Fed rates, high-profile scams, and Citi’s crypto debut

This week, the Federal Reserve hit pause on interest rate hikes, but it doesn’t mean investors can get complacent. Institutions continue to show support for the digital asset space, with Citigroup USA Inc. the latest to offer its new token service. Meanwhile, several high-profile hacks over the last fortnight highlighted the need for stronger security frameworks in Web3.

Fed holds interest rates but signals higher-for-longer stance

On Wednesday, 19 September, the US Federal Reserve decided to put its rate hiking cycle on hold for the time being, as widely expected by the market. During the press conference, Fed Chair Jerome Powell said the central bank could afford to take the next monetary policy decision more slowly, given the extent of its monetary policy tightening program so far.

Since March 2022, the Fed has increased rates by a total of 5.25% over the course of 11 hikes. While a pause gives both the market and policymakers room to breathe, the Chairman was clear that “the process of getting inflation sustainably down to 2% has a long way to go”.?

As such, the Federal Open Market Committee (FOMC) raised its long-term rate expectations. Interest rates in the US are now expected to hit 5.6% by the end of 2023, coming down to 5.1% in 2024, 3.9% in 2025, and 2.9% the year after.

Traditional and crypto markets dipped slightly on the news. The S&P 500 closed around 1% lower at 4,402 points, while bitcoin also fell around 1% to just under $27,000.

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The Fed’s latest move was widely expected by market participants, so the market’s reaction was muted. However, the downward move suggests investors were still hoping for an indication that rates would be coming down sooner.

In his speech, Powell pointed to a number of factors the Fed is watching. This includes the US unemployment rate, which is now projected to rise to just 4.1% by year-end, instead of a previous projection of 4.5%. Inflation also remains a concern, after the US CPI rose from 3.2% in July to 3.7% in August, though the central bank still expects inflation to fall below 3% next year. The Fed also noted that the economy remains strong and the banking sector is resilient.

However, Powell acknowledged that some sectors are beginning to feel the pinch of higher interest rates – notably businesses and the housing market. This is likely the reason for the wait-and-see approach, with Powell aiming to achieve a soft landing for the US economy.

When it comes to markets, higher-for-longer rates are likely to keep a ceiling on prices for the time being and may mean the global economic recovery is further away than some may have hoped. However, there are other factors driving crypto prices, including the eagerly anticipated approval of a spot bitcoin ETF in the US.

Vitalik’s X account hacked, Mark Cuban loses $870k

Several high-profile hacks shook up the cryptosphere over the last couple of weeks. On 11 September, Vitalik Buterin himself – the co-founder of Ethereum – suffered a hack of his X account (formerly Twitter). The hackers managed to steal $691,000 worth of NFTs and other crypto assets by posting a malicious phishing link that allowed them to access users’ accounts.?

Buterin revealed later that the hack had been the result of a SIM swap attack, which allowed the fraudsters to take over his phone number. He advocated for removing phone numbers from X profiles, while experts highlighted the importance of setting up two-factor authentication (2FA).?

Also on X, an account posing as Grayscale Investments promised a $25 million giveaway. Luckily, both hacks were discovered in a short timeframe: the Grayscale incident was caught by a CoinDesk journalist, while Buterin’s father stopped the X hack in its tracks.

A week later, billionaire investor Mark Cuban was not so lucky. He lost $870,000 when his MetaMask wallet was hacked. Assets lost in the hack included stablecoins and various tokens including Lido Finance staked Ether, SuperRare, and Ethereum Name Service. However, Cuban managed to recover the remaining assets to a Coinbase crypto wallet.

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These incidents underscore the need for more appropriate frameworks and guardrails to avoid these types of incidents in the future. However, so far, regulators have failed to deliver a framework that meets the needs of decentralized finance (DeFi). Instead, they have attempted to shoehorn the sector into a framework designed for the traditional financial world.

DeFi is, however, very different from the traditional financial system. It is trustless and permissionless, so any legislation must take this into account. With the appropriate guardrails in place, however, DeFi can be as secure as the financial system we all use today, if not more so.

Building such a system that brings together the best of both worlds is the ambitious goal we have set ourselves with the incubation of Haven1 . A Layer 1 blockchain with security and user protections at its heart, Haven1 will bring much-needed peace of mind to Web3 users old and new and lay the groundwork for mainstream adoption.

Citigroup enters the digital asset arena

Citigroup is the latest traditional financial player to make a foray into the Web3 space with its new token service for institutional clients. The new Citi Token Service, offered by the firm’s treasury and trade solutions division, allows customers to transform their deposits into digital tokens for cross-border transactions.?

Shahmir Khaliq, global head of the company’s services division, said that the move is part of Citigroup’s plan to “deliver real-time, always-on, next generation transaction banking services to [its] institutional clients”. The bank will use its own private blockchain for this service rather than relying on a public offering.

With this move, Citigroup joins a growing list of traditional institutions dipping their toes into crypto. Earlier this month, 彭博资讯 reported that 摩根大通 is in the early stages of working on a similar solution.

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Citigroup’s move is yet another indication that institutions are serious about blockchain infrastructure. Combined with similar developments and the spot bitcoin ETF applications by BlackRock and other asset management giants, this is positive news for the digital asset space. An influx of institutional money would lend additional legitimacy to cryptocurrency and help support prices in the future.

However, the fact that institutions appear to be intent on building their own blockchains to support such services highlights the prevailing concerns over security in the crypto space. These concerns must be addressed to drive the mainstream adoption of digital assets.?

This is exactly what we are aiming to achieve with Haven1. A single, secure and compliant solution would allow more institutions to onboard their clients into Web3 without the need for a costly and time-consuming development process.?

Disclaimer:?

The content of this newsletter does not constitute financial advice and is for informational purposes only. The price of digital assets can go down as well as up, and you may lose all of your capital. Investors should consult a professional advisor before making any investment decisions.