Here are this week’s top headlines in crypto news:
- The crypto market collapsed. BTC falls below 20k, ETH falls below 1k, and the rest of the crypto market gets wrecked too. Was this the bottom? Is there more pain to come?
- Three arrows to the knee. One of crypto’s largest VCs is believed to be insolvent after its founders ghosted the community. Which crypto projects could be affected by this?
- Celsius below zero. One of crypto’s largest lending platforms puts a pause on withdrawals after rumors of insolvency. Everything you need to know.
- Crypto job cuts. Coinbase lays off nearly a fifth of its workforce as Binance and Kraken continue to hire. What does this mean for the crypto market?
- Euro stablecoin. Introducing the euro stablecoin. The USDC issuer Circle reveals the latest addition to its stable coin suite. Why this is a much bigger deal than you think.
- Panama’s crypto bill. The central American country is on the cusp of becoming the second to adopt cryptocurrency at the national level. When will it happen?
- A closer look at last week’s top performing cryptos and where they’re headed next.
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Crypto Market Collapse
Last week, the bottom fell out of the crypto market. Leveraged traders lost billions of dollars while crypto holders lost tens of billions, at least on paper. Last week’s crypto collapse was caused by the Federal Reserve’s monthly press conference, where the Fed announced it would be raising interest rates by 0.75% for the first time since 1994. This is an increase that investors hadn’t managed to price in, so the stock market and the crypto market came crashing down.
However, it wasn’t just the Fed that moved the markets. The central bank of Switzerland simultaneously announced that it would be raising interest rates for the first time since 2007, bringing its key interest rate from minus 0.75% to minus 0.25%. Yes, you heard that right, negative interest rates.
The European Central Bank also announced that it plans on raising interest rates for the first time in 11 years come July, though there are doubts that this will happen given that the declaration alone is already bringing more indebted European countries to the brink of default.
In any case, the actions and rhetoric of central banks around the world have many investors wondering how much lower the markets could go, be they stocks or crypto. This all depends on how long inflation lasts, or more accurately, how long the perception of inflation lasts. If, say, the war in Ukraine is somehow resolved or the pandemic is suddenly declared over by the WHO, this could give the markets fuel, they need to stay afloat. In other words, what we just saw would probably be the bottom in the absence of such resolutions.
Though it’s likely that all assets will continue to see a slow decline as liquidity is sucked out of the financial system. I happen to suspect that the crypto market will meet its bottom because of a catalyst that’s likely related to a regulatory crackdown. And because regulators don’t have the resources to go after each crypto project individually, my bet is that the exchanges will be the ones taking the regulatory beatings.
Three Arrows To The Knee
Now you could argue that a regulatory crackdown on the crypto industry is inevitable given the recent collapse of cryptocurrency’s largest decentralized stablecoin, which is or rather was, Terra’s UST. If you watched our video about Terra’s implosion, you might recall that I predicted we had yet to see the full extent of the damage caused by this cryptocatastrophe. It looks like that prediction is starting to come true as Three Arrows Capital is reportedly insolvent.
As I mentioned in the introduction, Three Arrows Capital, or 3AC, was one of the largest crypto funds and was believed to have held as much as 10 billion in cryptocurrency at its peak. As you might have guessed, 3AC was one of the biggest investors in terror, and 3AC co-founder Kyle Davis recently confirmed that they lost no less than 200 million dollars of their portfolio in the implosion, a portfolio which stood at just over 3 billion in April this year.
3AC was also a big investor in Avalanche, whose AVAX coin also took a tumble because of Terra and could potentially see even more downward pressure as the entities behind Terra have yet to offload the tens of millions in AVAX they hold. For what it’s worth, it sounds like they won’t be selling soon.
While there was lots of speculation that 3AC had gone insolvent after Terra’s collapse, the rumors didn’t really begin to circulate until early this month, when independent on-chain analysts discovered that 3AC had begun dumping tens of millions of dollars of lido finance staked ETH or stETH. stETH makes it possible to stake ETH on Ethereum’s proof-of-stake blockchain, dubbed the Beacon chain, without spinning up your own validator. More importantly, it makes it possible to trade this eth freely while it accrues interest in real time.
It should come as no surprise that stETH was extremely popular among institutional investors as well as day traders. Let’s just say in 3AC’s case, it looks like they were one and the same thing.
As which other cryptos could potentially be affected as well, according to its website, 3AC’s portfolio includes about every leading layer 1 cryptocurrency and many of the top DeFi protocols. These cryptos could be at a discount soon anyway.
Celsius Below Zero
Another entity that has been shaken by the recent crypto collapse is, of course, Celsius, one of the largest crypto lending, borrowing, and saving apps, which recently paused all withdrawals, swaps, and transfers for its users. As with 3AC, many began to speculate that Celsius had become insolvent after Terra’s implosion. This is because Celsius supported both Luna and UST and had hundreds of millions of dollars deposited on Terra’s now infamous Anchor protocol.
