Here are this week’s top headlines in crypto news:
- Etherium implosion: After a rocky Ropsten merge, Ethereum developers delay the difficulty bomb, causing ETH’s price to plummet. How low could it go?
- Celsius pauses withdrawals amid rumors that the lender is technically insolvent. Is this just a liquidity crunch or could there be something more?
- Terra troubles: Rumors, investigations, and the SEC enter the Terra community following the collapse of Luna classic and UST classic. What does this mean for Terra 2.0 and new LUNA?
- Litecoin delisted: South Korean crypto exchanges drop LTC following a privacy upgrade for Litecoin that doesn’t even apply to its layer 1 blockchain. Why there is no cause for concern.. yet.
- Binance in the spotlight: Reuters says cryptocurrency’s largest exchange facilitated illicit activity, while Bloomberg reveals the SEC is investigating Binance over BNB. Everything you need to know.
- Abandon ship: Meta’s head of engineering calls it quits just days after two of the company’s other executives stepped down. Why this is more significant than you think.
- Inflation expectations: The CPI comes in at another 40-year high, causing markets to crash in anticipation of how the Fed will respond. When will all this inflation end?
- A closer look at last week’s top performing cryptos and where they’re headed next.
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Ethereum Implosion
Last week, we saw ETH drop by more than 20% in a matter of days, causing chaos in the crypto market and raising many questions about what exactly happened. Here’s my best answer: As many of you know, Ethereum is currently in the process of transitioning from proof-of-work to proof-of-stake. The actual transition is expected to take place in August in a process known as the merge. On Thursday, Ethereum developers did a dry run of the merge on ethereum’s longest running test net, Ropsten. Although the merger was as a whole successful, ETH’s price began to decline around that time. As far as I understand, this is because the Ropsten merger didn’t go quite as smoothly as many investors had anticipated. Many bugs were discovered, and this presumably led to fears that the actual merge could be delayed. These fears were arguably confirmed on Friday when ethereum developers agreed that the difficulty bomb would be pushed back by another two and a half months or so, suggesting there is in fact more work to be done before the merge can happen.
For context, the difficulty bomb is intended to motivate proof-of-work minors to transition to proof-of-stake by making blocks more difficult to mine. Had it continued, Ethereum could have become unusable in just a few weeks’ time. As reported by Bloomberg, the delay of the difficulty bomb means that Ethereum’s actual merge will likely take place in the early autumn rather than late summer as initially scheduled. This caused ETH’s price to decline for a second day, and all the leveraged traders who were looking to go long on the back of the Ropsten merge got liquidated, causing ETH’s price to decline even further.
The assumed delay of the merge also seems to be why Lido finance’s staked eth fell slightly below its peg, something that has led to liquidation concerns in DeFi protocols like Aave, where Lido’s stETH token is being used as collateral for crypto loans. It’s too soon to say whether these concerns are justified.
While stETH does face liquidity risks in the short term, it is inherently different from Terra’s UST. It does not face the same death spiral risks. That’s because each stETH will be redeemable for one ETH as soon as the merge is complete and unstaking is enabled.
Celsius in Crisis
Speaking of stETH, one of the largest holders of stETH happened to be the Celsius lending platform. This led to many rumors last week that the platform could face liquidity shortfalls given the fall in value of stETH relative to ETH. This is on top of potential losses that Celsius incurred in DeFi hacks last year as well as the Terra collapse a month ago. These rumors, combined with general market conditions, led many people to start withdrawing their funds from Celsius. At the rate that withdrawals were being made last week, it appeared as if it could be at risk of having a liquidity shortfall, i.e. it did not have enough liquid funds to be able to meet those withdrawal requests. This, coupled with the realization that Celsius would not be able to easily liquidate its stock positions, meant that it was only a matter of time before it took action.
In the early morning news, we got the news that Celsius was pausing withdrawals on its platform. In a blog post, Celsius stated that this was ‘due to extreme market conditions. Today we are announcing that Celsius is pausing all withdrawals, swaps, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor its withdrawal obligations over time’, so this leads many to wonder what could happen from here. Well, it’s in Celsius’s best interest to make sure that it honors the commitments to its depositors. Hence, it will have to raise liquidity to do that. This could either come from debt or worse, sales of crypto assets.
