Weekly Crypto Wrap: 11th May 2023

TLDR

• Sui (SUI) is coming to BTC Markets.
• CEO’s Corner: BTC Markets coin listing process.
• US CPI rose 0.4% whilst annual inflation fell to 4.9%.
• Bitcoin price at US$27,519, reflecting a 66.36% annual gain.
• Ethereum is trading at US$1,832, up 53.16% on the year.
• PayPal making waves in the world of crypto.

Sui (SUI) is coming to BTC Markets

We announced earlier this week that Sui (SUI) is coming to BTC Markets.

Sui is a new blockchain designed for building decentralised applications (dApps) with high speed, low cost, and user-friendly features. It uses its own MOVE programming language and Narwhal-Tusk consensus algorithm. With a maximum supply of 10 billion SUI tokens, it aims to provide a secure and transparent network for developers and users to create and exchange value.

Get ready to place your post-only orders on Tuesday, May 16th ahead of the market going fully live on Wednesday, May 17th.

Read more about Sui (SUI) and stay tuned for further updates.

The week ahead

May 11th: Release of the United Kingdom's interest rate data, and the United States' monthly Producer Price Inflation figures.

May 12th: Westpac-Melbourne Institute Index of Consumer Sentiment for Australia and the publication of the United Kingdom's Gross Domestic Product (GDP) numbers.

May 13th: Announcement of the Michigan Consumer Sentiment index in the United States.

May 16th: Release of the Reserve Bank of Australia's meeting minutes, as well as China's Industrial Production figures, the United Kingdom's Unemployment Rate data, Germany's ZEW Economic Sentiment Index, Canada's annual inflation rate, and the United States' retail sales figures.

May 17th: Publication of Japan's GDP Growth Rate and the United States' Building Permits data.

May 18th: Release of Japan's Balance of Trade figures.

Economic Calendar (tradingeconomics.com)

CEOs Corner

How do we decide what projects to list on BTC Markets?

I want to share some details how BTC Markets decides what tokens/coins to list. Projects are nominated by looking firstly at client demand. For example, based on client requests on social media, inbound client support tickets or where possible to list Top 40 tokens (according to CoinMarketCap).

From there, the project whitepaper is reviewed by our financial services legal team to ensure it is not a security under Australian regulation. Concurrently, due diligence is done on the founders and project itself. Ideally, we are looking to sidestep listing any projects which may cause legal issues or potential problems for clients down the line.

BTC Markets does not accept payment for listing cryptocurrencies on our platform. This is to avoid compromising our ability to conduct due diligence on projects. While this does not guarantee the quality of the projects listed, it allows BTC Markets to keep "clean hands" and maintain transparency with our clients.

As we are an exchange (not a broker) we build the token infrastructure ourselves. Meaning spinning up the specific blockchain, wallet etc. Invariably, due to the newness of the technology the documentation on this part can be sparse. This historically has meant new chains can be time-consuming to incorporate (but still worthwhile - it is our job after all.)

Naturally, we focus on issues around custody and security. That is partially offset by our partnering with BitGo. This should enable us to quickly list shared projects which is an area we can improve on.

The decision to list Sui is to try something a bit different for BTC Markets. It is a brand-new project and in recent years, we had adopted more of a wait and see approach. This time we wanted to offer a project in its earlier stages, to give clients a greater range of fresh listings.

The feedback we got from our clients on the Sui listing is useful. We’re trying something new and want to hear from you. I value the comments about greater community outreach and the involvement in listings. A first step is to give you this greater transparency about how we make these decisions. How we reshape that process to include more of your involvement will be our next step.

Feel free to send a secure message via our support desk on ways we can improve our service offering to you. I look forward to hearing from you.

