Weekly Report: May 30 - June 5, 2022
Changes from the Fed, new Web3 investments, and insider-trading drama. Read on for this week's market updates and latest headlines!
Bloomberg – June 6, 2022 at 6:30am; CoinDesk – June 4, 2022 at 3:43am
This past week, on June 1st, the US Federal Reserve Bank began its plan to reduce its $8.5T balance sheet, specifically electing not to reinvest proceeds of up to $30B in maturing Treasury securities and up to $17.5B in maturing agency mortgage-backed securities per month. With an era of ultra-cheap money that was repurposed for two years of a global pandemic now coming to an end, this means that speculative assets – tech stocks and cryptos in particular – are even more vulnerable to downside than they were last month when the Fed raised interest rates by 0.5%.
This balance sheet reduction practice, known as quantitative tightening (QT), is one by which the Fed will reduce its asset holdings in order to decrease the liquidity or money supply present in the economy. This serves to combat climbing inflation by lowering asset prices and raising interest rates.
While this central bank policy, which has not been effected often in the past, will serve to balance the economy and hopefully stave off the recession so many investors have been worried about, it will also have a non-negligible bearish effect on various asset classes, especially those considered risky. Today, after the COVID-era, that means in particular, tech stocks and cryptos.
According to Bloomberg’s MLIV Pulse Weekly Survey, the majority of respondents believe that these asset classes are most vulnerable to downside over the coming months, with almost half of 687 respondents citing these as the most likely to tank.
This past week’s crypto market performance is likely a strong reflection of this investment sentiment, as Bitcoin ($BTC) declined from a high of $30,658 on Friday. Other altcoins like Avalanche ($AVAX) and Solana ($SOL) were down by 4%, as well. Similarly, the Nasdaq 100 Index, which is particularly tech-heavy, also declined. This should come as no surprise; since March 2020, there has been an ever-increasing correlation between tech stocks and cryptocurrencies.
Overall, the bearish sentiments in the crypto market are sure to continue for some time as the Fed plans to raise interest rates again in July and intensify QT again in September, representing one of the most aggressive money-tightening campaigns in recent decades.
The Wall Street Journal – June 2, 2022 at 7:30pm
Among the top 10 crypto exchanges by trading volume, Gemini is facing a lawsuit from the Commodity Futures Trading Commission (CFTC). The regulatory body is holding Gemini to a variety of missteps, including hidden incentives for market makers and the inflation of trading volume during critical times of the day, as part of an attempt to gain approval for Bitcoin futures in 2017.
According to the suit, Gemini issued unsecured loans to traders in an effort to boost trading volume on its platform. The CFTC deemed this exercise as deceptive, stating “making false or misleading statements to the CFTC in connection with a futures product certification undermines the CFTC’s work to ensure the financial integrity of all transactions.” This is laid out as the foundation of the lawsuit against the crypto exchange.
In response and in order to operate derivative trading on its platform, Gemini has reported to the CFTC that participations will have to fund their positions fully without any financial aid coming from the exchange itself. This practice would render “improper trading conduct more expensive to malicious actors”, according to the complaint filed by the agency.
Ultimately, the CFTC is looking to halt derivatives-trading features on Gemini, as well as restrain the company and its employees from any derivative-trading activities that are under the scope of its regulatory body.
In response to the lawsuit, Gemini said that it is ready to fight the allegations in court. “We have an eight-year track record of asking for permission, not forgiveness, and always doing the right thing. We look forward to definitively proving this in court.”
CNBC – June 1, 2022 at 6:00am
The CEO of Binance, known colloquially as CZ, has announced that its investment arm Binance Labs will debut its own $500M venture capital fund designed to invest in companies building Web3.
The fund is backed by venture capital firms DST Global and Breyer Capital as well as some anonymous organizations, following another substantial fund of $105M for the growing French Web3 ecosystem. This news also emerges shortly after the announcement by a16z of its massive $4.5B VC fund last week.
In an interview with CNBC, CZ declared that his company had “billions available to invest in Web3,” bolstering his commitment to leading the charge toward a Web3 future. In fact, not only does CZ invest heavily in Web3 projects from a purely monetary standpoint; he also supports projects on the technical level, contributing around 300,000 to 500,000 active Web3 developers across the industry.
