Weekly Crypto Wrap: 10th August 2023

TLDR

• Payments giant PayPal pushes deeper into crypto with stablecoin.
• China sprints ahead in race to digitise global money flows.
• Report: Institutional investors have stopped betting against Bitcoin.
• JPMorgan analysts: PayPal’s stablecoin could benefit Ethereum.
• Chainlink emerges as 5th most developed crypto protocol.

CEOs Corner

The future of finance is here: digital assets are the new money.

The direction of the industry is clear. Traditional finance is merging with digital. Cryptocurrencies have been the first iteration and now the technology is moving to engulf existing asset classes. Bank of America are pricing traditional asset tokenisation alone to be worth in excess of US$16trn in the next 5-15 years.

To build an industry with strong foundations, we need proportionate, appropriate regulation. Akin to traditional finance, the issues in our industry are largely driven by poor human behaviour and weak processes. Events of the past year in crypto demonstrate that point.

Regulators are now moving and BTC Markets are contributing to that conversation. We regularly provide submissions to the Australian government including the recent senate hearing on Digital Assets (Market Regulation) Bill*.

However, this is a global conversation.

IOSCO is the supranational body that governs exchanges in tradfi, including the ASX. Right now, they are formulating the rules for our industry that will dictate much of its direction. BTC Markets contributed to that industry consultation process**. At the moment they are using a traditional lens to view risks. This may be a hazard itself as we cannot retrofit the future.

As a business in a still immature sector, we take our cues from these trends. The business we are building incorporates what we know will come – greater transparency, public reporting, increased oversight and accountability. BTC Markets is not shying away from these requirements. We know Australia will need a strong national digital asset exchange to compete in the global economy on our horizon. We work to ensure our clients can trade, invest, and transact in digital assets with confidence.

Inertia on this sector is still taking a position. Particularly given the speed at which digital finance moves. Time spent now understanding the technology, the opportunity, the risks, and benefits while these markets are taking shape is going to be crucial. BTC Markets intends to be there to support our clients every step of the way.

My role as CEO is to remain laser focused on shaping our future. If you have a point of view on this, tag me on Twitter @CaroBowler. I want to hear from you.

Caroline Bowler

CEO, BTC Markets

Follow me on Twitter or LinkedIn.

*View the Hansard report.

**View a copy of our IOSCO submission.

State of crypto

In the last trading week, Bitcoin has attempted to break through the US$30k barrier, while PayPal dives deeper into the cryptocurrency space by introducing its own stablecoin, called PYUSD. Crypto X (Twitter) fuels speculation regarding insolvency troubles at Huboi exchange, whilst Cathie Wood of ARK Investment Management, speculates that the SEC might greenlight multiple spot crypto ETFs simultaneously.

Bitcoin continued its consolidation phase, trading between US$28,585 and US$30,047. At the close of the trading week on Monday, Bitcoin wrapped up another uneventful period, ending at US$29,088, signifying a minor loss of 0.66%. Ethereum (ETH) experienced a 1.69% decline, closing at US$1,830. XRP endured a more significant setback, down 11.61% and settling at US$0.6230. Litecoin (LTC) also faced a decline of 12.19%, finishing at US$82.57. Cardano (ADA) incurred a loss of 7.38%, finishing at US$0.2923.

Bitcoin's market capitalisation saw a modest uptick of 1.20%, solidifying its dominance at 50.33%. Meanwhile, the collective cryptocurrency market capitalisation witnessed a downturn, contracting by 1.14%, culminating the week at US$1.132 trillion.

Looking at the year-to-date price performance, XRP maintains the lead for 2023, boasting an impressive increase of 88.96%, closely trailed by Bitcoin with an 79% gain. Ethereum comes in with a 55.16% gain, while Cardano retains a 22.34% increase and Litecoin follows closely with a 20.10% gain.

*The weekly trading stats as of Monday, August 7th at 10:00 am AEST, based on data from Tradingview in USD.

The week ahead: upcoming economic events

August 10th: U.S. Inflation Rate Month-over-Month (MoM) and Year-over-Year (YoY).

