Author: Dale Warburton

Dale is a former attorney turned passionate Bitcoiner with an interest in investments, macro, geopolitics, innovation, tech, nature, wildlife, MMA and Bitcoin (of course).

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Bitcoin Crypto News Ethereum Markets

Crypto Spiral Halted as US Fed Increases Rate for First Time in 28 Years

The US Federal Reserve (Fed) has raised interest rates by 75 basis points, the biggest rate hike since 1994, as part of an ongoing effort to tackle soaring inflation.

Aggressive Rate Hike to Curb Inflation

This past week saw crypto markets plummet in the face of US inflation hitting its highest level in 40 years. With a Federal Open Market Committee (FOMC) meeting scheduled for later in the week, commentators speculated that the record 8.6 percent inflation print would likely force the Fed to aggressively raise rates. And it turns out, they were correct.

At a meeting of the FOMC, members took the decision to raise rates by 0.75 percent to 1.75 percent, with Fed chair Jerome Powell commenting:

Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common.

Jerome Powell, Fed chair

Powell added, though, that he expects the July meeting to see an increase of 50 or 75 basis points too, though any decisions would be made “meeting by meeting”. Continuing, he said: “We [Fed] want to see progress. Inflation can’t go down until it flattens out. If we don’t see progress, that could cause us to react. Soon enough, we will be seeing some progress.”

While there were references to soaring energy costs amid the Ukraine/Russia conflict and lockdown-induced supply chain woes out of China, no mention was made of the impact of a 50 percent increase in broad money supply since 2020.

Going forward, FOMC members indicated a much stronger path of rate increases to help the Fed arrest inflation and achieve a 2 percent target which, according to its statement, it is “strongly committed” to.

Crypto Market Rallies Briefly in Response

Crypto markets arguably had a sense of impending doom going into June 15’s FOMC meeting, expecting the worst. Surprisingly however, it appears as if the bad news were already priced in as the digital asset market rose more than 10 percent on news of the Fed’s increased rate:

Crypto market capitalisation. Source: CoinGecko

Ethereum rose from US$1,075 to US$1,240, compared to bitcoin which saw an increase of over 10 percent from a low of close to US$20,000 up over US$22,500.

The gains have, however, been trimmed back a touch, and bitcoin is currently exchanging hands at US$22,100.

For all the talk of “uncorrelated assets” and a “supercycle”, 2022 has shown that the digital asset market is intrinsically tied to the broader macro environment. Conditions remain uncertain for now and, therefore, continued volatility ought to be anticipated.

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Bitcoin Crypto News Markets

Rare On-Chain Metric Demonstrates We’re in the ‘Darkest Phase of the Bear’

In its latest report, on-chain analytics firm Glassnode indicates that after closing negative for 10 out of the prior 11 weeks, Bitcoin has entered unchartered bear territory, triggering a rare metric last seen in March 2020:

Headwinds Aplenty

The report notes that Bitcoin and digital assets are facing significant losses, hitting multi-year lows following the latest US CPI print which surprised to the upside.

Coupled with an inverted yielded curve, a strengthening dollar and a negative macro outlook, Bitcoin appears to be languishing in “the darkest phase of the bear”. Unlike prior cycles, Bitcoin is now unquestionably tied to the broader macroeconomic environment.

Notwithstanding, both “Shrimps” (less than 1 BTC) and “Whales” (more than 10k BTC) have continued to accumulate at these oversold levels, despite plenty of evidence that even long-term holders are capitulating:

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“Shrimps” buy nearly 50% of the new coin issuance since early November.
Source: Glassnode

A Meeting With the Cost Basis

With bitcoin trading in the US$20,000-23,000 range, it has reached “Realised Price”, one of the most important on-chain metrics. In short, this metric tracks the average price of every coin in the supply, valued at the time it was last spent on-chain.

