Weekly Crypto Wrap: 18th May 2023
By Rachael Lucas
TLDR
- Sui (SUI) is now live and available to trade on BTC Markets.
- RBA raises the cash rate by 25 basis points to 3.85%.
- Bitcoin continues to dominate, up 63.23% while 1 million wallets hold 1 BTC.
- Ethereum sees an unprecedented surge in Ethereum staking returns.
- Westpac shuts down customer transactions with Binance Australia.
Sui (SUI) is now live on BTC Markets.
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The week ahead
Friday, May 19th: United Kingdom Consumer Confidence and Japan Inflation Rate reports due out.
Saturday, May 20th: Fed Chair Powell Speech.
Wednesday, May 24th:United Kingdom Inflation Rate and Germany Ifo Business Climate Index to be released.
Thursday, May 25th: United States Fed Funds Rate and Germany GfK Consumer Climate report due out.
Economic Calendar (tradingeconomics.com)
Market reflections
Australia
The Reserve Bank of Australia (RBA) surprised the market by raising the cash rate by 25 basis points to 3.85% in May, following a sustained period at 3.6% in April. This move marks the 11th rate hike by the RBA within the past year, contrary to market expectations of a pause.
Consequently, borrowing costs have escalated to their highest level since April 2012. The decision reflects the RBA’s concern over the prevailing inflation rate in Australia, which currently stands at 7%, considered excessively high. Additionally, the labour market remains tight, with the unemployment rate at its lowest point in almost 50 years.
Australia’s wage growth in Q1 2023 provided temporary relief, with annual growth reaching a decade high at 3.7%. The wage price index rose in the quarter, slightly below the forecasted increase. The strong figures reflect low unemployment, a tight labour market, and elevated inflation levels.
The RBA emphasised that further tightening may be required to ensure a timely return of inflation to the target range. However, the bank acknowledges that the trajectory of interest rates will depend on the evolving economic conditions and price pressures over time.
According to economic analysts at St. George, the current cash rate of 3.85% is anticipated to represent the highest point in the rate cycle, with a potential rate cut expected in 2024. There remains a risk of further tightening throughout this year due to elevated inflation. Conversely, National Australia Bank maintains its forecast that the RBA will raise the cash rate to 4.1% by August, with the possibility of an additional hike to 4.35%.
Westpac’s Melbourne Institute Consumer Sentiment index for May 2023 experienced a significant decline of 7.9%, plummeting to a reading of 79.0. This decline far exceeded market expectations of a more modest 1.7% decrease. The index now hovers slightly above the lows observed in March, which marked the lowest monthly reading since the outbreak of COVID-19 in 2020.
Global
The recent G7 meeting held in Niigata, Japan, was overshadowed by concerns over escalating global economic uncertainty. Key issues discussed included the impasse over the US debt ceiling and the repercussions of Russia’s invasion of Ukraine. Central bank leaders from the G7 nations pledged to address heightened inflationary pressures and maintain stable expectations regarding future price movements. A US debt ceiling crisis arises when the country reaches its predetermined borrowing limit set by Congress, and the resolution to increase or eliminate the ceiling has become a contentious matter. Breaching the debt ceiling would have severe consequences, including credit rating downgrades, increased borrowing costs, and market turbulence. The potential economic impact could lead to reduced consumer and business confidence, diminished spending, and even a potential recessionary environment.
US
US producer prices for final demand recorded a modest increase of 0.2% in April 2023, falling short of market expectations for a 0.3% rise. The rise was primarily driven by a slight uptick in services costs, particularly notable in portfolio management. Sectors such as food and alcohol wholesaling, outpatient care, loan services, hospital inpatient care, and guestroom rental also experienced cost increases. However, goods prices saw a slight increase primarily due to a significant surge of 8.4% in gasoline prices. These movements reflect the potential impact on consumer spending, while concerns persist regarding high interest rates and a potential housing market downturn, which could impact overall economic growth and consumer spending in 2023. US building permits declined 1.5% to 1.416M in April 2023, missing expectations of 1.437M. High interest rates and rising consumer prices dampened housing demand.
