Weekly Crypto Wrap: 17th August 2023

TLDR

• BTC Markets CEO: ‘UK’s crypto regulations will inspire Australia’.
• Europe's first spot Bitcoin ETF lists in Amsterdam.
• Visa tests way to make paying Ethereum gas fees easier.
• Singapore urges stablecoin issuers to prepare for 2024 framework.
• Bitcoin continues trading within a historically low volatility regime.

BTC Markets in the news

BTC Markets CEO: ‘UK crypto regulations will inspire Australia’.

In an interview with Financial News this week, BTC Markets CEO, Caroline Bowler said she is betting on the UK to lead the way on regulation of the digital assets sector.

“Sitting in Australia, I’m really looking forward to what comes out of the UK. They have a modern financial system. What we hear coming out of the UK government is positive for the crypto community.”

Read more at Financial News.

BTC Markets CEO sees silver lining in Australian banks’ crypto clampdown.

Some of the largest banks in Australia have been limiting and blocking funds transfers to cryptocurrency exchanges citing rising scams and fraudulent activities. Our CEO, Caroline Bowler, believes the nation can still be a crypto hub given the established and regulated traditional financial infrastructure.

In a ‘Word on the Block’ interview with Forkast’s Angie Lau, Caroline discusses the challenges and opportunities faced by the crypto industry and highlights the importance of all stakeholders; including legislators, institutions, and industry, coming together to propel Australia into the blockchain economy. Watch, listen, or read the full interview here.

State of crypto

During another week of subdued activity in the crypto market, volatility and trading volume remain on the sidelines, as traders look to the broader macro markets for further guidance. The current trajectory of Bitcoin's price movement bears a remarkable resemblance to the pre-bull market cycle experienced between 2015 and 2017. According to Delphi Digital, a leading digital asset research firm, Bitcoins current price behaviour underscores the cyclical nature of the market. Their analysis points to Bitcoin's recent price fluctuations and the overarching structure of the crypto markets as reminiscent of the early stages preceding past bullish runs.

Amidst this backdrop, former head of FTX, Sam Bankman-Fried finds himself entangled in another legal battle involving allegations of witness tampering, ending with him back behind bars. Discussions at the G20 turns to global regulations for the cryptocurrencies. International Monetary Fund Managing Director Kristalina Georgieva resists the idea of an outright ban on cryptocurrencies, likening digital assets to water, "You try to plug it from one side, it will find some hole and come out" she stated.

Meanwhile, Bitcoin's price remained within its consolidation phase, oscillating between a low of US$28,701 and a high of US$30,244. Despite concerted efforts, the psychological barrier at US$30,000 continues to hold firm, reflecting the market's neutral sentiment.

As the trading week concluded on Monday*, Bitcoin (BTC) managed to close slightly higher at US$29,303.84, representing a marginal gain of 0.74%. Ethereum (ETH) followed suit with a modest uptick of 0.57%, settling at US$1,840.73. XRP showed resilience, inching up by 0.26% to close at US$0.6256. On the flip side, Litecoin (LTC) experienced a decline of 0.79%, reaching a closing value of US$82.10. Cardano (ADA) faced a setback, concluding the week at US$0.2894, representing a decline of 0.99%.

In terms of market capitalisation, Bitcoin saw a modest increase of 1.19%, further solidifying its dominant position at 50.24% as the collective cryptocurrency market capitalisation grew by 1.04%, closing the week at US$1.134 trillion. Reflecting on the year-to-date performance**, XRP's massive lead has dissipated, currently at 73.53% alongside Bitcoin, sitting on a gain of 76.53%, while Ethereum trails with a 51.14% increase. Cardano holds steady with a 11.47% uptick, while Litecoin is struggling to hold in the green with a 6.10% gain.

*The weekly trading stats as of Monday, August 14th at 10:00 am AEST, based on data from Tradingview in USD.

**Year -to-date performance as of Thursday August 17th at 10:00 am AEST, based on data from Tradingview.

Crypto news

Europe's first spot Bitcoin ETF lists in Amsterdam.

London-based Jacobi Asset Management has listed Europe's first spot bitcoin exchange-traded fund (ETF) on Euronext Amsterdam nearly two years after it was first approved.

The ETF, trading under ticker BCOIN, is overseen by the Guernsey Financial Services Commission (GFSC). Fidelity Digital Assets handles the ETF’s custodial duties, Flow Traders acts as market makers, and both Jane Street, a global liquidity provider and trading firm and DRW, a diversified trading firm, serve as authorised participants.

