Weekly Crypto Wrap: 4th May 2023

TLDR

• The RBA's rate hike surprises the market as US Fed follows suit.
• Second-largest US bank failure in history occurred this week.
• Bitcoin is up 75.60% in 2023 & total weekly crypto market cap gains 3.01%.
• Legal experts warn that the SEC is entering dangerous territory.
• Biden Administration proposes 30% tax on US crypto miners.

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The week ahead

May 4th: Germany's Balance of Trade report. The Euro Area's Deposit Facility and Interest Rates. Canada's Balance of Trade. United States' Balance of Trade, and the European Central Bank's Press Conference.

May 5th: Canada's Ivey Purchasing Managers Index and Unemployment Rate, as well as the United States' Non-Farm Payrolls and Unemployment Rate reports due out.

May 8th: Australia's NAB Business Confidence Index.

May 9th: Westpac-Melbourne Institute Index of Consumer Sentiment for Australia and China's Balance of Trade report.

May 10th: United States' Monthly and Yearly Inflation Rate, as well as the Core Inflation Rate.

May 11th: China's Inflation Rate.

Economic Calendar (tradingeconomics.com)

Market reflections

Australia

The Reserve Bank of Australia (RBA) made an unexpected move by raising the cash rate by 25 basis points to 3.85% in May, marking the 11th rate hike in the past year. This decision was contrary to market predictions for a pause and has pushed borrowing costs to their highest level since April 2012. The RBA cited concerns about Australia's current inflation rate of 7%, which is still above its target range, as the reason for the rate hike. Additionally, the tight labour market, with the unemployment rate at its lowest level in almost 50 years, further necessitated the move.

The RBA has signalled that further tightening may be necessary to ensure that inflation returns to its target range within a reasonable timeframe. However, the bank's rate path will be influenced by how the economy and price pressures evolve over time. Projections indicate that inflation is expected to reach 4.5% this year and decline to 3% by mid-2025.

According to Christian Baylis, founder of Fortlake Asset Management, the decision confounded the market, and Andrew Canobi, director of Australian fixed income at Franklin Templeton, called the move "an insurance hike". Bond traders had implied a 90% chance the RBA would stand pat given core inflation. According to David Bassanese, chief economist at Betashares the RBA's firm policy tightening bias suggested another rate rise possibly as soon as next month or at least by August.

Global

The US Federal Reserve has increased interest rates by a quarter of a percentage point, marking the tenth-rate hike in the current cycle and bringing the fed-funds rate to a target range of 5.00% to 5.25%, its highest since 2007. While the Fed is optimistic about avoiding a recession, the risk of a misstep is growing as higher rates squeeze budgets. Chairman Jerome Powell has reiterated the central bank's commitment to lifting rates higher if needed, and rate cuts are unlikely to happen this year. The committee's aim is to achieve maximum employment and 2% inflation over the longer run, but they remain attentive to inflation risks as inflation remains elevated.

Amidst the ongoing 2023 banking crisis, First Republic Bank become the second-largest bank failure in US history. This unfortunate event adds to the list of the three largest FDIC failures this century, which occurred in recent weeks due to the crisis. The bank's business model, which involved providing low-cost mortgages to affluent clients, made it susceptible to significant losses on its mortgage portfolio when interest rates increased. Furthermore, the bank experienced a substantial blow when its customers withdrew US$100 billion in deposits during the first quarter. This failure serves as a reminder of the challenges faced by regional US banks, and on Wednesday, their stocks took a heavy hit due to increased selling pressure.

First-quarter GDP growth in the US exceeded market expectations, boosted by an uptick in business investment and exports. Conversely, job openings in March fell to a 2-year low, indicating a possible cooling of the labour market due to higher interest rates.

U.S. Treasury Secretary Janet Yellen warned that the country risks running out of funds as early as June 1st, due to the government's inability to meet its obligations. "After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time," Yellen wrote.

