Another cold snap for crypto markets

Key headlines this week:

Gensler makes waves, with Canada seemingly joining the US' crusade to regulate crypto - stablecoins in particular. Meanwhile, Solana’s outage woes continue.

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Nuant Research

Last week we introduced the hot-button topic of stablecoins – a vital but complicated part of the cryptocurrency landscape. The next article in the series takes a more in-depth look at fiat-backed stablecoins in particular.

View research article

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Inside Crypto

• Through a New York magazine interview published last week, the industry gained further insight into Securities & Exchange Commission chair Gary Gensler’s anti-crypto views. Gensler argued that every cryptocurrency other than Bitcoin should be considered a security, triggering a wave of anger in the industry. Although his comments have no legal weight, they show how much regulatory resistance the industry faces in the US.
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• Solana suffered another outage over the weekend, with the network stalling for almost an entire day from early Saturday morning. It only came back online after the validator community opted to restart the entire network. At the time of publication, the causes remain unclear – although Solana’s founders have denied that the issue relates to network voting.
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• Coinbase’s announcement of its new Ethereum layer 2 network, Base (built on the Optimism stack) was taken as good news for Ether (and for OP). However, the testnet had a rocky start. Base – an open dApp platform and bridge to other blockchains, including Bitcoin – aims to expand the crypto ecosystem by on-boarding 1 billion new users, thanks to lower fees and higher transaction capacity. Base adds to the accelerating shift from layer 1 to layer 2 networks to solve Ethereum’s scaling problem.

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Digital Assets

• The FRAX stablecoin will become fully collateralized, after the Frax Finance community voted to end its algorithmic support. Since last year’s Terra crash, and the subsequent fall-out, market and regulator sentiment has turned against stablecoins, particularly algorithmically backed coins.
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• Spotify’s Web3 experiment triggered a surge in music tokens. The music industry remains one of the most promising areas for NFT utility, giving fans exclusive access to perks and products.
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• BUSD continues to struggle as Coinbase has announced it no longer meets the standards for listing on its exchanges. The exchange giant will suspend trading of BUSD on Coinbase.com, Coinbase Advanced Trade, Coinbase Exchange and Coinbase Prime starting from March 13. BUSD has lost over 35% of its liquidity since Paxos announced it will no longer mint the stablecoins on the instructions of US regulators.
  

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Infrastructure and Regulation

• The Canadian Securities Administrators have published new, more stringent requirements for crypto trading platforms. The rules focus particularly on stablecoins, which will not be permitted on exchanges without special CSA permission, and give exchanges 30 days to register.
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• A G-20 meeting on Saturday saw the Financial Stability Board, the International Monetary Fund and the Bank for International Settlements agree on the need for a “very strong push” globally for regulation – and that a total ban should be considered if needed to preserve stability. However, during the meeting, IMF Managing Director Kristalina Georgieva also told Bloomberg reporters that the IMF favors regulation over outright bans of digital assets, where possible.
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• A joint statement by multiple US authorities underlined the need for banks to follow existing risk management requirements, including backing all crypto deposits with cash reserves.
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• A US court case over video NFTs could set a crucial precedent on the question of whether NFTs should fall under securities regulation.

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DeFi and CeFi

• New DEX Camelot, on the Arbitrum network, has seen steady growth since its December launch and enjoyed a 520% price surge for its GRAIL token this month. Camelot seems to have been benefiting from Arbitrum’s strong recent growth.
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• Avalanche-based protocol Platypus Finance paused operations after suffering a flash loan attack. Stablecoin USP lost its dollar peg and fell to 48c in the attack, which could cost US$8.5 million.

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Insight of the Week

After a strong start to the year, markets dipped this week in apparent reaction to renewed evidence of US inflation (with interest rates expected to rise accordingly). Ten days after BTC’s golden cross – its 50-day moving average price rising above the 200-day moving average – the expected returns have yet to materialize. For now, macro factors appear to outweigh technical considerations.

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