Weekly Crypto Wrap: 25th May 2023

TLDR

• BTC Markets celebrates 10 years in crypto.
• Koinly tax webinar coming up on June 14th.
• BTC Markets mobile app testing.
• US debt ceiling deadline looms.
• Bitcoin HODLing has reached new heights.
• Ripple Labs has $1 billion in cash reserves.

We’re turning 10: celebrating a decade of success!

On June 2nd, BTC Markets celebrates 10-years in the crypto market. This remarkable journey wouldn't have been possible without our loyal clients, and we are truly grateful for your unwavering trust and support.

From a humble startup, we have grown into a prominent force in the Australian cryptocurrency landscape. Thank you for being an integral part of our journey and choosing us to be a part of yours.

Stay tuned for some exciting announcements coming up over the next few weeks as we invite you to join in our birthday celebrations.

CEOs Corner

The BTC Markets' Philosophy.

BTC Markets CEO, Caroline Bowler discusses our philosophy. Discover the vision driving our success and shaping the future of cryptocurrency in Australia. Read more here.

BTC Markets mobile app testing.

Are you interested in testing new features for the BTC Markets mobile app?

By registering your email using this link, you can stay informed and contribute to testing the latest features being developed. Currently, we are working on the highly anticipated AUD and crypto withdrawals feature.

Save the date!

'Crypto tax livestream: what you need to know for 2023'.

Join us for an exclusive live stream event on Wednesday, June 14th from 11am - 12pm. We have teamed up with tax software provider Koinly to talk through tax obligations and reporting for crypto trading in Australia.

Check out our blog for more information on how to register.

The week ahead

Here are next week’s economic events:

May 25th: The Germany GfK Consumer Climate report will be released.

May 26th: The United States Durable Goods Orders, Core PCE Price Index Personal Spending, and Personal Income data will be released. United Kingdom Retail Sales month on month figures due out.

May 31st: China’s NBS Manufacturing PMI, Japan Consumer Confidence, France, Italy and Germany’s Inflation Rate, India, and Canada GDP Growth Rate due out.

June 1st: The United States Job Openings report to be released.

Economic Calendar (tradingeconomics.com)

Market reflections

Australia

The Reserve Bank of Australia (RBA) announced that it has no immediate plans to sell its bond holdings as part of quantitative tightening measures. David Jacobs, head of domestic markets at the central bank, stated that the current approach of allowing bonds to mature and be repaid is appropriate for the time being.

The RBA had accumulated approximately AU$360 billion of government bonds during the pandemic to support the economy, and its balance sheet had swelled as a result.

Market observers are currently debating whether the Reserve Bank of Australia will implement one or two additional interest rate hikes. However, an even more significant concern lies in the duration of elevated interest rates.

Compelling factors suggest that both inflation and interest rates are likely to remain at higher levels for an extended period.

In another development, the Reserve Bank of New Zealand (RBNZ) signalled the end of its rate hike cycle, leading to a sharp decline in the New Zealand dollar and bond yields.

The RBNZ raised its official cash rate by 25 basis points to 5.5%, but surprised markets by suggesting that it had considered keeping the rate on hold. The central bank now forecasts rate cuts to begin in the third quarter of next year, indicating a shift towards a more dovish stance.

Economists are divided on whether this marks the end of the tightening cycle, with some expecting further rate increases due to higher government spending and inflation, while others anticipate rate cuts later this year.

Global

US Fed officials expressed uncertainty about how much more policy tightening may be appropriate in the future and many focused on the need to retain optionality, minutes from the FOMC meeting in May showed.

Several participants noted that if the economy evolved in line with their current outlooks, then further policy firming may not be necessary. However, other participants felt that additional policy firming would likely be warranted if the progress in returning inflation to 2% would continue to be unacceptably slow.

The Fed raised the fed funds rate by 25bps to a range of 5%-5.25% during its May meeting, marking the 10th increase and bringing borrowing costs to their highest level since September 2007.

Talks between US President Joe Biden and Republican leader Kevin McCarthy regarding the debt ceiling are ongoing, with some progress noted. However, reaching a final agreement is pending. Failing to raise the debt limit would have significant economic implications, and time is running short with the June 1st approaching.

The possibility of a US debt default raises concerns about global uncertainty and managing until June 15th would require finding approximately $290 billion in cash. Considering limited resources in the first two weeks of June, unexpected changes or heavy outflows could deplete the small buffer, increasing default risks.