According to Glassnode, Realised Price (currently US$23,430) is “rarely visited by spot prices outside the deepest and latest stages of bear markets”. The last time we saw this metric reached was in March 2020, and at the end of the 2018 bear market where the market was in aggregate holding an unrealised loss:

BTC price and Realised Price. Source: Glassnode

Less than a week ago, Crypto News Australia reported that 2 percent of short-term bitcoin holders were in profit. Now, with the latest crypto collapse, that figure is zero. At the time of writing, bitcoin was trading at US$21,500, well below the Realised Price.

For investors with a long-term horizon who have been sitting on the fence waiting for an opportunity to get in – now may as good an opportunity as ever. While some metrics suggest we may be bottoming out, it’s equally likely there may be more pain on the horizon.

Either way, buckle up, it’s likely to be a bumpy ride – at least for the foreseeable future.

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Celsius Crypto News

Crypto Lender ‘Celsius’ Pauses Withdrawals, ‘Nexo’ Proposes Buying It Out

Crypto services business Nexo is interested in buying “qualifying” assets from rival Celsius, since the latter appears destined for insolvency after freezing user withdrawals and transfers due to what it terms “extreme market conditions”:

Celsius Halts Withdrawals, Nexo Offers to Rescue

In its now infamous June 13 blog post, Celsius said it would pause its swap and transfer products, without offering any timeline as to when withdrawals would be resumed.

We are working with a singular focus: to protect and preserve assets to meet our obligations to customers. Our ultimate objective is stabilising liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible. There is a lot of work ahead as we consider various options; this process will take time, and there may be delays.

Celsius blog post

To be sure, Celsius is a controversial business that has made news for all the wrong reasons. Last year, its CFO was arrested on charges of money laundering, and then in April the company halted interest accounts for retail investors without due notice.

In a now widely circulated letter addressed to Celsius, Nexo has suggested that it is specifically interested in the former’s collateralised loan portfolio, however no mention of price was made:

As per the letter, Celsius has until June 20 to respond, however unconfirmed reports have circulated online that Nexo’s advances have been rejected.

For now it appears as if users will need to sit on the sideline hoping that all turns out well. However, with the price of digital assets collapsing, the situation is likely to get even worse for some users, according to Casa CEO Nick Neuman:

What Happened at Celsius?

In a fascinating breakdown of the mechanics behind Celsius, Bitcoiner Dylan LeClair outlines how the company has earned a yield on its products. In short, it used user funds to arbitrage inefficiencies in the crypto market, and over time, found itself employing increasingly risky strategies to maintain artificially high yields.

Initially, it was the Grayscale Bitcoin Trust, which when implementing the so-called “contango trade” enabled a “risk-free” return:

Later, when that opportunity closed, on-chain analysts found evidence of Celsius turning to Terra’s Anchor protocol for its “risk-free” 20 percent return:

And then following the Terra meltdown, Celsius relied upon synthetic ethereum (sETH) to earn a yield on Lido. However, sETH has since decoupled from ETH:

Celsius Exposed to Attack

Celsius is now in a transparently precarious position, which unfortunately means it is susceptible to attack. It has since defended its reserves, though its current liquidation level is available for all to see here.

Notably, as LeClair comments, bitcoin is expected to wick down further in the days to come as the position is likely to be attacked until Celsius is liquidated:

Arguably the most egregious part of this saga is that Celsius is using user funds to defend its risky yield strategies. You’d imagine that few users were fully informed of the risks upfront. It’s become trite, but now more than ever – “not your keys, not your coins”.

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Bitcoin Crypto News Ethereum Market Analysis Markets

Crypto Markets Shed $100 Billion Amid Highest US CPI Print in 40 Years

Bitcoin and other cryptocurrencies took a major tumble this past weekend, accelerating into the week, following the release of the latest official US inflation data which revealed the fastest annual increase since December 1981:

Consumer Price Index (CPI) Up 8.6%

According to the US Bureau of Labor Statistics, CPI rose 8.6 percent for the 12 months through to May, the largest increase in over 40 years.

The index, long deemed unreliable by hard money advocates, purports to track the movement of a broad range of goods and services in an economy, including food, shelter and energy.