A spot Bitcoin ETF directly holds Bitcoin, letting investors tap into its price without directly buying or handling the cryptocurrency. A futures-based Bitcoin ETF focuses on the futures market, which comes with its own set of challenges and risks. Though this is the first spot Bitcoin ETF in Europe, there are a series of crypto exchange-traded notes (ETNs) available on the continent — offerings that fall under the broader exchange-traded product (ETP) label.

The listing means Europe will see a spot Bitcoin ETF traded before the U.S., despite dozens of applications to the Securities and Exchange Commission (SEC) in the last few years. While U.S. regulators have approved futures-based bitcoin ETFs, they have so far rejected several spot Bitcoin ETF proposals, voicing concerns about potential market manipulation and fraud due to insufficient trading surveillance.

However, there is renewed hope that U.S. regulators will approve a spot Bitcoin fund, after asset management giant BlackRock led a flurry of new applications featuring "surveillance-sharing" agreements designed to guard against market manipulation.

Crypto gaming industry investments surged in July.

The crypto gaming industry, which spans video games that use blockchain-based tokens or NFTs, collectively received a substantial US$297 million in investment funding last month, according to a joint report from DappRadar and the Blockchain Game Alliance.

Some 63% of that July funding was committed to infrastructure development—a detail that suggests the industry is still in its earliest stages. Investors are betting on tools and platforms that will facilitate future crypto and NFT-driven games.

Investors pumped US$297 million into the industry in July, from game publishers Animoca Brands investing US$30 million into crypto “super app” Hi to artificial intelligence startup Inworld AI raising over US$50 million to power smarter, more dynamic in-game characters.

Valhalla Ventures also established a US$66 million venture capital fund for gaming and technology, while Futureverse raised US$54 million for its crypto metaverse plans.

While some metaverse-centric firms may still be raising funds, current NFT prices and overall trading volume for existing metaverse games continued to lose market share last month.

The week ahead: upcoming economic events

August 18th: Japan’s Inflation Rate YoY. UK’s Retail Sales MoM.

August 23rd: Germany’s HCOB Manufacturing PMI Flash.

August 24th: United States’ Durable Goods Orders MoM.

Economic Calendar (tradingeconomics.com)

Market reflections

Australia

• Consumer inflation expectations eased to 4.9% in August.
• RBA projects inflation to drop to 3.25% by late 2024.
• Q2 2023 wage growth at 3.6%, comparable to 2012 levels.
• Leading index signals possible monetary tightening.

Consumer inflation expectations eased to 4.9% in August 2023 from the prior month's 5.2%, aligning with the Reserve Bank of Australia’s (RBA) view that inflation has peaked post twelve rate hikes, totalling a 4% increase. Despite rising service costs, anchored expectations persist amid lowered goods prices. National annual inflation dropped to 6.0% in Q2 2023 from Q1's 7.0%, the lowest in five quarters, compared to the 30-year high of 7.8% in Q4 2022. June's monthly consumer prices rose 5.4% year-on-year, the smallest in 14 months.

During its August meeting, the RBA opted to maintain its cash rate at 4.1%, extending the pause on rate changes for the second consecutive month, countering market expectations of a 25-basis points rate hike. Despite easing cost pressures, the RBA expressed concern over the 6% inflation rate, hinting at possible future monetary tightening. The projected inflation to reach 3.25% by late 2024 and returning within target range in late 2025, emphasising the dependence on economic and price developments. GDP growth of 1.75% in 2024 is expected, while unemployment may rise to around 4.5% by late next year.

Australia's Q2 2023 wage growth showed a year-on-year increase of 3.6%, slightly below market expectations and Q1's 3.7%, comparable to 2012 levels. Quarterly wage prices increased 0.8%, in line with the previous two quarters and slightly below the consensus of 0.9%.

The Westpac-Melbourne Institute Leading Economic Index for Australia remained largely unchanged compared to the previous month, with a minor 0.1% increase. This index forecasts economic growth in the coming months relative to the established trend and showed a slight improvement from -0.67% in June to -0.6% in July. This marks the twelfth consecutive month of negative readings, raising concerns about potential monetary tightening by the Reserve Bank of Australia.

Corporate profit season indicates better-than-expected results, reflecting the Reserve Bank's (so far) successful strategy of achieving a low-inflation soft landing amid cost-of-living pressures. Maintaining competitiveness and cost management are key. China's economic uncertainties persist, impacting potential job concerns.

