MARKET WRAP

1. Monetary Policy Expectations Regarding Inflation Loom Large, Bitcoin Gains Despite Skepticism

CoinDesk – July 18, 2022 at 10:03 EST

CoinDesk – July 16, 2022 at 4:14am EST

Last week was a brief ray of sunshine and rainbows for Bitcoin ($BTC), soaring to just under $22K over the course of a four-day streak, erasing the early-week losses it experienced on Monday and Tuesday. Over the weekend, $BTC dropped again to about $20,800 before climbing yet again at the end of Sunday to over $22K.

As mentioned in previous weeks, many investors still will exercise a healthy level of caution, as the market has witnessed $BTC trade within the range of $18K and $22K for at least a month at this point. The skeptical investment outlook is certainly appropriate given the state of crypto today. 

Bankruptcy looms across the industry, with crypto lender Celsius filing for Chapter 11 and hedge fund Three Arrows Capital filing for Chapter 15. On top of this, on July 8th, Vladimir Putin banned digital payments across Russia, prohibiting the use of digital securities and utility tokens for commerce within the country’s borders in an effort to bolster the value of rubles. 

For all intents and purposes, the price of cryptos overall has reflected the general sentiment in much crypto news, which is bleak, to say the least. Instead of investing with a heavy hand in this short-term burst of positive momentum, most investors will be eyeing the announcement of the Fed’s newest monetary policy updates.

The Fed’s Federal Open Market Committee, which determines monetary policy for the US, will be meeting this coming Tuesday and Wednesday, and many expect the FOMC to raise interest rates by at least 75 basis points in an effort to slow inflation. Be sure to check last week’s Weekly Report to learn more about the Federal Reserve’s outlook on tightening the economy.

One thing to note is that despite the Bureau of Labor Statistics consumer price index showing a 9.1% inflation spike, which is a 40-year high, jobs and retail spending still stand strong, indicating that the economy continues to expand. According to crypto manager BitBull Capital’s CEO, Joe DiPasquale, “$BTC managed to stay strong” in spite of the somber inflation report that dampened stock performance. 

He posits, “If Bitcoin does not break down from this range by the end of the month, especially post the FOMC, we could see it as a strong sign of a potential long-term bottom.”

Even if this happens to be the case, caution should be exercised. The US dollar index (DXY) has performed the best it has since 2002, and it has predominantly correlated negatively with $BTC.

As of early Monday morning, $BTC is up 4.74% on the day, and $ETH 9.27%. Among altcoins, most of which are in the green, Ethereum Classic ($ETC) is up nearly 20%, and Polygon ($MATIC) is up more than 17%. The S&P 500 and Nasdaq are up 1.9% and 1.7% respectively. Dow Jones is up 2.1%.

2. Celsius Files for Chapter 11 Bankruptcy

CNBC – July 14, 2022 at 9:10am EST

On July 14th, Celsius CEO Alex Mashinsky officially signed off on a Chapter 11 bankruptcy. The bankruptcy filing has revealed some unpleasant facts about the state of the crypto lending platform with regard to its total liabilities, which are significantly higher than its total assets by a not-so-humble $1.2 billion deficit. 

Of these debts, user liabilities made up the majority at $4.72 billion. In all, Celsius’s assets, comprised of $170M in cash, $1.7B in crypto assets, $720M in mining assets, and $620M net loans, cannot cover the entirety of its liabilities. Additionally, among its crypto assets, its holdings in Lido-staked ETH (stETH) worth about $479M, which generates 5% APY, cannot be converted to ETH until the Ethereum transitions fully to a Proof-of-Stake validation mechanism through the Merge.

It has been suggested that the balance of the $CEL token currently held by the platform is significantly higher than its fully diluted valuation (FDV) (~$500M at the time of writing). 

The financial roundup for Celsius (Source: The Telegraph)

Under Chapter 11, the US Bankruptcy Court for the Southern District of New York will help Celsius to restructure its business, debts, and obligations. Celsius can run its business as usual, but the lending platform cannot make certain business decisions without the court’s permission. In some cases of Chapter 11, the individual or business filing for bankruptcy has the opportunity to propose its own reorganization plan, which may involve liquidating its assets to repay creditors.

This is likely why Celsius’s CEO Alex Mashinsky suggested that his company could sell Bitcoin (BTC) mined by its Celsius Mining Bitcoin mining operation to “generate sufficient assets” to repay its loans and provide revenue for the company in the future. 

The price of CEL has dropped 84% since January from $4.38 to $0.73, with only a spike in June that coincides with a short squeeze attempt by the community. 