August 11th: U.K. GDP Growth Rate MoM, Quarter-over-Quarter (QoQ) & YoY. U.S. Producer Price Index MoM.

August 12th: U.S. Michigan Consumer Sentiment.

August 15th: Reserve Bank of Australia’s meeting minutes. China’s Industrial Production YoY. U.S. Retail Sales MoM. Germany’s ZEW Economic Sentiment Index. Canada’s Inflation Rate YoY. U.K. Unemployment Rate. Japan’s GDP Growth Annualised and Quarterly Growth Rate.

August 16th: U.K. Inflation Rate YoY. U.S. Building Permits.

August 17th: Japan’s Balance of Trade. U.S. Federal Open Market Committee (FOMC) meeting minutes.

Economic Calendar (tradingeconomics.com)

Market reflections

Australia

• Australia's Economy: Recession concerns amid varying opinions.
• Immigration Impact: Preventing recession, but straining resources.
• Mixed Signals: Improved business confidence, declining housing permits, and retail contraction.

Australia's economy is at the centre of discussions regarding a potential recession. Ross McEwan, CEO of National Australia Bank, expressed confidence in the nation's resilience and played down recession risks by highlighting the strength of the domestic economy and banking sector. However, HSBC's chief economist, Paul Bloxham, indicated the possibility of a "technical recession," although he noted that Australia's low unemployment could potentially stave off a full-blown recession. Concerns have arisen due to declining per capita GDP growth and real wages, with 2009-level comparisons.

The Australian government's sizable immigration program is seen as a factor preventing a technical recession, but individual economic shares are diminishing, and a projected population surge in 2023-2024 is expected to strain resources and living standards. The persistent trend of weak per capita GDP over the decade raises questions about Australia's economic direction and reliance on population growth.

In other economic aspects, Australia's Consumer Sentiment experienced a slight dip of 0.4% in August from the prior month, following a substantial 2.7% gain in July. The Reserve Bank of Australia's decision to maintain interest rates at 4.1% for a second consecutive month did little to alleviate concerns about high borrowing costs. On the flip side, Australia's Business Confidence Index showed improvement in July, reaching the highest level since January, while business conditions remained steady.

In June, there was a small decrease in the approval of permits for private houses, which continued a trend of declining approvals throughout the year. Some regions experienced decreases in approvals, while others had modest increases. Additionally, approvals for dwellings in general also decreased.

In terms of the job market, there was a slight increase in job advertisements during July. However, retail sales experienced a contraction of 0.8% in June, suggesting a decline in consumer spending.Furthermore, the export of goods and services from Australia declined by 1.7% in June compared to the previous month. This decrease in exports was influenced by reductions in various sectors of the economy.

Global

• US unemployment rate decreases amid credit rating downgrade.
• China's trade surplus narrows, exports drop 14.5% YoY.
• Germany's trade surplus widens, reflecting weak demand.
• Bank of England raises rates to 5.25% due to inflation concerns.

United States

Earlier this week, Moody's downgraded 10 smaller to mid-sized banks, warning of financial risks, and is monitoring larger banks. A crisis initiated by Silicon Valley Bank's collapse triggered these actions, causing market declines. The report highlights ongoing issues such as depositor risk and interest rate impact. Small and mid-sized banks, especially in corporate real estate, are at elevated risk. Moody's downgraded and reviewed several banks, while altering outlook for 11 others.

This follows the downgrade of the US government's credit rating from AAA to AA+ by Fitch, a major credit agency. The agency stated that there are concerns about financial state and debt burden, based on perceived governance decline over the past decades. Treasury Secretary Janet Yellen criticized this, citing outdated data.

In July, the US ISM Services PMI, which measures the health and growth of the services sector in the US, declined from June's four-month peak, signalling a service growth slowdown. Business activity, new orders, employment, and inventories all saw reduced increases, while supplier delivery times accelerated. Concurrently, price pressures rose, and backlog of orders rebounded.