Global

• Major US credit agency warns of possible downgrades for US banks, including JPMorgan Chase.
• China's contagion fears escalate as central bank cuts rates.
• German economy faces challenges due to slow pandemic recovery.
• UK economy experiences 0.2% growth in Q2 2023.

United States

One of the big three credit rating agencies, Fitch, has issued a warning of possible downgrades for multiple banks, including JPMorgan Chase, citing an increased risk of rating cuts. While a previous industry health assessment downgrade in June didn't result in banks being impacted, another potential adjustment to A+ from AA- could prompt a reassessment of ratings for over 70 U.S. banks. The warning underscores the genuine risk of bank downgrades, although it's not guaranteed

The action in June, was driven by factors such as credit rating pressure, regulatory gaps, and interest rate uncertainties. Such decisions could impact top-rated lenders like JPMorgan and Bank of America, whilst also potentially affecting weaker banks and their status. The precise impact remains uncertain, but could affect profit margins, bond markets, and lending agreements.

US inflation remained stable last month with a 0.2% increase in core consumer prices, aligning with June and market expectations. Year-on-year core consumer prices grew by 4.7%, slightly below June's 4.8%. Annual inflation rose to 3.2%, ending a 12-month decline. Producer prices index (PPI) surged with a 0.3% monthly increase in July 2023, the highest since January, driven by a 0.5% rise in food prices. The PPI YoY saw a 0.8% increase, exceeding forecasts.

Consumer sentiment slightly dipped in August 2023, yet remained above expectations. Retail sales for July increased by 0.7%, boosted by Amazon's Prime Day while building permits in June decreased by 3.7%, reflecting mixed trends in the construction sector.

The Federal Reserve's recent minutes reveal a leaning towards further rate hikes due to inflation concerns, although internal divisions are emerging. Market analysts predict a pause in September, extending into the first quarter of 2024, when rate cuts are likely to be considered.

China

Chinese property giant, Country Garden warns of a potential US$7.6 billion loss, raising default concerns and contagion risks in China's economy. It warned it may struggle with a US$22.5 million bond payment, amid turmoil in China's real estate sector.

Besides real estate, China's US$2.9 trillion trust industry, a shadow banking segment, raised concerns due to higher returns and risks. Regulatory focus intensified after trust companies tied to Zhongzhi Enterprise Group Co. defaulted on high-yield investments in August.

President Xi faces tough choices following a surprise rate cut by the People's Bank of China (PBOC). The substantial reduction in the one-year Medium-Term Lending Facility (MLF) rate, the largest since 2020, underscores economic worries.

Further data reveals shortfalls in the country's latest youth unemployment figures. Retail sales grew 2.5% YoY (below 4.5% expected), and industrial production rose 3.7% (lower than the projected 4.4%). Fixed asset investment expanded 3.4% for the first seven months (below the forecasted 3.8%).

Despite the rate cut, negative market response calls for more decisive actions. This followed July's weak consumer spending, declining investment, and rising unemployment.

Japan

In an unexpected turn, Japan's trade balance for July 2023 revealed a deficit surprising markets that were expecting a surplus. Exports declined for the first time in over two years, contributed to inconsistent demand from overseas, indicating potential challenges for its economic rebound, which has become more reliant on external markets as domestic consumption falters.

Economist Taro Kimura stated that “Japan’s export engine — which powered a surprisingly strong pickup in growth in the second quarter — entered 3Q23 sputtering, with outbound shipments falling in July. The adjusted trade deficit widened slightly, suggesting net exports could drag on the economy.”

Germany

The German economy is facing a contraction due to various factors, including the uneven post-pandemic recovery in China, energy shortages, and inflationary pressures. Germany's relationship with China is evolving as increased trade and dependence on China's market and manufacturing sector are reevaluated.

Transitioning to low-carbon energy sources and achieving climate goals pose challenges, including building infrastructure and streamlining renewable energy permitting. The shift to electric vehicles is impacting Germany's auto manufacturing sector. Inflation is a risk, but consumer savings from the pandemic may provide some cushion. Wage growth and labour market shifts are affecting consumer health and inflation. Market analyst state that Germany's economy needs to adapt through reforms for a more flexible labour market and strategic investment to address these challenges.

