The Digital Asset Insider is your monthly recap on what’s been going on in the digital asset space. Brought to you by Andrew Han, Director of Business Research at Fireblocks.
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For the third consecutive month, leading digital assets have closed lower, a pattern seen for Bitcoin in April to June 2021, and November 2021 to January 2022. Will there be a fourth month of lower closes or a month of reprieve? In an interview with CryptoPotato, Fireblocks’ CEO Michael Shaulov believes this slowdown in the markets is an opportunity for building, realignment, and innovation. The company’s launch of Web3 Engine last month will support developers building the next generation of NFT, GameFi and DeFi products during this time.
Despite the weak crypto-native markets, well positioned centralized finance (CeFi) firms and traditional finance (TradFi) firms are hunting for merger and acquisition (M&A) opportunities and talent looking to move to firms with strong balance sheets. Interest in digital assets remains stable from wealthy individuals and institutional investors.
- Nexo has engaged Citibank to advise on acquisitions of crypto-firms that are distressed in the weak crypto market conditions. Binance CEO Changpeng Zhao stated in mid-June the exchanges’ intention to focus on M&A and hiring more people, and is launching Binance Institutional aimed at institutional investors. Both Kraken and FTX are also looking to hire as their competitors shed employees to reduce overheads.
- Institutional interest in trading digital assets remains strong despite the overall weakness, according to exchange OSL. They partnered with Interactive Brokers (IB) in Hong Kong for crypto services IB intends to offer to their professional clients.
- Accenture released a report stating that 73% of Asian wealthy investors are expected to hold crypto assets by the end of 2022. However, two thirds of wealth managers do not intend to offer these services to their clients, citing reluctance as “the digital assets proposition is too complex given regulatory and operating model factors”. The void has been filled by exchanges like CoinHako and FTX, who have attracted the next generation of the wealthy and provided them access to the digital asset markets.
Stablecoins remain in focus as use cases expand into the foreign exchange and carbon credit markets. New fiat-denominated stablecoins are being launched to support expected demand for their use in decentralized finance markets to remove currency exposure to U.S. Dollar stablecoins.
- Private investor Victor Smorgon Group used A$DC to purchase Australian Carbon Credit Units (ACCUs) that had been “tokenised” by BetaCarbon, a carbon trading platform, to create digital security tokens known as BCAUs. BCAUs are denominated in USDC, and therefore required conversion from A$DC, a function performed by Zerocap.
- On June 30, Circle launched the Euro Coin (EUROC) on Ethereum, backed by Euro reserves. Demand for Euro stablecoin is expected to increase as DeFi applications offer more Euro denominated products. EUROC will remove currency exposure of European users of U.S. Dollar based DeFi applications that require a USD stablecoin. Meanwhile, Tether plans to issue a British pound backed stablecoin, GBPT, also on Ethereum.
|Research: Digital Dollar
|EURS, EURT, EURC
|Development: Digital Euro
|Research: CBDC Taskforce
|Development: Project Stella
|Pilot: e-CNY, mCBDC Bridge
|Development: Project Jasper
|Development: eAUD, Project Dunbar
|Pilot: e-CNY, mCBDC Bridge
|Pilot: Project Dunbar
|Pilot: mCBDC Bridge
Source: SWIFT (RMB Tracker), Atlantic Council (CBDC Tracker), Fireblocks Business Research
New ways of accessing and trading decentralized financial markets are being developed to reduce transaction costs with improved functionality. Anonymous verified identity solutions are being tested by the DAO of a protocol using ZK proofs. GameFi and NFT enthusiasts have created a Web3 focused ecology to support players, platforms and projects.
- Market-maker Wintermute is launching a decentralized exchange (DEX), Bebop, on Ethereum to compete with Uniswap, SushiSwap, and Curve. A differentiator for Bebop is that it is a “request for quote” (RFQ) platform, and not an automated market maker (AMM). Fees are saved on the platform through a feature that enables the swapping of one token for a portfolio of tokens or vice versa.