According to CZ, Web3 will grow by leaps and bounds if three essential qualities can be connected: values, people, and economies. In his eyes, their harmony will accelerate the mass adoption of blockchain and cryptocurrency worldwide. This fund, according to him, is to discover and support projects and founders across the industry whose work lends itself to this future in DeFi, NFTs, gaming, metaverse, etc.
This new fund is only one of many large investment efforts emerging from Binance. Recently, Binance also pledged to donate $500M to Elon Musk in his bid to acquire Twitter, citing the potential for Web3 growth in social media with his new leadership.
CNBC – June 1, 2022 at 9:27pm
On May 27th, Solana experienced a complete halt of its network for the fourth time in 2022, in what appeared to be a 6-hour long outage during which no new blocks were generated. This follows three other similar outages, which occurred throughout the periods of January 6 to January 12, then January 21 to January 22, and finally April 30 to May 1.
In response, Solana appears to be teaming up with Alchemy, an Ethereum-based node infrastructure provider to ameliorate the issues it has faced this year. Alchemy provides a suite of blockchain infrastructure solutions to a variety of customers. Many reputable applications, like 0x, Aave, dYdX, and OpenSea use one service in particular, Supernode. The solution helps link blockchains together through a process known as Remote Procedure Call (RPC).
Currently, Alchemy provides an API node for Ethereum and Polygon. According to the new agreement between Solana and Alchemy, Supernode will be implemented in many Solana applications in DeFi, NFTs, and wallet services. The first of these will be Phantom, the leading wallet application on Solana.
When Alchemy is officially executed on Solana, it will face competition from other infrastructure providers like QuickNode, Triton, and Syndica.
TechCrunch – June 2, 2022 at 12:54am
According to the U.S. Attorney’s Office in the Southern District of New York (SDNY), former executive of OpenSea Nate Chastain was arrested on Wednesday June 1st for committing “wire fraud and money laundering in connection with a scheme to commit insider trading.”
Chastain, the former Head of Product at OpenSea, first came under investigation in September of last year after allegations of front-running NFT collection purchases emerged from a community of NFT buyers who watched his transactions on the Ethereum blockchain. Quickly, he was fired after further investigation, noting that it lacked company-wide policies to prevent such behavior.
Since then, Chastain went radio-silent on Twitter, where he had once been incredibly active. Now, this week, as the allegations have been proved true and his arrest has come about, US Attorney Damian Williams from the SDNY US Attorney’s office stated in a press release.
“NFTs might be new, but this type of criminal scheme is not. As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. Today’s charges demonstrate the commitment of this Office to stamping out insider trading – whether it occurs on the stock market or the blockchain.”
OpenSea also commented on the affair with TechCrunch:
“As the world’s leading web3 marketplace for NFTs, trust and integrity are core to everything we do. When we learned of Nate’s behavior, we initiated an investigation and ultimately asked him to leave the company. His behavior was in violation of our employee policies and in direct conflict with our core values and principles.”
Engadget – June 5, 2022 at 1:59am
Bored Ape Yacht Club (BAYC), one of the world’s leading NFT projects, was compromised in another series of Discord phishing attacks, resulting in a loss of $357,000 worth of NFTs this past week.
In the early morning of June 4th, one community manager named @BorisVagner had his discord account breached by a scammer. After obtaining his login credentials, the scammer proceeded to post a fake giveaway on the official BAYC Discord to exclusive holders and members. The giveaway post contained a link that took users to a phishing site where their NFTs were redirected to a different wallet.
This led to over 145 $ETH worth of NFTs being stolen from unknowing users. Among the stolen assets were one BAYC and two Mutant Ape NFTs, amounting to roughly $357,000 at the current market price.
This phishing attack is only one of many that have happened in the past year, thus raising legitimate concerns from the BAYC community regarding Yuga Labs’ commitment to security. Less than two months prior, the official Bored Ape Yacht Club Instagram was also hacked, leading to a loss of $2.4M worth of NFTs.
In the wake of recent events, Yuga Labs has indicated that it would investigate further and address the people that were affected by the recent attack.
Reference Image: https://www.msn.com/en-us/news/other/binance-raises-24500-million-fund-to-invest-in-web3-as-crypto-slides-into-bear-market/ar-AAXXhJJ?fullscreen=true&cvid=eacc172cd3de41948b8b0cb45c920b5a#image=1
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