United Kingdom

The UK economy experienced a slight growth of 0.2% in the second quarter of 2023, driven by increases in manufacturing, consumer spending, and government expenditure. However, concerns remain as the economy faces challenges, including falling raw material prices, inflationary pressures, and unpredictable weather.

The Bank of England's campaign of interest rate hikes aims to curb inflation, but previous rate increases could impact economic activity and inflation in the coming quarters. Despite recent growth, the UK economy has not fully recovered to pre-pandemic levels, with forecasts suggesting it might take until the third quarter of 2024 to reach that point. Stagnant productivity and low growth are making households financially vulnerable, and there is a predicted 60% chance of a recession by the end of next year. Early survey data indicates continued weak economic growth beyond the second quarter.

Canada

Inflation in Canada accelerated to 3.3% year-on-year in July, surpassing expectations and exceeding the Bank of Canada's control range. The monthly consumer price index rose by 0.6%, double the forecasted rate. Despite the increase, core inflation measures like the trim and median core rates, which filter out extreme price fluctuations, eased slightly.

The Bank of Canada may consider pausing interest rate hikes due to the slowing in core consumer price index growth. The increase in inflation is attributed in part to rising petrol prices, while cooling core measures and signs of economic softening could lead to a pause in rate hikes in September. The Bank of Canada expects consumer price gains to remain near 3% for the next year, with a focus on progress toward the 2% target.

The Big 3

Bitcoin continues trading within a historically low volatility range.

The Bitcoin market has reached a stage of extreme apathy and exhaustion, with volatility measures and several key on-chain indicators reaching all-time-low readings. Bitcoin continues trading within a historically low volatility range, with several metrics indicating extreme apathy and exhaustion has been reached in the US$29k to US$30k range.

There are some indicators that the market is slightly ‘top-heavy’ as indicated by the concentration of ‘Short-Term Holder’ supply and cost basis around the current spot price. Another lens to observe this volatility compression (investor exhaustion) is via the spending behaviour of investors.

The conditions of the Bitcoin market continue to resemble the bear market hangover seen in prior cycles, with an outsized wealth held by long-term high conviction holders. With such low volatility comes apathy and exhaustion, which often entails a relatively weak influx of demand. The ‘Realised Cap’ is climbing, but only very slightly, suggesting a sideways market may remain on the road ahead.

However, institutional crypto research firm Delphi Digital's CEO, Kevin Kelly, recently claimed that several Bitcoin metrics are showing signals which could hint at the beginning of a crypto bull market, despite the low volatility of late.

Buy Bitcoin on BTC Markets.

Visa looks to streamline Ethereum gas fees for enhanced user experience.

Payment's giant, Visa, says blockchain technology could “shape the future of money movement” and has gained significant adoption in the past few years. However, facilitating transactions on-chain can still be too complex for many users.

Every time a user conducts a transaction on Ethereum, they must pay a gas fee. That includes when sending and receiving ether (ETH), the native cryptocurrency of the Ethereum, over the blockchain. Managing a user's ETH balance to cover those costs is “burdensome,” Visa said in a blog post, and eliminating the complexity could make blockchain-based transactions more accessible and user-friendly.

“When comparing the complex nature of blockchain transactions with the simplicity of fiat-based payment transactions supported by the Visa network, it becomes evident that improvement is needed,” Visa said.

To bridge the gap, Visa suggests leveraging Ethereum’s ERC-4337, the current standard that enables smart contracts on the blockchain to serve as wallets via a process called "account abstraction," and a paymaster contract — a smart-contract account that can sponsor gas fees on behalf of the user. The service would allow users to use a Visa card to pay directly for gas fees. Testing of this process was performed on the “Goerli testnet”, a test network for Ethereum.

Visa added that merchants or decentralised applications could run their paymaster system or use an existing wallet to make transactions easier. The paymaster service providers could also offer a choice of card-based gas fee payment, among other options.

Buy ETH on BTC Markets.

Institutional investors continue to bet big on XRP following Ripple's partial SEC win.

Institutional investors have poured cash into Ripple (XRP)—the fifth-largest digital asset by market cap—for the 16th week running, according to a report from digital assets investment firm CoinShares.

Assets under management for XRP products have also risen 127% since the beginning of the year, the report noted. CoinShares Head of Research, James Butterfill, told Decrypt that US$11.25 million worth of investor money has been put into XRP since the start of 2023.

The reason for this apparent optimism is due to recent developments in the saga between Ripple Labs and regulators. In 2020, the U.S. Securities and Exchange Commission (SEC) hit Ripple with a US$1.3 billion lawsuit, alleging that it had misled investors and sold unregistered securities in the form of XRP.

