Crypto Falls Amid Escalating Conflict in the Middle East, SEC Amends Complaint Against Binance

Welcome to our Weekly Market Update.* *Explore weekly crypto price movements, read a quick digest of notable market news, and dive into a crypto topic — this week we learn more about stablecoins.

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Takeaways

• Federal Reserve officials signaled the possibility of a September rate cut during their July meeting: But crypto prices pulled back after Iran pledged it would retaliate against Israel for assassinating Hamas leader Ismail Haniyeh on Iranian soil.
• Donald Trump expressed strong support for cryptocurrency at the Bitcoin Conference in Nashville: Trump pledged to set up a strategic bitcoin reserve, stop the US from selling its bitcoin, and fire SEC chair Gary Gensler if he gets re-elected.
• Cantor Fitzgerald CEO Howard Lutnick announced the firm's plan to establish a Bitcoin financing business with an initial $2 billion investment: The initiative aims to provide leverage to bitcoin investors and strengthen the cryptocurrency ecosystem.
• The nine US spot Ethereum ETFs saw $98.29 million in outflows on Monday, extending their negative flow streak: BlackRock’s ETHA and Fidelity FETH led the inflows, while Grayscale Ethereum Trust faced significant outflows.
• The SEC is looking to amend its complaint against Binance, which could delay a court ruling on the security status of specific tokens: This move involves third-party crypto asset securities and adheres to a court directive for further proceedings.

Fed Signals Possible Rate Cuts, but Middle East Tensions Rattle Crypto Markets

Federal Reserve officials at their July meeting on Wednesday opted to keep interest rates unchanged at 5.25%-5%, after the personal consumption expenditures (PCE) price index, a key inflation measure, increased by only 0.1% in June. This brought the year-over-year rise to 2.5%, down from 2.6% in May, moving closer to the Fed’s 2% inflation target.

Federal Reserve chair Jerome Powell for the first time hinted at the possibility of cutting rates in September, saying the move is “on the table” if the US continues to make progress on inflation. That would mark the first time the Fed has cut rates in four years.

The announcement did not appear to have much impact on cryptocurrency prices. On Wednesday, hitcoin dropped about 2%, below $65,000, while ether dropped more than 1%, hovering above $3,200. The negative price action came after a New York Times report indicated that Iran will take retaliatory action against Israel after Israel assassinated Hamas leader Ismail Haniyeh in Tehran.

What Are Stablecoins?

As with any emerging asset class, cryptocurrencies are susceptible to market forces. Accordingly, many crypto projects are actively exploring ways to reduce risk and bolster participation in the broader crypto ecosystem. Current solutions go well beyond the buy, sell, and stop orders of conventional markets. Instead, price stability is being built directly into the assets themselves. The result is an entirely new subset of the cryptocurrency market known as stablecoins. These tokens are meant to function the way their name suggests — with stability.

In 2020–21, the stablecoin market exploded, its market cap expanding by almost three times. But, what precisely is driving this appeal?

Stablecoin Taxonomy

Stablecoins are digital currencies minted on the blockchain that are typically identifiable by one of four underlying collateral structures: fiat-backed, crypto-backed, commodity-backed, or algorithmic. While underlying collateral structures can vary, stablecoins always aim for the same goal: stability. Let’s dive into the four primary types of stablecoins.

Traditional Collateral (Off-Chain)

The most popular stablecoins are backed 1:1 by fiat currency. Because the underlying collateral isn’t another cryptocurrency, this type of stablecoin is considered an off-chain asset. Fiat collateral remains in reserve with a central issuer or financial institution, and must remain proportionate to the number of stablecoin tokens in circulation.

For example: If an issuer has $10 million of fiat currency, it can only distribute 10 million stablecoins, each worth one dollar. Some of the biggest stablecoins in this category by market value include Tether (USDT), the Gemini Dollar (GUSD), USDC (USDC), True USD (TUSD), and Paxos Standard (PAX).

Learn more about the basics of stablecoin taxonomy.

Onward and Upward,

Team Gemini