This Week in Crypto: 8th December 2022

BTC Markets

Bitcoin Fear and Greed Index

Bitcoin Fear and Greed Index is currently at 25/100 in the Extreme Fear zone, down 2 points from this time last week. The index reached a high of 29 on Wednesday and a low of 25 today.

Market reflections

Global financial markets closed higher at the end of last week’s trade. Investors appeared to be frontrunning probabilities of the Fed tightening cycle ending in the foreseeable future. Conditions looked to be easing faster than expected and short-term sentiment was bolstered by anticipation of a possible pivot in 2023. As the new week progressed and a robust calendar of economic activity eventuated, the previous week’s strength softened.

According to Jurrien Timmer, Director of Global Macro at Fidelity Investments, “It seems the stock market was rallying on two very big assumptions: the expectation that the yield curve is wrong and that earnings will hold up in 2023, and the expectation that the Fed will quickly return to a neutral policy of 3-3.5% after reaching a terminal rate of 5%. In other words, the market is betting on a soft landing.”

US markets held firm on Monday but declined as the week progressed in response to growing concern of a global economic downturn. The US economy showed signs of strength, adding 263,000 jobs in November, which was down from October, but exceeded expectations overall. The Federal Reserve signaled a 0.5% increase in next week’s rate decision which the market priced in accordingly.

The short-lived relief that markets experienced from easing Covid restrictions in China was quickly counteracted by general concern regarding the implications of higher interest rates and their impact on global economies.

In Australia, the RBA increased the cash rate target by 0.25% to 3.1% and increased the interest rate on exchange settlement balances by 0.25% to 3.0%. According to statements by RBA governor, Philip Lowe, “Inflation in Australia is too high, at 6.9% over the year to October. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role. A further increase in inflation is expected over the months ahead, with inflation forecast to peak at around 8% over the year to the December quarter. Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand.”

In the week ahead, the US Federal Reserve, the Bank of England, and the European Central Bank are all scheduled to release rate decisions.

State of crypto

The digital asset majors showed early signs of strength as buyers defended local lows and price action trended to the upside.

Following a turbulent few weeks, Bitcoin gained support and pressed to local range highs, trading above the US$17k level. Similarly, Ether saw increased bids and trended higher, attempting to hold above range highs around US$1.3k. On the desk, cash-heavy positioning rotated into direct exposure as market participants saw opportunity across the board and allocated accordingly. We saw higher volumes of stablecoins rotating into AUD while traders prepared for increased volatility leading into the year's end.

At the time of writing, Bitcoin was down 1.5% on the week, trading at US$16,850 and Ether was down 3.5% at US$1,235.

Bitcoin dominance by market capitalisation traded 0.67% higher, positioning Bitcoin at 40.7% dominance by market cap. With total crypto market cap trading 2.1% lower on the week thus far, we’re now seeing US$797.3 billion in the crypto markets.

Crypto news

Ethereum ecosystem.
Ethereum co-founder, Vitalik Buterin published an article which addressed areas he’s most excited about in the Ethereum ecosystem.

In his commentary, Buterin covered a variety of key concepts, including cryptocurrency payments, stablecoins, DeFi, digital identity, DAOs, and hybrid applications. When addressing how his thinking has changed over time about the state of Ethereum, he stated, “my excitement about Ethereum is now no longer based in the potential for undiscovered unknowns, but rather in a few specific categories of applications that are proving themselves already and are only getting stronger.”

When it comes to the Ethereum application landscape, Vitalik’s overall view is that the fundamental limitations of the space are becoming more broadly understood. The knowns are falling into place and the unknowns are becoming lesser with time.

Vitalik addressed some of the challenges the ecosystem faces and thinks that answers are already in motion, citing that “many of these applications are being built today, though many of these applications are seeing only limited usage because of the limitations of present-day technology. Blockchains are not scalable, transactions until recently took a fairly long time to reliably get included on the chain, and present-day wallets give users an uncomfortable choice between low convenience and low security. In the longer term, many of these applications will need to overcome the spectre of privacy issues. These are all problems that can be solved, and there is a strong drive to solve them.”

Ripple’s crypto trends in business.
Ripple released a recent insight report which highlighted how central bank digital currencies (CBDCs) are gaining traction among financial institutions and financial leaders worldwide. The benefits Ripple emphasized, included efficient and cost-effective payments, ease of cross-border remittances, advancement of financial inclusion, and improved accessibility of loans and other financial services to historically underserved communities.

The report, which surveyed over 1,600 global financial leaders, cited that “more than 70% of respondents surveyed across five global regions believe CBDCs stand to deliver major social change within the next five years, with Asia Pacific ranking the highest at 89%. Specifically, four out of five regions see financial inclusion or greater access to credit as the largest potential breakthrough to be driven by CBDCs.”

Limitations and challenges concerning implementation of CBDCs included consumer education, identity verification, offline access, and security protections. Despite the visible hurdles, potential alternatives and solutions are believed to be available but must encourage interoperability between currencies and need to be scalable.

Overall, CBDCs are garnering serious traction worldwide. The Bank for International Settlements survey showed that nine out of ten banks are exploring CBDCs, an increase of 80% relative to 2021. Further, 85% of leaders at major financial institutions shared the likelihood of their country launching a CBDC in the next four years, 44% believed the technology would enhance national competitiveness, and 43% felt the technology would increase the efficiency of payment systems.

