Monday, 9 May 2022

Market Summary

Market Summary 9 May 2022

Bitcoin Price: US$ 34,038.40 (-4.04%)
Ethereum Price: US$ 2,519.71 (-4.39%)

 

LFG to deploy $1.5 billion to bolster UST peg and build BTC reserves

  • Amid the sharp pullback across Bitcoin (BTC) and the wider crypto market this week, the Luna Foundation Guard (LFG) is set to deploy $1.5 billion worth of capital to “help protect” Terra USD’s (UST) peg to the United States dollar.
  • The Singapore-based nonprofit LFG is part of the Terra ecosystem and is tasked with collateralizing the network’s algorithmic stablecoin UST to keep its USD peg intact while also managing the network’s reserves.
  • While details are sparse at this stage, the LFG outlined on Twitter earlier today that it will first loan out $750 million worth of BTC to over-the-counter (OTC) trading firms to manage and trade the capital.
  • As the LFG’s $2.91 billion reserves are primarily backed by BTC by 91%, or $2.7 billion at the time of writing, the declining price of assets is forcing the entity to readjust its balance sheet to maintain UST’s peg. At the time of writing, BTC is down 12.7% over the past seven days to sit at roughly $33,600, while UST is slightly off its peg at $0.99.

 

Bitcoin whales jumping ship as exchange inflows reach 3-month high

  • The number of Bitcoin whales is rapidly decreasing to levels not seen since earlier this year, possibly due to the three-month high of coin inflows to centralized exchanges (CEXs).
  • Bitcoin (BTC) market tracker Glassnode has issued several bearish indicators for the largest cryptocurrency by market cap, including data suggesting a market exit for whales holding at least 1,000 coins, and exchange inflows of more than 1.7 million coins, the most since February.
  • High CEX inflows of BTC suggest whales are potentially exiting the market by selling coins, possibly as a way to prepare for a longer market downtrend. Cointelegraph reported on May 7 that recent sell-offs were likely executed by short-term holders who had accumulated coins in late January and early February when prices had reached a 6-month low of about $34,800.
  • Unfavorable outlooks on the market based on hard data have led the Bitcoin Fear and Greed Index to drop to 11, the “Extreme Fear” region. The index rates the general amount of fear or greed among Bitcoin investors.

 

LUNA drops 20% in a day as whale dumps Terra’s UST stablecoin — selloff risks ahead?

  • Terra (LUNA) has plunged significantly after witnessing a FUD attack on its native stablecoin TerraUSD (UST).
  • The LUNA/USD pair dropped 20% between May 7 and May 8, hitting $61, its worst level in three months, after a whale mass-dumped $285 million worth of UST. As a result of this selloff, UST briefly lost its United States dollar peg, falling to as low as $0.98.
  • LUNA serves as a collateral asset to maintain UST’s dollar peg, according to Terra’s elastic monetary policy. Therefore, when the value of UST is above $1.00, the Terra protocol incentivizes users to burn LUNA and mint UST. Conversely, when UST’s price drops below $1.00, the protocol rewards users for burning UST and minting LUNA.
  • Therefore, during UST supply reduction, LUNA’s valuation should decrease. Similarly, when UST’s supply expands, LUNA’s valuation increases, noted Will Comyns, a researcher at Messari.

 

The United States turns its attention to stablecoin regulation

  • Introduced by Sen. Toomey, the ranking member of the Senate Banking Committee, the Stablecoin TRUST Act forces stablecoin issuers to adhere to certain rules. The regulations in the act are sweeping and comprehensive. The bill clarifies that payment stablecoins are not securities, which is a great thing for the industry. The bill also refers to stablecoins as “payment stablecoins” — digital assets that can be “convertible directly to fiat currency by the issuer” and that have a “stable value relative to a fiat currency or currencies.”
  • Stablecoin issuers would have to choose between securing the Office of the Comptroller of the Currency (OCC) license, a state money transmitter, or similar license or a traditional bank charter. Stablecoin issuers operating in the U.S. would be subject to a disclosure regime that would require them to secure regular audits, detail clear redemption policies and specify what actually backs the stablecoins they issue.
  • The Stablecoin TRUST Act regulates what assets can back their USD-pegged stablecoins, which would be cash, where interest rates are incredibly low, and Treasury Bills (T-Bills), where interest rates aren’t much better. This poses a major problem to both current stablecoin issuers and future players, as they won’t be able to earn higher interest from riskier assets.

 

Crypto mixer sanctioned by US Treasury for role in Axie Infinity hack

  • The United States Treasury Department Office of Foreign Assets Control (OFAC) announced Friday that it was sanctioning cryptocurrency mixer Blender.io for its role in laundering proceeds from the hacking of Axie Infinity’s Ronin Bridge. North Korean state-sponsored hackers Lazarus Group have been identified as the perpetrators of the attack. 
  • Treasury Under Secretary for Terrorism and Financial Intelligence Brian E. Nelson said in a statement:
  • “Today, for the first time ever, Treasury is sanctioning a virtual currency mixer. […] We are taking action against illicit financial activity by the DPRK and will not allow state-sponsored thievery and its money-laundering enablers to go unanswered.”
  • Under the sanctions, all Blender.io property in the United States or in the possession of U.S. persons is blocked and must be reported to OFAC.
  • According to OFAC, Blender.io processed $20.5 million out of approximately $620 million stolen from the Vietnam-based play-to-earn game in the form of roughly 173,600 Ether (ETH) and 25.5 million USD Coin (USDC). OFAC also found during its investigation that Blender.io had facilitated money laundering for Russia-linked ransomware groups including Trickbot, Conti, Ryuk, Sodinokibi and Gandcrab. The Blender.io website was offline at the time of writing.
  • The Treasury agency also added the addresses of four wallets used by Lazarus Group to launder some of the stolen funds to its List of Specially Designated Nationals and Blocked Persons.

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