UK consumer price inflation dropped to 8.7% in April 2023, attributed to lower electricity and gas prices but remaining above the 2.0% target. Housing and utilities saw significant decreases, while food and non-alcoholic beverage prices remained high. Core inflation excluding food and energy reached its highest level since March 1992, while consumer confidence grew despite ongoing inflationary pressures.

Japan's annual inflation rate rose modestly to 3.5% in April 2023, driven by food prices and acceleration in various sectors like transport, clothing, furniture, medical care, and education. Housing and miscellaneous sectors experienced slight easing, and fuel and utility charges declined. Core inflation remained above the Bank of Japan's 2% target for the 13th consecutive month.

Germany's Ifo Business Climate Index showed mixed results in April 2023. While the index rose slightly, it fell short of market expectations. Manufacturing and construction sectors improved, but the construction industry's assessment of the current situation hit a low point. Service providers and traders experienced reduced morale due to weaker sales. Manufacturing PMI and softened price pressures indicate a lack of momentum in Germany's largest economy.

State of crypto

During the last trading week, the cryptocurrency market continued its downward trend for the third consecutive session. Bitcoin closed the week at US$26,747, representing a slight loss of 0.63%. In contrast, Ethereum managed to gain 0.32% and closed at US$1,804.91, while XRP outperformed with an impressive 7.57% gain, closing at US$0.4575. Litecoin stood out as the top performer of the week, achieving a double-digit gain of 10.40% and closing at US$92.18.

Looking at the year-to-date performance, Bitcoin maintained its dominance, currently trading at US$26,104and holding strong with a57.76% gain. Ethereum’s yearly gain sits at 48.54%, currently trading at US$1,776 whilst Cardano sits on a gain of45.52%, trading at US$0.3579. XRP has remained stable with a gain of 32.89% on the year, trading at US$0.450 and Litecoin secured a19.58% gain, trading at US83.84.

Bitcoin’s market capitalisation closed in the green, gaining0.12%, and currently sitting at 47.69% dominance. The total crypto market capitalisation closed in the red for a third week, losing 0.74%, valued at US$1.061 trillion.

(*source: Tradingview, as of 25/05/2023 at 12:00pm AEST).

Alt action

DeFi exchange Uniswap to launch on Polkadot (DOT).

DeFi exchange Uniswap is set to launch on the Polkadot network via the Moonbeam parachain, following a successful governance vote. This move comes after educational organisations, Blockchain at Berkeley and Blockchain at Michigan, championed the initiative.

Uniswap's deployment on Polkadot will introduce its V3 iteration to users, offering improved capital efficiency, flexible fee structures, and an enhanced user experience. Moonbeam, as a parachain running on Polkadot, enables the deployment of Uniswap's smart contracts.

The decision to collaborate with Moonbeam was driven by its high DeFi activity and EVM-friendly architecture, which allows for seamless integration of Ethereum virtual deployments. Polkadot's multichain ecosystem, with its scalable and interconnected parachains, offers an alternative to centralised exchanges, empowering users with greater control over their assets.

This development further expands Uniswap's reach and supports Polkadot's goal of providing performance, security, and interoperability to its users.

DOT is currently trading at US$5.282.

Trade DOT on BTC Markets

The Big 3

Bitcoin HODLing has reached new heights.

A record proportion of BTC is being held for extended periods, according to Glassnode data. Currently, 68% of Bitcoin has been held for at least a year, with 55% held for two years and 40% held for three years. This trend suggests that investors are opting to hold onto their Bitcoin rather than sell, which is viewed as a bullish signal.

In contrast, the stock market has experienced a shift towards shorter holding periods. While the data indicates potential future price increases and a possible supply squeeze, it may not provide reliable short-term price signals. Glassnode's ‘Long-Term-Holder Supply’ metric has also reached an all-time high, reflecting coins acquired after the FTX failure maturing into long-term holder status. Additionally, Glassnode's ‘Liveliness’ metric reveals a decline in spending behaviour, reinforcing the notion of HODLing among investors.

These trends indicate a strong belief in the long-term value of Bitcoin and could contribute to its price appreciation in the current market cycle.

In other news, financial giants Goldman Sachs and Microsoft are supporting the Canton Network blockchain project, aiming to streamline financial markets. This initiative aligns with the concept of Web3, which envisions a decentralised internet based on blockchain technology.