Bank of Japan trials digital yen.
The Bank of Japan has announced their plans to pilot a digital yen. Alongside key megabanks, regional banks, and private fintech companies, the BOJ’s pilot scheme is scheduled to commence in April of next year.

As early as October 2020, the BOJ was openly vocal regarding their consideration of CBDCs. In spring 2021, the BOJ launched a proof-of-concept phase which sought to gauge the costs and benefits of involvement, stating, “while the Bank currently has no plan to issue CBDC, from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, the Bank will prepare thoroughly, including implementing experiments, to respond to changes in circumstances in an appropriate manner. In the course of CBDC exploration, the Bank considers it important to apply the knowledge of various stakeholders such as the private sector, experts, and relevant public authorities.”

Fast-forward to December 2022 and the BOJ has gone live with their three-phased test in preparation to introduce a digital yen. Currently involved in phase one, the BOJ has tested basic functions such as issuance and distribution and will progress toward security, controls, and peripheral functioning in subsequent phases.

Amidst rapidly changing business environments and growing digital payment options, the BOJ foresees a shift toward cashless economies and proposes the digital yen as having advantages of speed over credit cards, immediate payments, and reduced transaction risks relative to cash.

Avalanche on the cloud
Alibaba Cloud has expanded support for the Avalanche public blockchain to power their infrastructure services. The integration will enable developers to launch their own validator nodes and will provide access to Alibaba Cloud’s ‘plug-and-play’ infrastructure and products.

According to Avalanche’s media release, “Alibaba Cloud, the largest cloud service provider in Asia Pacific, has expanded their line of infrastructure technology and intelligence tools to the Avalanche public blockchain, enabling users to launch validator nodes through the service and access computing, storage, and distribution resources through Alibaba Cloud’s suite of products in Asia.”

Avalanche supports upwards of 1,200 validators and handles more than two million transactions daily. Alibaba Cloud’s partnership page describes Avalanche as “the fastest smart contracts platform in the blockchain industry; blazingly fast, low in cost, and eco-friendly” and includes a step-by-step tutorial to deploy an Avalanche node using Alibaba Cloud with the click of a button.

‘Digital Assets in Australia’ report
The Digital Assets in Australia report for 2022 outlined how digital assets can transform the lives of Australian businesses and consumers. The report suggested that Australia is well positioned to be a leader in responsible digital asset innovation and can add upwards of AU$60 billion per year to the Australian economy by 2030. Further, it was cited that Australia’s leadership in digital assets could contribute upwards of 700-1,000 new start-ups, AU$15-20 billion in additional investment, and AU$10-15 billion in tax revenue by 2030.

As the trend of digitisation increases and the global economy becomes increasingly interconnected, leadership in digital assets “will ensure that Australia maintains sovereignty over its payments and financial system. Leadership in digital assets can allow Australia to diversify its economy and grow an important new local industry.”

To succeed, however, Australia must advance in skills, innovation, and investment where it currently lags its peers in the United States, the United Kingdom, Canada, and Singapore.

Tech Council CEO, Kate Pounder, noted that digital asset technologies can provide benefits to the Australian economy, businesses, and consumers by making transactions safer, better, and easier. Pounder commented that “we want to see Australia capture the economic opportunities of digital assets, but we want to see it done in a responsible way.” She continued, “Australia is already an attractive destination for investment in data centres, but we have an enormous opportunity to position ourselves as a regional hub for green data centres, which can support the sustainable growth of tech activity. Other countries in our region such as Singapore are much more constrained by their land size and renewables capacity, which creates an opportunity for Australia to capture more of this growing market.”

BTC Markets Updates

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Fintech 2022.
BTC Markets CEO Caroline Bowler addressed Fintech 2022 in a keynote speech regarding ‘The Future of Money’. Her presentation explored how the evolution of money mirrors the evolution of human history.

Our society has become increasingly global, interconnected, and digital. The advancement of money has historically run parallel alongside societal developments and is something we all must keep ‘buying in to’ for it to remain functional. Trends have pointed toward a story of declining cash use and an increase in cash alternatives, moving to an era of programmable money via smart contracts.

Staying safe - protect yourself online.
Scams are on the rise in Australia, and some of them are targeting BTC Markets clients. We want to remind you of the importance of safe online practices, so you can avoid falling victim to these scams.

The most common scams right now include fake websites and social media posts that attempt to steal your personal information. Scammers may pose as representatives from companies that you interact with such as BTC Markets, and they use these fake sites to trick you into handing over your personal information. These sites often look like real websites with logos and addresses that make them appear like they're legitimate.

You should never give out your personal information or provide credit card information over email or social media messenger chats. We have a dedicated page on how to 'Protect Yourself Online', which we encourage you to read. Being informed and taking simple measures is the best action you can take to protect yourself and your account while online. The Australian government’s ‘Scam Watch’ website provides the latest information on how to recognise, avoid and report scams.

Disclaimer: The information provided in this email is for general purposes only. It should not be construed as professional financial advice from BTC Markets Pty Ltd. BTC Markets is not a financial adviser, and you should consider seeking independent legal, financial, taxation or other advice to ensure that the information relates to your unique circumstances. BTC Markets is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this information contained with this email.
Prices are accurate as of 10:15 AM AEDT, on 08/12/2022.

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