MARKET WRAP

1. “Recession” Fears Seem to Dwindle as Cryptos Push Higher

CoinDesk – July 29, 2022 at 10:42pm

Last week saw what was for many investors, businesses, and policymakers the most critical week of the summer for the global economy. With the Federal Reserve’s Federal Open Markets Committee (FOMC) meeting on Wednesday to publish the latest interest rate changes, the Q2 GDP report, and a slew of earnings announcements from S&P 500 giants, most watchers of the news were buckled in for a rocky downturn of the market.

However, as seen recently across many asset classes, the expected “recession” hasn’t actually happened yet. According to Treasury Secretary Janet Yellen, a recession is a “broad-based weakening of the economy,” which is not the case at the moment, especially when considering the strength of the labor market, which added 372,000 jobs in June. In fact, among savvy investors year-long, the past week was full of pleasant news when considered in the context of the entirety of 2022 thus far.

This past week cryptos, in particular, saw continued upside throughout the remainder of the weekend with a minor correction at the end of the day on Sunday, with a 4% increase in the price of bitcoin ($BTC) on Thursday despite a negative U.S. GDP report, which indicated a -0.9% growth rate instead of its estimated 0.5% increase. By all traditional measurements of economic growth, two consecutive quarters of GDP contraction is a smoke signal of an impending recession.

Despite this, $BTC has performed better than it has in the recent month, which is a puzzling phenomenon for many. According to Arca Funds Chief Investment Officer Jeff Dorman, 

“We’re slowly learning that bitcoin is not a ‘store of value’ but rather a ‘store of excess value.’ Whether or not we are in a recession is irrelevant.”

Per Dorman’s analysis, bitcoin remains unaffected by the current market conditions because from a structural perspective, 

“Bitcoin is nothing more than a call option on a future where bitcoin is used as an actual currency in the face of declining confidence in fiat. As a result, bitcoin’s price is simply a reflection of whether or not that probability increases or decreases, and from that standpoint, a recession could, in theory, increase the probability of investors looking for an alternative to government fiat.”

Following $BTC’s rally, Ether ($ETH) increased on Thursday as well, rising by another 9% after its 16% bump on Wednesday. Other altcoins performed similarly, with Cosmos’ $ATOM increasing by 8% and Polkadot’s $DOT rising by 9%.

In traditional markets, U.S. Treasury note yields declined, which indicates that investors are buying them as a hedge against a shaky economy. The S&P 500 and the Dow Jones Industrial Average (DJIA) increased by 1.2% and 1.1% respectively.

2. FTX Acquires Full Operational License in Dubai

CoinTelegraph – July 30, 2022

Subsidiary firm FZE, a child company of FTX, has successfully secured its operational license in Dubai, according to the region’s government officials. This permit allows FZE to trial run its Minimal Viable Product (MVP) in the capital of the Middle East. 

The Operating License is issued under the MVP program, which is designed for “secure and sustainable growth in Dubai,” according to the city’s Virtual Asset Regulatory Authority (VARA).

Helal Saeed Almarri, the director general of Dubai WTC Authority, stated

“The MVO Phase, exclusive to select, responsible international players like FTX, will allow VARA to prudently structure guidelines and risk mitigation levers for secure commercial operations.”

Having obtained the license, FTX, via FZE, could now provide various crypto services in the region including cryptocurrency tradings, derivatives products, NFTs, and other custodial services to investors around the world. 

Dubai, originally known for its glamorous and expensive lifestyle, is displaying visible efforts to transform itself into a region of technological advancement and cryptocurrencies. As such, it has since been an important strategic area for international crypto establishments like FTX to lay the foundation for future operations.

3. Know Your Customer (KYC) Measures Reportedly Chased Away 90% of Binance Customers

CoinDesk – July 31, 2022 at 8:42pm EST

The lead of Binance’s compliance team, Tigran Gambaryan, has revealed in an interview that the Know Your Customer (KYC) implementation back in July 2021 scared off 90% of Binance’s users, resulting in billions of losing revenue. 