The Canton Network aims to address key challenges faced by Bitcoin, Ethereum, and other cryptocurrencies, such as privacy, data control, cross-chain interoperability, and scalability. By connecting trading platforms of major institutions like Deutsche Börse and Goldman Sachs, the Canton Network offers potential solutions to these issues.

Trade BTC now on BTC Markets

Ethereum co-founder cautions against burdening the consensus layer.

Vitalik Buterin, the co-founder of Ethereum, has cautioned against burdening the Ethereum consensus layer with additional responsibilities beyond its core functions. In a recent blog post titled "Don't overload Ethereum's consensus," Buterin emphasised the importance of preserving the blockchain's minimalism and avoiding high systemic risks that could arise from using the consensus for other purposes.

While there have been proposals to utilise Ethereum's social consensus for tasks like price and data oracles, re-staking initiatives, and layer-1 soft forks, Buterin highlighted the potential fragility and vulnerabilities that come with extending the blockchain's core functionality. He warned that each extension increases the core's fragility, making it more susceptible to bugs and intentional attacks.

Buterin emphasised that expanding the duties of Ethereum's consensus increases costs, complexities, and risks for validators. He advised caution when it comes to application-layer projects that risk expanding the scope of blockchain consensus beyond verifying the core Ethereum protocol rules. Instead, he encouraged preserving the chain's minimalism, exploring non-slippery slope re-staking approaches, and assisting developers in finding alternate strategies to achieve their security goals.

The transition from proof-of-work to proof-of-stake in September 2022 marked a significant milestone for Ethereum's consensus mechanism. With the recent release of staked Ethereum for withdrawal through the Shapella upgrade, validator roles and security risks on the world's largest smart contract network have come under heightened scrutiny.

Trade ETH now on BTC Markets

Ripple Labs has $1 billion in cash reserves ready.

Ripple Labs, led by CEO Brad Garlinghouse, has hinted at plans to deploy $1 billion from its cash reserves to expand the company's offerings in the crypto industry. Speaking at the Dubai Fintech Summit, Garlinghouse emphasised that Ripple aims to evolve beyond being solely a payments platform and liquidity provider. He mentioned that the blockchain technology has four key elements: liquidity, compliance, custody, and tokenisation, and Ripple intends to explore these areas.

Garlinghouse stated that the company would consider acquisitions in markets that are friendly towards blockchain technology. Notably, he mentioned the United Arab Emirates (UAE) and Switzerland as countries providing regulatory clarity for entrepreneurs to invest. Ripple sees these markets as potential targets for expanding its services.

Ripple already possesses over $1 billion in cash reserves, which it plans to invest in various growth initiatives, including acquiring other firms and enhancing its internal infrastructure. The recent acquisition of Metaco, a Swiss-based digital assets custody and tokenisation firm, is a testament to Ripple's expansion strategy. By acquiring Metaco, Ripple gains expertise in areas crucial to blockchain technology.

The expansion plans of Ripple reflect its determination to explore new jurisdictions with regulatory clarity, such as Switzerland. This move is in response to the regulatory challenges faced by the company in the United States. Additionally, Ripple aims to establish a presence in London and increase its footprint in the Middle East and North Africa (MENA) region through the opening of a new office in Dubai.

Trade XRP now on BTC Markets

Crypto news

Hong Kong regulator to allow retail trading of crypto assets.

Late Monday night, Hong Kong’s Securities and Futures Commission said it would allow retail investors to trade certain crypto assets beginning next month on registered trading platforms. The move was widely expected, with the announcement marking the end of a request for public comment it put out in February on its proposed regulatory requirements around retail trading in crypto.

The new guidelines are part of a broader effort of Hong Kong to become a global crypto hub. That ambition is in sharp contrast with China, which banned crypto trading in 2021, as well as the U.S. where the regulatory stance toward crypto has turned hostile since the collapse of FTX.

Hong Kong’s Securities and Futures Commission has already licensed two digital asset platforms, and it’s likely some are already actively trading offshore, said Noelle Acheson, economist, and author of the “Crypto is Macro Now” newsletter.

Owen Lau, an analyst at Oppenheimer, called Hong Kong “pretty aggressive” for trying to become a crypto hub. “It will continue to capture the attention of the community and attract more firms to set up offices in Hong Kong,” he said. “It is hard to gauge the exact impact, but it has a long-term effect on capital flow and talent movement.”

Bitcoin blockchain witnesses surge in activity.

