Weekly Crypto Wrap: 5th October 2023

TLDR

• Bitcoin starts October with a 3.82% gain, climbs to US$28K.
• September curse ends as Bitcoin closes the month in the green.
• ETH futures ETFs see ‘pretty average’ volume on first day of trading.
• IMF calls for greater oversight on crypto, proposes new risk matrix.
• Uniswap Foundation targets US$62M in additional funding.
• SEC’s motion to appeal loss in Ripple case is denied.

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State of crypto

• Bitcoins starts October with a 3.82% gain.
• September curse ends as Bitcoin closes the month green.
• Ongoing rise in bond market yields, takes a toll on risk assets.

Bitcoin defied the September curse by ending the month in the green and kicking off October with a 3.82% gain. This surge was driven in part by news that the US government averted a shutdown for at least 45 days, providing a positive backdrop for crypto markets.

On the technical side, Bitcoin made significant moves on the daily chart. It broke through the 50-day moving average last Thursday, consolidated for the next two trading sessions, and then rallied on Sunday’s open, testing the 200-day moving average and surging as high as US$28,580. However, Monday saw a pullback as the price dipped to a support level around US$27,500. This decline was influenced by the ongoing rise in bond market yields, which took a toll on risk assets across the board.

"The crypto hangover could be enduring as global rates continue to rise, despite recession signals," Mike McGlone, senior macro strategist at Bloomberg Intelligence, said Tuesday in an X (formerly Twitter) post. The 10-year US Treasury rate surged to a fresh 16-year high of 4.76%, triggering a drop in the S&P 500 and the tech-heavy Nasdaq 100. Bitcoin's correlation with traditional markets was evident during this period.

As we enter October, analysts are cautiously optimistic. October has historically been a favourable month for the cryptocurrency market, often referred to as "uptober" by insiders. Long-term investors continue to accumulate crypto assets, which is bolstering demand.

While the momentum in the crypto market remains favourable, it is essential to consider the broader economic context. The US government's bill to fund operations for the next 45 days has temporarily eased concerns, but the risk of an economic recession persists. Factors such as persistent inflation, rising energy prices, and the actions of central banks are contributing to global economic uncertainty.

In other news, the trial of Sam Bankman-Fried, founder of FTX, has begun. He faces seven criminal charges related to allegations of significant financial fraud, including wire fraud, securities fraud, and money laundering. Further good news for the XRP army when earlier this week, a U.S. federal judge declined the request of the U.S. Securities and Exchange Commission to appeal her recent decision regarding Ripple Labs. 

Finally, looking at the crypto market sentiment, it currently sits at 48, reflecting a neutral stance, down from 49 yesterday but up from the fear zone at 44 last week. The Crypto Fear & Greed index is a sentiment indicator in the cryptocurrency market. It serves as a tool for assessing the overall sentiment of market participants, primarily investors and traders, towards cryptocurrencies. The index is designed to provide insights into the emotional state of the market, which can influence price movements and trading behaviour.

The weekly close.

Bitcoin (BTC) closed the last trading week at US$27,992.57, marking a substantial increase of 6.64%, while Ethereum (ETH) followed suit with a notable 9.68% surge, ending at US$1,733.79. XRP maintained its position above 50 cents, concluding the week at US$0.5241 with a 4.38% gain. Litecoin (LTC) saw a 7.25% increase, reaching US$68.19, and Cardano (ADA) recorded a robust 9.56% rise, closing at US$0.2259. Solana (SOL) continued its impressive run, achieving a 23.30% gain and closing at US$23.87.

Bitcoin's dominance in the market increased by 0.21%, reaching 50.12%. Overall, the broader cryptocurrency market experienced a substantial 6.39% gain, resulting in a total market capitalisation of US$1.089 trillion.

Year-to-date in the crypto space.

Year-to-date performance of the top crypto project shows Solana (SOL) leading the pack with an impressive 137.31% gain, followed by Bitcoin (BTC) with a 68.49% gain. XRP (XRP) has also shown resilience and growth, marking a noteworthy increase of 56.83%, while Ethereum (ETH) maintains its steady ascent with a rise of 38.19%. Cardano (ADA) charts a more modest yet growth of 5.66%. In contrast, Litecoin (LTC) experienced a minor dip of 7.70%.

