Here’s what happened in blockchain and crypto this week.
Regardless of the recent turmoil in financial markets and ongoing jitters surrounding US regional banks, the FOMC announced the second consecutive 25 basis points rate hike on Wednesday. While Fed officials have stated that one more hike is due, financial markets are no longer pricing in additional rate increases. The crypto community is in an uproar following an onslaught of regulatory and political attacks on the industry this week. Coinbase was issued a Wells Notice by the SEC on Wednesday while a report by The White House this week may signal a shift in approach by the Biden administration to crypto – from previously agnostic to openly hostile. In markets, uncertainty surrounding financial stability continues to weigh on bank stocks and equities. Global regulators have been under scrutiny for their handling of recent bank failures. US Treasury Secretary Janet Yellen told US lawmakers that regulators would be prepared for further steps to protect the banking system if warranted after her ambiguous remarks on nationwide deposit insurance rattled markets. Despite the weakness in equities, cryptoassets have been mostly resilient and BTC remains one of the best-performing assets in 2023 with gains to the tune of almost 70% YTD.
Crypto remains in the crosshairs of the US government and regulators. News of the SEC’s action against Coinbase spread like wildfire through the crypto community on Wednesday, triggering a rally behind the exchange and prompting an existential debate over what it could mean for crypto in the US. The country’s largest crypto exchange was issued a Wells Notice by the SEC, notifying the company of investigations into several offerings, including its exchange listings, its staking service, the Coinbase Earn product, and Coinbase Wallet. A Wells Notice typically precedes an enforcement action for possible violations of securities laws.
Coinbase subsequently published a blogpost titled “We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead.” in which it expressed its disappointment with the decision and the fact “that the SEC is considering courts over constructive dialogue”, as Coinbase’s chief legal officer Paul Grewal put it. Coinbase CEO Brian Armstrong said that “In a way we’re happy to go to court… if that’s what it takes to finally get some case law developed for this industry.” He reiterated that the US is at risk of falling behind the financial systems of other countries if it doesn’t produce clear guidelines for crypto usage. The SEC also issued an investor alert in which it referred to to some cryptoassets as “crypto asset securities”, warning that firms offering such securities may not be complying with US laws.
The White House released its extensive “Economic Report of the President” this week which included a comprehensive 35 pages-long section titled “Digital Assets: Relearning Economic Principles.” The report appears biased in that it dunks on most financial innovation while espousing the “stability” of traditional banks and praising the FedNow payment system and central bank digital currencies (CBDCs). The report dismisses crypto assets as “largely speculative investment vehicles” that “currently do not offer widespread economic benefits”. After the release of controversial White House report and the looming legal action against Coinbase, Custodia Bank founder and CEO Caitlin Long tweeted that “It should be crystal clear by now that the Biden Administration wants all crypto (even the legit parts of it) run out of the US”.
Meanwhile, there is a growing chorus of US politicians that pushes back against a potential US CBDC. Republican Senator Ted Cruz proposed legislation on Tuesday to block a CBDC from being issued in the United States. “Unlike decentralized digital currencies like Bitcoin, CBDCs are issued and backed by a government entity and transact on a centralized, permissioned blockchain,” Cruz’s statement reads. Florida Gov. Ron DeSantis also introduced legislation that would ban the use of a federally adopted CBDC in the state, accusing President Joe Biden of eyeing the technology for “surveillance and control”.
Market Overview
The global cryptoasset market capitalization currently amounts to $1.19 trillion – slightly down from the $1.22 billion on Friday last week, with bitcoin accounting for 44.9% – its highest level since June 2022. Among the Top 30 cryptoassets by market cap, XRP outperformed after gaining 14.7% over the week. The price bitcoin (BTC) increased by 10.7% to $27,870 and the price of ether (ETH) rose by roughly 4.8% to $1,759. The total value locked (TVL) in DeFi is sitting at roughly $49 billion – with Ethereum (excluding Layer 2s) accounting for more than 59% of TVL.
This Week’s Headlines
- Nasdaq aims to debut crypto custody service by the end of Q2, Bloomberg reports
- Terraform Labs CEO Do Kwon arrested in Montenegro, US and South Korea seek extradition
- Matter Labs opens access to its Layer 2 network zkSync Era, Ethereum’s first zkEVM to go live
- Polygon and Web3 gaming platform Immutable to launch a new Layer 2 blockchain network called Immutable zkEVM
- Mysten Labs to buy back equity, token warrants from FTX bankruptcy estate for $96 million
- Circle applies for French crypto license as stablecoin issuer expands in Europe
- Block shares drop sharply as short seller Hindenburg Research report takes aim at payments firm
- SEC charges Tron’s Justin Sun and celebrities including Lindsay Lohan, Jake Paul and others for unregistered offer of “crypto asset securities”
- Crypto payment restrictions back on self-hosted wallets in final EU Parliament AML text
- Greenpeace launches campaign to convert Bitcoin to Proof-of-Stake
- Sony files a patent that would allow consumers to use NFTs
Notable Deals and Fundraising
- Layer 1 blockchain network Radix reaches a valuation of $400 million in a new funding round
- Iceland-based CCP Games raises $40 million to build a new blockchain-based game set in the Eve Universe
- Social platform OP3N raises $28 million in a Series A funding round led by Animoca Brands
- Turkish crypto exchange Metatime raises $11 million in seed funding
- Animoca Brands’ and Hex Trust‘s joint wallet venture Gryfyn raises $7.5 million
- Middleware platform Particle Network raises $7 million in seed round
- Crossover Markets raises $6.35 million for new crypto trading venue CrossX
- BH Digital’s Nova Digital Opportunities raises $9 million for its liquid token strategy
Manuel Trojovsky, Head of Crypto Investments & Research
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