JULY 2021 — Crypto News Update
Your Monthly Brief into the World of Digital Assets
Article by Lesia M.
In this Month’s Issue
- Bitcoin / Ethereum Overview
- ‘The B Word’ Conference
- EIP 1559 Upgrade
- Crypto News: Financial Institutions
- Crypto News: Corporates and DeFi
- Crypto News: Regulators
- Stablecoins Transparency Concerns
- Binance Regulatory Scrutiny
After a long period of sideways movement in the $29K — $41K range, Bitcoin finally had a breaking week starting July 21st, with 8 green daily candle bars in a row (Binance). This is the longest consecutive growth since the beginning of March 2021, logging a speedy recovery from the recent sub-$30K drop.
Overall, Bitcoin is up around 14% in the month of July, having hit the lowest price mark on July 20 at $29,278, before peaking at $40,900 on July 28.
So what has triggered such a steep upwards move? On July 23 Amazon posted a job listing for “Digital Currency and Blockchain Lead”. This was followed by growing rumours quoting insiders that Amazon will start accepting cryptocurrency payments by the end of the year, however Amazon soon refuted these claims. (Read More)
‘The B Word’ Conference
Another likely trigger was the long-awaited ‘B Word’ conference held on July 21 discussing the current applications and potential future benefits of Bitcoin. The conference involved some high-profile speakers — including Cathie Wood, Jack Dorsey and Elon Musk — driving positive discussions around BTC on social media. Inter alia, Musk confirmed that Tesla holds Bitcoin, $1.3B of it according to the company’s recent Q2 report (Read More). Here is a short update on discussed topics:
For weeks analysts have been predicting an upcoming short squeeze in the Bitcoin market (Read More). Short-sellers were overly active in their bets on decreasing prices over a prolonged period of time. Because short-sellers exit their positions by buying the underlying, unwinding these positions puts an upwards pressure on the BTC price. As the price of the underlying grows, there are more and more short positions forced to be closed. Overall, roughly $900 million in short crypto positions were liquidated on July 25. (Read More)
One of the indicators we like to use when analysing the market is the predominant perpetual funding rate. Prolonged periods of positive funding rate create a bearish case, as long traders pay funding to the shorts. On the other hand, negative perpetual funding rates imply shorts paying longs, and are generally a bullish indicator in an active market when occurring over a prolonged period of time. Perpetual funding rate has been predominantly negative since May 20 (even throughout the recent reversion), creating a foundation for an upcoming bullish trend.
BTC mining difficulty has seen some serious decrease after the China crackdown, which has been gradually picking up over the course of July. This is due to a rapid relocation of Chinese mining facilities abroad, primarily to North American hosting sites. (Read More) Miners who remained active throughout the storm are currently standing to make higher profits as Bitcoin code re-adjusted to bring the mining difficulty down 28%. Less competition and lower difficulty translates into higher profitability for active miners.
GBTC unlock — FUD
Entering into the month of July, upcoming unlock of roughly $53M GBTC shares was one of the most controversial FUDs with arguments ranging regarding the potential impact on the Bitcoin price. In reality, the release had a minimal price impact on the underlying digital asset and BTC had a quick rebound.
Post GBTC-unlock BTC market has turned technically bullish after piercing through 50dma (34,000). Next stop 100dma (41000) and 200dma (44,600)
The general crypto market naturally followed the short squeeze. ETH is up roughly 6% over the month of July, dipping at $1,706 on July 20 and peaking at $2,450 on July 30.
Moreover, Ethereum continues to lock up it supply ahead of ETH 2.0. The total amount of ETH deposited to ETH 2.0 now constitutes around 5.5% of the total ETH supply, which will be potentially locked for 1 year or longer as the blockchain transits to the Proof-of-Stake protocol and continues to slowly restrict supply. (Read More)
Ethereum ‘London’ upgrade is about to be launched on August 3–5 (Read More), with Ethereum Improvement Proposal (EIP) 1559 being the most exciting one. This upgrade is supposed to improve the throughput on the network and change the fee structure by burning the base fee instead of awarding it to miners. Burning the base fee activates a mechanism of reducing Ether’s total supply growth and creating a scarcity narrative. (Read More)
Objectively, burning the base fee is not very popular amongst Ethereum’s miners and we are yet to see the final effect this upgrade will have on the network.
Crypto News: Financial Institutions
ð J.P. Morgan Says Ethereum Upgrades Could Jumpstart $40 Billion Staking Industry.
ð J.P. Morgan Opens Crypto Fund Access to All Wealth Clients.
ð Bank of America debuts crypto research team in latest Wall Street push.
ð Bank of America Approves Bitcoin Futures Trading for Some Clients.
ð Goldman Sachs Files for DeFi and Blockchain Equity ETF.
