Tight liquidity holding back crypto

Digital Asset Intelligence Weekly | Issue 15

Key headlines this week:?New PMS version released; Bitcoin still under downward pressure as regulatory uncertainty drives away market makers; scaling upgrades introduced from Cardano and Bitcoin Cash; staked ETH at an all-time high.

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Inside Crypto

• Market watchers have blamed US regulatory uncertainty for the recent?loss of liquidity?in crypto, and the consequent?downward pressure on BTC. Rumored token moves from the US government are another concern.
• Cardano?released a new scaling tool, known as Hydra Heads, which adds to the recent slate of DeFi-focused upgrades on the network and helped to hold the ADA token steady above the wider market’s dip.?
• Bitcoin Cash?also published an upgrade, introducing new functionality including the ability to publish tokens on the network. BCH climbed 6% in anticipation of the upgrade, although the bullish action cooled off over the following 24 hours.

• Technical issues delayed block finalizing on the?Ethereum?network in two incidents late last week. The cause of the hiccups is unknown.
• Binance?is pulling out of Canada, citing “new guidance related to stablecoins and investor limits”.
• B2B-focused exchange?Bakkt?has delisted a large number of coins including Aave, Uniswap and other popular DeFi tokens, referring to “regulatory guidance and the latest industry developments”.
• Conflict over voting powers at?Aragon?has undermined the start-up’s transition to a decentralized autonomous organization and highlighted risks around DAOs. The Aragon Association claims a 51% attack by activist investors forced them to cancel plans to give governance powers (including treasury control) to token holders.

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Digital Assets

• Staked ETH holdings?have reached an all-time high, defying fears of a big sell-off after the Shapella fork. Liquid staking protocol Lido?enabled withdrawals?for the first time following the upgrade in April, resulting in $500k of withdrawals within three hours on Monday. Nevertheless, it’s just a drop in the ocean compared to the $12 billion currently staked in the protocol.??
• The surge in Bitcoin transaction fees, reported last week, is driving record transaction volumes on?Litecoin?as well as the Lightning Network and other alternatives.

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Infrastrure and Regulation

• The?Britcoin?decision will not happen until policy makers have thoroughly considered risks to privacy and financial stability, said a Bank of England official.
• SEC Chairman Gary Gensler?spoke out against Coinbase’s recent legal petition requesting clear crypto regulations on US soil in a keynote speech at the Financial Markets Conference. Following his assertion that “rules have already been published”, the SEC had?filed a formal response?to the Coinbase complaint.

DeFi & CeFi

• Trading activity on?Uniswap?was higher than that on Coinbase in April for the fourth consecutive month. Even though the DEX saw volumes nearly half of March’s US$70bn, its US$37bn of trades still surpassed Coinbase’s US$34bn (down from US$49bn). The pattern underlines how traders have turned to DeFi - at least in the short term - in reaction to uncertainty.
• While trading activity fell across the board last month,?derivatives?dropped by less than spot trading, resulting in a record market share that analysts say underlines the speculative nature of the crypto market. Most derivatives trading took place on?Binance?(61.4%), which remains the biggest exchange by far even as it continues to lose market share.?

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Insight of the Week

S&P Global has taken a skeptical stance on crypto’s?inflation hedge?narrative. The ratings agency said in a press release that so far, the evidence (including BTC’s weak correlation with US inflation) does not support this popular argument. While gold moves consistently in line with inflation expectations, Bitcoin is far more closely linked to the cost of borrowing, inversely tracking two-year US Treasury yields.?

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