Already this morning we saw large transfers of bitcoin from Celsius to the likes of FTX, and one has to wonder how much of the recent falls we’ve seen this morning are related to this selling. Either way, it’s trying times for the crypto community at large as this will have ramifications.
It’s also yet another reminder of why it’s so important to practice self-custody. The centralized lending platforms control your private keys and, as such, control your crypto. The same can be said for exchanges as well.
Terra Troubles
While this news is yet another blow, we can’t forget that it was only a month ago that we had the implosion of Terra and since that time a lot has happened. Last week it was reported that the South Korean police are investigating employees of Terraform Labs who allegedly kept some of the BTC from the Luna Foundation Guard’s massive bitcoin treasury for themselves. Before I go any further, I should note that the tensions in the Terra community remain understandably high. As such, it’s important to take what individuals and institutions are saying about Terra with a pinch of salt since there are likely many Luna and UST investors who just want retribution.
Obviously, most of the tensions in the Terra community are related to Do Kwon Terra’s bombastic co-founder, who, according to Coin Telegraph, is actually not being investigated by South Korean police in relation to the alleged BTC theft as I just mentioned. As many of you will know, Doe is being investigated by the United States Securities and Exchange Commission, or SEC, who wants him to explain Terraform labs’ involvement in the development and operation of mirror protocol. Terra’s synthetic stock trading outperforms the platform appeals court recently confirmed that the doe must comply with the SEC, which, given the circumstances, is not all that surprising.
It’s also not surprising that the SEC has opened up a second investigation into Terraform Labs, this time asking about how the project was being marketed in the United States. What is somewhat more surprising, however, is the allegation that Do withdrew 80 million dollars from company wallets in the months leading up to Terra’s collapse. Another allegation is that Do used an elaborate deFi strategy to cash out over 2.7 billion dollars, which Doe denied in a series of follow-up tweets. I suppose we will just have to wait and see what the truth is.
In the meantime, doe and terraform labs have turned their focus to building out Terra’s new ecosystem, which has probably been permanently stained by the Terra classic collapse. The new Luna coin hasn’t held up all that well in the face of all the cell pressure from Terra classic investors who are desperate to recoup their losses with the bear market setting in. It’s questionable whether Terra will survive with all this cell pressure, but it’s safe to say that crazier things have happened in crypto, and many projects have bounced back from worse situations.
Litecoin Delisted
Another crypto project that’s been running into problems lately is Litecoin, whose LTC coin was recently delisted from a series of South Korean crypto exchanges. As I mentioned in the introduction, Litecoin has recently undergone an upgrade called MWeb that makes it possible to send private LTC transactions using a sort of special side chain that runs parallel to Litecoin’s actual blockchain.
The fact that LTC privacy isn’t possible at Litecoin’s layer 1 level is why the news took so many by surprise. LTC is not a privacy coin, it just has opt-in privacy on a side chain that the exchanges don’t even have to support. LTC’s d-listing ultimately has to do with the fact that South Korean cryptocurrency exchanges are subject to strict regulations. The regulatory scrutiny of crypto exchanges has only increased because of Terra’s collapse. This might be why they delisted LTC even though Litecoin founder Charlie Lee had noted in an interview last year that he had spoken with crypto exchanges and they had confirmed that they were comfortable with Litecoin’s privacy upgrade.
Another factor at play could be all the pressure coming from international organizations like the Financial Action Task Force (FATF), which is effectively forcing questionable anti-money laundering regulations on countries around the world. It’s not a fan of privacy whatsoever. This means that it’s possible, if not likely, that there will eventually be a full-on assault on all crypto technologies that make privacy possible. This is, of course, because the assumption is that technologies which make it possible to preserve one’s privacy are only used by criminals.
The truth is that privacy is a precondition for freedom and financial freedom since you can easily be coerced. If someone knows exactly how much money you have and what you purchased. This is why powerful individuals and institutions intend on keeping their privacy, while us plebs lose ours. In any case, LTC’s delisted listings are likely to be limited to cryptocurrency exchanges in South Korea for the time being. It seems the pressure is already on for other private coins.