The interview was part of an effort from Binance to rebut Reuter’s claim of Binance abetting illicit activity conducted by Hydra, a Russian-language darknet market. Tigran Gambaryan, a former investigator at the U.S. Internal Revenue Service’s cybercrime division, was brought onto Binance with previous colleague Matthew Price, both of whom played significant roles in bringing down Hydra, as well as other darknet markets like AlphBay and Silk Road. 

Tigran pointed out that Binance, as a gesture of good faith to regulators, has forcefully pressured users to provide KYC information on the platform back in July 2021. As of the second half of last year, non-KYC customers on Binance could only withdraw 0.06 $BTC from the exchange, a drastic cut back from its former limit of 2 $BTC.

According to Gambaryan’s candid testimony, this KYC implementation severely impacted Binance’s overall revenue performance, driving 9 out of 10 customers off of the platform, resulting in the loss of billions of potential earnings.

Despite this, Binance still remains one of the biggest cryptocurrency exchanges in the world by most metrics. It processes more trading volume than all other exchanges in the industry combined.

4. CZ Increases Binance Footprint in Turkey, Meeting with Turkish Finance Minister

CoinGape – July 27, 2022

Turkish Finance Minister Nureddin Nebati shared through a tweet about a virtual meeting he had with the Founder and CEO of Binance Changpeng Zhao. Nebati revealed that he and CZ’s discussion centered around the blockchain ecosystem and cryptocurrencies. 

Nebati’s tweet regarding his virtual meeting with CZ (Source: @NureddinNebati)

Although lacking specifics around the meeting, the tweet from Nebati confirms the perennial interest of the country to further integrate crypto into its economy. Turkey is a strategic market for Binance, accounting for 6.37% of its total customers of Binance, following Russia at 6.29%. The crypto exchange also dominates Turkey’s financial space, ranking fourth among companies in the economic investing category. Several months earlier, Binance was awarded status as the most reputable crypto exchange in Turkey, indicating a good relationship between Binance and the Turkey government. 

Meanwhile, CZ has publicly stated his belief that it is time to build blockchains instead of just holding digital assets. He certainly views this time as an opportunity for Binance to grow even more as a massive organization. This approach certainly strays away from other bear market strategies that we have witnessed, such as that of FTX, which has been on a roll with its acquisition of various bankrupting companies. CZ, on the other hand, has been traveling consistently to connect with various financially progressive governments worldwide to legalize Binance’s operations in those countries. 

However, Binance’s worldwide expansion has not been without obstacles regarding legal regulations. Notably, Binance was slashed with a fine of $750,000 for failing to observe new regulations. According to Turkish authorities, Binance failed to provide customer information related to money laundering scandals in accordance with new laws. As mentioned just prior, Binance has since increased its focus on hiring compliance personnel to satisfy the requirements of different jurisdictions.

5. Tether Addresses Short-Selling Concerns Regarding $USDT

CoinTelegraph – July 31, 2022 at 10:24pm EST

Tether, the issuer of stablecoin $USDT, stated that hedge funds who attempted to short its stablecoin following the fall of Terra are “incredibly misinformed”. 

In May, TerraUSD Classic ($USTC, formerly $UST) lost its peg, which resulted in the collapse of its ecosystem’s native token Terra ($LUNA). This led to the price of $LUNA dropping to a fraction of a cent from $60. During that crash, Tether had also experienced a 21% drop in market cap value. 

In late June, the Chief of Technology at Tether confirmed that $USDT has been subjected to coordinated attacks from hedge funds looking to short-sell the crypto asset. He had alleged that hedge funds have been creating selling pressure “in the billions” to offset Tether’s liquidity and, in doing so, causing the price of the tokens to drop such that they could be bought back at a lower price.

To address the actions of the hedge funds, Tether had stated that there are a lot of misconceptions regarding their holdings. This includes the production of $USDT, its holdings of Chinese commercial paper, and Tether’s issue of unsecured loans. To address the surmounting misinformation, Tether released a statement saying:

“In short, the underlying thesis of this trade is incredibly misinformed and flat-out wrong. It is further supported by a blind belief in what borders on outright conspiracy theories about Tether.”

In a separate post, Tether had announced that it held no Chinese commercial paper, and 88% of its commercial paper holdings had been cut. By the end of August, its commercial paper holdings will be as low as $300 million.