Caroline Bowler, CEO

Market reflections

Australia

The Federal government recently announced a AU$15 billion budget package aimed at reducing the cost-of-living burden for Australians. The package includes welfare increases, Medicare incentives, and energy bill discounts. Treasurer Jim Chalmers has confirmed that tax hikes will be implemented to fund the program, and despite the increase in government spending, the impact on inflation is expected to be negligible. The energy bill discounts, split between states and the Commonwealth, are projected to lower inflation by 0.75% in 2023-24, along with temporary price caps on gas and black coal.

Economic growth is expected to slow from 3.25% this year to 1.5% next year due to high interest rates and a slowing global economy. The deficit for 2022-23 has been revised from AU$36.9 billion to a surplus of AU$4.2 billion, the first budget surplus in 15 years. Nevertheless, a forecast deficit of AU$13.9 billion is predicted for the next year, increasing to AU$36.6 billion in 2025-26.

National Australia Bank (NAB) released its business confidence index for April, reporting an increase of one point to reach zero, its highest reading since January. The uptick was led by the wholesale sector, with small improvements in finance, business and property, retail, and construction. While sales and profitability remained high, employment stabilised, and forward orders and capital expenditures decreased, while labour and purchase costs grew, posing a challenge to the overall positive sentiment. NAB's Chief Economist Alan Oster notes that the survey indicates the economy's resilience.

Australia's trade surplus expanded in March 2023, beating market expectations with exports and imports both increasing. The growing surplus could have a positive impact on the Australian economy, indicating a robust demand for Australian goods and strengthening the country's position in the global market.

Global

In April 2023, the US CPI rose 0.4% month-over-month, with the largest contributions coming from shelter, used cars and trucks, and gasoline. Annual inflation fell to 4.9%, with slower growth in food prices and falling energy costs. The annual core inflation rate was 5.5%, down from the prior month, matching market expectations.

According to the Federal Reserve’s Senior Lending Executives' report, banks across the US are tightening their lending standards, which some analysts see as a warning sign of an impending recession. The Federal Reserve's tightening cycle and the simultaneous tightening by commercial banks are contributing to the pessimistic outlook for the US economy.

Michael Kantrowitz, Chief Investment Strategist at Piper Sandler & Co, noted that the Fed and commercial banks' tightening is happening simultaneously, which is unique. Historically, the Fed hikes interest rates first, which then causes the economy to slow down, and then banks tighten their lending standards. However, this time, the phenomenon suggests that the lag of these tightening actions could hit the economy simultaneously, making it more challenging for the economy to recover.

Kantrowitz also highlighted that just because the Fed pivots, it does not mean the end of the recession, as banks are still tightening their lending standards. He noted that the Fed will probably cut rates in a hard landing scenario, but the banks will continue to tighten their lending standards. This is why it takes time for rate cuts to revive the economy.

Tightening lending standards are a significant indicator of an impending recession, and the Fed lending survey or SLOOS has a perfect track record when predicting the onset of a recession according to analysts. As the lending standards tighten, it will become more challenging for businesses to access credit, which will lead to reduced investment and economic activity.

In March, the US trade deficit shrank to a four-month low, attributed to a rise in exports and a decline in imports. In April, US jobs data came in better than expected, beating forecasts whilst the unemployment rate also edged down, matching a 50-year low seen in January, and below market expectations.

The Canadian economy saw a slower pace of expansion in economic activity in April, with the Ivey Purchasing Managers Index falling and full-time employment declining in March. The rate of inflation also softened, in contrast, a record trade surplus was reported in March.

China's annual inflation rate fell to 0.1% in April 2022, the lowest since February 2021, with slowdowns in food and non-food prices. Trade surplus expanded in April due to an increase in exports, but imports fell unexpectedly due to weakened domestic demand. The Caixin China General Manufacturing PMI unexpectedly fell, showing the first contraction in factory activity since January, with reduced output growth and the steepest decline in selling prices since December 2015. Input prices also decreased due to lower raw material prices.

