Weekly Crypto Wrap: 24th August 2023

TLDR

• Friday’s ‘flash crash’ sees over US$1 billion in liquidations on derivative exchanges.
• Unexpected rise in Australian unemployment amidst an ongoing economic recovery.
• AI powerhouse, Nvidia, exceeds Q2 predictions reporting a 171% on the year.
• US Treasury yield surges to its highest point since November 2007.
• AU$3b a year: Aussie digital dollar could save billions per year.
• Ripple reveals eight countries building CBDCs on XRP Ledger.
• Solana flips Polygon to become the second-largest network for NFTs.

BTC Markets in the news

Our CEO in the AFR: Bitcoin's next big price catalyst is coming.

"The halving is indicative of the fact Bitcoin is a young technology and does what it says it will do." BTC Markets CEO, Caroline Bowler.

Given the current price action of Bitcoin, the AFR's Tom Richardson explores what is coming on the horizon for the world's largest cryptocurrency, particularly in light of next year's halving event. With commentary from our CEO, Caroline Bowler. Read the full article here.

Stockhead: Commentary from BTC Markets CEO.

Our CEO, Caroline Bowler, shares her insights and analysis with financial publication Stockhead, regarding last week's sell-off in the crypto market.

In the past 24-hour period, the cryptocurrency market, has seen an unprecedented sell off considering the low volatility and market consolidation of the past few weeks.

Read the full article here.

State of crypto

Following weeks of sideways action, we finally saw some movement in the crypto market, although not in the direction that many of us had hoped for. In the earlier hours of Friday morning in Australia, the market witnessed what can only be described as a ‘flash crash’ causing over US$1 billion in liquidations across several derivative exchanges. The largest single liquidation occurred on Binance in the ETH BNB pair which saw a single trade lose US$56 million. Ouch.

Many market participants have been speculating as to what caused the sudden 7.33% price drop in 24 hours, with stories ranging from Elon Musk Space X writing down the value of its Bitcoin holdings, to China’s property developer Evergrande’s filing for bankruptcy. Or possibly due to the rise in government bond yields to weakening global markets. Others point to the impending rate hikes from the US Fed to a deliberate take down by a crypto whale. Take your pick of one, or all the above. No one knows.

Bitcoin saw its biggest single daily sell off since 9th November 2022 from the FTX collapse, losing 7.33% in a single day. Price has returned to a consolidation phase, holding firm around the US$26,052 range whilst the ‘Crypto Fear and Greed Index' has plummeted to 37 in the Fear Zone down from 53 Neutral Zone last week.

As the trading week concluded on Monday*, Bitcoin (BTC) saw double digit losses closing at US$26,189.99, down 10.63%. Ethereum (ETH) fared slightly better down 8.45%, settling at US$1,685.25. XRP rebounded to close above the 50 US cents psychological barrier closing at US$0.5384, down 13.94%. Litecoin (LTC) also suffered double digit losses, down 20.35%, closing US$65.25 and Cardano (ADA) rebounded to close the week at US$0.2703, representing a decline of 6.60%.

In terms of market capitalisation, Bitcoin took a hit, losing 2.45%, closing with 49% dominance as the collective cryptocurrency market capitalisation shrank by 8.30%, closing the week at US$1.04 trillion.

Reflecting on the year-to-date performance**, Bitcoin, is back in the lead up 57.38%, while XRP's massive lead has dwindled to 53.85%. Ethereum trails with a 39.05% increase, Cardano is holding in the green with a 6.31% gain, while Litecoin has slipped into negative territory down -5.35% on the year.

*The weekly trading stats as of Monday, August 21st at 10:00 am AEST, based on data from Tradingview in USD.

**Year -to-date performance as of Thursday August 24th at 10:00 am AEST, based on data from Tradingview.

The week ahead: upcoming economic events

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

August 25th: Germany’s Ifo Business Climate.

August 26th: United States (US) Fed Chair Powell Speech. Euro Area ECB President Lagarde Speech.

