Here is the Coin Bureau’s weekly crypto review and this week’s top headlines in crypto news:
- The crypto market meltdown: BTC makes its first lower low in what could be the beginning of a long-term downtrend. Is this the bear market or a big bear trap?
- NFT immunity: despite a decline in search trends, popular NFTs continue to climb, and new projects are popping. Is this proof that the NFT niche has decoupled from the rest of the crypto market?
- The SEC is coming for cryptocurrency: the SEC is expanding its crypto-dedicated division to crack down on the crypto industry. Which crypto niches are most at risk?
- Rewards gone on crypto.com. The cryptocurrency’s most recognized company reduces rewards for its popular crypto debit cards. Everything you need to know.
- Banks Blocking Banks: Argentina’s central bank blocks two of its largest banks from offering crypto services just days after they were announced. Why this is more significant than you think.
- The Fed raises rates: The crypto market sees a brief relief rally as the Federal Reserve’s interest rate increase and rhetoric exceed investor expectations. How high could interest rates go?
- A closer look at last week’s top performing cryptos and where they’re headed next. All this and more down below.
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Crypto Market Meltdown
Last week we saw something we haven’t seen in a while, and that’s a sixth straight week of price decline for Bitcoin. As far as I can tell, this hasn’t happened in over five years.
We also saw Bitcoin make a lower daily low for the first time since the May crash, which, as I mentioned in the introduction, is an early warning sign that the bear market has arrived.
In my recent Twitter poll, about 80% of you are convinced we’re in a bear market already. There’s no denying that the nasty dip we saw over the weekend is evidence to that effect. However, I truly believe that a bear market has set in once we’ve seen consistently lower lows for weeks on end. So far, we haven’t seen that, and Bitcoin has held up quite well, all things considered.
Take a second to consider that Bitcoin is highly correlated to tech stocks and tech heavy indices like the Nasdaq 100. Many tech stocks and many tech heavy indices, including the Nasdaq 100, have so far posted larger losses in 2022 than Bitcoin, which is impressive considering that Bitcoin is seen as higher risk than most tech stocks.
This begs the question of how low we can go before something in the crypto market starts to break, and there seem to be two key price points here. The first is around 34K, which is roughly where we are now. This price point is significant, and that’s because it seems to be the price at which many bitcoin miners will be forced to sell their BTCS at least according to data from January this year.
It looks like some bitcoin miners have already begun capitulating, notably riot blockchain, which recently sold half of the bitcoin it mined in April to continue financing its operations. The silver lining is that it’s very likely that this bitcoin is being sold over the counter, or OTC, meaning it shouldn’t have that much of an impact on the spot price of bitcoin.
The second price point to pay attention to is around the 20k mark, and this is for two reasons. The first is the most obvious, and that’s that 20k was BTC’s top in the previous bull market. The second reason is less obvious but arguably more important, and that’s MicroStrategy. As you know, MicroStrategy has been buying up billions of dollars in Bitcoin, and it’s been using lots of debt to do so. This includes borrowing against Bitcoin to buy Bitcoin, and, as reported by Cryptoslate, if the price of Bitcoin were to fall below around 21k, then MicroStrategy could face a liquidation of the 200 million worth of Bitcoin it’s put up as collateral for its crypto loan.
Before you panic, bear in mind that this would amount to a 40% drop from current prices. This is unlikely to happen anytime soon, and MicroStrategy seems to have a backup plan in case BTC gets bitten by the bear.
NFT Immunity
It seems that the only crypto niche that hasn’t really been all that affected by the recent crypto market downturn is NFTs. What’s especially interesting is that NFT sales volume has stayed more or less the same over the last month or two despite the apparent downturn in retail interest at least according to CoinMarketCap.
This could potentially be explained by the fact that most of the trading volume in the NFT market comes from collections like the Bored Ape Yacht Club, which are primarily owned by high-net-worth individuals.
However, it could also simply be a consequence of the fact that art has historically been a good inflation hedge, and this could be a partial driver behind the continued investment in NFTs from all levels of net worth. There’s also an additional factor at play here that’s arguably specific to crypto.
You may recall that knowledge of crypto increases trust in crypto, which increases the adoption of crypto. The question then is what drives people to want to learn about crypto and besides speculation or necessity, the only other factor seems to be fun just for fun. In other words, the NFT niche might have a better time handling a bear market than most cryptocurrencies because investment is not being driven purely by speculation, which will, of course, all but fade away in the depths of a bear market. This would explain why hundreds of millions of dollars continue to pour into the NFT industry even though some supposedly highly anticipated NFT marketplaces are seeing surprisingly low trading volume and user activity. I think you all know which one I’m talking about here.