*The weekly trading stats as of Monday, October 2nd at 11:00 am AEST, based on data from Tradingview in USD.

**Year -to-date performance as of Thursday, October 5th at 11:00 am AEST, based on data from Tradingview in USD.

Crypto news

Bitcoin climbs to US$28K amid speculation about the approval of spot ETFs.

The catalyst for Bitcoin’s upward trajectory earlier this week was not immediately clear. There were several Ether futures exchange-traded funds set to launch on October 2nd, a possible positive sign for the crypto industry, which has been waiting to see whether the U.S. Securities and Exchange Commission will approve a true Bitcoin ETF in the coming months.

Bitcoin ETF approval would be a significant step toward mainstream crypto acceptance. The court ruling questions the SEC’s sole authority over digital assets, suggesting other entities like courts and Congress can influence crypto regulations. This could lead to wider crypto acceptance, making Bitcoin investing more accessible and regulated, attracting more capital to the crypto market.

While those holding spot and long positions may have celebrated the first significant price action in over a month, short sellers have had the opposite luck. The rapid uptick in Bitcoin’s price saw US$70 million in short positions liquidated in just two hours.

On-chain metrics show miners continue to accrue Bitcoin. Glassnode data indicates that the seven-day moving average for the flow of Bitcoin (BTC) from miners to exchanges has hit a one-month low of 4.251 BTC – a level not seen since the beginning of September. The amount of supply last active in the last three to five years has also reached a one-month high of more than 2.1 million BTC.

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ETH futures ETFs see ‘pretty average’ volume on the first day of trading.

The month’s positive end for Bitcoin (BTC) preceded several Ether (ETH) futures ETFs that went live in the United States (US) on Monday. Despite initial optimism, those products received a lukewarm response on the first day of trading.

On October 2nd, nine new ETF products, which are designed to track futures contracts tied to the value of Ethereum’s native currency ETH, arrived on the market. In total, day one trading volume across all nine products stood at less than US$2 million. 

The most popular of the futures ETF products was Valkyrie’s Bitcoin Strategy ETF, which tracks a combination of BTC and ETH, racking up US$882k worth of volume.

The first-day trading volume of Ether ETFs pales in comparison with that of ProShares Bitcoin Strategy ETF, which debuted in October 2021 during the height of a crypto bull market. It witnessed more than US$1 billion in trading volume on its first day. 

While the debut of ETH futures ETFs in the US was relatively uneventful on day one, some analysts predict that the launches could spur further adoption of the digital asset.

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IMF calls for greater oversight on crypto, proposes new risk matrix.

Last week, the International Monetary Fund (IMF) released a working paper seeking to ‘tackle the rapidly changing crypto market’ and highlight macro-financial risks that they believe have yet to be fully addressed.

The “Assessing Macrofinancial Risks from Crypto Assets” paper points out the crypto industry is becoming an increasingly integral part of the global financial system, essentially operating as a parallel, unregulated financial system. This brings about considerable risks that the traditional financial sector cannot afford to overlook, the IMF said in its paper released on Friday, just weeks following G20 member countries endorsement of crypto guidelines proposed by the IMF and the Financial Stability Board (FSB).

One of the most pressing challenges identified according to the paper, is the absence of centralised data and regulatory oversight, which they call for immediate international cooperation. To address this, the IMF is proposing a new tool, the Crypto Risk Assessment Matrix (C-RAM), aimed at monitoring and assessing those perceived emerging risks both nationally and globally.

Within the paper, the IMF also took aim at countries that have mandated Bitcoin as legal tender to co-exist alongside their national currencies, including El Salvador and the Central African Republic, writing:

“These legal changes could quickly increase the adoption and exposures of highly volatile crypto assets, amplifying the many above mentioned risks.”