The Bitcoin blockchain is experiencing a surge in activity, with daily transactions reaching a new all-time high of 682,000 this month. Bitcoin's dominance in the cryptocurrency market has also grown, accounting for 44% of the overall market share. However, amidst this activity, a new breed of tokens called BRC-20 has emerged, built on the Bitcoin blockchain itself.

BRC-20 tokens have gained significant attention, with nearly 25,000 of these experimental coins minted this year. This surge in token creation has led to a substantial increase in daily transactions, surpassing 531,000 on average over a seven-day period. While BRC-20 tokens currently serve mainly speculative purposes like meme coins, their growing popularity indicates a broader interest in Bitcoin as a foundation for developing new coins and applications, previously associated with more modern blockchains like Ethereum and Solana.

Some investors and developers view Bitcoin's blockchain as a safer long-term option for token creation and application development, considering the recent challenges faced by other blockchains and the flight from riskier assets. Bitcoin's reputation as the oldest and most trusted network adds to its appeal.

Despite the frenzy around BRC-20 tokens, their value has been volatile. The total market value of these tokens exceeded $1 billion in early May but has since dropped to $446 million. BRC-20 tokens are created using ordinals theory, which allows data to be inscribed on each Satoshi, the smallest unit of Bitcoin. While these tokens currently lack significant utility, blockchain experts see the trend as promising in terms of expanding the range of products built on the Bitcoin blockchain.

The rapid creation of BRC-20 tokens has raised concerns, particularly regarding the impact on Bitcoin's original use cases. Gas fees, or transaction costs on the Bitcoin blockchain, have skyrocketed, reaching a near all-time high of $17.8 million per day. The median transaction fee has also spiked, reaching as high as $30.91. This congestion has caused delays in transaction confirmations, with users waiting over 30 hours in some cases.

Regulatory round up

EU implements crypto transaction traceability regulations.

The European Union (EU) has taken significant steps in regulating the traceability of crypto-assets, mandating service providers to collect and disclose sender and beneficiary information for every transaction, regardless of its size. These measures aim to combat illicit activities and form part of a comprehensive legislative package to enhance anti-money laundering and counter-terrorism financing rules within the EU.

The EU's newly implemented regulations require crypto asset service providers to ensure the traceability of transfers, facilitating the identification and prevention of suspicious transactions. These rules apply to all crypto asset transactions conducted by the service providers, reinforcing the EU's commitment to combat financial crimes associated with cryptocurrencies.

In a groundbreaking move, the EU has approved the Markets in Crypto Assets (MiCA), the world's first comprehensive regulatory framework for crypto assets. These regulations are expected to become law by July this year and are setting a precedent for other countries, to follow suit in developing their own regulatory frameworks.

As a result of these regulations, European crypto startups, particularly those in Zurich and Berlin, have seen an increase in venture capital (VC) funding. Despite an overall decrease in VC funding for crypto startups in Q1 2023, the new regulatory environment has made European firms an attractive investment opportunity.

France has positioned itself as a gateway to the EU crypto market. US crypto firms, facing heightened scrutiny from the US Securities and Exchange Commission (SEC), are considering relocating to European countries with more favourable regulatory landscapes. France's forthcoming Crypto-Asset Service Provider (CASP) regime offers international firms’ clear regulatory guidelines, aligning with European regulations and granting access to the broader European market.

With notable crypto companies already registering with French authorities, such as Circle, Binance, Crypto.com, eToro, and Digital Currency Group's Luno, France is poised to become a prominent crypto hub within Europe. This shift highlights the potential of EU regulations to shape the global crypto industry, influencing the actions and strategies of businesses worldwide.

Compliance conversations

Investment scams continue to impact Australians.

The prevalence of investment scams is increasing, and Australians find themselves particularly susceptible to these deceptive schemes. Fraudsters entice victims with the allure of high returns, quick profits, and guaranteed success.

To protect yourself, it is essential to adopt a sceptical approach when encountering investment opportunities that seem too good to be true. It is highly recommended to seek independent legal or financial guidance from an ASIC-registered advisor before committing to any investments.

Various types of investment scams exist, including cryptocurrency scams, unsolicited investment offers, romance baiting, celebrity endorsement scams, Ponzi schemes, share promotions, investment seminars, and superannuation scams.

Awareness of these scams and their tactics is crucial for individuals to safeguard their financial interests and avoid falling victim to fraudulent activities. By staying informed and seeking professional advice, individuals can mitigate the risks associated with investment scams and make informed decisions regarding their financial well-being.

ASIC has provided 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 25/05/2023.