Weekly Market Highlights (Jul 1, 2022)
Happy Friday! The Weekly Market Highlights is an initiative from the Binance Research team to round up the week, summarizing key market events and views from the team. This note is targeted to be published weekly on Fridays.
🔎 Macro / Tradfi
- Now it is official, US stocks have recorded their worst first half in more than 50 years! The S&P 500 index fell more than 20.6% during the first six months of 2022. Simultaneously, the tech-heavy Nasdaq index closed the same period down almost 30%. Zooming in we can see that only Energy stocks performed well during the period (up more than 30% for S&P 500 listed stocks) while Consumer Discretionary performed worst being down more than 30%. The performance of these sectors has been very inflation-driven not only in the US but also across the globe where policymakers warned that the era of low interest rates and moderate inflation had come to an end after all.
- The first half of 2022 has shown us that governments from around the world are willing to raise rates to rein in inflation. With that, governments will likely slow down growth and move their economies closer to recession territory. For now, the trend of high inflation, rising borrowing costs, and slowing growth are expected to persist.
- Crypto regulation was in focus this week with the EU agreeing on key regulations and the SEC rejecting Grayscale’s Spot Bitcoin ETF application. But step-by-step. Ending the first half of 2022 the EU agreed on the design of the “Regulation on Markets in Crypto Assets” (MiCA). MiCA is important because it regulates one of the biggest economic areas and people look at it to be for crypto what GDPR was to privacy. It has to be seen if this will be the case. As part of the regulation, large stablecoins will be subject to strict operational and prudential rules, with restrictions if they are used widely as a means of payment, and a cap of 200€ million in transactions/day. Furthermore, the European Securities and Markets Authority (ESMA) will have intervention powers to prohibit or restrict the provision of crypto-asset services by Crypto Asset Services Provider (CASPs) or distribution or sale of crypto assets, in case of a threat to investor protection, market integrity or financial stability. For tokens without issuers, such as Bitcoin, trading platforms will have to provide a white paper and be liable for any misleading information. (https://www.consilium.europa.eu/en/press/press-releases/2022/06/30/digital-finance-agreement-reached-on-european-crypto-assets-regulation-mica/)
- A key event taking place this week was Ethereum Gray Glacier hard fork. The fork changed the parameters of the Difficulty Bomb, pushing it back by 700,000 blocks, or roughly 100 days. With Ropsten now transitioned to proof-of-stake, the difficulty bomb only affects the Ethereum mainnet. This means Gray Glacier will not be deployed on any testnet. Previously, the difficulty bomb mechanism has been pushed back in five different network upgrades: Byzantium, Constantinople, Muir Glacier, London, and the most recent Arrow Glacier upgrade in December 2021. Pushing back the difficulty bomb for another 100 days could mean that the schedule of “the merge” will be pushed back a bit, now pointing to September.
- Grayscale’s application to convert its $13.5 billion Grayscale Bitcoin Trust (GBTC) into a spot-based bitcoin ETF was denied by the SEC. The SEC stated in its filing that the application failed to answer the SEC's questions about preventing market manipulation, as well as other concerns. It didn’t take long for Grayscale to initiate a lawsuit against the SEC in response. According to Grayscale the “SEC is failing to apply consistent treatment to similar investment vehicles and is therefore acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934” (https://www.globenewswire.com/news-release/2022/06/30/2471737/0/en/Grayscale-Investments-Initiates-Lawsuit-Against-the-SEC.html)
🔎 Latest Binance Research Publications
Check out our latest publications:
- Algorithmic Stablecoins
- Ethereum DeFi Ecosystem: A Deep Dive
- What to say to someone who says that cryptocurrency is “too risky?”
That’s a wrap!
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