Regulatory Approval

  • The U.K.’s financial watchdog published advice for crypto companies after just 14% of the firms looking to win regulatory approval in the country passed muster.
  • The extensive list of tips covers what applicants need to consider before, during and after submitting their applications for registration to the Financial Conduct Authority (FCA).
  • In the post, the regulator said only 41 of the 300 crypto companies applying for registration since it opened its registration regime two years ago managed to win full approval. Of the applications considered, 195 companies were either refused or withdrew their application and 29 were rejected, the regulator said.
  • “This feedback should help applicants when they prepare their application for registration and help make the process as simple and efficient as possible,” the note said.
  • The regulator came under fire from the industry and even some lawmakers who felt it was not handling the process well, leading to an exodus of crypto companies. The FCA recently pledged a friendlier approach that aligns with the government’s plans to turn the country into a crypto hub.
  • When preparing their applications, crypto firms should include details of a business model, roles and responsibilities of business partners, and demonstrate comprehensive business-wide risk-assessment capabilities. It should also show that the business has policies, systems and controls to manage risk, the FCA said.
  • Crypto service providers with a registered head office in the U.K. and that run their operations in the country are expected to apply with the FCA and those that do should have a money laundering reporting officer who “should be fully involved in the preparation of the application,” the FCA said on its page.

 

US economic growth tops estimates, grew by 2.9% during the fourth quarter

  • The U.S. economy grew by 2.9% during the fourth quarter, narrowly topping estimates of 2.8%.
  • Growth in the final three months of last year was primarily driven by consumer and federal government spending, according to the advance estimate. The data shows a reduction in the growth rate from the third quarter when the economy expanded 3.2%. 
  • Bitcoin’s price whipsawed following the news. The leading cryptocurrency by market cap dropped below $23,000 shortly after 8:30 a.m. EST, from around $23,100, according to data via TradingView. 
  • “This data is of massive importance as it is the first piece of salient hard data from the U.S. since the 6th of January Non-Farm Payrolls,” said David Stritch, currency analyst at Caxton. 

 

FTX Owes Money to Netflix, Binance, Wall Street Journal, Filing Shows

  • It’s the list everyone has been waiting for, minus 9.7 million redacted customer names. But the 116-page FTX creditor list, which names companies including Netflix (NFLX) and Apple (AAPL), still paints a comprehensive picture of the failed crypto enterprise’s reach and the impact of its collapse.
  • FTX owes money to media companies, universities, airlines and charities, among others, a court filing from Wednesday shows. The document was filed by lawyers for the company as part of the bankruptcy proceedings in the U.S. Bankruptcy Court in Delaware.
  • Judge John Dorsey, who is overseeing the proceedings, allowed the names of individual creditors to remain sealed for three months at a hearing in early January, but requested a list of institutions that invested in the company to be filed by FTX lawyers.
  • Among those listed are media companies including the Wall Street Journal, Fortune, Fox Broadcasting and CoinDesk as well as big crypto firms including exchanges Coinbase (COIN) and Binance. CoinDesk isn’t materially owed anything and is on the list for “technical reasons” over a podcast sponsorship signed in the fall that was never executed, a CoinDesk spokesperson said.
  • American Airlines Group (AAL), Spirit Airlines (SAVE) and Southwest Airlines (LUV), as well as Stanford University – where FTX founder Sam Bankman-Fried’s parents work as professors – and the university’s credit union were also listed in the document.
  • The list also names Gisele Bundchen Charitable Giving as a creditor. The Brazilian supermodel and then-husband Tom Brady were famously invested in the company, even appearing in one of its Super Bowl ads.
  • The document doesn’t show the amount each is owed, but the company had previously revealed it owed about $3.1 billion to its top 50 creditors. Of FTX’s previously estimated 1 million creditors, the two-largest single claims were for $226 million and $203 million.
  • Bankman-Fried has pleaded not guilty to fraud charges levied against him by U.S. regulators in New York. The collapse of FTX has damaged crypto markets and the industry’s reputation. Regulators are now clamoring to set up more guardrails to protect against investor harm and risk of contagion. FTX filed for Chapter 11 bankruptcy protection in Delaware in November.

 

Aave set to launch third version of its crypto lending protocol on Ethereum

  • DeFi lending platform Aave is set to launch the third version of its protocol on Ethereum after a successful DAO vote.
  • Aave v3 on Ethereum will be launched with support for seven assets: wrapped bitcoin, wrapped ether, wrapped staked ether, USDC, DAI, link, and aave. These assets were proposed by DeFi risk manager Chaos Labs. The Aave DAO voted in favor of Chaos Labs’ risk-off approach for the initial deployment of Aave v3 on Ethereum earlier in January.
  • Pricing for all assets apart from wrapped bitcoin and wrapped staked ether will come directly from a Chainlink feed. Chainlink is an oracle protocol that can provide data such as price feeds to smart contract protocols. The wrapped staked ether and wrapped bitcoin pricing feeds will rely on price adapter smart contracts, according to Aave developer BGD Labs. These price adapter smart contracts are still based on Chainlink feeds as well.
  • Aave v3 on Ethereum will come with only one eMode activated. Aave’s eMode feature allows for maximum capital efficiency for collateral and borrowed assets with high price correlation. The initial deployment will only support eMode for ether-correlated assets. As such, the eMode for Aave v3 on Ethereum will only support wrapped ether and wrapped staked ether.
  • Aave v3 launching on Ethereum expands the DeFi protocol’s multi-chain approach. The third iteration of Aave’s lending app signaled the project’s intention to deploy its protocol on multiple networks. Aave v3 has already been launched on six chains: Avalanche, Optimism, Polygon, Fantom, Harmony and Arbitrum.

 

Bank of Canada Signals Pause to Rate Hike Cycle

  • The Bank of Canada (BoC), as expected, boosted its benchmark overnight rate by 25 basis points to 4.5% on Wednesday morning, but somewhat surprisingly said it’s going to at least temporarily pause on any future interest rate increases.
  • “Inflation is projected to come down significantly this year,” said the BoC in its policy statement. “If economic developments evolve broadly in line with the [bank’s] outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.”
  • Down for the day alongside a broad sell-off in risk assets, bitcoin (BTC) showed little reaction to the BoC’s dovish statement, but it’s a potentially bullish development. Like the U.S. Federal Reserve, the BoC in 2022 embarked on a series of aggressive rate hikes to try and cool speedy inflation.

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