The paper urges that given the fast-paced innovation and the decentralised nature of the crypto market; existing policy frameworks are inadequate for effective risk management. The International Monetary Fund plans to update its conceptual framework as more data and country-specific analysis become available, aiming for a coordinated international effort to curtail potential “macro-financial risks” from the crypto sector, it said.

SEC’s motion to appeal loss in Ripple case is denied.

A federal judge has rejected the US Securities and Exchange Commission’s (SEC) bid to appeal its sizeable loss against Ripple Labs, the company associated with the XRP token.

District Judge Analisa Torres said in a brief ruling Tuesday that the SEC had failed to meet its burden under the law to show that there were controlling questions of law or that there are substantial grounds for differences of opinion.

The decision isn’t a complete loss for the SEC, though with April 2024 set as the trial date for other issues that still need resolution. The judge had previously ruled in July that while Ripple violated federal securities laws in selling XRP to institutional investors directly, it had not done so by making XRP available to retail customers through programmatic sales to exchanges.

The SEC announced after July’s ruling that it would file an interlocutory appeal and move to delay any further decision-making as it bid for an appeal court review of Judge Torres’ ruling.

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Uniswap Foundation targets US$62M in additional funding.

Decentralised exchange (DEX) Uniswap is seeking an on-chain vote to approve the second tranche of the US$74 million funding for its developer, Uniswap Foundation.

According to last week’s announcement, the second tranche of funding, with a buffer of 10% for price volatility, is worth an estimated US$62 million and will be decided via an on-chain vote on October 4th. If approved, the funds will be used for operations and research grants. The Uniswap Foundation is responsible for growing core protocol metrics, building a pipeline for innovation and aligning incentives for stakeholders.

Developers explained that over the next year, they plan to build a software development kit for Uniswap v4 and support its subsequent migration, having already received US$17.3 million in the first tranche for this target. The Uniswap Foundation team said the funding request was split in two to allow more time to register its legal entity and receive nonprofit 501(c)4 status from the Internal Revenue Service, which developers say was finalised in spring before receiving the larger lump sum payment.

The Uniswap Foundation disclosed that in the last 12 months, a total of US$4.8 million was spent on research grants, US$3.15 million for operations and a US$1.29 million loss on capital from the market decline of UNI tokens between the initial governance proposal and receipt of funds. “The UF has US$53.2M in grants capital remaining to disburse. We plan to disburse US$10-$15M per year, with the amount disbursed per year increasing over time,” developers wrote. 

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The week ahead: upcoming economic events

October 5th: Germany’s Balance of Trade.

October 6th: Canada’s Ivey PMI and Unemployment Rate. US Non-Farm Payrolls and Unemployment Rate.

October 10th: Australia’s Westpac Consumer Confidence Change and NAB Business Confidence.

October 11th: US PPI Monthly.

October 12th: US Federal Open Market Committee Minutes. UK GDP Monthly.

Economic Calendar (tradingeconomics.com)

Market reflections

Australia

• The Reserve Bank of Australia (RBA) holds interest rates at 4.1%.
• Households are feeling the pinch as rates erode Covid-era savings.
• Economy grapples with global challenges and some sector growth.

The Reserve Bank's efforts to curb inflation are straining family budgets and pushing more Australians into financial hardship due to rising living costs. The markets breathed a collective sigh of relief on Tuesday when the Reserve Bank of Australia (RBA) opted to hold rates steady at 4.1% for the fourth consecutive month. The board discussed the possibility of raising rates if inflation continues to remain above the bank's target. Members also acknowledged the risk of the economy slowing more than forecast and ultimately concluded that the case for keeping the cash rate unchanged was stronger. The RBA emphasised the possibility of further tightening in the future, with decisions guided by incoming economic data.

In other news, the Manufacturing PMI continued to contract due to a drop in new orders, while home prices in major cities rose due to housing supply shortages. The inflation gauge remained flat in September but had shown an uptick in August, driven by increasing energy and housing costs.

Dwelling approvals rebounded in August, surpassing expectations, and new home loans unexpectedly increased in the same month. Building permits saw a substantial year-on-year decline in August, whilst on the month they increased 7%. Private house approvals showed a notable month-on-month increase but a year-on-year decrease, albeit milder than the previous month's drop. 