China's economy grew below expectations, hampered by trade tensions with the US and domestic demand slowdown. Japan's Q1 expansion was weak due to low consumer spending, while France's economy grew modestly due to stagnant household consumption and slower investment. Germany's economy experienced no growth due to high inflation and rising borrowing costs. Italy outperformed expectations, driven by the industry and services sectors. Euro Area unemployment dropped slightly to a record low of 6.5% in March 2023, which, coupled with high inflation, gives the European Central Bank room for policy tightening. Spain, Italy, and France recorded the highest jobless rates among the largest Euro Area economies. The Eurozone economy grew by 0.1%, below market expectations, with consumer price inflation leading to concerns over policy tightening.

State of crypto

During this week's trading session, Bitcoin rallied as market participants speculated a shift towards safety. The rally was fuelled by concerns of banking contagion caused by the fall of First Republic Bank and further rate hikes by the Federal Reserve.

In the latest trading week, the cryptocurrency market experienced slight gains across the board. Bitcoin registered a 5.95% increase, ending the week at US$29,233, while Ethereum closed out at US$1,870 with a minimal gain of 0.43%. XRP also saw a small gain of 1.25%, closing at US$0.4647, whereas Cardano and Litecoin gained 1.80% and 1.96%, respectively, closing at US$0.3956 and US$88.22.

Examining the year-to-date performance, Bitcoin is currently trading at US$29,052, reflecting a 75.60% gain. Similarly, Cardano has gained 60.09% and is trading at US$0.3935, while Ethereum is trading at US$1,904, marking a 59.23% increase on the year. XRP is holding strong with a 36.50% gain on the year and is currently trading at US$0.4627, while Litecoin has gained 26.97%, trading at US$89.09.

During the last trading week, Bitcoin's market capitalisation increased by 2.89%, with its dominance at 48.31%. The overall cryptocurrency market capitalisation also experienced growth, rising by 3.01% and currently valued at US$1.165 trillion.

(source: Trading view, as of 04/05/2023 at 10:00am AEST).

Alt action

Enjin is powering the future of gaming with NFTs.

Enjin is a blockchain ecosystem that enables the creation, management, and trading of non-fungible tokens (NFTs) on the Ethereum blockchain. At the heart of the Enjin ecosystem is the Enjin Coin (ENJ), a digital asset designed to be used in the gaming industry. ENJ enables game developers and players to create, trade, and monetise virtual items using blockchain technology.

Enjin's suite of tools includes the Enjin Wallet, EnjinX blockchain explorer, and the Enjin Marketplace. The Enjin Wallet is a mobile app that allows users to store, send, and receive NFTs. The EnjinX blockchain explorer lets users explore the Ethereum blockchain and view NFTs created on the Enjin platform and the Enjin Marketplace is a platform for buying and selling NFTs built on the Enjin ecosystem.

NFT.io is a marketplace for NFTs built on top of the Enjin ecosystem. It offers a user-friendly platform for buying and selling NFTs, while Enjin provides the infrastructure for creating and managing them. Enjin has also introduced Enjin Beam and geofencing technologies. Enjin Beam allows the distribution of digital assets through QR codes, while geofencing enables businesses to target their promotions to specific locations. Together, they provide a powerful combination that can be used to create innovative and engaging promotional campaigns.

Enjin's founders, Maxim Blagov and Witek Radomski, have a background in gaming and software development. They started Enjin in 2009 and launched Enjin Coin in 2017. Today, Enjin is a leading blockchain platform in the gaming industry, with partnerships with major companies such as Microsoft and Samsung.

Enjin is currently trading at US$0.3872.

Trade ENJ now on BTC Markets.

The Big 3

Ordinals and zero-knowledge technology in Bitcoin transactions.

The integration of ordinals and zero-knowledge technology in Bitcoin transactions has opened many possibilities for developers and users, allowing for the permanent inscription of data on the blockchain. This can be used to verify ownership of digital objects like art and register domain addresses. However, using public keys on the blockchain can be intimidating, and mistakes can result in the loss of crypto, with no way to recover it.

To address this issue, platforms like Ethereum Name Service (ENS) and BTCDomain have been created to make crypto transactions more user-friendly. BTCDomain uses ordinals and zk-STARKs technology to generate unique domain addresses that can be used on the Bitcoin network.

Users can send BTC to registered domains, and the platform settles the underlying public key to ensure that the transaction is resolved correctly. With the latest Miami update, BTCDomain now allows users to inscribe their own websites on the Bitcoin network, paving the way for greater adoption of blockchain technology.