August 29th: Japan’s Unemployment Rate. Germany’s GfK Consumer Confidence. France’s Consumer Confidence. Reserve Bank of Australia (RBA) Bullock Speech.

August 30th: US JOLTs Job Openings. Japan’s Consumer Confidence. Euro Area Economic Sentiment. Germany’s Inflation Rate YoY.

August 31st: China’s NBS Manufacturing PMI. France’s Inflation Rate YoY. Euro Area Inflation Rate YoY. Italy’s Inflation Rate YoY. India’s GDP Growth Rate YoY. US Core PCE Price Index MoM. US Personal Income MoM. US Personal Spending MoM.

Economic Calendar (tradingeconomics.com)

Crypto news

$3b a year: Aussie digital dollar could save billions.

A new report from the Reserve Bank of Australia (RBA) suggests that introducing a wholesale (not retail) form of eAUD, Australia’s proposed central bank digital currency (CBDC), could offer significant savings across the financial system, cutting collateral and capital held against settlement risk.

Analysis released yesterday from the RBA and Digital Finance Co-operative Research Centre suggests that banks and other financial market participants could save at least several billion dollars a year if a CBDC were introduced to the wholesale market. If the average savings were as estimated in the report, AU$3 billion, this would represent significant savings, more than 10 per cent of the total profits of the big four banks. An Australian CBDC could reduce costs for banks in cross-border payments, which currently require a network of corresponding banks and processes that can take days.

Settlement and payment are processes crucial to the backbone of the financial system, but current functions are slow, expensive, and outdated. According to this report, one of the major benefits of introducing a CBDC is ‘atomic settlement’. This refers to the payment and title transfer happening instantly, removing settlement risk and requiring lower levels of collateral to support the process. Atomic settlements are one of the many reasons that make blockchain technology, and cryptocurrency, too advantageous for traditional financial players to ignore.

Notably, the report did not include consideration of issuing a form of eAUD to the retail market to ‘avoid competing with commercial bank deposits.’ Instead, it suggests an eAUD provided to industry market players who deal directly with the RBA, as a new wholesale form of central bank money. Despite this, the benefits of introducing a CBDC in Australia would likely flow through to the real economy and to investors indirectly by reducing the cost of collateral required in the current financial system. A cost which is currently shifted on to end investors in the form of higher fees.

Coinbase acquires stake in Circle, dissolving USDC Issuer Centre Consortium.

Centre Consortium, which issues the USDC stablecoin, has been dissolved as Coinbase acquires a minority share in Circle Internet Financial, according to a blog post from the company.

"Centre will no longer exist as a stand-alone entity and Circle will remain as the issuer of USDC, bringing any Centre governance and operations responsibilities in-house," Circle CEO Jeremy Allaire and Coinbase CEO Brian Armstrong said in a jointly authored blog post. The announcement added that revenue from interest earned on the dollar reserves backing USDC tokens will continue to be shared between the two firms, but the split will now be equal.

USD Coin (USDC) stablecoin issuer Circle has always been linked to Coinbase through its consortium, a separate group set up in 2018 to govern the U.S. dollar-pegged token. At the time, the consortium said that it welcomed "broad industry participation" and that it would introduce more USDC issuers. Now Circle will be the only USDC issuer.

The blog post also said that USDC will launch on six new blockchains through the end of October - but without naming which networks. That will mean that USDC will be available on 15 different networks, according to the companies.

Market reflections

Australia

• Unexpected rise in unemployment amidst an ongoing economic recovery.
• Intergenerational Report sheds light on the impact of an aging population.
• ANZ-Roy Morgan Consumer Confidence index experienced a decline of 2.4 points.
• Aussie dollar slides to the lowest level since November 2022.