Canada
Canada’s annual inflation rate rebounded to 4.4% in April 2023, surpassing market expectations of 4.1%. The surge in consumer prices was primarily driven by the central bank’s tightening measures, resulting in higher mortgage rates and rental costs. Mortgage rate costs rose to 28.5% compared to 26.4% previously, while rent prices increased by 6.1%. Transportation costs also accelerated, influenced by OPEC’s crude oil output cut. However, inflation in the food sector eased slightly. The higher inflation rate raises concerns about a more hawkish stance from the Bank of Canada and presents challenges for the central bank as it navigates its monetary policy decisions.
China
China’s industrial production expanded by 5.6% year-on-year in April 2023, falling short of market expectations but showing acceleration from the previous month. The manufacturing and mining sectors received significant support from the lifting of the zero-COVID policy, leading to production growth in many sectors. However, some sectors experienced decreases in production.
Japan
Japan’s GDP exhibited positive performance in the first quarter of 2023, with a growth rate of 0.4% quarter-on-quarter, surpassing market estimates. Private consumption played a significant role in driving growth, rising the most in three quarters after the complete lifting of strict border controls. Business investment also unexpectedly rebounded strongly. However, government spending stagnated, and net trade had a negative contribution. The annualised GDP growth rate of 1.6% for the first quarter marks the strongest pace of growth in three quarters. In April 2023, Japan’s trade deficit, decreased compared to the same month the previous year. However, it was still lower than market expectations. This marked the 21st consecutive month of Japan experiencing a trade deficit, which is the longest such period since 2015.
UK
The Bank of England implemented another 25 basis points increase, bringing the bank rate to 4.5% in May 2023, aligning with market expectations. The rate hike aims to address double-digit inflation, with the bank anticipating a decrease in inflation to 5.1% in Q4 2023. Although the UK economy is expected to stall in Q1 and Q2, it is projected to grow by 0.25% in 2023. The bank emphasised the importance of monitoring inflationary pressures, labour market conditions, wage growth, and services price inflation. In the first quarter, the UK’s GDP growth of 0.1% matched market expectations, with growth seen in the services, construction, and manufacturing sectors. However, household spending remained stagnant, and the economy remains smaller than its pre-pandemic level. The unemployment rate increased to 3.9%, while employment levels saw an increase.
Germany
Germany’s ZEW Economic Sentiment Index plummeted to -10.7 in May 2023, reaching its lowest level in five months and significantly undershooting market expectations. Concerns regarding potential interest rate hikes by the European Central Bank and heightened uncertainty surrounding international economic development contributed to the downturn. Financial analysts anticipate a further deterioration in the economic climate, potentially leading to a mild recession in the German economy.
State of crypto
The last trading week saw the crypto market close in the red for a second consecutive session. Bitcoin closed the week at US$26,917, down a further 5.32% alongside Ethereum, down 3.81% and settling at US$1,799. XRP experienced a decline of 5.28%, closing at US$0.4253 whilst Cardano was also down 1.30%, closing at US$0.3711. Amidst the losses, Litecoin emerged as a survivor, boasting a meagre 0.10% gain, and closing at US$83.50.
Shifting focus to the year-to-date performance, Bitcoin continues to dominate, trading at US$27,306, reflecting an impressive gain of 65.09%. Ethereum has also shown resilience, climbing 52.47% and currently trading at US$1,823. Cardano has steadily risen by 53.46%, now trading at US$0.3774. XRP maintains its stability with a 32.19 % gain, trading at US$0.44.78, while Litecoin has demonstrated its strength with a 33.16% gain, trading at US$93.32.
The market capitalisation of Bitcoin experienced a slight setback, decreasing by 1.23% during the last trading week, with its dominance currently at 48.05%. The overall cryptocurrency market capitalisation suffered a notable decline of 4.62%, now valued at US$1.101 trillion.
(*source: Trading view, as of 18/05/2023 at 3:00pm AEST).
Alt action
All about Aave’s system of lending pools and community governance.
AAVE is a decentralised and community-governed protocol that operates as a non-custodial liquidity market. With over 161,180 token holders, Aave allows users to participate as either suppliers or borrowers. Suppliers provide liquidity to the market and earn a passive income, while borrowers have the option to borrow in an over collateralised or under collateralised fashion.
