On LUNA/UST Collapse, and Binance’s CZ Thoughts
The past week saw the CEO of Binance, Changpeng Zhao (CZ), praise the resilience of the crypto industry in the aftermath of the UST/LUNA collapse as he identifies two major flaws with the troubled platform: the network’s system design and then its incentive approach.
He argues that minting more LUNA to increase its market cap only worsened the problem while the incentives provided only served to attract users to the ecosystem but didn’t sustain them. CZ expects more spillover effects in addition to the shockwaves the collapse has already sent throughout the entire crypto space.
At home, reports say the Korea Internal Revenue Service may be looking into Terra and its founder, Do Kwon, for tax evasion-related offenses. South Korea’s financial regulator had earlier asked exchanges operating in the country to beware of a second UST/LUNA crisis and pay particular attention to algorithmic stablecoins. These moves didn’t stop some South Korean investors’ plan to file a suit to seize Kwon’s property on the basis of fraud.
Meanwhile, the adverse effect of the UST stablecoin’s collapse still remains — albeit indirectly — on the entire crypto market after a freefall that dragged down other digital currencies like Bitcoin (-27% in May thus far) and Ethereum (-36%).
The BIS Discusses Crypto’s Need For Regulatory Approach
The Bank for International Settlement (BIS), in its latest working paper “Banking in the shadow of Bitcoin? The institutional adoption of cryptocurrencies,” made a case for “a proactive, holistic and forward-looking approach to regulating and overseeing cryptocurrency markets.”
The approach has to ensure a more level playing field for financial services provided by established financial institutions and intermediaries in the emerging cryptocurrency system, it says.
The BIS, which acts as a bank for central banks, also talked of a developing “shadow crypto financial system” that serves both retail and institutional clients. It says major banks’ low exposure to cryptocurrency (less than US$200 million in 2020) is likely to grow based on indicators such as advanced economic development, and increased financial inclusion.
It finds that the business of crypto exchanges has somewhat started shifting towards institutional customers as asset managers are now embracing cryptocurrencies.
The BIS’ submission comes as French central bank head, Francois Villeroy de Galhau, hinted that the regulation of crypto assets is likely to be discussed at a G7 meeting in Germany,
Top Financial Voices Reiterate Stances on Crypto Value
Three major players in the global financial system had something to say about cryptocurrencies over the past week.
The European Central Bank President Christine Lagarde, Microsoft Co-Founder and the world’s current fourth-richest person (worth $125 billion), Bill Gates, and the former U.S. Federal Reserve Chairman, Ben Bernanke, focused on the value of Bitcoin and other cryptocurrencies.
Lagarde said cryptocurrencies are “based on nothing” and should be regulated. She doesn’t hodl any crypto because she thinks they are worth nothing, and not based on anything. But she follows up on them as one of her sons is a hodler.
Gates shares a similar sentiment as he notes in a Reddit Ask Me Anything session that he doesn’t own any crypto asset either. He thinks they have no valuable output and warns those who “have less money than Elon (Musk)” to “probably watch out.”
Former Federal Reserve Chair Ben Bernanke shared his view that Bitcoin is not a substitute for fiat money because of the instability in its value.
Africa’s First Blockchain Report Launches at Davos 2022
The inaugural African Blockchain Report has launched at the Blockchain Hub Davos 2022, revealing that funding for African blockchain startups increased by 1,668% — an 11x increase in comparison to all other startups.
Aside from showing how funding for businesses using the emerging technology far outpaced all other sectors, the report, published by CV VC together with Standard Bank, provides Africa’s first-ever data set on blockchain VC activity. It also showed how African countries have fared using blockchain to improve lives and economies.
Though African nations are among the fastest crypto adopters globally, the report is focused more on the underlying blockchain movement and how it enables Africans to transact and interact more as their countries self-determine their participation in the fourth industrial revolution.
The Blockchain Hub is a gathering for blockchain leaders — including decentralized thinkers, investors, corporations, startup founders, high-profile individuals, and policymakers — for the exchange of knowledge on how to use the technology for positive transformation.
Crypto Insiders Share A Word About The Bear Market
The cryptocurrency market has been in a bearish state since December 2021. In the summary of a recent town hall meeting by crypto data aggregate site, CoinGecko, the co-founder Bobby Ong, notes that the main reason behind the bear market is macro-driven.
The Russia-Ukraine war and supply chain issues created lasting inflation. This forced the US Fed to raise interest rates which are now affecting stock valuations, Ong states. These developments and the increasing involvement of institutions have only further driven the correlation with TradFi markets as risk-on assets hence the drawdown.
Meanwhile, he expects the Feds’ rate tightening cycle to continue for the next few quarters in a challenging 12–18 months span.
Silicon Valley accelerator, YCombinator, shares Ong’s view that the worst is yet to come. In its letter to founders, titled “Economic Downturn,” the investment firm urged startups to cut their expenses while those considering raising money in the next six to 12 months need to know that they may be doing so with low chances of success.
However, for Pantera Capital’s Paul Veradittakit, it may be the start of a bear market but a great time to invest in the crypto market which has seen some significant sell-offs.
Ethereum’s The Merge Delayed
Earlier delayed from a possible June date, Ethereum’s Vitalik Buterin has said that the much-awaited The Merge upgrade is now likely to happen in either August, September, or October depending on potential risks.
Buterin told the ETH Shanghai Web 3.0 Developer Summit that The Merge, referring to the transition of the Ethereum network from Proof of Work (PoW) to Proof of Stake (PoW), is the biggest Ethereum-related news in 2022.
The Merge’s biggest test network (Ropsten) is happening on June 8, he said, adding that The Merge is, at this point, very close to happening.
Core Ethereum developer, Preston Van Loon, gave a similar timeline in a panel discussion at the Permissionless conference where he suggested that The Merge upgrade is likely to happen in August “if everything goes well.”
Crypto Could Soon be Legal for Payment in Russia
Russia could soon legalize the use of cryptocurrencies as a means of payment, its Industry and Trade Minister Denis Manturov has said. The disclosure is part of the minister’s comments that suggest a compromise is about to be made on cryptocurrencies between the Russian government and the central bank which had earlier sought a total ban on their use.
Earlier in March, a Russian lawmaker mentioned that the country is considering accepting Bitcoin as payment for its oil and gas exports following sanctions slammed on Russia by the UK, US, and the European Union, in the wake of its invasion of Ukraine.
Russia remains the world’s biggest exporter of natural gas and the second-largest supplier of oil. Aside from being barred from using SWIFT, additional sanctions by the world’s largest credit card networks, Visa and Mastercard, and payments giant PayPal, are other factors that some analysts say could drive Russia to crypto.
China Now Back in Crypto Mining Fold
While related activities are known to have been banned, the Cambridge Centre for Alternative Finance’s new mining map data suggests that China is re-emerging as a major contender in the Bitcoin mining fold.
China reportedly accounted for almost 65% of the Bitcoin network hash rate up until 2021 when it nosedived after the Chinese government started clamping down on mining activities within its borders.
Now, the Cambridge Bitcoin Electricity data shows that China’s “underground” Bitcoin hash rate now accounts for a 21.11% share, trailing behind the US (37.84%).
The CCAF map, which covered September 2021 through to January 2022, shows that the covert mining operations across the country have seen China now ahead of countries that were positioning themselves as significant mining hubs: Kazakhstan (13.22%), Canada (6.48%), and Russia (4.66%).
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