The European Central Bank (ECB) recently announced its decision to increase its key interest rates by 25 basis points (bps) during its May meeting. This move is seen as a sign of a slower pace of policy tightening despite seven consecutive rate increases as the ECB aims to combat high inflation despite ongoing recession risks. President Lagarde further emphasised that the ECB has more ground to cover, indicating that the rate-lifting cycle is not pausing anytime soon. Meanwhile, in Germany, the trade surplus increased in March, beating market expectations while exports fell less than imports.

State of crypto

The crypto market witnessed a downturn in the last trading week, which saw Bitcoin decline by 2.75% closing the week at US$28,430. While Ethereum saw a small increase of 0.02% and ended the week barely in the green at US$1,870. On the other hand, XRP lost 4.57% and closed at US$0.4490. Cardano was also down 4.95% closing at US$0.3760, while Litecoin lost 5.44% and finished in the red at US$83.42.

Looking at the year-to-date performance, Bitcoin is currently trading at US$27,519, reflecting a 66.36% gain. Ethereum is trading at US$1,832, marking a 53.16% increase on the year while Cardano has similarly increased by 48.49% and is trading at US$0.3650. Meanwhile, XRP is holding steady with a 26.20% gain on the year, trading at US$0.4277 followed by Litecoin, with a gain of 14.51%, trading at US$80.33.

In the last trading week, Bitcoin's market capitalisation has decreased by 0.55%, and its dominance is presently at 48.11%. The overall cryptocurrency market capitalisation experienced a decline of 1.63% during the last trading week and is presently valued at US$1.109 trillion.

(*source: Trading view, as of 11/05/2023 at 1:00pm AEST).

Alt action

Understanding Bitcoin Satoshi Vision (BSV).

Bitcoin SV (BSV) is a cryptocurrency that was launched in 2018 as a fork of Bitcoin Cash, which was itself a hard fork of the original Bitcoin blockchain. The aim of BSV is to address Bitcoin's scalability issues while staying true to the original vision of a peer-to-peer electronic cash system as outlined in the Bitcoin white paper.

One of the main differences between BSV and Bitcoin is that BSV provides a larger block size, which allows the network to process more transactions quickly, making it a scalable option for businesses and individual investors.

Bitcoin SV's creator, Dr. Craig Wright, claims to be the true Satoshi Nakamoto. BSV provides smart contract capabilities that allow for the creation of programs and applications on the network.

BSV is currently trading at US$37.12.

Trade BSV now on BTC Markets

The Big 3

Bitcoin network congested while BRC-20 tokens near US$1billion.

Binance paused Bitcoin withdrawals on Sunday due to congestion issues on Bitcoin’s network, which resulted in higher-than-normal transaction fees. Transaction fees on Bitcoin reached their highest levels in almost two years on Friday, averaging US$9.62 per transaction, representing an over 500% increase compared to six months ago.

The uptick in congestion and higher transaction fees coincides with a steep rise in the number of inscriptions made through Ordinals, as people use the protocol for minting NFT-like assets on Bitcoin to create and trade fungible, BRC-20 tokens.

This resulted in the market cap of BRC-20 tokens reaching close to US$1 billion as the value of tokens built on Bitcoin's blockchain surged, following ORDI's listing on major exchanges. BRC-20 is an experimental framework for creating fungible tokens on Bitcoin using Ordinals. The tokens have been in existence for two months, with ORDI being the first, and have gained popularity amid Bitcoin meme coin mania. Other BRC-20 tokens include MEME, PEPE, PIZA, and DOMO.

The congestion on the Bitcoin network also led to a boost in revenue for miners from attached fees, with the surge in transactions caused by a flood of small 546 sat transactions.

Trade BTC on BTC Markets

Ethereum network experiences surge in traffic.

According to recent reports, the Ethereum network has experienced a surge in network traffic over the past week, causing transaction fees to reach their highest levels since The Merge last September. The congestion has been attributed to the trading of small altcoins, including meme coins such as PEPE, which has led to a crowding-out effect on the Ethereum NFT market.

