Weekly Research Report #105: Cleansing Before Healing

Market Recap

After several boring weeks, another crash happened in the crypto market during the weekend, more than $400B being wiped out from the market, leaving $880B (-33.7%) in the market. Bitcoin rejected near 50dma ($31.5k), dropped to a low of $20.8k.
Accordingly, major stablecoins’ dominance increased,

$USDT : 8.2%(+37.5%)
$USDC : 6.1%(+46.2%)

The recent market crash can account for the global inflation concern and FUD, initiated by the deterioration of crypto institutions and DeFi protocols.

Derivatives Market

BTC and ETH funding rates dropped, +3.5% and +1.2% respectively (Chart 1).

Alts funding rates continued to go south (ADA -13.3%; DOT — 19.3%; SOL -13.2%).

For liquidation, long liquidations dominated since the market crashed last Friday. Over the last three days, “long liquidation : short liquidation” = “1.9 : 1.0”.

Chart 1: 7dma of BTC, ETH Perpetual FuturesFunding Rate (Source:FTX)

Chart 2: 4hr BTC liquidation chart (Source: Coinglass)

Major Crypto KPI (Jun 14, 2022)

Altcoins Roundup

Ethereum continued to show weak price actions despite the successful PoS merge for Ropsten testnet. Two more testnets remain before the mainnet merge. Miner difficulty bomb delayed for two months, which may also imply a delay for the final merge.

Negative news stayed on Ether, regarding its imbalanced position in stETH-ETH LP pool on Curve Protocol worsening the market sentiment. On-chain data discovered that institutions like Celsius, Alameda and some anonymous whales were recently exchanging stETH for ETH at discount, pulling out liquidity from the pool. On the other side, Celsius was exposed for lacking ETH liquidity due to previous staking. Celsius paused transfers yesterday during the crisis. ‘3x looped borrowing and lending’ for stETH-ETH on Lido and AAVE was reported, and $ETH price decline led to further liquidations from these weak hands. All of this brought ETH to a low of $1,111 (-40.0%), underperforming other major alts and Bitcoin.

Crypto Updates

BlockFi and Crypto.com, leading crypto exchanges, cut headcount by 20% and 5% respectively.

Optimism hacker, the Wintermute exploiter, who has stolen 20M $OP tokens, returned 17M $OP to Optimism’s contract address, 1M $OP sent to Vitalik Buterin, 1M $OP sold, and 1M $OP remaining in the hacker’s address.

Huobi Global, a crypto exchange, launched Ivy Blocks, which will be regarded as a DeFi and Web3 blockchain ecosystem investment arm. One of the first projects supported by Ivy Blocks will be Capricorn Finance, a DEX built on Cube.

American Express partnered with Abra, a financial firm that operates crypto wallet services, to launch its first-ever crypto reward credit card.

Regulatory Updates

Regulators increased their focus on this uprising industry again.
The US Senator
proposed a ‘Responsible Financial Innovation Act’ for cryptocurrency. It identifies most crypto assets as ancillary commodities. Therefore, the US Commodity Futures Trading Commission (CFTC) would have taken control of the jurisdiction on cryptos. The act also mentioned stablecoins will be requiring 1:1 monetary currency backing and detailed disclosure of the issuers.

The SEC was investigating if $BNB was as an unregistered security — $BNB being the exchange token of the world’s largest crypto exchange, Binance.

Russia launched blockchain-based replacement for SWIFT several months after sanctions were imposed. The new system was developed by a state-owned company, Rostec. The system will become Russia’s purported replacement for SWIFT, eliminating the risk of sanctions and facilitating Russia’s finances efficiency.

Institutional Updates

VC funding started to slow down due to bearish sentiment in the crypto market while some big names continued to show their interests in this growing industry.

Mastercard announced that they will work with several Web3 companies to allow Mastercard payments for NFT purchases.

Bloomberg Terminal will expand its crypto coverage to include the top 50 crypto assets, such as $BTC, $ETH, $SOL and $BNB.

Paypal will be allowing crypto transfers to external wallets soon, like Robinhood and other crypto exchange apps.

Arrington Capital, a crypto investment firm, partnered with Moonbeam Foundation for a new $100M ecosystem fund. The fund will finance new protocols on the Moonbeam network for different sectors, including DeFi, NFTs, and GameFi.

Macro Front

Global inflation concern surged as May CPI, released last week, was 8.6%. 0.3% higher than expected. Equities declined (DJIA -8.1%; S&P500 -9.9%; NQ -11.0%).

The US Dollar Currency Index, DXY, increased and penetrated the previous high in 2022 ($105).

Commodities were mixed this week due to the continued supply chain shocks as a result of Covid and the Russia-Ukraine war (Gold -1.2%; Oil +2.5%; Wheat -2.5%).

Conclusion

Despite the extreme market conditions and recent discussion about crypto regulation, our future is bright as more and more institutions show their interests in the crypto space, including but not limited to blockchain development, DeFi application, Web3 ecosystem, GameFi mobile apps and NFT-related projects.

Things return to their rightful owners in a bear market. Be patient and Good Luck!

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