Binance In The Spotlight
Reuters published an investigative piece last week alleging that criminals have used Binance to launder over 2.3 billion dollars since its inception in 2017. A significant portion of the piece is centered around privacy coin Monero, or rather XMR, which trades mostly on Binance and has even been praised by Binance founder Changpeng Zhao for its privacy. Naturally, the narrative that the authors are trying to weave is that Monero is used mainly by criminals, which couldn’t be further from the truth. But then again, nobody can say for sure because, well, all XMR transactions are private.
Binance responded to the Reuters piece by publishing the emails that the exchange had exchanged with Reuters journalists, revealing Binance’s unfiltered responses, which seem to correct Reuters’ record, so to speak. Note that this is not the first time Binance has issued such a response.
In addition, Binance also cited a startling statistic from blockchain analytics firm Chainalysis, which discovered that only 0.15% of cryptocurrency transactions are associated with illegal activity. The UN estimates that between 2% and 5% of all transactions in the traditional financial system are associated with illicit activity. Not only is this much larger in percentage terms, but in dollar terms as well. When you consider that 2.3 billion is a drop in the bucket compared to the trillions of dollars that have flowed in and out of Binance over the years, it begs the question of what the end game of Reuters really is. It’s a question that Binance is asking as well. This is mainly because Bloomberg came out with its own hit piece on Binance on the same day as Reuters, claiming that the SEC is investigating Binance over its BNB ICO in 2017, citing, as always, “people familiar with the matter.”
However, this time Binance didn’t fire back and instead explained that it would not be appropriate for us to comment on our ongoing conversations with regulators, which some could interpret as confirmation that Binance is being investigated. What it’s probably after is money, and with all the hundreds of millions that Binance has been spending recently, I reckon it’s reasonable to speculate that the regulator is hoping to get a slice of that pie too.
Still, it’s interesting that these new stories came out when they did. The very next day, there was a senate hearing about crypto’s use in illicit activity, and exchanges like Binance and privacy coins like Monero were very hot topics.
Abandon Ship
Another company that’s received bad press lately is Meta, formerly known as Facebook. This time it was the news that Meta’s head of engineering would be leaving the company after 11 years. Earlier this month, Meta’s head of AI also left his post after four years, but the headline that really caught everyone’s eye was the departure of Meta’s chief operating officer, Sheryl Sandberg, one day prior.
For those who don’t know, Cheryl is considered to be the mastermind behind the internet as we know it, specifically all the data gathering, data selling, and data surveillance by big tech. In Bloomberg’s words, quote, she helped create the model that, for better or worse, has become Silicon Valley’s default. Cheryl’s LinkedIn profile notes that she served as the chief of staff of the United States Treasury Department for seven years, a position she clinched shortly after she graduated from Harvard. After a brief hiatus from 1995, Cheryl emerged as Google’s vice president of global online sales and operations, a title she held it for almost six and a half years.
In Bloomberg’s words at Google, Cheryl built ‘the advertising business that founders Larry Page and Sergey Brin hadn’t bothered to create’, in part because they believed that advertising might be a violation of their famous “don’t be evil” motto. As some of you will know, Google’s “don’t be evil” motto was meant to remind Google employees that they should not abuse the powers they have and take care not to exploit users. In 2018, Google ended up unofficially dropping its “don’t be evil” motto. By that point, Cheryl had been working as Facebook’s chief operating officer for over a decade, where she successfully rolled out the same data practices that have become the primary criticism of big tech. If you’re wondering why this is so relevant to cryptocurrency, it’s simply because it’s a sign that big tech, or more accurately, the data practices employed by big tech companies, have become more of a liability than an asset.
Some would go as far as to say that Meta’s executives can see that something big is coming. If that’s the case, my guess would be that they can see the rise of Web3, particularly decentralized metaverse worlds, which are in direct competition with meta and will likely see more adoption in the long term.
Regardless of the reason, the attrition we’re starting to see from big tech companies like Meta means we could soon see lots of talented people looking for work in the crypto industry. Let’s just hope they leave their Silicon Valley tendencies behind. On that note, you should know that crypto companies are hiring.