Meanwhile, the US unemployment rate slightly decreased to 3.5%, below market expectations, as unemployed individuals decreased, and employment levels rose. The U-6 unemployment rate, encompassing discouraged job seekers and part-time workers, fell to 6.7%. In terms of non-farm payrolls, the US added 187K jobs, falling below market expectations but demonstrating varied sector performance, including health care, social assistance, and financial activities. Leisure and hospitality saw an increase but remained below pre-pandemic levels.

The US trade deficit narrowed in June due to reduced imports, hinting at slowing business investment and domestic demand amid Federal Reserve rate hikes. Goods imports fell by 1.2%, reflecting businesses managing inventory for softer demand. The trade gap contracted, with China's goods trade deficit dropping.

Despite June's improvement, Q2 trade deficit remained higher than the first quarter. Economists debated whether trade was a larger drag on GDP. Imports of goods and services and wholesale inventories also declined. However, economists disagreed on the impact of private inventory investment on growth.

China

China's trade surplus narrowed in July, with exports dropping 14.5% year-on-year and imports falling 12.4%, reflecting weak global and domestic demand. China's struggling economy is experiencing a decline in imports due to diminished demand from various regions, including South Korea, Japan, Taiwan, Southeast Asian countries, the US, and the European Union. Exports have also been declining, particularly to markets like the US, Japan, South Korea, Taiwan, ASEAN, the EU, Brazil, and Australia.

Beijing has introduced targeted policies to stimulate growth, including measures to encourage household spending and increase manufacturing in the light industry sector. Despite challenges, experts anticipate that policy adjustments, particularly in the property and credit sectors, could lead to improved economic conditions and a potential rebound in imports and growth in the second half of the year. Inflation-wise, China's consumer prices fell 0.3% year-on-year in July, the first decrease since February 2021.

Germany

Germany's trade surplus widened in June due to a decline in imports, reflecting weak demand, whilst exports rose slightly. Despite the trade surplus increase, the modest rise in exports and decline in imports signal a subdued demand environment.

United Kingdom

The Bank of England (BoE) raised interest rates by 25 basis points to 5.25%, reaching the highest level since early 2008. The move reflects concerns over persistently high inflation and signals that further rate hikes may be likely. The BoE mentioned risks of persistent inflationary pressures and indicated that rates would remain restrictive for as long as needed. Despite the rate hike, some traders adjusted expectations for a lower peak in UK rates.

Canada

In July, Canada's unemployment rate unexpectedly increased to 5.5%, contrary to analysts' predictions. Despite this setback, the labour market has demonstrated resilience, maintaining average monthly employment growth throughout 2023. The Bank of Canada's attempts to temper economic activity via interest rate hikes have not substantially affected the labour market, partly due to robust immigration. Additionally, Canada's Ivey PMI declined in July 2023, marking the first contraction after six consecutive months of expansion. This contraction was accompanied by slower job creation and inventory growth, while supplier delivery times and prices saw increases.

Crypto news

Payments giant PayPal pushes deeper into crypto with Ethereum-based stablecoin launch.

PayPal is launching an Ethereum-based stablecoin pegged to the U.S. dollar, the company announced this week. PayPal USD (PYUSD) is issued by Paxos Trust Company and is backed by U.S. dollar deposits, short-term U.S Treasuries and similar cash equivalents. The online payments giant is the first major U.S. financial institution to create its own stablecoin.

Eligible U.S. PayPal customers who purchase PYUSD will be able to transfer PYUSD between PayPal and compatible external wallets, send person-to-person payments using PYUSD, fund purchases with PYUSD by selecting it at checkout and convert any of PayPal's supported cryptocurrencies to and from PYUSD.

As an ERC-20 token issued on the Ethereum blockchain, PYUSD will be available to a growing community of external developers, wallets and web3 applications; can be easily adopted by exchanges; and will be deployed to power experiences within the PayPal ecosystem.

"The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar," said PayPal CEO and president Dan Schulman in a press release. "Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD."