3. Ethereum Merge Has A New Projected Timeline

CoinDesk – July 16, 2022 at 12:21am EST

Tim Beiko, a member of the Ethereum Foundation, has revealed an updated timeline in September for the long overdue Ethereum update - the Merge. 

This update, scheduled for the week of September 19th, will transform Ethereum from a Proof-of-Work blockchain into a Proof-of-Stake ecosystem. The transition is highly anticipated for a few reasons.

First of all, the Merge slashes the energy consumption of the entire Ethereum network by 99.95%, making it an environmentally-friendly technology that could be sustained over a more extended period. 

Second, it eliminates the hardware infrastructure requirements needed by “miners”, thus attracting more participants and making the network more secure.

Lastly, switching to Proof-of-Stake consensus would lay the foundation for other technologies to be incorporated into the Ethereum blockchain, one of which is sharding technology, which could theoretically scale up the blockchain’s transaction speed to 100,000 TPS.

The price of $ETH rose sharply for the last seven days following the news. However, spectators have all the right to be skeptical about the timeline of the Merge event, as it has been postponed six times in the past by the Ethereum Foundation. 

4. The UK Begins To Lay Foundation for Future Crypto Policies

The Block – July 13, 2022 at 11:40am EST

The British parliament has officially issued a “Call for Evidence” to gather information regarding the future of cryptocurrency in the UK.

This investigation covers a variety of queries to gauge the impact that the new category of digital assets may have on the UK socioeconomic scene, both with regard to its potential benefits and potential risks for its citizens and their governance. These are a few questions excerpted from the “Call for evidence”:

• To what extent are crypto-assets, when used as digital currencies (such as stablecoins), likely to replace traditional currencies?

• What opportunities and risks could the use of crypto-assets – including Non-Fungible Tokens—pose for individuals, the economy, and the workings of both the public and private sectors?

• How might the Government’s processes – for instance, the tax system – adapt should crypto-assets be adopted more widely?

All individuals, groups of people, and organizations have been welcomed to participate and submit their evidence for the queries by September 12th. The approved submissions will then be published in a public forum and converted into a pool of evidence to aid the Committee in their law-making deliberations.

Back in June, a UK Minister shared his vision to foster the “Nation to Be a Crypto Hub”. This nationwide call for further information by Parliament inches Great Britain one step closer toward that goal.

According to the ever famous “Mr. Wonderful” of Shark Tank US, Kevin O’Leary, introducing additional regulation into the socio-economic and political sphere could be of great benefit to cryptocurrencies: ”Once regulations are in place, the price of Bitcoin will quadruple,” he said in an interview.

5. Disney Chooses Polygon to Join 2022 Accelerator Program

CoinDesk – July 15, 2022 at 4:06am EST

Last week, Polygon’s native token $MATIC jumped nearly 21% to over 60 cents within 24 hours after it was selected as one of six companies to participate in Disney’s 2022 Accelerator program.

The Ethereum scaling tool has been onboarded as the only blockchain-native platform for the business and development program, which is designed to spur the growth of innovative companies worldwise.

The program, which begins this week, seeks to develop new technologies within three categories: augmented reality (AR), artificial intelligence (AI), and – pertaining to Polygon – NFTs.

6. NFT Filters Have Been Added to Snapchat

TechCrunch – July 13, 2022 at 5:06am EST

In the midst of this crypto bear market, many large projects have begun to falter. That being said, crypto winter is certainly not an impediment to innovation within the Web3 sphere, and mainstream tech companies continue to march forward. One such company, Snap, is planning the application of AR NFTs that can be used as filters within Snapchat.

In its testing phase in August, Snap allowed a limited set of creators to experience its product. These artists were encouraged to create and mint their own NFTs, independently of the Snapchat ecosystem, and import them into Snapchat as Lenses, the filters that can be used in the app.

According to The Financial Times, the AR filters project is non-profit, just like many of the AR/NFT/AI innovation projects coming from competitors such as Twitter, Instagram, and Facebook. Rather, the new innovation serves as a new stage for artists to build their audiences and monetize their creations. 

Before Snapchat, other social media platforms approached NFT technology in an effort to expand their platforms’ utilities. The pioneer of this movement was Twitter, which introduced the ability to set digital collectibles as profile avatars for its paid users. In May, Instagram declared that it allowed a limited set of creators to share their NFTs in their feeds, stories, and messages, while Facebook has started testing a similar function.

This latest move by the core team at Snap is certainly a signal to its investors that it plans on working on more ideas to bring the company in line with its competitors at the edge of Web3 and other industry-leading innovations.