As a result of this congestion, there has been a large net reduction in ETH supply due to the implementation of ETH burn in Ethereum's EIP-1559 fee market overhaul. This burn mechanism helps to reduce the overall supply of ETH by destroying a portion of the transaction fees paid by users on the network.

The surge in network activity has renewed discussions around the future path to scalability for Ethereum and the importance of Ethereum's layer-2 scaling solutions reaching maturity. This is particularly important given that the congestion of the base layer of Ethereum has made it difficult for NFT creators to mint and trade their digital assets, as the number of ERC-721 tokens (the most popular NFT standard on Ethereum) has fallen while daily transfers of ERC-20 tokens are rising significantly.

There is some hope on the horizon for those concerned about the scalability of Ethereum. The upcoming Cancún upgrade is expected to help lower L2 fees with the implementation of EIP-4844. This could help to mitigate the impact of high transaction fees and congestion on the Ethereum network.

Despite the network congestion, there is still significant demand for Ethereum staking. According to recent data from Nansen, more than 200,000 ETH has been deposited to the network since the start of the week, marking the first-time deposits have outpaced withdrawals since the Shapella upgrade went live last month. This surge in deposits brings the number of Ether locked for staking purposes to over 19 million tokens, which represents about 15% of the total circulating supply.

This rush to stake ETH has been driven by the increasing popularity of meme coins such as Pepe coin (PEPE), which have put a strain on the Ethereum network and sent transaction fees to a 12-month high. To take advantage of the demand for staking, platforms such as Lido Finance have emerged, offering users the ability to stake their ETH and receive network rewards in the form of alternative tokens. These alternative tokens can be used as liquidity in the broader decentralised finance (DeFi) ecosystem, offering users a passive investing strategy with returns of up to 6.6% in annualised yield rewards.

Trade ETH on BTC Markets

Ripple CEO claims US$200 million legal bill in SEC lawsuit.

According to CEO Brad Garlinghouse, Ripple has spent $200 million defending the case brought against it by the United States Securities Exchange Commission (SEC).

Garlinghouse dropped the figure during a fireside chat at the Dubai Fintech Summit on May 8. He stated that the US is stuck, compared with the regulatory progress of the United Arab Emirates virtual asset regulatory authority and the recent Markets in Crypto-Assets (MICA) bill in the European Union. He went on to share that by the time the case is decided, Ripple will have spent US$200 million defending itself against a lawsuit which, from its very beginning, doesn’t make a lot of sense.

In a message to SEC chair Gary Gensler, Garlinghouse expressed regret about the US falling behind significantly as Ripple expands to the United Arab Emirates. According to him, the tough thing about the situation is having a country that has put politics ahead of policy. Garlinghouse said one of the first pieces of advice he gives entrepreneurs when they ask him about getting something started is,” If I were you, I would not start in the United States.” He believes many US-based companies and US public companies would agree.

When asked about the US needing a clear regulatory framework for crypto, Garlinghouse said the SEC must understand that most people working in crypto and blockchain are good actors who want to stay within the rules of the road but need them defined.

The case has been going on for two and a half years and has created headwinds in the US market. A decision is expected from the judge sometime in the next three to six months, according to Garlinghouse.

Trade XRP on BTC Markets

Crypto news

PayPal making waves in the world of crypto.

PayPal has been making waves in the world of cryptocurrency, and the latest news is no exception. According to a recent quarterly report filed with the US Securities and Exchange Commission, the fintech company's holdings of Bitcoin and Ethereum have increased by more than 56% since Q4 2022. As of March 31, 2023, PayPal now holds a combined total of US$943 million in cryptocurrency assets, with Bitcoin accounting for US$499 million and Ethereum accounting for US$362 million.

This disclosure shows a significant increase in PayPal's cryptocurrency assets, which made up 77.9% of its total financial liabilities for the first quarter of 2023. While the report doesn't provide a detailed breakdown of PayPal customers' holdings, there has been a jump in deposits. In fact, PayPal's customers' crypto deposits jumped from US$604 million in the prior quarter to US$943 million as of March 31, a 56% increase.