PayPal first introduced crypto services back in 2020 when it began letting users in the U.S. buy, hold and sell cryptocurrencies. In 2021, PayPal announced the launch of Checkout with Crypto, a feature that allowed consumers to check out at millions of online businesses using cryptocurrency. Last year, the company gave users the ability to transfer cryptocurrency from their accounts to other wallets and exchanges.

PayPal says Paxos will publish monthly reports detailing the assets backing PYUSD starting next month. Paxos will also publish a public third-party attestation of the value of PYUSD reserve assets.

China’s mBridge project to challenge U.S. dominance in cross-border payments.

A new platform to expand the reach of China’s digital yuan and other central bank digital currencies is moving closer to reality, raising eyebrows among some defenders of a system long dominated by the U.S. dollar. The mBridge project, which is being developed by China, Thailand, Hong Kong and the United Arab Emirates, will likely have a basic working product ready by year-end, four people familiar with the initiative said.

As part of a joint effort with the Switzerland based Bank for International Settlements (BIS) - a hub of global central-bank collaboration - mBridge is among at least six ongoing projects at central banks examining how digital currencies, also referred to as CBDCs, could be used to improve cross-border payments.

The Beijing-backed digital prototype for sending money around the world without relying on US banks is advancing so fast that some European and American observers now view it as an emerging challenger to dollar-denominated payments in global finance.

The dollar features in an estimated US$6.6 trillion of foreign exchange transactions every day, while half of the approximately US$32 trillion in global trade each year is invoiced in dollars, according to BIS and United Nations data. mBridge could eventually make it easier for China’s yuan to be used as a dollar alternative by enabling its digital form to settle large corporate transactions. 

The BIS confirmed that the global head of the Innovation Hub, Cecilia Skingsley, recently visited China, Hong Kong and Singapore for talks with the central banks involved in mBridge.

Ross Leckow, Deputy Head of the BIS Innovation Hub that’s coordinating the project, said the core mandate is to test technologies, circulate the results and share lessons learned with the central banking community.

“We show what the technological possibilities are,” he said. “It is a matter for national authorities to decide whether to develop further or implement particular technological solutions.”

Bitcoin ETF is likely six months away says Mike Novogratz - citing sources at BlackRock and Invesco.

The first U.S. spot Bitcoin exchange-traded fund (ETF) could be approved in the next six months, Galaxy Digital CEO Mike Novogratz told shareholders - citing sources at BlackRock and Invesco.

“It's a big, big deal. It's a big deal because both our contacts, from the Invesco side and from the BlackRock side, get you to think that this is a question of when, not if — that the outside window is probably six months,” Novogratz told shareholders during Galaxy Digital’s Q2 earnings call. “This is probably [...] four to six months if you had to put a ‘pin the tail on the donkey’ on it, that the SEC is going to approve a Bitcoin ETF.”

Novogratz’s Galaxy Digital is one of the many contenders for a spot Bitcoin ETF, which it reapplied for in June in conjunction with $1.5 trillion asset manager Invesco - the fourth-largest ETF issuer in the U.S. Once approved, Novogratz believes spot Bitcoin ETF issuers such as BlackRock and Invesco will be fighting tooth and nail for market share.

According to some analysts, a wave of spot Bitcoin ETFs could come even sooner, depending on how a judge rules in Grayscale’s lawsuit against the SEC. Grayscale last year sued the SEC for rejecting its application to convert its Grayscale Bitcoin Trust into a spot ETF.

Should the SEC lose its case against Grayscale, some analysts believe that the “path of least resistance” would be simultaneous approvals for several or all spot Bitcoin ETF applicants.

The Big 3

Institutional investors have stopped betting against Bitcoin, according to new report.

A new report from digital asset investment firm, Coinshare, has found that outflows into short Bitcoin (BTC) products have ceased for the first time in fourteen weeks, suggesting that large digital asset funds are taking a different approach.

Short products allow investors to profit on an asset, be it a stock or cryptocurrency, dropping in price. The products listed in the report include Grayscale Investments, notably its flagship GBTC fund, Bitwise’s 10 Crypto Index Fund, ProShares ETF (BITO), among several others. According to Coinshare’s report, big firms are now buying into Bitcoin as an investment rather than shorting it.

