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July Monthly Market Update

2022-07-28

Welcome to our monthly wrap-up newsletter, where we scan the metaverse for the most essential pieces of information you need; from DeFi to stablecoin, markets to regulation, we've condensed it for your convenience. 

Markets

Federal Reserve officials raised interest rates by 75 basis points for the second straight month as Fed Chair Jerome Powell rejects any claims that the U.S. is in a recession. The U.S. Consumer Price Index (CPI) reached 9.1 per cent in June, the highest reading in more than 40 years. The increase in gas, food and housing prices were the most significant contributors to last month's CPI data. 

Similarly, in Australia, the Bureau of Statistics (ABS) revealed that CPI rose by 1.8 per cent in the June quarter, with the annual inflation rate increasing to 6.1 per cent, the largest rate Australians have seen in over two decades. Over the last six months, Australia has battled with floods, labour shortages, increased freight costs and fuel, pushing up the price of housing. 

Europe has joined the U.S. and Australia in its battle to curb inflation. The European Central Bank increased its key interest rate by a half percentage point, the biggest increase since 2000 and the first in more than a decade. The Euro dropped 12% to parity with the U.S. dollar this month. 

Bitcoin 

Bitcoin rebounded from its two drops below $20,000, to end the month up 12.59% to $22,817.

Tesla released its quarterly earnings, reporting it sold 75% of its Bitcoin holdings, adding $936m in cash to its balance sheets. Stating it is not a verdict on Bitcoin but rather a way to increase liquidity and that they are open to increasing Bitcoin holdings in the future. Musk did note that Tesla had not sold any of its Dogecoin. Bitcoin appears to be unaffected, with the asset dipping just 2.2% 24 hours after the earnings report came out.

When China banned Bitcoin mining in 2021, miners flocked to Texas as it boosted liberal regulations and competitive rates for electricity - until this summer. A heat wave has pushed the state's grid to its limits, with prices soaring in response. Nearly all industrial-scale Bitcoin miners in Texas have turned off their rigs to ease the strain. 

Mt. Gox, the collapsed crypto exchange that lost over 800,000 Bitcoin, has announced a rehabilitation plan to return a portion of the missing BTC to creditors.

Ethereum

The Ethereum Community Conference (EthCC) is the largest annual European Ethereum event focused on technology and community held in July. There was little talk around price movements with the focus on developing, hacking and networking. Ethereum developer, Tim Beiko, proposed that the merge could happen on September 19, and markets have responded with ETH up 41% for the month.

Review of Q2 performance for the Ethereum network in comparison to Q2 2021. 

Positively; 

  • Staked ETH increased 116% from 6.01M to 12.98M. Measuring the amount of ETH staked on the Beacon Chain ahead of the network's upcoming transition from Proof Of Work (PoW) to Proof Of Stake (PoS)

  • ~ 10.86% of the total supply of ETH was staked by the end of Q2.

  • Stablecoin Circulating Supply increased 43.0% from $76.58B to $109.50B. 

Source: Outstanding Supply of Stablecoins - Dune Analytic

On the downside;

  • Network Revenue fell 33.4% from $1.91B to $1.28B. Measuring the value of the transaction fees paid to use the network.

  • ETH Inflation Rate decreased 37% from 1.12% to 0.71%. Measuring the growth in the supply of ETH for the quarter. The decline is likely a result of the fee burning mechanism implemented in Q3 2021 via EIP-1559.

  • Average Daily Active Addresses fell 20.6% from 593,404 to 471,447.

Restriction

Wyoming Senator Cynthia Lummis said during the D.C. Blockchain that the full bill she released last month with Democrat Kirsten Gillibrand would probably not be considered until next year. The Lummis bill is one of 35 crypto-related bills in Congress. The Lummis-Gillibrand bill would bring crypto under the oversight of existing agencies, along with their existing requirements.

Nadhim Zahawi, the chancellor of the Exchequer in the U.K, said the government would introduce a bill to set out how stablecoins may be used as a means of payment. This is following comments from the Treasury in April announcing it is exploring ways to improve the efficiency of the U.K. tax system regarding cryptocurrencies. There is a Treasury plan to study the legal status of DAOs and launch a market infrastructure sandbox for digital firms in 2023 for financial market infrastructures (FMI sandbox) using digital ledger technology. 