The thing is that Celsius actually managed to withdraw all of its USD from Anchor protocol before it lost its dollar peg, and it actually doesn’t look like Celsius was hit that hard by Terra’s collapse if at all, so this didn’t stop Celsius Fudd from spreading.
Soon, focus turned from Terra to Lido Finance’s aforementioned stETH token. This is because Celsius’s business model essentially involves taking user funds and lending them out to individuals, institutions, and select defy protocols behind the scenes to earn a yield, the majority of which is given back to its users. Naturally, whenever someone deposits ETH into Celsius. Then it would turn around and deposit some of that ETH into Lido Finance for STEEM, which it would then use to earn additional yield. The estimates of exactly what percentage of Celsius’s ETH holdings were in stETH vary, but Coindesk recently reported that of the 1 million ETH on Celsius, around 70% of it had been converted to stETH.
For context, ETH to stETH is a one-way trip until ethereum’s transition from proof-of-work to proof-of-stake, at which point it will be possible to redeem stETH for actual ETH. Even then, it might be a few months before stETH holders will be able to withdraw. This isn’t a problem so long as the stETH price continues to mirror that of ETH within a few percentage points, but if stETH starts to diverge, this could become a problem for platforms like Celsius if all their users start trying to withdraw their ETH at the same time.
As far as I can tell, this is exactly what happened. It was made worse by the fact that Celsius was reportedly borrowing millions of dollars of stable coins against its ETH holdings in d5 protocols like AVE for additional leverage and yield, along with other assets too.
Whatever arrangement Celsius had going on behind the scenes, it’s clear that something broke and with Celsius’s investors refusing to bail them out, many are wondering whether they will take up Nexo’s offer to buy them out, assuming they don’t get completely crushed by regulations and lawsuits. I have a feeling that Celsius won’t be the last lending platform to go cold in the coming weeks.
Crypto Job Cuts
Crypto lending and borrowing apps haven’t been the only ones feeling the heat either. Crypto exchanges have been hit surprisingly hard by the bear market and many have stopped hiring altogether. In the case of Coinbase, it announced that it would be laying off 18% of its workforce of 5,000 employees. This means around 1100 people will be getting the boot. Coinbase CEO, Brian Armstrong explained that we appear to be on the brink of a recession, and the company doesn’t want to run the risk of spreading itself too thin, which makes sense. Brian also revealed that Coinbase had been growing too quickly given the circumstances. It’s safe to say that Coinbase isn’t the only crypto company that’s been in this state of unsustainable growth. Still, some would say it doesn’t excuse the 180 pulled by the exchange, which had announced earlier this year that it would be adding 2 000 people to its workforce, not freezing hiring or laying people off.
Earlier this month, Gemini made the similarly surprising announcement that it would be cutting 10% of its workforce in preparation for crypto winter. Crypto.com also announced that it would be laying off approximately 5% of its workforce. BlockFi announced that it would be cutting 20% of its workforce, not that surprising given that the company was slammed with a 100 million dollar fine earlier this year.
As per this awesome picture by the block, crypto companies have had to fire more than 1500 employees over the last two months, with Coinbase taking the lion’s share of that figure.
Not everyone is firing. However, for starters, Binance CEO Changpeng Zhao announced in a cheeky tweet that his company was hiring for 2000 positions, something made possible by the fact that it hadn’t splurged hundreds of millions of dollars on expensive advertising.
Like Binance, Kraken has been cracking on with its hiring plans and has over 500 positions open. This could rise to 520 positions if the 20 people Kraken CEO Jesse Powell said are trying to throw the company under the bus are fired.
On that note, in that same thread, Jesse seemingly confirmed that some of the employment issues crypto companies are currently facing are coming from the fact that they were growing too quickly and didn’t manage to put the right people in the right positions. Jesse also implied that many of the people they hired weren’t prepared to deal with the roller coaster that is the crypto market.
As to what this all means for the crypto market, it means that crypto companies and crypto projects will be forced to optimize their workflows and workforces, which will eventually result in high-quality crypto products and cryptocurrencies that will be ready to rumble and rally during the next bull market.
Euro Stablecoin
Speaking of new crypto products, USDC issuer circle recently announced that it will be rolling out a euro stable coin called eurocoin with the ticker EUROC later this month, specifically on the 30th of June. If you’re wondering why this is so significant, well, allow me to explain.
Most of the assets are backed by some form of debt, usually U.S government debt. This is because stablecoin issuers can earn a yield on reserves while knowing that they can redeem these reserves for dollars at any time. The main reason why euro stable coins haven’t taken off is because the interest rates on European government debt have been negative for years, meaning euro stable coin issuers would actively lose money.