Among the largest increases were energy (34 percent), used cars and trucks (16 percent), and food (10 percent). However, few in the crypto community believe official CPI figures, with most suggesting that in reality it ought to be in the double-digits:

It’s well documented that the definition of CPI has changed over time, always resulting in a reduction in CPI (quite conveniently).

ShadowStats.com tracks the original definition used in the 1970s and, applying it to today, suggests an 18 percent increase:

Investors Flee Crypto on Inflation Fears

In theory, the higher inflation rises, the more likely that the Federal Reserve will hike interest rates. And if that does indeed come to pass, all risk assets (including crypto) tend to get sold off as investors flee to relative safe haven assets such as bonds.

As news broke on June 10 of the highest US inflation levels in 40 years, investors expressed fears that it could trigger more aggressive action by the Federal Reserve. And then just yesterday, news emerged that Fed officials were contemplating a 0.75 percent increase, up from the 0.5 percent expected by the market.

Almost immediately, all risk assets saw dramatic outflows, with the crypto sector being hit especially hard:

Crypto heatmap for performance over past seven days. Source: Cryptorank.io

Among the top ten cryptocurrencies, ETH was down over 36 percent, BNB by 25 percent and BTC by 29 percent.

As liquidations continued, the crypto market sank below US$1 trillion for the first time since early 2021.

At the time of writing, the total market capitalisation had slipped to US$933 billion, down from its all-time high of US$2.95 trillion reached in November 2021. Meanwhile, BTC is now trading at US$22,265, with ETH exchanging hands at US$1,440.

This latest sell-off is starting to make May’s downturn look trivial in comparison, and by all accounts there is still some way to go before we hit bottom. One thing is, however, certain – macro and crypto are officially intrinsically linked. Crypto can no longer be said to be uncorrelated with the broader macroeconomic environment, as was the case in years gone by.

Categories
Crypto News Terra

Claims Surface of Do Kwon Draining $80 Million a Month Before Terra Collapse

Terra Labs’ CEO Do Kwon has struggled to stay away from headlines over the past few months and this past weekend was no different, as explosive claims emerged that he had drained US$80 million a month prior to the infamous LUNA collapse.

Kwon Accused of Rugging LUNA Holders

The claim first appeared on Twitter in a lengthy thread by self-appointed Terra sleuth FatManTerra. In a lengthy exposé, he shared how the Terra Labs CEO, together with a slew of influencers, managed to drain US$80 million a month while artificially maintaining the liquidity. In fact, he suggests that Kwon had, until the collapse of Terra, been cashing out US$80 million every month for almost three years.

The report, which surfaced this past weekend, claims that Kwon drained liquidity out of Luna Classic (LUNC) and TerraUSD Classic (USTC) before the crash, and prior to purchasing Tether (USDT).

FatManTerra then proceeded to outline the mechanism as to how this was achieved:

Kwon Plays Innocent

Kwon has denied the accusations, saying:

This should be obvious, but the claim that I cashed out $2.7B from anything is categorically false.

Do Kwon, CEO and founder, Terra Labs, via Twitter

Kwon, who at the time of LUNA’s collapse claimed to be “heartbroken”, suggested that the rumours of him cashing out “clearly” contradicted claims that he still holds most of his LUNA holdings, obtained during the airdrop. He added that:

To reiterate, for the last two years the only thing ive earned is a nominal cash salary from TFL, and deferred taking most of my founder’s tokens because a) didn’t need it and b) didn’t want to cause unnecessary finger pointing of ‘he has too much’.

Do Kwon, CEO and founder, Terra Labs, via Twitter

Not finished there, Kwon told the community that “spreading falsehood” only added to the pain of all LUNA investors:

I didn’t say much because I don’t want to seem like playing victim, but I lost most of what I had in the crash too. I’ve said this multiple times but I really don’t care about money much.