Though the report indicates that institutional investors may be dropping their short positions for the time being, they have still been busy selling. Across the various Bitcoin-related funds, investors have sold more than US$111 million this past week. Most of last week’s selling, according to Coinshare, has been from Canadian and German funds, with over US$70 million and US$28 million in outflows, respectively.

Buy Bitcoin now on BTC Markets.

Launch of PayPal’s stablecoin could benefit Ethereum, says JPMorgan analysts.

The launch this week of PayPal's stablecoin could benefit Ethereum by increasing its total value locked, according to JPMorgan analysts. Some crypto-native experts, however, have criticised PayPal for using Ethereum for its PYUSD stablecoin, given the blockchain's high transaction fees.

"This could boost Ethereum activity and enhance Ethereum's network utility as a stablecoin/DeFi platform," JPMorgan analyst Nikolaos Panigirtzoglou told The Block. "In other words, more firms would be encouraged in the future to choose the Ethereum blockchain (or its layer 2 platforms) for their stablecoin or decentralised projects."

Ethereum could further benefit from PYUSD because the stablecoin could fill the void left by the US$20 billion shrinkage of Binance's BUSD stablecoin, which was shut down by U.S. regulators earlier this year.

Panigirtsoglou and fellow JPMorgan analyst Mayur Yeole said that PayPal getting into the stablecoin business will boost synergies in payment networks across both traditional and decentralised finance. 

Buy ETH now on BTC Markets.

Ripple Labs quarterly report challenges misconceptions in SEC vs XRP ruling.

Last week, Ripple Labs released its Q2 2023 report on XRP markets. Unsurprisingly, the report gives much attention to the recent court ruling in the lawsuit filed against Ripple Labs by the United States Securities and Exchange Commission (SEC), noting that the SEC had used these quarterly transparency reports against it in the lawsuit.

“We began these reports to voluntarily provide updates given our XRP holdings. Sadly, they were used against us in the SEC lawsuit – however, we remain steadfast in our commitment to transparency, but I suspect they’re going to look a bit different moving forward,” said Ripple Labs CEO, Brad Garlinghouse.

His statements were echoed by digital asset-friendly lawyer John E Deaton, who indicated that nonetheless, the transparency reports significantly helped to reduce the charges. Over the years, Ripple has provided information on its ‘On-demand liquidity’ program (ODL) and RippleNet’s progress, delving deeper into the XRP tokenomics and traded volumes. However, this report was a chance for Ripple to give its side of the story regarding the SEC lawsuit.

In its Q2 2023 XRP Markets Report, the company addresses some misconceptions surrounding the court ruling and emphasises that Ripple Labs sees it as a win for XRP, one which sets a key precedent that other market participants can perhaps rely on. Finally, the report asserts that the SEC has no jurisdiction in digital assets and the ruling does not state that retail investors should not be protected.

Buy XRP now on BTC Markets.

Alt action

Chainlink emerges as 5th most developed crypto protocol, after surge in GitHub activity.

A significant spike in Chainlink’s GitHub development activity as of late has led the protocol to crack the top-5 in most frequently developed assets list. Amid the current bullish sentiment, whales and sharks have been accumulating LINK. Analysis by market intelligence platform, Santiment, revealed that holders of 100,000 to 10 million LINK currently hold the most coins since December 2022.

LINK has been trading in the US$6-$7 range for most of 2023 and although it dropped to a low of US$4.7 in June, it quickly recovered. Despite the price fluctuations, LINK has been in Contango since Q2 2023 and has not stepped into Backwardation yet.

To give context, Contango and Backwardation are futures curves that depict the pattern of prices over time. A market is in Contango when the futures price is above the expected spot price. This is commonly a bullish sign. On the other hand, when the futures price hovers below the expected spot price, then the market is in backwardation, a bearish sign. The notable increase in Chainlink’s GitHub activity and the launch of its Cross-Chain Interoperability Protocol (CCIP)contribute to this bullish outlook.