The latest economic developments in Australia indicate unexpected challenges in the form of a rising unemployment rate, which reached 3.7% despite earlier forecasts of 3.6%. This follows a period of average monthly job growth earlier in the year, although the current rate remains higher than last year, it still falls short of pre-pandemic levels. The unexpected rise supports the argument for the Reserve Bank of Australia (RBA) to maintain stable interest rates, considering inflationary pressures confronting the economy.

Simultaneously, the release of the new ‘Intergenerational Report’ outlines major economic challenges driven by Australia's aging population. Over the next four decades, the population of those aged over 65 is expected to double, while those aged 85 and above are predicted to triple. This demographic shift is poised to become a central driver of government spending. Treasurer Jim Chalmers underscores the significance of adapting to these demographic trends, given the slower population growth rate and increased life expectancy.

The ANZ-Roy Morgan Consumer Confidence index experienced a decline of 2.4 points, extending a record streak of 25 consecutive weeks below the benchmark. This drop in consumer confidence coincided with the Australian Dollar sliding towards 64 US cents, marking its lowest level in over nine months since November 2022. This decline in the currency has led to a surge in the prices of imported energy commodities, particularly oil, as the average price for petrol rose to $2.05 per litre, reaching the highest point in over a year.

The negative shift in the index could also be attributed to reduced sentiment regarding personal finances and the economic outlook for both the next year and the next five years. The percentage of Australians who perceive their families as being 'better off' financially compared to last year decreased to 19%, while 53% indicated that they are 'worse off.'

ANZ's Senior Economist, Adelaide Timbrell, noted the decline in consumer confidence, potentially influenced by the weakening Australian dollar. Despite this, the four-week moving average of the index continued to rise. Within housing segments, confidence dipped for outright homeowners and renters but remained relatively steady for those paying off their homes. Furthermore, household inflation expectations increased from 5.2% to 5.5% in the past week.

Global

• Nvidia exceeds Q2 predictions reporting a 171% on the year.
• US Treasury yield surges to its highest point since November 2007.
• Japan’s annual inflation rate remained steady at 3.3% in July.
• UK retail sales slump to 1.2% in July as inflation eases.

United States

Nvidia, the leading producer of chips fuelling the generative AI powerhouse, exceeded Q2 predictions. The data centre segment, fuelled by AI chips, reported a 171% year-on-year surge. Notably, Nvidia is valued at over US$1 trillion, joining the likes of Apple, Microsoft, Saudi Aramco, Alphabet, and Amazon.

The 10-year US Treasury yield has surged to 4.35 percent, marking its highest point since November 2007, a period preceding the full onset of the ‘Great Financial Crisis’, triggered by the Lehman Brothers collapse almost a year later.

"Concerns are emerging as the bond sell-off gains momentum, prompting scrutiny of the remarks that [Federal Reserve Chair Jerome] Powell will make later this week regarding peak interest rates," remarked Seema Shah, Chief Global Strategist at Principal Global Investors.

To tackle elevated inflation, the Fed has already pushed its primary interest rate to levels not witnessed since 2001. This move is aimed at curbing inflation by significantly slowing down economic growth, albeit at the expense of impacting investment prices.

Amid the build-up of anticipation surrounding Powell's address, there is a degree of uncertainty regarding the clarity of the message he might convey from the Jackson Hole platform, as outlined by Goldman Sachs.

Two prominent Wall Street strategists are divided on the trajectory of US stocks following a three-week decline. A debate is ongoing about whether the economy can avoid slipping into a recession.

While Morgan Stanley's Michael Wilson, a notable proponent of bearish equity sentiment, argues that investor sentiment could further deteriorate if doubts regarding economic resilience persist, David Kostin, his counterpart at Goldman Sachs, maintains that there is potential for investors to enhance their exposure if the economy remains on a path toward a controlled slowdown.

Japan

The annual inflation rate in Japan remained steady at 3.3% in July, posing further challenges for the Bank of Japan (BoJ) and its ultra-loose monetary policy approach. Core inflation, however, softened slightly from 3.3% to 3.1%. These inflation figures are of significance as they test the validity of the BoJ's approach.