Do Kwon, CEO, Terra Labs

Poor to Blame for Being Poor

It’s difficult to take Kwon’s claims seriously that he “doesn’t care about money much”, especially in light of his penchant for labelling his critics as “poor”:

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Selection of Kwon comments re “poor”. Source: @soy_eth
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Whether the allegations are true or not, Kwon evidently has a long way to go in order to regain credibility and trust within the crypto community. With a class-action lawsuit pending and SEC investigation under way, Kwon looks set to remain in the spotlight for now, albeit for all the wrong reasons.

Categories
Bitcoin Crypto News

Jack Dorsey Releases ‘Web5’ Based on the Bitcoin Blockchain

TBD, a Bitcoin-focused business unit of Jack Dorsey’s company, Block, has launched “Web5”, or what it calls an “extra decentralised web platform”. Its goal? To decentralise data storage and put users back in control of their identity:

RIP Web3

Dorsey, who has previously called Web3 a “centralised venture capital playground“, clearly has a very different conception of what it means to be decentralised and took to Twitter to express his enthusiasm for the new project:

TBD Lead at Block, Mike Brock, confirmed that Web5 would be nothing like Web3:

This was received favourably by macro investor and renowned Bitcoiner Lyn Alden, who commented:

So, providing actual utility, without unnecessary seigniorage to benefit token VCs while using exit liquidity on retail like web3?

Lyn Alden, Lyn Alden Investment Strategy

Why Web5?

According to TBD’s website, Web5 enables developers to focus on enhancing user experience, while simultaneously enabling users to retain ownership of their data and identity.

TBD Web5 presentation. Source: TBD

To do this, they have leveraged Bitcoin and other decentralised technologies. According to the presentation published by TBD, the concept of Web5 is based on three pillars:

  1. decentralised identifiers (DIDs) – provide authentication and data routing;
  2. verified credentials (VCs) – special formats and data models for cryptographic representation and verification of assertions; and
  3. decentralised web nodes (DWNs) – store data and relay messages exchanged between applications and protocols.

The developers explained that DIDs are generated by users and are not stored by centralised providers or other third parties. Further, the ION layer 2 network can be used as the protocol for the VC. Finally, DWNs will allow ecosystem participants to store and transmit encrypted or clear messages and data.

TBD believes that this will provide an opportunity to create many decentralised applications and protocols based on them:

The combination of DID and DWN creates a secure messaging network that can replace single-purpose protocols (encrypted messaging, photo sharing, and so on) with universal standards for all types of semantic data exchange.

TBD presentation

Consumer and Business Applications Will Drive Adoption

At this stage in the technology adoption curve, most retail investors are likely to find the concept of Web3 confusing, let alone Web5, which on its face appears equally, if not more complex. And who could blame them?

In the end, as was the case for Web2, it’s the consumer and business applications that ultimately drive protocol or technology adoption.

Is Web5 viable? That remains unclear. However, given the quality of leadership and track record of those behind it, not to mention the calibre of those supporting it, investors would be well advised to, at the very least, sit up and take notice:

Categories
Bitcoin Crypto News

Short-Term BTC Holders Underwater with Only 2.2% in Profit: Glassnode Report

In its latest report, on-chain analytics company Glassnode has revealed that the vast majority of short-term bitcoin holders are in the red, with only 2.2 percent in profit.

Long-Term Holders Dominate

In its report, Glassnode indicated that virtually all short-term holders (STH), or those who have held bitcoin for a period of fewer than 155 days, are underwater. By comparison, just under 56 percent of long-term holders (LTH) are in profit.

While most appear to believe that bitcoin is in the midst of a macro bear market, Glassnode commented that LTHs remained the primary beneficiaries of current market conditions, holding 90 percent of profit, relative to just 10 percent attributable to STHs.

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Long-term and short-term holder supply profit/loss. Source: Glassnode

Interestingly, this trend has played out repeatedly in prior bear markets where STHs (most often speculators) are flushed from the market and, as a result, end up holding few coins. LTHs, by contrast, continue to accumulate and dominate circulating supply. According to Glassnode, this trend is caused by two parallel events, namely:

Phase A: Short-Term Holders who purchased near the top are immediately plunged into a loss, reducing their overall Supply in Profit.