Overall, the integration of ordinals and zk-STARKs technology in Bitcoin transactions is an exciting development that can make the blockchain ecosystem more user-friendly and accessible to more people, leading to greater innovation and growth in the industry.

Trade BTC now on BTC Markets.

Sports Illustrated ticketing platform builds NFT’s on Ethereum blockchain.

Sports Illustrated's ticketing platform, SI Tickets, has launched Box Office, a new NFT ticketing platform built on Polygon, an Ethereum scaling network. Box Office will allow SI Tickets to cater to smaller events that would typically appear on ticketing sites such as Eventbrite or DICE. Box Office's NFT tickets will be found inside the SI Tickets mobile app and will offer content such as photo and video highlights, collectibles, personalised messages, promotional offers, and loyalty rewards to engage with fans.

Event organisers can also equip tickets with content that can be recorded and uploaded before, during, and after an event. Box Office expects to list both free and paid tickets from partnered music venues, nightclubs, business conferences, private parties, fitness and yoga studios, comedy clubs, religious retreats, and charity organisers.

Box Office's fee structure is 20% lower than Eventbrite. Fans can also transfer their tickets to NFT marketplaces and other secondary ticket platforms such as Vivid Seats, SeatGeek, and Stubhub to resell their Box Office NFT tickets. SI Tickets is offering a 50-50 revenue split on resales with event organisers and performers and will do so by tracking the on-chain data of Box Office transactions.

SI Tickets CEO David Lane aims to "create the first mass-market adoption of NFT ticketing" by making it easy for anyone to buy their first NFT ticket without having to go through a crypto tutorial on blockchain. Box Office was built with Ethereum software studio ConsenSys.

Users who purchase a ticket on Box Office will also receive a bonus for buying tickets to any of the 250,000 major events listed on the SI Tickets secondary marketplace, whose A-list events will appear alongside Box Office events in the same app. "Your event is going to be listed on our site next to the biggest sports, concerts, and theatre events in the area," Lane said.

Trade ETH now on BTC Markets.

SEC’s crypto litigation ventures into dangerous territory.

The US Securities and Exchange Commission (SEC) is pushing the boundaries of securities law in its enforcement actions against digital assets, warns attorney John Deaton. The SEC's enforcement actions against Ripple and LBRY are redefining investment contracts and common enterprises in ways that go beyond the SEC v. Howey decision that has underpinned securities law for decades. In the Ripple case, the SEC argues that all sales of XRP are securities, even those on secondary markets with no involvement from the company.

This interpretation goes beyond the Securities Act of 1933 and over 250 federal appellate and Supreme Court decisions on securities law. The SEC's legal theory has become a centrepiece of an expansion of regulatory power in court under Chairman Gary Gensler. Deaton argues that the SEC is exploiting legal uncertainty about cryptocurrencies to redefine investment contracts and common enterprises in the US, which could have enormous legal and economic consequences. Congress has expressed concern over the SEC's regulatory overreach, and Judge Analisa Torres is taking time to consider her ruling in the Ripple case, which could have far-reaching implications for the regulation of digital assets.

According to an article in CoinDesk, Ripple has sold more than US$361m worth of XRP tokens in Q1 2023, compared to US$226.31m in the previous quarter, according to its latest XRP Markets Report. The sales were in connection with the company's on-demand liquidity product, which uses XRP to help customers move money globally without requiring correspondent banking relationships.

Trade XRP now on BTC Markets.

Crypto news

The Biden Administration proposes 30% tax on crypto miners in the US.

The US has proposed a new tax on crypto miners called Digital Asset Mining Energy (DAME). The excise tax would impose a 30% tax on the cost of electricity used by firms engaged in crypto mining after a phase-in period. The White House's Council of Economic Advisers (CEA) has called for this tax, which aims to ensure that crypto miners pay their fair share of the costs they impose on society.

The tax proposal is estimated to raise $3.5 billion in revenue over the next ten years. However, concerns have been raised that this tax may lead to a relocation of crypto mining to areas with less efficient energy production. The proposed DAME tax is part of the Biden administration's efforts to reduce carbon emissions and address climate change, as outlined in the infrastructure plan unveiled by President Biden.