Job ads remained resilient despite high-interest rates and inflation. There was a 22% year-on-year drop in the Index of Commodity Prices whilst the services PMI in Australia increased, indicating the first growth in three months, with incoming new business expanding due to increased demand.

The Construction and Manufacturing industry indices also showed improvements, suggesting positive shifts in their respective sectors' performance, with the Composite PMI reaching its highest reading since May, signifying the return of Australia's private sector to expansion after a contraction period, primarily driven by improvements in the service sector.

Australia's trade surplus for August has expanded significantly, suggesting a positive trend for the Australian economy, as a higher trade surplus indicates strong international trade performance, which can contribute to economic growth and stability.

Overall, the Australian economy is navigating a complex landscape with both challenges and pockets of growth. The RBA's vigilance in monitoring inflation and productivity, along with the resilience in certain sectors, will play a crucial role in shaping the country's economic outlook.

Global

• US Treasury yields reach highest levels in years as DXY takes off.
• US Jobs data exceeds expectations, sparking more rate hikes concerns.
• Chinese exporters face challenges in global markets.
• Japan's manufacturing sector continued to contract in September.
• Euro zone inflation decreased to 4.3% in September.

USA

The US financial markets are experiencing a significant shift in the narrative as expectations of higher interest rates for longer permeates. This change is challenging for investors who have become accustomed to years of low rates. The 10-year Treasury yield has surged to its highest level since 2007, reaching 4.793%, and the 30-year Treasury yield has also risen to 4.924%. This surge in yields came after the release of August's JOLT’s survey, which showed a still tight labour market, giving the Federal Reserve the green light to continue raising rates. The sudden surge in rates is attributed to the jobs report showing a significant increase in openings in August, contrary to expectations of a loosening employment market. This has raised worries that the central bank will need to maintain tight monetary policy.

Federal Reserve policymakers have indicated some disagreement about the need for another rate hike by the end of the year but agree that rates will likely remain elevated for an extended period. They have been using rate increases to combat persistently high inflation, although it has moderated from its mid-2022 peak.

Concerns about rising yields persist despite recent efforts by U.S. lawmakers to avoid a government shutdown through a last-minute spending bill. The shift towards higher rates is causing concerns, especially for corporate America as it approaches the third-quarter earnings reporting season.

Financial institutions, particularly banks, are facing substantial interest rate risk, which has been exacerbated by the high-profile failure of some banks earlier this year due to excessive exposure to long-duration government debt. In the second quarter, unrealised losses on bank balance sheets increased by 8.3% to US$558.4 billion, with a significant portion linked to Treasuries. The rise in Treasury yields could further weaken banks' core capital, amplifying their vulnerabilities. 

China

Chinese exporters are facing challenges in their efforts to navigate the global market amidst a bumpy economic recovery. Despite a slight rebound in August, China's exports fell, raising concerns about the country's long-term economic prospects. This decline in exports is attributed to various factors, including geopolitical tensions, and weakening external markets.

While China aims to stabilise foreign trade and investment, there is a recognition of the need to reduce reliance on external demand. Experts emphasise the importance of bold moves to the global market and efforts to explore new opportunities, especially in industries affected by declining orders.

However, exporters also face challenges such as visa issues and efforts by foreign buyers to reduce reliance on Chinese products. Despite these obstacles, Chinese exporters are actively seeking ways to adapt to the changing economic landscape and expand their presence in international markets.

Japan

The manufacturing sector in Japan continued to contract in September, with several factors contributing to this contraction, including a decrease in total new work for the fourth consecutive month, with the sharpest rate of decline in seven months.

Europe

Euro zone inflation decreased to 4.3% in September, marking its lowest level since October 2021, according to flash figures. This decline follows a reading of 5.2% in August, with month-on-month inflation dropping from 0.5% to 0.3%. Core inflation, which excludes energy, food, alcohol, and tobacco, fell to 4.5% year-on-year in September, down from 5.3% in August.