While the moderate decline in core inflation might provide some relief, the BoJ is still confronted with persistent inflationary pressures. In recent forecasts released by Japan's government, growth of 1.5% was projected along with an inflation rate of 2.6% for the current fiscal year. These figures suggest a departure from the ultra-loose monetary policy stance.

Germany

In August 2023, the HBOC Germany Manufacturing PMI increased slightly, surpassing expectations. However, the sector remains in contraction, marking a fourteen-month decline attributed to reduced customer inventory and investment reluctance, leading to a significant drop in new orders. This situation, combined with consumer uncertainty and expectations of rising interest rates, has pressured production despite lower backlog. Employment saw a marginal decrease whilst manufacturers' purchasing prices fell at a slower rate than the previous month. Looking ahead, there's a slight rise in optimism among goods producers for the coming year, hinting at potential improvements.

United Kingdom

In July, retail sales experienced a notable decline of 1.2% compared to the previous month. This drop was significantly more than anticipated, surpassing market predictions of a 0.5% decrease. It seems that consumers are grappling with elevated prices, constraining their willingness to spend on non-essential items.

The annual inflation rate for July was reported at 6.8%, a decrease from the previous month's 7.9%. Nevertheless, this figure remains significantly higher than the Bank of England's medium-term target of 2%.

Furthermore, the broader economic situation across Europe is also giving rise to concerns. Inflation levels in the region remain elevated, while economic growth struggles to exhibit substantial improvement.

The Big 3

Is Bitcoin's price influenced by broader macroeconomic events and stock market fluctuations?

Before the recent flash crash last Friday, market participants were discussing Bitcoins price stability amid a turbulent news cycle. For the past two-months, Bitcoin has been trading within a range of US$28-30k despite significant news events such as traditional financial institutions pursuing ETFs and regulatory shifts.

A recent report from CoinShares indicates that institutional investors have sold US$55 million worth of Bitcoin in response to the SEC's delayed ETF decisions, resulting in a broader crypto sell-off. The anticipation of a forthcoming Bitcoin ETF, coupled with concerns about China's potential economic downturn, has compounded the situation. Lower summer trading volumes have made the market susceptible to larger trades.

Additionally, Bitcoin's recent price volatility has been linked to concerns that SpaceX's Elon Musk revealed a write-down of its cryptocurrency holdings, leading to a dip during frenzied trading. This move is reminiscent of Musk's influence on the market, as seen with his previous comments and actions.

However, the crypto ecosystem's is showing signs of strengths, including improved hash rates, network growth, and increased Bitcoin addresses with substantial holdings. This lends credence to traditional finance's increasing interest in the crypto sector, marked by new products and services, which aligns with the trend of reduced-price volatility, benefiting all investors in the long-term.

Buy Bitcoin on BTC Markets.

Ethereum developers explain ‘zero-to-one moment’ that may let users run nodes on phones.

Ethereum is set to increase its decentralisation by implementing Verkle trees, a cryptographic technique that will significantly reduce the amount of data required to run infrastructure on the network.

Currently, Ethereum validator nodes — pieces of software that help process and confirm transactions — must store large amounts of data locally to prove transactions they add to the blockchain are consistent with those that came before. But with a cryptographic technique known among developers as Verkle trees, they will be able to create stateless nodes — infrastructure that doesn’t need a record of the blockchain’s state.

Ethereum core developer Preston Van Loon told DL News that stateless nodes would curtail the minimum requirement of between 500 and 800 gigabytes to run nodes to less than a single gigabyte. “The goal of Verkle trees is not to save space in a full node, but to allow users to run them without any state at all,” Van Loon said.

“This is the biggest zero-to-one moment for Ethereum,” fellow Ethereum core developer Marius van der Wijden told DL News. Once Verkle trees make stateless nodes possible and wallets incorporate them into their products, Van der Wijden said he expects Ethereum may grow from 10,000 nodes to “millions” of stateless nodes.

