Last week showed continued sideways movement for the broader market, with lower lows for BTC and ETH. The FED meeting minutes provided a clear acknowledgment of possible recession or lesser chances of a soft landing. While sentiment for the next rate hike in December is positive, the FED doesn’t shy away from strong moves if it feels the need to. The major underperformance and new low for BTC were due to the looming bankruptcy concerns for Genesis trading, which is a subsidiary of Digital Currency Group (DCG). The reason for a serious dump in ETH was the movement of stolen ETH from the FTX exchange hack from last week. The wallet saw a huge drop in ETH and was disbursed to multiple wallets from the main wallet despite the attention.
While BTC has dipped to a low of 15,666 this week, many more downside moves should be expected in the next month owing to multiple events and uncertainties. We will talk more about them as the situations unfold. A drop in the energy index can be seen in the last week. Huge volatility in it should be expected for the next month as winter’s here.
FTX fugazi - preliminary bankruptcy findings and Grayscale dilemma
FTX’s bankruptcy process has revealed many graves but expected facts. Except for some sensitive information on the number of creditors and the amount owed, the identity of creditors is still being preserved to prevent panic and sudden contagion. While the process will take its time, some obvious and possible victims have been identified. Besides the Solana ecosystem and Alameda and FTX portfolios, major institutions have zeroed out their investments. A major one is Genesis trading. While genesis was actively looking for a $1 billion infusion, statements around possible bankruptcy have surfaced since then. Despite receiving some support from its parent company DCG, the firm’s state has the ability to capitulate to the group’s other businesses, especially Grayscale.
As mentioned last week, if the supposed 600k BTC on Grayscale’s balance sheet has forced sell pressure to bailout genesis or any other company in it’s umbrella, it can cause the whole crypto ecosystem to a big drop. A lot of liquidations and big positions are at risk in the 12-15k range which can take the prices to unprecedented drops in a short span. While it is difficult to assess the exact likelihood of Genesis’ collapse, Kunji is actively managing downside pressure and will share more information about the same in regular reports
But for now, Grayscale hasn’t shared the proof of reserve for its 600k BTC holding, citing security concerns that are valid to some extent.
This solution takes the form of Zero Knowledge Proofs (ZK-proofs), which will be a major theme in upcoming and existing crypto projects. A good amount of movement and value accrual should be expected in the medium to long-term timeframe. The regulatory solution here will be thorough audits which will surely be a part of the regulatory changes soon.
Among the biggest hits to the ecosystem has been the letter sent by three U.S. Senators, Tina Smith, Richard Durbin, and Elizabeth Warren to the institutional behemoth Fidelity Investments to rethink its plan to sell Bitcoin to retirement investors.
The letter cited the most recent FTX collapse as justification enough for doing so. Besides, the truth is much more nuanced as FTX was a decentralized exchange, and BTC depicts peak decentralization. Regardless of the outcome, it will certainly push for more intricate policies or a slight pause in the mammoth investments Fidelity can bring to the digital asset space from its approx $10 trillion AUM.
Mine Hard or Go Home
BTC and other proof-of-work mining companies are struggling to make money during crypto winters. As the demand and price for BTC go down, so does the network’s hash rate and thus pushing BTC mining operations to a net break even or even at loss levels. All this can be judged from various on-chain indicators but a clear depiction of this problem can be seen from the performance of various BTC mining firms’ share prices. After receiving a notice of delinquency for loans, the bitcoin mining company Iris Energy disclosed that it had unplugged a sizable portion of its machinery. The equipment served as collateral for loans totaling $107.8 million. According to the company, the divisions weren’t generating enough cash flow to meet their separate debt financing obligations.
Capitulation across the board can be seen in mining stocks with Core Scientific (CORZ) having the toughest time since the end of last month. All this combined with other downside risks are cyclical in every cycle, but BTC and decentralization have stayed resilient and we expect the same with some bumps along the way.
Builder’s build, Builders earn
Amidst all the chaos, Matter Labs, the developer behind the Ethereum scaling protocol zkSync, has raised $200 million in a Series C funding round. The round was co-led by Blockchain Capital and Dragonfly and saw participation from Variant, Lightspeed Venture Partners, and Andreessen Horowitz. This shows the continued high interest in structural-level crypto projects from VC and PE players. While this reinforces the constant and resilient push for the ecosystem, private market valuations would make the funding scenario much more adverse in the next 2 quarters which can make funding more difficult. How bad only time will tell.
The Dawn of Digital Rupee
With the wholesale CBDC under process, RBI has announced a pilot for the retail version for testing with a few banks, merchants, and retail as well. It’s clear that CBDC is progressing well, but the benefits need to manifest quickly since it will directly compete with the already robust UPI ecosystem. Although India’s democracy scores are decent, centralized systems carry the risk of financial censorship.
Bitcoin returns were -0.91% for this week. The Alpha Blue Chip Focused Strategy returns were -0.43% during the same period (17 NOV-24 NOV). The Top Cap Digital Assets Strategy and Arbitrage and Balanced Opportunities Strategy returns were -0.80% and -1.17%, respectively.