- Polygon released an identity solution for use on the Polygon Decentralized Autonomous Organization (DAO) that allows anonymous user identity verification. Cryptographic method zero-knowledge (ZK) proofs is used by Polygon ID that allows one party to prove to another that a statement is true without needing to convey certain information considered personal or private information.
- P2E.Game officially launched in June as a Web3 information aggregator for blockchain-based games (GameFi) and non-fungible tokens (NFTs). Four sections comprising Launchpad, Game Library, NFT Aggregator and News, seek to provide users with comprehensive knowledge of Initial DEX Offerings (IDOs) and Initial Game Offerings (IGOs) as well as game strategies.
Digital Asset Infrastructure
Funds continue to flow into digital asset firms to support growth. Firms are expanding the services they offer to clients that include those from traditional financial markets such as stock trading, retirement accounts, custody, and administration.
- PrimeTrust raised $107 million in a Series B funding round to scale their retirement account offering enabling users to add digital assets to their portfolios. Funds will also be used to enhance its existing cloud and security infrastructure and scale into new offerings such as Web3 and DeFi.
- Digital asset infrastructure firm PolySign raised $53 million in a Series C funding round to hire full-time employees with experience in traditional finance and servicing institutional clientele. PolySign offers digital asset custody and fund administration services to institutional clients.
- Crypto data firm Kaiko raised $53 million in a Series B funding round allowing it to expand globally. Kaiko offers institutional clients access to market data, pricing services, portfolio solutions, and DeFi data.
- FTX’s U.S. based subsidiary, FTX US, acquired stock trading platform Embed Financial Technologies and its subsidiary, clearing firm Embed Clearing. Of value to FTX is the technology and infrastructure that will enable their clients to trade stocks.
- Circle acquired Taiwan-based CYBAVO which provides digital asset infrastructure to businesses to manage digital asset wallets and keys. Circle intends to integrate their products and services and offer “infrastructure-as-a-service” to the market.
Regulation | Regulators
Regulators in Europe and the United States continue to set the context for digital asset regulation, what it will cover and how it should be designed, emphasizing the need to protect investors from fraud, market manipulation and criminal elements.
- European Central Bank (ECB) President Christine Lagarde suggested a separate framework for crypto-asset staking and lending in addition to the Markets in Crypto-Assets (MiCA) regulation in the works, which is expected to be finalized by the end of June. She expressed her concerns about the risks of fraud, illegitimate valuation claims, speculation, and criminal elements.
- The United States Securities and Exchange Commision (SEC) Chair Gary Gensler proposed a one-rule-book approach to regulating digital assets in coordination with the Commodities Futures Trading Commission (CFTC), and bank regulators. The rule book would cover digital assets regardless of whether they are a security or commodity with the aim of guarding investors against market manipulation, fraud, and front running.
- Austrian digital exchange Bitpanda obtained two licenses, digital currency exchange and digital asset custody service provider license, to operate in Spain. This adds to its licenses to operate in Czech Republic, France, Italy, and Sweden. In Singapore, Crypto.com gains in-principle approval to deal in digital payment tokens along with two other firms – Genesis and Sparrow Tech.
A developing nation has leap-frogged developed nations in making a central bank digital currency legal tender for use domestically. The Bank of International Settlements released two reports on the feasibility of CBDCs and lessons learnt from projects involving multiple countries.
- The Bank of Jamaica will be the first country in the world to make their central bank digital currency (CBDC), the Jamaica Digital Exchange (Jam-Dex), legal tender, and to be launched at the end of June. It will be an alternative to physical cash and does not need a bank account to be used.
- The Bank of International Settlements (BIS) published a report on the future monetary system, revealing 90% of central banks have explored the feasibility of CBDCs to provide services that are stable and interoperable, both domestically and across borders.