Inflation Expectations
Anyway, if all the carnage in the crypto market wasn’t bad enough, almost every country around the world has simultaneously seen a rapid rise in inflation that’s showing no signs of slowing down. In the United States, the official inflation rate now sits at around 8.6%, which is higher than what many investors were pricing in.
A higher than expected inflation reading is why the crypto market got decimated over the weekend. This is because a higher than expected inflation reading means the Federal Reserve is likely to raise interest rates even higher than expected. This increase in interest rates is scheduled to occur this Wednesday. Right now, investors are expecting the Fed to raise interest rates by just 0.5 percent. Anything higher is likely to lead to even more selling, whereas anything lower is likely to lead to a small rally, which seems to be long overdue. Given that the Fed is ultimately raising interest rates because of inflation, you might be wondering when inflation will finally start to come down so that the Fed can ease interest rates. You know that crypto can rally. We can all afford these things. We used to buy it on a regular basis. I’m feeling the inflation pinch too.
To be blunt, there currently seems to be no end to inflation since most of it is being driven by supply-side factors like the ongoing war in Ukraine, supply chain disruptions, labor shortages, and you know all that other fun stuff.
That said, there’s something that was mentioned during one of the discussions at the World Economic Forum’s annual meeting in Davos, and that’s that many of these inflationary pressures would disappear if the war in Ukraine came to an end. I suspect there would be a similar effect if the world health organization declared the end of the pandemic, as many supply chain disruptions and labor shortages are being caused directly or indirectly by current pandemic restrictions and the prospect of future pandemic restrictions.
Call me crazy, but I think that we could see one or even both of these issues resolved by the end of the year, and that’s simply because there is intense political pressure to reduce inflation at all costs. It’s going to be an interesting time, particularly in the United States, where midterm elections are scheduled for the autumn. It’s going to be an interesting time.
Top Performing Cryptos
Anyhow, turning to the charts, we can see that Bitcoin has fallen way through that $29k support level and just kept on going. It’s honestly hard to say where prices will go next, especially with the Fed’s interest rate announcement coming up. It’s also hard to say exactly when this bear trend could end. The previous cycles in the crypto market, stock market, and even the Fed’s interest rate hike suggest we have at least another year to go, so prepare yourself for that possibility.
Last week’s top performing cryptocurrencies were Bitfinex’s unassed LEO, FTX’s FTT token, PAX Gold, OKB’s OKB token, and the Fei USD decentralized stablecoin. Not exactly an exciting lineup.
Starting with LEO, it is basically Bitfinex’s exchange token, meaning it’s used for things like trading fee discounts and is regularly bought back and burned by the exchange. This leads to the kind of price action you see here, but don’t get too excited. Exchange tokens can be very risky because their success is ultimately tied to the exchanges issuing them. To put it lightly, caution is advised in this case.
Next up is FTX’s FTT token, which is seeing a similar rally for similar reasons, namely that the FTX exchange regularly buys back and burns the FTT token, creating positive price action.
Then there’s PAX Gold or PAXG, which, as the name suggests, is a gold-backed token issued by Paxos, a very heavily regulated company based in the United States. Investors flocked to gold following the latest inflation reading, so it makes sense that PAXG followed suit. I’ll quickly note that PAXG actually tends to rally more than spot gold when there’s a flight to safety in the markets simply because there isn’t enough supply to absorb the demand required to maintain the programmatic price peg. The more you know.
As for OKB’s OKB token, you already know what I’m going to say. Buybacks and burns and perhaps a bit of spillover from any BNB holders who are concerned that there could be a crackdown on Binance’s de facto exchange token.
Finally, we have the Fei USD stable coin, which is a stable coin. The small fraction of a percentage pump it saw over the last week wasn’t really a pump, it was just the stablecoin’s inability to maintain its peg. For what it’s worth, I’m sure they’ll figure out the decentralized stablecoin thing soon enough, and that’s all for today’s coin bureau weekly crypto review.
[This article is a transcription of a video made by Coin Bureau]
Original video: https://youtu.be/raB6UGw8lks ]
