The Weekly Waffle for the Week July 17

• Red Hot Inflation?is the right phrase to sum up the week after the United States announced 9.1 on the CPI and briefly envisaged a historic 100 bps rate hike to bring it under control. This is hyperbole and excessive fear, in our opinion. We all saw this coming, and so did the market. A day later, Bitcoin was up, and so were the major indices around the world. What matters is not the backwards looking data but the outlook, and that is not pretty.?
• Bring out the champagne: There are now?over 1 billion Bitcoin addresses?in the world! BTC is, however, still not ready to party. While we rarely engage in price action speculation, we find that some rather academic indicators our researchers follow point in the same direction, namely that Bitcoin is in the final phases of discovering a bottom.?
• In addition to the macro and geopolitical issues plaguing the world’s economies from Tijuana to Tokyo is the credit cauldron bubbling its way into the minds of the City and Wall Street. Equities are down, but it is credit where the real pain lies, as per usual.?The Fed’s hike campaign?is a problem for the lifeblood of the economy. We’ve seen inversion in the yield curve already (meaning short-term Treasury yields are higher than long-term ones, which hurts interest margins and thus banks, putting a stop to easy financing, which is terrible for SMEs and behemoths alike. Venture capital in crypto has decreased more than expected in the last few weeks; no one is picking up the phone. Usually, this means, if not immediate, defaults, then prolonged stress on the economy.?
• Further analysis of the AMLR (anti-money laundering regulation) proposals by the European parliament has us worried: it makes developers, owners, and operators of crypto-related projects responsible for assessing and mitigating ML and TF risks even AFTER a project has been launched and been entirely decentralized. How this would work in practice is somewhat of a mystery.?
• I spoke to quite a number of bigwigs in banking this week and found?the mood to be optimisticafter months of uncertainty and fear. All in all, the dominant forces welcome the realignment of crypto projects with proper, well-informed regulation and transparency. Uphold’s stance on the matter, along with our publicly available, real-time assets and liability data, were even highlighted at two events. What exchanges, wallets, crypto asset managers, fintech start-ups, and traditional banks alike are struggling with is finding talent for compliance. HR heads have their work cut out for them. They should get some tailwind from the restructuring and firings going on in the banking sector. Amidst the current malaise in capital markets, many firms find themselves with one too many expensive hires and are suffering from “buyer’s remorse.” Prepare for further?job cuts?in the banking and tech sector.?
• Ethereum?developers came out with a timeline for The Merge that seems more credible than anything we have seen so far, namely several steps leading up to the week of September 19. We remain skeptical, and if the overall markets don’t improve, the launch could be pushed back further still.?
• The?Three Arrows Capital?default is still reverberating around the cryptosphere. So far, Genesis losing hundreds of millions and?Voyager?filing for bankruptcy (and lying about FDIC insurance) is still the biggest news, but DeFinance Capital was the latest to admit their detrimental involvement.?
• ?The second most popular drama on stage is?Celsius. While the company made good on its Aave loans, there is still a $1.3 billion funding gap shown in court documents, perhaps the same documents that made FTX walk away from the deal when they first announced that they were ready to acquire the stressed lender. Once again: this isn’t a crypto problem, it’s just good old fashioned bad management and terrible financial planning (not to say alleged fraud!)?
• Cosmos stepped into the spotlight when decentralized exchange dYdX made headlines by?abandoning Ethereum Layer 2 in favor of Cosmos. It underlines our long-held argument that layer two solutions are but a band-aid on a dying patient. In 5 years’ time, people will not remember that “zero-knowledge proof” was once the mot du jour.?

This may also interest you:

• My Review of the first half of the year
• My thoughts on parallels between COVID and CRYPTO CRASH