One of the key advantages of Aave is its audited and secured protocol. It is completely open source, meaning anyone can interact with it through user interface clients, APIs, or directly with the smart contracts on the Ethereum network. This openness enables the development of third-party services and applications that can integrate with the protocol and enhance its functionality.
To interact with the Aave protocol, users simply need to supply their preferred asset and amount. By supplying assets, users earn passive income based on the borrowing demand in the market. Additionally, supplying assets as collateral allows users to borrow funds. The interest earned from supplying funds helps offset the interest accrued from borrowing.
While interacting with the Aave protocol, users should be aware of transaction fees associated with using the Ethereum blockchain. These fees depend on the network status and complexity of the transaction.
As with any platform, there are risks involved. The primary risks related to Aave include smart contract risk (potential bugs in the protocol code) and liquidation risk (risks associated with collateral liquidation). To minimise these risks, the protocol code is public, open source, and audited. Ongoing monitoring and improvements are conducted to ensure the platform’s security.
The AAVE token holds a central role in Aave Protocol governance. It is used for voting and decision-making on Aave Improvement Proposals (AIPs). Additionally, AAVE can be staked within the protocol to provide security and insurance to the protocol and suppliers. Stakers earn rewards and fees from the protocol for their participation.
AAVE is currently trading at US$66.00.
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The Big 3
1 million individual wallets hold a 1 BTC as Lighting Labs updates software.
The number of individual wallets holding at least one Bitcoin (BTC) has surpassed one million, indicating strong long-term sentiment. This milestone comes despite the recent decline in Bitcoin prices and reflects a 20% increase since February of the previous year.
The growth in these wallets was observed during the collapse of crypto exchange FTX between November and January. The introduction of BRC-20 tokens, which enable developers to issue tokens on the Bitcoin network for decentralised finance (DeFi) purposes, has had limited impact on the number of wealthy Bitcoin holders. Additionally, recent data shows that most Bitcoin transactions now come from smaller wallets, suggesting increased Bitcoin velocity as more users transact with the cryptocurrency rather than holding it long-term.
Lightning Labs, a Lightning Network infrastructure firm, has released an updated version of its token minting software on the Bitcoin blockchain after rebranding its project from “Taro” to “Taproot Assets.” The rebranding was prompted by a trademark infringement lawsuit filed by Tari Labs, which resulted in an injunction last December. With the legal obstacles resolved, Lightning Labs has resumed development of the software, which will allow users to issue assets like stablecoins on the Bitcoin blockchain.
The newly renamed Taproot Assets protocol is currently available on a test network, with main network support expected to follow soon. The goal is to create an assets protocol for Bitcoin and Lightning that can scale globally without causing congestion or excessive transaction fees on the Bitcoin network.
Moving forward, Lightning Labs plans to propose finalised specifications of the protocol to the Bitcoin community through Bitcoin improvement proposals (BIPs) and Bitcoin Lightning improvement proposals (bLIPs). The ultimate objective is to facilitate Bitcoin-based asset transfers over the Lightning Network, a secondary system that enables faster and cheaper Bitcoin transactions.
The release of Taproot Assets signifies progress in the development of tokenisation capabilities on the Bitcoin blockchain. By enabling the creation and transfer of assets like stablecoins, this technology has the potential to enhance the functionality and utility of cryptocurrencies. It also demonstrates the ongoing efforts to improve scalability and efficiency within the Bitcoin ecosystem. These developments are significant for the global economy as they contribute to the maturation and wider adoption of cryptocurrencies, providing new avenues for financial innovation and inclusion.
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Unprecedented surge in Ethereum staking returns.
Ethereum staking has seen a significant surge in returns following the recent upgrade to the Ethereum ecosystem in mid-April. The staking annualised rate of return for ETH validators has reached a record high of 8.76%, representing an impressive rate of return for staking yields. This surge in returns can be attributed to the successful implementation of the upgrade, which unlocked billions of dollars’ worth of ETH and instilled renewed confidence in the Ethereum project.
The upgrade, known as Shapella, has also brought positive changes to the Ethereum network. It has reduced gas fees for developers, improving scalability and efficiency. These enhancements have further contributed to the growing interest and confidence in Ethereum staking.