According to Van der Wijden, the biggest upside of stateless nodes is that individual Ethereum users will be able to verify the state of the network themselves, instead of relying on information from third parties. Everyone can run these nodes,” he said. “They need a little bit of storage, they don’t need much memory, they need a little bit of bandwidth, but it could be that you can run these on your phone.”

Still, before Ethereum’s developers can seriously consider implementing Verkle trees, they must complete Cancun-Deneb, the next scheduled update. Cancun-Deneb, among other things, introduces the highly anticipated EIP-4844, also known as Proto-Danksharding, an upgrade that should greatly reduce transaction costs on Ethereum layer 2 networks including Arbitrum and Optimism.

Buy ETH on BTC Markets.

Ripple reveals eight countries building CBDCs on XRP Ledger.

In May 2023, Ripple (XRP) announced a new venture in the realm of digital finance: the launch of a Central Bank Digital Currency (CBDC) platform, launched with the purpose of providing the end-to-end solution to banks and governments. Over 8 countries are now said to be building CBDCs on XRP Ledger. These include Japan, Hong Kong, the United Arab Emirates, Russia, New Zealand, Uruguay, The Republic of Palau and Montenegro.

Last month, James Wallis, the Vice President of Central Bank engagements and CBDCs at Ripple, said the blockchain company is in talks with more than 30 countries to adopt its XRPL-powered CBDC platform.

At the time, Wallis said Ripple publicly announced partnerships with five central banks, while five more were not disclosed to the public yet. In addition, Ripple was in conversations with 20 more countries to offer them its private or public XRP ledger as a base for developing CBDCs. Given that there are a total of 195 countries in the world, this suggests that more than 15% of global nations are considering using Ripple’s technology for building CBDCs.

When Ripple announced a private XRP Ledger for CBDCs in 2021, the tech company said the XRP cryptocurrency could “be leveraged as a neutral bridge asset for frictionless value movement between CBDCs and other currencies.” However, although its private ledger is based on XRPL, it “does not require XRP to operate.” In other words, central banks who opt to build CBDCs on Ripple’s platform do not need to use or interact with the crypto token.

With an eye toward Ripple (XRP), payments giant Mastercard has joined those countries testing its platform dedicated to the development of CBDCs. Mastercard recently announced the launch of its new CBDC Partner Program, with the aim of bringing together key players in the Central Bank Digital Currency industry. Mastercard has considered Ripple (XRP) specifically for the launch of its first national stablecoin issued by government in collaboration with the Republic of Palau, in addition to work on at least four other pilot CBDCs. Other partners involved in Mastercard’s CBDC program include Consensys, Fluency, Idemia, Consult Hyperion, Giesecke+Devrient, and Fireblocks.

Buy XRP on BTC Markets.

Alt action

Solana flips Polygon to become the second-largest network for NFTs.

Solana has overtaken Polygon to become the second largest blockchain for NFTs, marking a shift in the competitive landscape of the creative Web3 domain. Recently, Solana's NFT ecosystem recorded sales volumes surpassing US$1.5 million, positioning it just below Ethereum.

Amid market fluctuations, Solana climbed to become the eighth-largest cryptocurrency by market capitalisation. The NFT sector within Web3 has faced challenges in 2023, with sales volumes reaching historic lows and setbacks. However, recent momentum favoured Solana, which dethroned Polygon by registering transactions worth US$9.8 million over the last week, potentially propelled by successful NFT collections like The Heist: Orangutans. As Polygon faces the departure of the DeLabs-owned PFP collection y00ts, Solana stands to benefit from its upward trajectory in the NFT landscape.

What is Solana (SOL)?

Solana is a high-performance blockchain platform designed for decentralised applications (DApps) and cryptocurrencies. It stands out for its unique Proof of History (PoH) and Proof of Stake (PoS) consensus mechanism that enables high throughput and low latency, capable of processing thousands of transactions per second. This scalability has made Solana attractive for various applications, including decentralised finance (DeFi), NFTs, and Web3 projects. Its native cryptocurrency is SOL, used for transactions, staking, and governance within the network.