Phase B: Long-Term Holder accumulation persists during the bear, despite prices pushing their newly acquired coins into an unrealised loss.

Glassnode report

As a result, Glassnode adds that “STHs have essentially reached a near-peak pain threshold, with almost no unrealised profits held while LTHs [are] dominating the remaining profitable supply”.

The news comes just weeks after bitcoin experienced a record eight consecutive weeks in the red, resulting in crypto’s flagship asset sinking to price levels below US$30,000, last seen in 2020.

Green Shoots

Against a backdrop of monetary tightening and a broader macro risk-off sentiment, bitcoin has endured a rather difficult time since hitting its all-time high of US$69,000 in November last year.

As of last month, bitcoin had declined 50 percent from its previous high, albeit less than the vast majority of other cryptocurrencies. At times like these, Bitcoiners would do well to visit other metrics to assess the overall health of the network – and two metrics stand out in particular.

The first relates to BTC addresses with balances exceeding 0.01 (US$30). This recently hit an all-time high, suggesting that new retail investors continue to enter the market, despite current market conditions.

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BTC addresses exceeding 0.01. Source: Glassnode

The other relates to Bitcoin’s hashrate – the amount of computing and process power being contributed to the network through mining. It recently hit an all-time high of 240 exahashes per second, which, roughly speaking, provides an illustration of the network’s overall security and robustness.

BTC Hashrate. Source: Coinwarz

These insights, together with HODLing data suggesting that over 60 percent of BTC hasn’t moved in a year, give the impression that despite languishing price action, Bitcoin remains in good shape, all things considered.

Categories
Binance BNB Crypto News Cryptocurrency Law Regulation

US Regulator Investigates Whether BNB Token is an ‘Unregistered Security’

US market regulator the Securities and Exchange Commission (SEC) has launched an investigation into whether global crypto exchange Binance violated securities law by selling its BNB in an initial coin offering (ICO) some five years ago.

String of Regulatory Challenges

The SEC’s investigation into BNB, now the fifth-largest cryptocurrency by market capitalisation, relates to its ICO in 2017 where it is alleged it was sold without being registered.

In response to the allegations, a spokesperson from Binance commented:

As the industry has grown at a rapid pace, we have been working very diligently to educate and assist law enforcement and regulators in the US and internationally, while also adhering to new guidelines. We will continue to meet all requirements set by regulators.

Binance statement

At this early stage, information remains somewhat limited with Binance adding that it “would not be appropriate for us to comment on our ongoing conversations with regulators, which include education, assistance, and voluntary responses to information requests”.

Binance’s CEO, Changpeng ‘CZ’ Zhao, was less diplomatic in his assessment:

Aside from the SEC investigating several other high-profile ICOs, Binance is also under the microscope after it was hit with a US$5 million class-action lawsuit in which users claimed the exchange sold them 79 different crypto assets (including Dogecoin, Solana, and Cardano) that should have been properly registered as securities.

Vocal Responses from the Bitcoin Community

Max Keiser, Bitcoin maximalist and co-host of the Orange Pill podcast, did not mince his words in response to the news:

Cory Klippsten, founder of Swan Bitcoin exchange, was somewhat more charitable, while sharing the sentiment held by the majority of Bitcoiners:

Michael Saylor, the inimitable founder and CEO of MicroStrategy, has previously said he is of the view that everything outside of Bitcoin is a security. Given that Saylor has spent the better part of three decades operating in US capital markets, you’d imagine he and his legal team have their finger on the regulatory pulse.

Saylor certainly made the point crystal clear in a recent interview with former hedge fund manager Raoul Pal, in which the two clashed over what Pal considered to be “outdated securities laws”:

Categories
Crypto News Regulation Stablecoins United Kingdom

Bank of England Agrees to Rescue Collapsed Stablecoins, Protecting Holders

In the wake of the Terra ecosystem collapse, the UK’s financial and economic ministry, HM Treasury, has released a consultation paper on systemic failures within what it terms “digital settlement assets including stablecoins”. Its recommendations have taken some by surprise.