The European Central Bank (ECB) recently raised interest rates to a record level in September, pegging its key rate at 4%, to curb inflation. The ECB's projections anticipate that inflation will average 5.6% in 2023 but decrease to 3.2% in 2024 and 2.1% in 2025. However, economic growth in the eurozone remains modest, and the recent surge in oil prices poses a risk to inflation forecasts. Inflation rates vary across European nations, with Germany, France, Spain, Slovakia, and Slovenia experiencing different levels of inflation.

Compliance conversations

The rise of deep fake AI scams involving celebrities.

In the digital age, artificial intelligence (AI) has transformed the way we interact with technology and media. However, as AI capabilities have evolved, so too have the risks associated with it. One alarming trend that has emerged is the use of deep fake AI to impersonate celebrities and public figures for fraudulent purposes. Celebrities like Tom Hanks, MrBeast, and Gayle King have recently fallen victim to these AI deep fake scams, leading to widespread concerns about the spread of misinformation and financial scams. In this section, we will delve into the world of AI deep fake scams, provide a checklist of signs to watch out for, and offer tips on how you can protect yourself from falling victim to these deceptive schemes.

The rise of AI deep fakes.

AI deep fake technology enables scammers to create convincing videos and audio recordings that mimic the appearance and voices of well-known personalities. These fraudulent videos are then used to promote various scams, products, or misinformation campaigns. Let's take a closer look at some recent incidents involving celebrities and their efforts to combat these scams:

• Tom Hanks' Dental Plan Scam: Tom Hanks was among the first celebrities to identify an AI deep fake impersonating him. He posted a screenshot of the video on his Instagram page, warning his followers to "beware." The deep fake was created to promote a dental plan, and Hanks had no association with it.
• Gayle King's Radio Show Scam: American broadcast journalist Gayle King fell victim to a deep fake that used a video from her recent radio show to promote a product she neither knew nor endorsed. King took to Instagram to alert her followers, emphasising that her voice and video had been manipulated for deceptive purposes.
• MrBeast's iPhone 15 Pro Scam: YouTube personality MrBeast, also known as James Donaldson, confronted an AI-generated deep fake of himself promoting a scam for winning an iPhone 15 Pro. He raised concerns about the readiness of social media platforms to handle the proliferation of AI deep fakes.

Signs to watch out for.

To protect yourself from falling victim to AI deep fake scams, here is a checklist of signs to watch out for:

• Unusual claims: Be sceptical of content that makes extraordinary claims, such as winning a prize, making quick money, or endorsing a product in a suspicious manner.
• Inconsistent behaviour: If a celebrity or public figure's behaviour in a video or audio clip seems out of character or contradicts their known beliefs and values, it may be a deep fake.
• Voice and video manipulation: Pay attention to discrepancies in voice quality and video quality. AI deep fakes may exhibit subtle glitches or unnatural features.
• Check authenticity: Verify the authenticity of the content by cross-referencing it with official social media accounts or statements from the celebrity or public figure.

Protecting yourself from AI deep fake scams.

Here are some steps you can take to protect yourself from falling victim to AI deep fake scams:

• Stay informed: Be aware of the prevalence of AI deep fakes and the risks associated with them. Knowledge is your first line of defence.
• Verify sources: Double-check the legitimacy of content and offers before taking any action. Look for official statements or endorsements from the individuals involved.
• Report suspicious content: If you come across suspicious AI deep fake content, report it to the relevant social media platform or authorities.
• Use strong authentication: Strengthen your online security with robust authentication methods, such as two-factor authentication (2FA), to prevent unauthorised access to your accounts.
• Educate others: Spread awareness about AI deep fake scams among your friends and family, as they may also be targeted.

The rise of AI deep fake scams involving celebrities and public figures is a concerning trend that demands vigilance from internet users. By staying informed, recognising the signs of deep fakes, and taking proactive steps to protect yourself and others, you can reduce the risk of falling victim to these deceptive schemes. As technology continues to advance, our ability to discern fact from fiction becomes increasingly vital in the digital landscape.

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 11:00 AM AEST, on 05/10/2023.