It also explains why scammers continue to target NFT holders with the latest attempts being phishing links in open seas Discord channel. With all that said, however, it’s still too soon to say for sure that the NFT niche has truly decoupled from the crypto market, especially since the NFT niche itself has yet to see a serious bear market.
SEC Coming For Crypto
Now another thing to keep in mind when it comes to NFTs is regulation, which might sound funny because there haven’t really been any real regulatory threats on that front. As far as I can tell, this is because the financial action task force or FATF doesn’t consider NFTs to be virtual assets for whatever reason, they’re not subject to the same scrutiny as other crypto niches in countries that abide by the FATF’s regulatory decrees.
However, this seems to be changing because the United States Security and Exchange Commission, or SEC, recently announced the expansion of its crypto division and it included NFTs in the list of crypto niches on its radar. The SEC’s crypto division will nearly double in size from around 30 employees to around 50, and it’s been renamed from the ambiguous cyber unit to the somewhat less ambiguous crypto assets and cyber unit.
In addition to NFTs, the sec’s crypto division will be scrutinizing crypto offerings, meaning ICOs, IEOs, and the like, cryptocurrency exchanges, any crypto projects that deal with staking DeFi protocols, and last but not least, stable coins. Here’s what I think they’re going to do in each case.
They’re going to pay extra close attention to fractionalized NFTs and the like because the sec’s own pro-crypto commissioner, Hester Peirce, has previously warned that these likely constitute securities offerings in many cases and will therefore be subject to the SEC’s scrutiny
As for ICOs and IEOs, I suspect the SEC will start expanding its reach into newer forms of crypto like initial stake pool offerings on Cardano and parachain slot auctions on Polkadot. It’s possible that the SEC will even go after projects that do airdrops in ecosystems like Cosmos.
The cryptocurrency exchanges are where things could get really ugly because SEC chairman Gary Gensler appears to have an axe to grind with Coinbase, and I have a feeling the SEC will try to force all cryptocurrency exchanges in the US to register with it. This could result in many altcoins being delisted from exchanges the way XRP was after the SEC went after Ripple. The staking side is also where things could get really ugly because it’s not entirely clear whether the SEC’s interests include proof-of-stake cryptocurrencies or just centralized staking platforms. Let’s hope it’s not the former.
Similarly, it’s going to be interesting to see what the SEC tries to do to DeFi protocols, especially since many of them have recently gone to great efforts to decentralize both their back ends and front ends. The good news is that if the SEC tries to step too hard on any of these crypto niches. It will see a lot of pushback from the crypto lobby.
Rewards Gone On CRO
Speaking of pushback, Crypto.com recently reduced the rewards on its popular crypto cards to the point at which it caused its CRO coin to plummet. The short of it is that the company suddenly announced that the cashback rewards on all crypto.com cards would be slashed along with the staking rewards on CRO.
The pushback from cardholders was so intense that the company caved into the pressure and slightly increased cash stake rewards for select card tiers, albeit not to the same levels that they were before. On that note, there’ll be no changes to the cashback on Crypto.com’s cryptocards nor to their CRO staking rewards until June 1st.
More importantly, anyone who recently purchased a crypto.com cryptocard will continue to earn the old rewards until the 180-day lock-up period for the cryptocurrency they used to purchase the card is complete.
Unfortunately, the crypto.com pivot didn’t protect CRO from its continued plunge, and many are rightfully upset about the abrupt changes, especially those who recently purchased a crypto.com card.
There’s another side to this story, however, and that’s that there doesn’t seem to be all that much CRO left to compensate card cashback stakers and validators on the crypto.org chain. It’s also easy to forget that CRO’sutility is technically no longer limited to crypto.com. The crypto.org chain and the Kronos chain have both seen a surprising amount of adoption.
CRO is required to keep these new ecosystems operational. The silver lining there is that there are additional demand drivers for CRO besides crypto.com cards, which could lead to positive price action for CRO further down the line. Cross supply sustainability is something crypto.com should have factored in, but it’s quite possible that it didn’t anticipate just how much adoption there would be. For context, crypto.com has seen exponential growth over the last year and recently surpassed 50 million users.
Banks Blocking Banks
Meanwhile, in Argentina, the country’s central bank recently blocked two of the country’s commercial banks from offering crypto services to their clients. Argentina has one of the highest rates of crypto adoption in the world and the reason why these two commercial banks decided to offer crypto services was because of demand from their clients, as is often the case. Argentina’s crypto adoption has mostly to do with the exponential rate of inflation the Argentinian peso has seen over the past decade, an inflation rate that recently hit a record high of 55%.