As I mentioned earlier, the European Central Bank is planning to raise interest rates for the first time in over a decade on the 1st of July, which is literally the day after the release of Circle’s EUROS stablecoin, which will, of course, be backed by European cash equivalents aka European government debt.
What’s interesting is that Circle’s blog post announcing its euro stablecoin specifies that the assets backing the EUROC will be held in euro-denominated accounts by financial institutions in the United States. If the European central bank does manage to raise interest rates without causing any of its member states to default on their debts, I imagine that Circle will expand its operations into Europe, especially if its upcoming crypto regulations are rolled out without any issues. At that point, Circle’s EUROC stablecoin could become a de facto digital euro in the same way that its USDC stablecoin has become the de facto digital dollar. This begs the question of what that kind of world could look like, especially if blackrock comes to custody of all of the assets backing the euro stablecoin in the same way that it custodies the assets backing USDC. I suppose we’re going to find out soon enough.
Panama Crypto Bill
Anyhow, across the pond, Panama’s president unfortunately vetoed a bill that would have basically legalized cryptocurrency in its entirety. Panama was one of the countries that was most likely to adopt BTC after El Salvador. This is because a Panamanian congressman has been pushing for a similar bill on his home turf, though I must admit that it’s even more amazing than I remember.
In addition to allowing citizens to pay for goods and services, taxes, duties and fees with BTC, the bill would also create a legal framework for decentralized autonomous organizations, or DAOs. Not only that, but it would create a legal framework for token offerings of all kinds, be they initial coin offerings for cryptocurrencies or securities offerings for physical resources like gold and land.
President Lorenzo Cortezo partially vetoed the bill because he’s worried that approving it will upset the financial action task force, or FATF, whose so-called cryptocurrency recommendations are on track to suffocate the crypto industry. As it so happens, the FATF recently announced that it will be releasing more details about its crypto recommendations later this month. You can rest assured that I’ll be unpacking those as soon as they’re released.
Anyhow, the silver lining is that the Panamanian congressman who tabled the bill vows to keep working on it until it’s approved and, with a bit of luck, the next version will be more palatable for the president to sign. Let’s just hope it’s not riddled with the FATF’s dystopian demands.
Top Performing Cryptos
As we turn to the charts, we can see that Bitcoin looks insanely oversold no matter how you slice it. Under normal circumstances, we would have seen some kind of recovery rally by now.
As part of my research for my upcoming video on where the bottom could be, I came across an insightful indicator on trading views called the visible range volume profile, or VRVP. As the name suggests, it shows you which price points had the most trading volume in the past. Logically speaking, this means that BTC is likely to see some support around these levels.
I know the picture is a bit hard to see, but the bounce we saw from $17k over the weekend is consistent with the small pocket of previous volume around those levels. If we fall further, the VRVP suggests we could sink as low as $12 to $14K before we see more support. I’ll reiterate that this is a big if, and the VRVP is just one of many ways you can measure the potential bottom.
Last week’s top performing cryptos were Helium, Bitcoin SV, Kadena, the brave browser’s Basic Attention Token and Theta Network.
Starting with helium, the HNT token is going higher because of all the news coming out during and shortly after the recent Helium house conference, including a partnership with tyre manufacturer Goodyear and a new physical device for helium’s peer-to-peer 5G internet. If we were in a bull market, this news would have taken us to the moon, but in a bear market it’s really nothing more than a blip on the radar.
Next up, we have Bitcoin SV, which is one of the many forks of bitcoin, so let’s leave it at that. Then there’s Kadena, whose KDA coin is rallying in response to the ongoing development of the crypto project that was made possible by the 100 million development fund it announced in April and an additional 10 million developer fund it announced late last month.
As a result, KDA’s long-term price action isn’t looking pretty, but all its ongoing development leads me to believe that it will have another chance at new all-time highs when the bull market comes back around. And yes, I will cover Kadena eventually.
When it comes to the brave basic attention token, I couldn’t find the source of its recent pump. My best guess is that it is the development of scaling solutions and privacy-preserving technologies that brave affiliates are working on.
It is again of no consequence because BAT has been thoroughly beaten down by the bear market. Then again, it never quite managed to blow up like other cryptos did, which is quite odd given how popular the Brave browser is.
Finally, we have the Theta network, whose Theta coin is seeing some green in response to all the NFT activity on the theta blockchain and all the cool features. The crypto project continues to roll out new features such as an API for its decentralized video streams. It’s too bad that the bear market has beaten the bull out of Theta, but I guess that gives you lots of time to learn about the project and see if it has potential when the bulls come back around.
[This article is a transcription of a video made by Coin Bureau]
Original video: https://youtu.be/IVmRS8ynLXo ]