In addition to the rise in staking returns, the popularity of liquid staking derivative (LSD) protocols, such as Lido DAO, is increasing. These protocols offer an alternative to staking ETH on the mainnet, which requires a significant minimum deposit. Retail investors find these protocols more accessible, as they allow staking with any amount of ETH. Lido Finance remains the leading LSD protocol, with a significant increase in the amount of staked ETH over the past 30 days.
This current momentum in Ethereum staking and the growing popularity of LSD protocols indicate the increasing interest in and confidence of investors in the Ethereum network. It provides an opportunity for investors to earn attractive yields and actively participate in the blockchain’s ecosystem.
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Judge denies SEC request to seal Hinman documents in the battle against Ripple.
In the ongoing lawsuit between the U.S. Securities and Exchange Commission (SEC) and Ripple, a federal judge has ruled that the SEC cannot seal documents related to former official William Hinman’s 2018 speech on cryptocurrency and securities. The speech involved Hinman stating his view that Ethereum’s native cryptocurrency, Ether, was not a security. The judge determined that these documents, known as the “Hinman Speech Documents,” are relevant to the judicial process and should not be sealed.
While the judge allowed the SEC to redact personal information and names mentioned in the documents, she emphasised that sealing the documents would not be in line with preserving openness and public access. The ruling follows an earlier decision by a magistrate judge who had ordered the documents to be turned over to Ripple as part of the discovery process.
The judge granted some of Ripple’s proposed redactions, including contractual agreements, financial information, and specific business details. However, she found certain proposed redactions to be overly broad, such as references linking Ripple’s revenues with XRP sales and compensation details offered to trading platforms to list XRP. The judge also noted that Ripple sought to redact information regarding the amount of XRP sales targeted at investors through programmatic and institutional sales.
The ruling represents a setback for the SEC in its ongoing legal battle with Ripple and reinforces the importance of transparency and public access to relevant documents in the judicial process.
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Crypto news
Binance Australia impacted by Westpac ban on payments.
Westpac, one of Australia’s leading banks, has implemented a ban on customer transactions with Binance, a controversial global cryptocurrency exchange. This measure is part of a comprehensive strategy aimed at mitigating the economic impact of fraudulent activities.
Scott Collary, Westpac’s group executive of customer services and technology, emphasised the rise of scammers exploiting overseas exchanges, leading to significant financial losses for customers. Westpac’s latest data reveals that investment scams constitute approximately half of all scam losses, with a notable portion of scam payments being directed to cryptocurrency exchanges based overseas.
The implementation of new security measures aims to safeguard customers from such scams. Notably, Binance has faced regulatory challenges, including the cancellation of its derivatives license in Australia and a lawsuit filed by the US Commodity Futures Trading Commission, alleging illegal operations and inadequate compliance protocols.
Crypto industry insiders react to DOJ’s crackdown on potential fraud.
The US Justice Department’s potential crackdown on crime in the crypto industry is raising concerns and prompting assessments within the sector. Eun Young Choi, director of the department’s national cryptocurrency enforcement team, stated in an interview that the focus is on companies that facilitate or commit crimes, such as money laundering. This move comes as the US government acknowledges the challenges of regulating or enforcing criminal actions in the borderless and virtual realm of crypto.
Authorities in the US have already made efforts to tackle crypto-related crimes. For instance, the Justice Department arrested the founder of Bitzlato, a digital exchange, for allegedly transmitting around $700 million in illicit crypto funds. Additionally, a man was charged with defrauding Mango Markets, a decentralised finance platform, of US$110 million worth of crypto.
While the crypto industry supports the crackdown on crime, there are concerns about its impact on innovation. Some question whether the US’s enforcement-focused approach to regulation could contribute to market uncertainty. They emphasise the need for clear and comprehensive regulations from Congress to provide guidance for compliance rules and foster industry growth. If regulatory actions continue without clarity, there is a risk of driving crypto out of the US market.
Coinbase CEO Brian Armstrong shares similar sentiments, advocating for strong rules that govern and regulate digitally traded assets. However, he also warns against overregulation of certain aspects, such as staking, which could harm retail traders. Armstrong urges the US to encourage the growth of new technologies by providing a supportive regulatory environment.