Bitcoin was the most popular cryptocurrency in terms of current holdings and quarter-over-quarter percentage increase, spiking 71% to just short of half a billion dollars. The second-most held cryptocurrency, Ethereum, saw a 45% increase in deposits, while "Other," consisting of Bitcoin Cash and Litecoin, saw gains of plus 30%.

The increase in deposits may not solely be due to customers increasing their holdings. As the report notes, the risks of accounting for cryptocurrency, including "technological, legal, and regulatory risks," mean that crypto assets are recorded as both a liability and an asset on PayPal's books. It is therefore unclear precisely how much of the 56% quarter-over-quarter increase in deposits relates to increased crypto holdings or the increase in dollar value over that period.

Despite the risks, PayPal seems to be bullish on cryptocurrency, allowing users in some regions to buy, hold, sell, and pay for purchases using cryptocurrency. However, it's worth noting that PayPal doesn't have any cryptocurrencies on its balance sheet other than those belonging to its customers. Custody of the assets held on behalf of customers remains limited to third-party holding companies, with no safeguarding loss events incurred by the company as of March 31, 2023.

Regulation roundup

SEC wants investment advisers to use "qualified custodians".

The proposed rule by the US Securities and Exchange Commission (SEC) requiring investment advisers to use "qualified custodians" to hold their clients' assets, including cryptocurrency, is facing criticism from a diverse group of stakeholders. The proposal aims to extend the requirement to all assets that investment firms manage, but critics claim it goes too far and may have unintended consequences.

The proposed rule specifies that assets entrusted to investment advisers must be held with "qualified custodians." SEC Chair Gary Gensler argues that crypto platforms do not meet the criteria of "qualified custodians," potentially cutting investment firms off from the crypto industry. The SEC has also faced opposition from the securities industry's chief lobbying group, which called the proposal "jurisdictional overreach," and the crypto sector, which called it "illegal, infeasible, and dangerous."

Several stakeholders in the crypto sector, such as Anchorage Digital Bank and state-chartered trusts like Coinbase's Custody Trust Co. and BitGo, have argued that they would qualify as proper custodians. The New York Department of Financial Services has also pointed out that its system for regulating trust companies specialising in crypto is the best way to ensure safe custodianship. Cutting those off "would run the risk of pushing novel activities into unregulated spaces, including offshore."

Overall, concerns about the proposal focus on its potential impact on smaller investment advisers and the lack of clarity about whether crypto custodians will meet the SEC's criteria for "qualified custodians." Stakeholders in the crypto industry are also worried that the narrowing choices for custody may cause clients to bear greater risks than they currently do. The SEC will now review all outside comments before finalising the rule.

Compliance conversations

Consumer protection in social media.

Over the past few months, the Australian government and regulators have been heavily focused on preventing consumers from falling victim to crypto scams, particularly considering the recent collapse of some infamous crypto businesses.

One effective approach to achieving this goal could be to limit the ease with which Australians can be exposed to online scams. Social media platforms like Facebook/Meta, Twitter, and YouTube are known to be fertile breeding grounds for scams to target unsuspecting audiences, especially those with limited knowledge of investing.

Advertisements that utilise public figures (whether real or fake) to promote crypto assets that have supposedly been endorsed by financially savvy individuals are all too common. Unfortunately, cautioning clients about these risks may not always suffice, as some may assume that investments promoted on social media platforms must be legitimate.

While this is not an issue unique to crypto, there have been instances where celebrities have been involved in legal disputes over the use of their name or image to sell products they do not endorse. Unlike other types of investments, dealing with crypto transactions can be particularly complicated since they can be instantaneous, irreversible, and unrecoverable.

ASIC has provided a checklist of common scams and way to avoid them. To learn more, visit ASIC’s website.

Feedback

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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.