The reason why Argentina’s central bank blocked the two commercial banks from offering crypto services is because of a debt deal with the IMF that the Argentinian government signed back in March, which included a clause to prevent crypto adoption in the country. The reason why this is so significant is that this anti-crypto adoption clause is something that was almost certainly known to the country’s commercial banks. The fact that these two banks went ahead and offered crypto services is a clear indication, nevertheless speaks volumes to just how significant the demand for cryptocurrency is in the country.
Come to think of it, this is an eerily similar situation to the one in the Central African Republic, where the president declared bitcoin legal tender without the central bank’s knowledge and presumably without its approval either. Not surprisingly, the IMF recently came out to condemn the Central African Republic in the same way it did with El Salvador when it adopted Bitcoin as legal tender last September. This suggests that the Central African Republic’s adoption of bitcoin is a much bigger deal than we think because otherwise the IMF wouldn’t be making such a big deal about it.
If you ask me, the IMF is absolutely terrified that this trend of adopting BTC as legal tender will continue, and there’s no question that Argentina is one of the countries where BTC could flip fiat.
The Fed Raises Rates
Another central bank that made the headlines last week was the Federal Reserve. This is because Federal Reserve chairman Jerome Powell announced that it would be raising interest rates by 0.5%, which is exactly what the markets were pricing in. Not only that, but Jerome even said that the Fed would not be looking to raise interest rates by 0.75% in June. Given that the market had been pricing in a 0.75% hike, the prospect of a lower hike translated to euphoria across all markets, including crypto. As you’ll all know by now, this relief rally did not last very long, this is because of a series of factors, namely recession fears being driven by the usual suspects like the war in Ukraine, supply chains, China’s lockdowns, for example.
The factor I want to focus on here is the inflation figures for April, which are set to be released this Wednesday. I have a sense that the markets are on edge about the possibility that the CPI for April will be higher than the CPI for March. This is simply because if inflation is still running too hot, the Fed could yet pull another 180 and throw a 75 basis point rate hike back on the table or worse.
If inflation is starting to cool down, we could see another relief rally as the market starts to price in a more dovish Fed. The wild card in this equation is what all the other central banks are doing around the world, namely the Bank of England and Australia’s central bank, both of whom are aggressively raising interest rates for the first time in years. Select members of the European Central Bank are pushing for it to raise interest rates as well. In any case, though none of these banks is as significant as the Fed on their own, the combined rate hikes will almost certainly have a significant effect on the global economy. In any case, I would suggest waiting until Wednesday to see what happens before making any big decisions. It is not financial advice.
Top Performing Cryptos
With turning to the charts, we can see exactly what I showed you already and that’s the first lower low for Bitcoin on the daily. Aside from the price zones I mentioned earlier, there seems to be some solid support between the 31k and 33k range and with some luck, Bitcoin will bounce from those levels if we get to them.
This week’s top performing altcoins were Algorand, TRON, CRV, 1INCH, and Helium. Starting with Algorand, ALGO appears to have pumped because of a series of events in the Algorand ecosystem. Starting with Algorand founder Silvio McCarley’s appearance at the MIT Bitcoin Expo over the weekend. As you can see, Algo’s long-term price action isn’t all that appetizing.
Next up we have Tron, whose TRX coin was a top performer the week prior. TRX’s rise is again related to the USDD stablecoin, which was inspired by terror. Now TRX actually appears to be in a pretty strong long-term uptrend, but I will repeat what I said last week, and that’s that TRX’s trend isn’t nearly as impressive in percentage terms compared to other cryptos.
Oddly enough, Curve DAO’s CRV seems to have risen for the same reason as TRX, and that’s the USDD stablecoin. This is because curve is a stablecoin DeX and there seems to be an expectation that it will soon support USDD, though this hasn’t happened at the time of shooting curve. Aurora, the protocol’s EVM layer, was also recently deployed. I digress in terms of price action. In this case, CRV is once again similar to TRX in that it’s in a long-term uptrend, though this trend is not all that strong in percentage terms. In this case, the cause is likely CRV’s constant inflation.
Next up, we have one inch network’s 1INCH token, which took a trip to the moon because of the DeFi protocol’s integration with the opera browser. 1INCH network’s gas refund also seems to have played a supporting role in the recent pump. Unfortunately, one inch’s long-term price action is not very pretty, and its recent pump barely registered on the chart.
Last but certainly not least, we have Helium’s HNT coin, whose price popped off on the news that light hotspots will soon be coming to helium’s peer-to-peer internet protocol. As is the case with all the other top performers last week, however, HNT isn’t looking all that hot on the long term charts, and as someone who holds HNT, it stinks to see.
[This article is a transcription of a video made by Coin Bureau]
Original video: https://youtu.be/Jh0RH3NCIFQ ]