The Securities and Exchange Commission (SEC) has also acted against crypto-related misconduct. It charged Genesis Trading and Gemini, two prominent crypto exchanges, with unregistered securities violations. Other individuals, including Do Kwon of Terraform Labs and celebrities like Lindsay Lohan and Jake Paul, have faced SEC charges for allegedly engaging in illegal promotion of crypto securities.
The increased enforcement efforts surrounding crypto crimes in the US stem from incidents like the collapse of FTX and the subsequent discovery of more US individuals using offshore platforms. While the short-term impact may shed light on the illicit use of crypto, in the long run, it may drive the industry towards holistic solutions to address bad actors and encourage mainstream adoption.
The US government’s actions in regulating crypto crimes have broader implications for the global economy. As crypto becomes more interconnected with traditional financial systems, regulatory clarity and effective enforcement are crucial to ensure trust, security, and investor confidence. It remains to be seen how the regulatory landscape will evolve, but striking a balance between oversight and fostering innovation will be key for the sustainable growth of the crypto industry on a global scale.
Australian Tax Office (ATO) to increase its oversight of cryptocurrency trades.
The Australian Tax Office (ATO) is intensifying its scrutiny of cryptocurrency trades, making it crucial for traders and holders to stay informed about the upcoming tax obligations. As tax time approaches, there are four key areas the ATO is focusing on for 2022, with capital gains or losses from crypto assets taking centre stage.
While it’s widely known that converting crypto to Australian dollars should be reported to the ATO, many people are unaware that using one cryptocurrency to purchase another also needs to be reported. Every instance of such a transaction must be disclosed to the ATO. To simplify this process, there is tax software that tracks all crypto trades and calculates the tax liabilities at the end of the financial year.
According to Danny Talwar, Head of Tax at Koinly, trading between cryptocurrencies is a taxable event. This includes trading from Bitcoin to stablecoins and then transferring stablecoins to other crypto assets. It’s important to note that not only selling crypto for fiat currency triggers tax obligations, but activities like staking can also generate taxable income.
The ATO has access to information about crypto transactions due to the traceability of blockchains. Wallet interactions can be traced, and exchanges are obligated to provide information to the ATO. When individuals sign up for a crypto exchange, they undergo a Know Your Customer (KYC) process, which often links their exchange accounts to their IDs.
Talwar emphasises that the ATO has a solid understanding of cryptocurrencies and is actively focusing on the crypto space. They have previously released guidelines on cryptocurrency and have identified it as a priority area for ensuring the proper declaration of gains.
Talwar advises crypto enthusiasts to take responsibility for accurately reporting their gains to the ATO. Treating crypto as any other asset, it is essential to stay informed and seek assistance from accountants, particularly for those new to navigating tax obligations related to cryptocurrency holdings. By staying compliant and disclosing their gains properly, crypto investors can fulfill their tax obligations and mitigate potential risks.
Compliance conversations
Australian consumers lose AU$88.7 million to investment scams.
Investment scams have become a significant concern in Australia, as they continue to target individuals, with a staggering AU$88.7 million lost to investment scams. 45.8% of reported cases resulting in financial losses, according to ScamWatch. These scams are evolving rapidly, with scammers employing new technology and tactics that make them increasingly difficult to detect.
Impostor bond scams are on the rise, where scammers impersonate legitimate financial institutions or banks and offer fraudulent government bonds or fixed term deposits. The sophistication of these scams has raised concerns among authorities, including the Australian Competition and Consumer Commission (ACCC). Catriona Lowe, Deputy Chairwoman of the ACCC, highlights the challenges in identifying scams, such as scammers impersonating official phone numbers, email addresses, and websites, as well as embedding scam texts within genuine message threads. This calls for a coordinated response involving government, law enforcement, and the private sector to effectively combat scams.
In response to the growing threat, the federal government has allocated AU$87 million in the budget to establish a National Anti-Scam Centre within the ACCC. The centre will be responsible for taking down phishing websites and other platforms that promote investment scams. The Australian Banking Association (ABA) launched an education campaign to raise awareness of scam scenarios and empower customers to protect themselves.
The prevalence of investment scams and the substantial financial losses incurred suggest the need for stronger measures and potential legislative interventions. Like the regulations in the telecommunications sector addressing SMS scams, there may be a push for controls to be put in place to safeguard individuals.