LINK is currently trading at AU$11.90.

BTC Markets announcements

Want to transfer your crypto from Binance to your BTC Markets account?

We have created a comprehensive guide on transferring your cryptocurrency from Binance to your BTC Markets account. Follow our step-by-step instructions to ensure a seamless transfer process.

Generate your tax report and watch our crypto tax webinar with Koinly.

2022-2023 tax reports (EOFY Wallet Balance and FY Transaction History) are now available for users to generate and download.

If you couldn't join us for our live stream featuring our CEO Caroline Bowler and Koinly's Head of Tax, Danny Talwar, don't worry as you can watch the recorded session on YouTube.

Plus, take advantage of a special offer: get 30% off your first Koinly tax report by using the code BTC23 at checkout on Koinly.com.au. This offer is valid until October 31, 2023. Terms and conditions apply. See the tax webinar blog.

Compliance conversations

Unmasking the most common crypto scams: stay informed and protected.

In today's digital age, the rise of cryptocurrencies has brought about revolutionary opportunities and possibilities. However, with every technological advance comes a flip side – an increased risk of scams and fraudulent activities. As the world of cryptocurrencies continues to evolve, scammers are becoming more cunning and sophisticated in their tactics. Let’s delve into the top common crypto scams, equipping you with the knowledge to identify and protect yourself from potential threats.

• The business opportunity: the promise of quick riches through a 'business opportunity' is an age-old scam, now manifesting in the crypto world. Fraudsters entice victims with guaranteed returns or exceptional growth, only to disappear once they've received your crypto. Be cautious of offers that sound too good to be true – because they probably are.
• Fake job listings: job seekers are particularly vulnerable to scams, with fraudsters posting enticing crypto-related job listings. These positions often require an upfront crypto payment or personal information, leading to financial loss and identity theft. Verify job postings through legitimate sources and exercise caution before sharing sensitive information.
• The giveaway: scammers impersonate influential figures, celebrities, or organisations, promising free cryptocurrency in exchange for participation in a fake giveaway. Remember, genuine giveaways are rare, and no one will ask you to send crypto to receive more in return.
• Impersonation: in an impersonation scam, fraudsters pose as authoritative figures, like government officials or company representatives. They claim your assets are frozen or require urgent action, coercing you into sending crypto to 'resolve' the issue. Always verify the legitimacy of such claims through official channels.
• Sky high investment returns: the allure of guaranteed high returns often leads victims into investment scams. Scammers create elaborate websites or apps, offering to multiply your crypto almost overnight. However, remember that all investments carry risk, and legitimate platforms are transparent about potential gains and losses.
• Phishing: these scams involve fake emails, websites, or messages that mimic legitimate sources. Unsuspecting users are coerced into revealing their private keys, enabling scammers to gain access to their crypto wallets. Be cautious of unsolicited messages and always verify the authenticity of links and addresses.
• Pump and dump schemes: scammers artificially inflate the price of a lesser-known cryptocurrency through misleading information and marketing. Once the price peaks, they 'dump' their holdings, causing a sudden crash and leaving investors with losses. Stay informed and make investment decisions based on thorough research.
• Romance: love can sometimes cloud judgment, making romance scams distressingly effective. Scammers build emotional connections online, convincing victims to send crypto or invest with them. Always prioritise caution when sharing personal or financial details online.

Navigating the world of cryptocurrencies offers incredible potential, but it's crucial to remain vigilant and informed. By familiarising yourself with these common crypto scams, you'll be better equipped to identify warning signs and protect your hard-earned assets. Remember, if something seems too good to be true or raises suspicions, it's always better to err on the side of caution. Stay educated, stay cautious, and together, we can outsmart the scammers.

ASIC provides a checklist of common scams and ways to avoid them. To learn more, visit ASIC’s website. 

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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 within this email. Past performance is not an indicator of future performance. We note that we may, at any time, change the characteristics of the product. The information provided is intended for recipients in Australia. This information is not to be reproduced without permission.

Prices are accurate as of 10:00 AM AEST, on 10/08/2023.