Last week, the downturn continued. Tech stocks hurt again, with giants like Tesla dropping faster than ever. Nasdaq is moving the most to the downside. Alts (TOTAL3) are losing dominance in the crypto ecosystem and started bleeding this week with the news on cyclical unlocks of tokens.
Along with this, a few Alameda wallets started converting the remaining Alts through various mixers and converting whatever they could get their hands on to BTC. While this effect was limited to a few tokens, the overall Alt dominance has been falling this year. BTC is down 3.3% this month at the time of writing this, with mostly range-bound performance. A lot of volatility and action to the downside was seen in Alts.
SBF’s hearing updates
Post extradition, Sam Bankman Fried got one of the fastest bails ever. With the $250 million bail amount, SBF still seems to have powerful friends helping him. While his ex-coworkers have come forward to testify for smoother sentencing, the next hearing and proceedings are set for 3rd Jan. As mentioned in previous outlooks, the revelations from testimonies of the case are very useful for the forward regulations as the loopholes and bad actors of the current system are being highlighted reasonably.
Regulatory Updates
OECD & FATF
While each jurisdiction is tackling the regulatory and taxation processes independently, institutions like OECD and FATF have done pilots and given guidelines around the same to its participating countries. While FATF has had a long-standing history of engaging with the crypto ecosystem, OECD has been much more active in recent years. While all member countries haven’t implemented the previous OECD suggestions, the coming year and updates would require proactive action by various parties to stay compliant.
The biggest issue currently is the varied taxation procedures and arbitrage in tax laws, creating a favourable atmosphere for some jurisdictions like Dubai. Although this has also landed Dubai on OECD’s grey list as the sovereign region has very stark rules regarding regulation and taxation. Another significant distinction between the two is that while FATF doesn’t suggest any purview on NFTs, OECD has shared specific guidelines for the asset class. While in India, the TDS is expected to be much more nominal in the coming year, any relaxation of taxation will bolster the investments to a better environment.
Digital Dollar vs. Fednow
Building on our continued commentary on the digital dollar’s inevitable emergence, some initial pilot results have finally emerged. The critical pointer that benefits the crypto ecosystem is the certainty of a blockchain-based ledger for most digital currency infrastructures to work. The efficiency provided by blockchains is unparalleled.
Multiple independent entities are working on getting their implementation ready as fast as possible, as the party winning the final tender will be up for enormous profits. While authorities like FED are working on services like FedNow, private non-profit initiatives like the digital dollar project have just completed their first pilot.
The key- takeaway here was the same as the biggest assumption the project started with. The privacy policy should align with the decentralization ethos of blockchains. Any implementation that threatens individuals’ financial sovereignty will face extreme scrutiny and possible shutdown for that approach. Even if the privacy disrupting mechanisms are implemented, it’ll give rise to huge social unrest as the financial censorship concerns will rise catastrophically.
Even though the market has seen multiple structural centralized failures and bankruptcies, the reaction of crypto assets would have been similar with or without them as a response to the grave macroeconomic conditions that have emerged this year. While prices are essential, crypto’s resilience starkly differs from other assets and has a different prominence in its portfolio.
2023
2022 was a year of extreme volatility and disruptions. While good players emerged in the tough times, the space didn’t fail to shock the biggest players. While the next and first prominent event from the Fed is scheduled for 31st Jan, times are delicate. While the low holiday volatility will take a u-turn as the new year starts, many pending liquidations will be delayed if the range-bound movement is contained. With the concern of COVID cases rising, the markets may see a big move quickly. While governments and authorities worldwide won’t face a wave for the first time, infrastructural limitations and lockdowns will push the economy to steep lows.
Hence, lockdowns or contained shutdowns shouldn’t occur shortly unless gravely necessary. With the market waiting for the Fed’s pivot, the possibility of a hard landing is increasing daily. While the market is entrusting the Fed to act with more agility, an extended period of high-interest rates is inevitable. The threats of depression or stagflation are on the rise too. While the environment is getting tougher, preparing for the same and managing risk will help conserve positions better.
Bitcoin returns were -1.5% for this week. The Alpha Blue Chip Focused Strategy returns were -6.26% during the same period ( 22 DEC – 29 DEC ). The Top Cap Digital Assets Strategy and Arbitrage and Balanced Opportunities Strategy returns were -1.81% and -1.43%, respectively.