US regulators “war on crypto” called into question.

Democratic presidential candidate Robert F. Kennedy Jr. has spoken out against what he calls a “war on crypto” by US regulators. Kennedy criticised the Federal Deposit Insurance Corporation and the Securities and Exchange Commission, saying they have “no authority to wage an extra-legal war on crypto that leaves major banks as collateral damage”.

He cited a report by Ellen Brown that said a government-led campaign against digital assets led to historic bank failures in March, specifically Silicon Valley Bank, Signature Bank, and Silvergate Bank. Kennedy's comments follow earlier remarks opposing a US central bank digital currency (CBDC). The Federal Reserve recently clarified that its FedNow payments system is neither a digital currency nor a replacement for cash, which Kennedy appeared to conflate with a CBDC.

Kennedy’s comments reflect the growing political importance of cryptocurrencies in the US, particularly among Republican candidates such as Tom Emmer and Ted Cruz, who have publicly supported crypto. Elizabeth Warren has made criticism of the industry a key part of her political platform, while New York City Mayor Eric Adams has been supportive of crypto.

Regulation roundup

US lawmakers demand answers on hostile crypto environment.

Congressmen Warren Davidson and Mike Flood have written a letter to the chair of the Council of Economic Advisers (CEA) expressing their concerns about a chapter in the "Economic Report of the President" that they claim is hostile to digital assets. In the letter, the lawmakers demanded an explanation for the agency’s opinions, which they believe undermine Congress's role in regulating the digital asset ecosystem and could lead to economic harm.

The chapter in question, titled “The Reality of Crypto Assets,” claims that digital assets “have brought none of the promised benefits” and marks a reversal of the position taken in the president’s “Executive Order on Ensuring Responsible Development of Digital Assets.” The Congressmen argue that the CEA's hostile stance towards digital assets could push innovation offshore and draw capital and economic growth away from the US.

The letter raised several questions about the report's claims, including how firms can comply with conflicting laws and regulations, and why the agency dismissed the role of Congress in regulating the crypto space. The Congressmen also questioned why the agency claimed that the FedNow instant payment system and central bank digital currency would be simpler and more effective than digital assets in upgrading the financial system.

The Congressmen argued that the digital assets ecosystem in the US will not survive without action from Congress to combat the regulatory deluge seen in recent months. Davidson is a long-time crypto advocate who introduced legislation in April to remove Gary Gensler from the chairmanship of the Securities and Exchange Commission, while Flood introduced a bill in Nebraska in 2021 that allows financial institutions in the state to operate digital asset depository businesses. The bill was signed into law and the lawmakers set a May 26 deadline for the CEA to provide answers to their questions.

Scam watch

Understanding the mechanics of a Rug Pull.

Rug Pulls, a type of scam that has become prevalent in the crypto community, can cause investors to lose significant amounts of money. The scam involves creating a new cryptocurrency project, promoting it aggressively, and then manipulating its price to profit at the expense of investors. The individuals behind the scam typically sell off their holdings, causing the value of the cryptocurrency to plummet and leaving investors with little to no value in their holdings.

A Rug Pull generally involves creating a website or social media presence that promotes the new cryptocurrency, often using buzzwords like “moonshot” or “get rich quick.” Once enough investors have bought into the cryptocurrency, the individuals behind the scam will suddenly sell off their holdings, causing a significant drop in the value. This drop in value often triggers a panic sell-off by investors, further reducing the value and resulting in substantial losses for investors who had bought into the project.

Recent examples of Rug Pulls include YAM Finance and Meerkat Finance, which both promised high returns but ultimately left investors with significant losses. These incidents highlight the need for greater regulation and oversight in the crypto industry to protect investors from fraudulent and malicious actors.

To avoid falling victim to Rug Pulls, investors should conduct due diligence and research before investing in any cryptocurrency project. This includes carefully reviewing the project’s white paper, team members, and any available reviews or analyses before deciding to invest.

Learn more about Rug Pulls here.

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Prices are accurate as of 10:00 AM AEST, on 04/05/2023.