Managing ‘Systemic Failures’

As per the consultation paper, HM Treasury has announced that the Bank of England (BoE) would intervene to direct and oversee collapsing stablecoins if, in its judgement, a stablecoin issuer has “reached a system scale fail”.

The government considers that it is important to ensure existing legal frameworks can be effectively applied to manage the risks posed by the possible failure of systemic DSA [digital settle asset] firms for the purposes of financial stability.

HM Treasury consultation paper

The document prepared was delivered in response to a consultation process in relation to the entire crypto sector which began earlier this year and concluded last month.

Government Offices Great George Street.jpg
HM Treasury offices. Source: Wikipedia

The British government is reportedly keen to amend prevailing financial legislation in order to bring crypto under the jurisdiction of the BoE, including instances where specific stablecoin issuers reach financially precarious positions.

Interestingly, the paper suggests that the revised rules would apply in in the case of stablecoins and “might include – but [are] not limited to – the issuer of a stablecoin, a wallet, or a third-party service provider”.

The government clarified that the central bank would intervene in the event of a “systemic collapse”, defined as “deficiencies in a system’s design or disruption to its operation [that] may threaten the stability of the UK financial system or have significant consequences for businesses or other interests”.

Broad Powers to the BoE May Flow On

At this early stage, the nature and extent of the central bank’s powers are largely unclear. However, on a closer inspection of the language used throughout the consultation paper, it’s evident that HM Treasury is looking to offer the BoE the broadest possible powers given the proliferation of references to “direction” and “oversight”.

While the UK has thus far proved to be crypto-friendly, one of the main concerns flowing from the USDT/LUNA fiasco was fears of increased regulation. It now appears that such fears were warranted given this latest move by the British government. One should probably expect the other G7 nations to imminently follow suit.

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Terra TerraUSD

Korean Authorities Target Terraform Labs Staff for Questioning

Despite launching a new blockchain for LUNA, things appear to be going from bad to worse for Terraform Labs as revelations emerge that South Korean law enforcement officials are probing its staff in relation to the LUNA/UST implosion:

Authorities Dig Deeper into Terra Ecosystem Collapse

According to a report by a local news outlet, prosecuting authorities have commenced a full-scale investigation into the Terra unwinding. The report notes that it spoke with several employees involved in the development of the project, with one stating:

Even at that time, there was a warning inside that there could be a collapse at any time, but CEO Kwon Do-hyeong forced the coin to be launched.

Anonymous Terraform Labs employee, JTBC

According to local news agency JTBC, a team focused on prosecuting securities-related crimes summoned all Terraform Labs employees and developers to submit any related materials they might have. In addition, all employees either have been or will be investigated as part of the process.

The prosecution managed to secure a statement from one anonymous employee who worked there from 2019, claiming that LUNA and Terra should not have been launched since its own internal pilot model had failed:

If you pay interest of several tens of percent to investors without a stable collateral or profit model, people may flock to you at the beginning, but at a certain point in time it has no choice but to collapse because it cannot handle interest payments and fluctuations in value.

Anonymous employee, Terraform Labs

The report went further to describe how this was not founder Do Kwon’s first attempt at a cryptocurrency, the other being Basis Cash which, much like LUNA, fell sharply after an initial price increase.

Prosecutors said they were investigating the matter in its entirety and whether there was any “intentional price manipulation or whether the domestic virtual currency exchange went through a proper listing review process”:

Stormy Times Ahead

Meanwhile, as official investigations continue, 76 victims have filed a formal complaint with the Prosecutor’s Office against Terraform Labs, Do Kwon, and co-founder Shin Hyun-seong. According to JTBC, in total the complaints are tied to losses worth 6.7 billion won (US$5.4 million):

Simultaneously, police are attempting to freeze the Luna Foundation Guard’s remaining assets, not to mention the US$78 million tax evasion fine due by the crypto startup. If recent developments are anything to go by, Terraform Labs looks set to remain in the headlines for all the wrong reasons, at least for now.