The European Union reached an agreement on regulating the crypto-asset industry, giving the green light to Markets in Crypto-Assets (MiCA). MiCA will apply directly across the European Union (E.U.) without any need for national implementation laws. This approach intends to protect consumers and ensure effective and harmonised access to the innovative crypto-asset markets across a single market. In conjunction, lawmakers in the member states of the European Parliament passed the Transfer of Funds Regulation (ToFR), which imposes compliance standards on crypto assets to stop money laundering risks in the sector. 

In the U.S. Department of Justice case against former Coinbase Product Manager for insider trading, the SEC named nine coins as securities. Traditionally US law determines a security through the “Howey Test”, which qualifies something as a security if there’s an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others”. There has been ongoing arguments amongst the crypto community that coins do not meet the “Howey Test” definition and therefore, do not need to adhere to securities laws.  

Crypto Adoption 

At The Australian Strategic Business Forum in Melbourne, RBA Governor Philip Lowe spoke about the RBAs developments in digital ledger technology, "Also on the horizon is the tokenisation of bank deposits, which could facilitate the tokenisation of physical and financial assets. This, in turn, could unlock a wave of innovation and productivity growth across the financial sector"

MakerDAO approved a governance proposal to provide a $100 million DAI vault to Huntingdon Valley Bank (HVB), a 151-year-old, Pennsylvania-based community bank with $500 million in assets. To start, the bank will receive a loan participation facility with a 100 million DAI debt ceiling, which will grow to 1 billion over 12 months. After creating the vault, the bank will post real-world assets as collateral, including various loans, like commercial real estate, industrial and government-guaranteed loans. 

China's central bank is expanding its e-CNY pilot program. The People's Bank of China announced this month that the number of test sites for the digital yuan increased from 11 to 23 after successfully testing it at the Beijing Winter Olympics.

France is entering phase two of its CBDC pilot. The Banque de France governor François Villeroy de Galhau announced that the central bank had started the phase with a focus on a "wholesale CBDC."

Solana is going forward with a Solana-native smartphone called Saga, and Polygon is partnering with a mobile phone startup called Nothing to release the Nothing Phone.

According to a report from The Block Research, venture funding for blockchain-related projects suffered a 22% decline in the last quarter, going from $12.5 billion to $9.8 billion. Even though this quarter's numbers were down against the previous quarter's, they are still 15 times higher than only two years ago.

The stablecoin issuer behind USDC, Circle, eyes a public listing in Q4 2022. Circle initially aimed to go public via a SPAC but delayed its plan amidst market conditions. 

As reported by payroll company Deel, about 5% of all payments accepted by remote workers were made in crypto in the first six months, up from 2% in the last six months of 2021. 

DeFi/CeFi

Three Arrows Capital (3AC) Chapter 15 bankruptcy financial documents state they owe 27 crypto companies approximately $3.5 billion. Founded by Credit Suisse traders Zhu Su and Kyle Davies, at one time, they managed an estimated $10 billion in assets. The collapse has caused a domino effect across crypto markets. 

OTC broker Genesis is owed $2.3 billion in loans from 3AC and, as a result, has required a bailout from its owner, Digital Currency Group (DCG). Voyager Digital was the next to fall, filing for Chapter 11 bankruptcy. Voyager has halted all activity from its platform, including withdrawals, as 3AC failed to repay $650 million in loans. 

Crypto lender BlockFi, has been provided a $250 million loan by FTX's Sam Bankman-Fried as some digital asset companies reel from the ongoing market conditions. Crypto lender Celsius filed for bankruptcy too, pausing withdrawal and transfers. Celsius customers may have to choose between taking a discount on what they are owed in cash or holding out for whenever token values recover. Kirkland & Ellis, Celsius lawyers, have assured customers that "This is not a liquidation… We do not intend to force customers to take their recovery in fiat currency. All is not lost." According to its bankruptcy filings, the company had about 300,000 customers worldwide. Celsius has a $1.2 billion shortfall between its liabilities and assets. The company had $14.6 billion in crypto assets on March 30 and just $1.75 billion by July 14. 

All values are in USD 

Disclaimer

This content is for general information purposes only, not investment advice. Cryptocurrencies, including Bitcoin, are volatile and fluctuate on a day-to-day basis, thus, trading requires proper diligence and sound judgement in order to evaluate the risks associated. Nothing in this newsletter constitutes investment or legal recommendation, nor should any data or content mentioned in the newsletter be relied upon for any investment activities. You should consider seeking independent legal, financial, taxation or other advice to check how the newsletter information relates to your unique circumstances. 

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