ð Goldman Sachs: The Ultra-Rich Are Turning to Crypto After Driving the SPAC Boom.
Crypto News: Corporates & DeFi
ð Visa says crypto-linked card usage tops $1 billion during the first half of 2021.
ð Square to Build Bitcoin Hardware Wallet.
ð Capital Group Division Buys 12% Stake in Bitcoin-Heavy MicroStrategy.
ð S&P Dow Jones Indices Launches S&P Cryptocurrency Broad Digital Market Index.
ð S&P Dow Jones Launches 5 More Crypto Indexes; One Tracks 240 Coins.
ð Grayscale Investments Forges Agreement with BNY Mellon to Provide Asset Servicing and ETF Services for Grayscale Bitcoin Trust.
ð Grayscale Investments has launched a DeFi fund.
ð Grayscale’s main crypto fund becomes an SEC-reporting company.
ð Digital currency company Circle to go public via SPAC at $4.5 billion valuation.
ð Bullish to Go Public with $9 Billion SPAC Merger.
ð FTX Closes $900M Series B Round — Largest Raise in Crypto Exchange History.
ð A new law in Germany opens opportunities for up to $415B in crypto investments from special funds.
ð Argentina’s lawmakers introduce a bill for workers to be paid in crypto.
ð Brazil approves first Ethereum ETF in Latin America, with custody by Winklevoss’ Gemini.
ð U.K. advertising watchdog to tighten rules targeting misleading crypto ads.
ð Paraguay Proposed Bitcoin Law Includes Crypto Registration.
ð New Infrastructure Bill to Raise $30B Through Crypto Taxes.
Stablecoins: Transparency Concerns
ð Tether Executives Said to Face Criminal Probe Into Bank Fraud.
ð The Tether Put: Crypto Equivalent of Credit Default Swap?
ð Gensler says stock tokens and security-pegged stablecoins need to report to the SEC.
Binance Regulatory Scrutiny
Binance, the world’s largest exchange by trading volumes, has gone through some scrutiny from regulators in the recent months. A series of regulatory bans and investigations started with the UK’s Financial Conduct Authority issuing a statement in which not a single entity in the Binance Group “holds any form of UK authorisation, registration or licence to conduct regulated activity in the UK”. It is worth mentioning that cryptocurrency trading itself is not regulated in the UK. However, trading financial products — such as derivatives — requires approval of financial authorities. (Read More) Following this regulatory pressure Barclays and Santander Bank blocked payments to Binance in the UK. (Read More)
To provide some colour on the situation, we would like to compare the current Binance assault to the FCA’s crackdown on spread betting brokerage companies in the recent years. These are brokerage firms with dangerously high implied leverage that cater to retail investors. Some spread betting companies would allow up to a 100x leverage on an FX pair. This practice was seen by the FCA as essentially being gambling, rather than investing or trading, and actually being very harmful to underdeveloped or unsophisticated investors.
From our perspective, FCA probably saw leverage trading on what is already a highly volatile asset class as overly dangerous, and the move against Binance is the regulator protecting retail investors rather than cracking down on crypto. In the long term these measures are likely to be net positive, bringing more regulation and more protection into the industry.
Another issue spiking regulatory crackdown concerns Binance offering security tokens trading, which are likely to fall under the financial securities regulations. Hong Kong warned that stock tokens should be subject to regulation by the SFC (Read More) as Germany’s BaFin (Read More) and US SEC (Read More) issued a similar warning.
Many other countries issued warnings and started investigations targeting the crypto exchange: Italy, Hong Kong, Lithuania, Thailand, Japan, Germany, United States, Cayman Islands, Singapore (Read More).
As a response to the regulatory measures, Binance already started cutting the leverage limit on the exchange from 100x down to 20x “in the interest of consumer protection”. With regulators tightening the grip on crypto exchanges, another derivatives exchange — FTX — announced a similar change in leverage trading. (Read More)
In addition, crypto exchange stops its trading activities with stock tokens effective July 16 and commits to close all positions by October 15. (Read More)
Binance’s CEO Changpeng Zhao announced that he is looking for a successor with a strong regulatory background to replace him. This move comes from CZ’s wish to improve Binance’s relations with regulators. (Read More)
Global regulatory pressure on Binance started in full force end of June. Remarkably, the growing regulatory crackdown on the major crypto exchange did not have a significant impact neither on crypto prices, nor on the exchange activity whatsoever. Binance’s total flows — sum of the amounts entering and leaving the exchange — remained in the range between 11K and 27K BTC for the first 3 weeks of the month, representing rather a weak market than the users’ desertion from the exchange. In the last week of July Binance total flows broke the 50K BTC figure reflecting the rising activity in the market.
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