- Meanwhile, the BIS Innovation Hub released a report sharing the lessons learnt from four projects (Inthanon-LionRock2, Jura, Dunbar, and mBridge) focused on cross-border transactions. While technically feasible, there are domestic legal and governance policies that need to be addressed to make these cross-border activities practical.
- The BIS Innovation Hub is also participating with the Hong Kong Monetary Authority (HKMA) and the Bank of Israel (BOI) in a CBDC project focused on testing digital currencies against cyber security risks.
Energy markets are looking to blockchain technologies to enable more efficient identification of energy sources and distribution. This will also support the shift to Digital Green: deregulation, decarbonization, decentralization, digitization and democratization. Being carbon-neutral (or negative) is the aim of blockchain protocols such as Polygon, Algorand, and Cardano.
- Polygon announced its network has reached carbon neutrality on its road to becoming carbon negative by permanently retiring $400,000 in carbon credits to offset 104,794 tonnes of greenhouse gasses emitted since the inception of its blockchain.
- Blockchain technology will enable small-scale energy players to directly access energy markets, which was previously impossible due to the market’s highly regulated and centralized environment, by designing a market structure that allows flexible assets to bid into markets regardless of their capacity.
- On June 20, Shell, Accenture, and American Express Global Business Travel announced the launch of Avelia, a blockchain-powered digital sustainable aviation fuel (SAF) book-and-claim solutions for business travel. It is the largest SAF book-and-claim pilot at launch, offering around 1 million gallons of SAF. This is one example of a broader effort in energy markets to use blockchain technologies to enable secure traceability of non-electric energy sources, such as biofuel.
Crypto-Native Market Analytics
Risk-off market conditions continued into June, taking crypto-native tokens down for the third month in a row. Central banks are raising interest rates in the face of rising inflationary conditions affecting the traditional financial markets, adding concern for overall economic conditions.
CHART OF THE MONTH
Staking allows validators to participate in the consensus mechanism of protocols in proportion to their holdings.
A high Stake Value is an indication of the security and resilience of the network.
The percentage of Participating total token supply being staked indicates a stronger security of the protocol against attackers.
Most of the crypto-native markets fell on broad aversion to risky assets and rising interest rates.
TOP 10 MARKET CAPITALIZATION
Digital asset markets continued lower in June in what has been a bad second quarter.
Bitcoin broke the low set mid-May around $29,000 where price support was found previously. BTC set a low at $17,709 on Jun 18 and recovered back towards $20,000 and closed the month around those levels.
BITCOIN : STOCK TO FLOW RATIO [BTC:STFR]
STFR indicating it is undervalued.
BTC: ALL EXCHANGES NETFLOW
While May saw net inflows into exchanges even as BTC price fell, June saw net outflows continue.
REGIONAL BTC FLOWS [Last 7 Day Average, Jun 3]
Intra-regional flows continue to dominate in all regions with overall flows lower as price continued to fall during the month.
Falls in flows from a percentage change perspective was observed in all regions with the exception of Western Europe which had an increase of intra-regional flows.
Assets typically flow within a region, likely due to preferences for local exchanges, but flows between regions often occur as a result of regulatory concerns, geopolitical changes, or significant market price variations.
Ethereum broke the price range around $1,700 that had been tested multiple times in 2021, and through $1,000 reaching a low of $897, a level not seen since Jan 2021.
TOTAL VALUE LOCKED [TVL, Jun 30]
DeFi TVL fell along with the fall in ETH and Altcoin prices.
PROTOCOL POSITION [TVL, Jun 30]
Total value locked (TVL) for all the protocols ranking behind Ethereum fell over 30% across the board.
DEFI PULSE INDEX [DPI]
Top 5 Tokens: Uniswap, Aave, Maker, Loopring and Synthetix.
Index information can be found at the Tokensets.com.
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This reCap is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting, or investment advice. For other important disclosures.