What are NFT’s (non-fungible tokens)?

Non-fungible tokens (NFTs) are unique digital assets representing ownership or authenticity through blockchain technology. Unlike cryptocurrencies, NFTs are distinct and indivisible, making them ideal for verifying ownership of digital art, collectibles, and other unique content.

Each NFT has a unique identifier stored on a blockchain, preventing replication, and ensuring secure ownership. NFTs have transformed how digital content is owned, allowing creators to embed royalties, and enabling collectors to trade and resell items.

SOL is currently trading at AU$33.10.

Regulation roundup

The UK moves toward regulating crypto.

In July of this year, King Charles III granted the Financial Services and Markets Bill (FSMB) the Royal Assent, formally making the bill an act of law. Included in the act - which gives regulators more powers over the financial services industry - are provisions for digital assets.

The act enables the country’s treasury, the Financial Conduct Authority (FCA) and its central bank to treat crypto as a regulated activity, meaning secondary legislation can now be introduced to regulate the sector. Other provisions include bringing stablecoins within the scope of existing payment rules and enabling the supervision of crypto promotions.

As the U.K.’s financial regulator, the FCA focuses on the mandate of consumer protection, but it also has increasing oversight over crypto. From October this year, crypto firms will need to comply with the financial promotion regime, which is overseen by the FCA. The regulator is also in the process of designing prudential requirements for firms carrying out crypto activities and putting in place new rules for crypto promotions.

Top of the agenda for secondary regulation is private stablecoins. With consultations on systemic stablecoins coming out over the summer, onlookers anticipate a push toward defined rulemaking following the government’s recess. Meanwhile, the Bank of England continues its preparatory work on the digital pound, the country’s central bank digital currency (CBDC).

The U.K. isn’t alone in its regulatory journey. Many countries are racing to implement clear guidance for the industry with multiple vying to become crypto hubs, including Hong Kong, Singapore, and Dubai.

The European Union got the ball rolling earlier this year with the passage of ‘Markets in Crypto assets Regulation’ (MiCA), a comprehensive framework for regulating the crypto sector that aims to replace the divergent approaches of member states.

While policies remain uncertain, passage of the FMSB has given hope to industry advocates that the U.K.’s aim of becoming a ‘global hub’ for the digital asset industry is back on track.

Compliance conversations

Beware of fake job listings: protect yourself from scammers.

In our previous article, we shed light on scams masquerading as attractive business ventures. This time, our focus shifts to the employment space, where the rise of fake job listings has become a cause for concern.

Job seekers, eager to find opportunities that align with their aspirations, are unfortunately becoming targets for scammers. These fraudulent actors are exploiting the allure of the cryptocurrency industry by posting enticing job listings that promise crypto-related roles. These positions may seem like a dream come true, but they often come with a hidden catch.

The scam typically involves requesting an upfront payment in cryptocurrency or personal information as part of the application process. Falling into this trap can have dire consequences, including financial loss and identity theft. As cryptocurrencies gain popularity, scammers are using this allure to their advantage, preying on those seeking legitimate employment.

To safeguard yourself from falling victim to such scams, it's essential to exercise caution and stay vigilant. When you come across a job listing, especially in the crypto space, take the time to verify its authenticity through legitimate sources. Reputable job boards, official company websites, and industry networks are reliable channels to confirm the legitimacy of a job opportunity.

Furthermore, refrain from sharing sensitive personal information until you're certain about the legitimacy of the listing. Scammers often use this information to carry out identity theft or further financial fraud.

In a world where opportunities and risks coexist, your awareness and proactive approach can make all the difference. Stay informed, verify diligently, and protect yourself from falling into the trap of fake job listings. Your financial security and personal information are worth the extra effort.

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 24/08/2023.