But a federal district judge last month wrote in a partial ruling that programmatic sales of XRP to retail investors did not qualify as securities.

Buy XRP on BTC Markets.

Alt action

Stellar (XLM) invests in MoneyGram in bid to be a ‘digital-forward’ fintech leader.

Earlier this week, cross-border crypto payments network Stellar announced an investment in major money transfer company, MoneyGram International.

In a statement on its website, the foundation behind XLM said it had become a minority investor in MoneyGram using money from its own cash treasury. The Stellar Development Foundation did not reveal how much money it had invested in MoneyGram. XLM is the 24th biggest cryptocurrency by market cap, according to CoinGecko.

Stellar said in its announcement that the money would be used "in areas such as expanding its digital business, exploring blockchain technology, and contributing to the many other ways this financial technology company enables consumers and businesses to move and manage money in nearly every country around the world."

"Most importantly, it signifies a rededication from MoneyGram International, one of the world's leading global financial technologies, to becoming a digital-forward leader in fintech," the Stellar Development Foundation's CEO and executive director Denelle Dixon added. The statement also said that Dixon now had a seat on MoneyGram's Board of Directors. 

Stellar and MoneyGram have been working together for years. Stellar aims to make cross-border payments faster and cheaper using blockchain technology. MoneyGram is one of the largest American remittance companies, competing with the likes of Western Union, Intermex and Euronet.

XLM is currently trading at AU$0.2007.

Regulation roundup

Singapore urges stablecoin issuers to prepare for 2024 framework.

Singapore’s central bank, the Monetary Authority of Singapore (MAS), has finalised a regulatory framework for stablecoins requiring regulated issuers to hold necessary reserves on hand. The framework will apply to single-currency stablecoins (SCS) pegged to the Singapore Dollar or any G10 currency issued within its borders, according to a statement on Tuesday.

SCS issuers will have to comply with new rules, including maintaining reserve assets that are sufficient to back their value, as well as holding minimum base capital and liquid asset requirements. Failure to meet these requirements will result in penalties or fines. Penalties for violating the MAS stablecoin regulatory framework have not been finalised yet.

“We encourage SCS issuers who would like their stablecoins recognised as ‘MAS-regulated stablecoins’ to make early preparations for compliance,” Ho Hern Shin, deputy managing director of Financial Supervision at MAS said in the statement.

The director also said the framework aims to facilitate the use of stablecoins as a “credible digital medium of exchange” and “as a bridge between the fiat and digital asset ecosystems." The framework is expected to come into effect in the first half of 2024.

Compliance conversations

Beware of scams disguised as business opportunities.

It all starts with an enticing offer out of the blue from an unknown source. Promising unbelievable returns or extraordinary growth in a short span of time. It sounds like a dream come true, right? Unfortunately, for countless victims, it's nothing more than a carefully crafted trap designed to separate you from your hard-earned crypto.

These fraudsters are experts at creating a façade of legitimacy. They'll dazzle you with impressive testimonials, flashy marketing materials, and a polished website. They might even offer a free trial period to lure you in, making their scheme seem even more enticing. However, once they've gained your trust and access to your crypto assets, they vanish into thin air, leaving you with nothing.

The adage "if it sounds too good to be true, it probably is" holds especially true when dealing with business opportunity scams. While the allure of quick riches can be tempting, it's crucial to approach any investment opportunity – especially in the crypto world – with a healthy dose of scepticism.

Protecting yourself from these scams requires due diligence and careful consideration. Before jumping into any business opportunity, take the time to research thoroughly. Verify the legitimacy of the company, check for reviews and complaints, and consult trusted sources for advice. If an opportunity guarantees extravagant profits without explaining the underlying mechanisms, it's a red flag.

Furthermore, always remember that reputable investment opportunities come with risk. Even in the legitimate business world, success requires effort, time, and dedication. There are no shortcuts to genuine success, whether in traditional business or in crypto.

In the end, the promise of quick riches through a 'business opportunity' is an alluring trap that has ensnared countless victims. As the crypto world continues to grow, it's essential to remain vigilant and cautious. Educate yourself, seek advice from trusted experts, and approach any investment with a healthy dose of scepticism. By doing so, you can protect yourself from falling victim to these age-old scams in the modern age.

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

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Prices are accurate as of 10:00 AM AEST, on 17/08/2023.