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ETFS 21Shares Crypto Monitor - 25th May 2022

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This Week in Crypto

The state of the weakening dollar gave a glimmer of hope for a relief rally, conservatively lifting both equities and crypto. Within the cryptoverse, large caps remained steadier than previous weeks as Bitcoin was seen ranging between the $28K-$31K, meanwhile Ethereum wicked down to the yearly low major support level at $1700 only to rebound, sweep the $2100 resistance level and continue oscillating within this range. The total crypto market cap gained roughly 6% following the turbulent week that saw the collapse of the Luna token and its counterpart UST stablecoin. Now, even though the valuations of some of the market's blue chips has returned to levels not seen since late 2020, it still seems that further drawdown could be on the table. Reason being is that entities with less than 10 BTC in their portfolio managed to add the 2nd highest amount to their stack on the 20th of May, as seen below. A signal that illustrates that we may not be out of the woods yet since retail hasn't been able to aptly time local bottoms on a historical basis.

Supply Held by RetailSupply_held_by_Retail_Glassnode_87307a2ae8.jpg

Source: glassnode

As the dust begins to settle pertaining to this implosion, the industry has begun to comprehend what came to pass during this unsettling period. The collapse first started with a huge sell-off of $UST on both Centralized and Decentralized Exchanges, which caused the peg to deviate from the $1 mark. While the native mint-burn mechanism (Check out our Statement for details) between $LUNA and $UST can help $UST to slightly restore the peg at the beginning, the consequences are crashing $LUNA’s price by minting tremendous amount of $LUNA in the market. Accordingly, the token’s circulating supply soared to 6T from 340M, causing Luna’s value to deteriorate and bring down UST’s peg along with it.

The crumbling state of affairs led to what is known as the death spiral. It became apparent that despite the Luna Foundation Guard’s attempts to use their 80K BTC reserve to maintain the UST peg, the liquidity was not enough to act as the exit liquidity for UST holders. Not only did the peg fail to restore, but the BTC sell-off also caused the slump in Bitcoin’s price and the wider market drawdown that followed. In light of the collapse of the blockchain and the algorithmic stablecoin, Terra’s founder, Do Kwon, has announced a Revival Plan that includes launching a new Terra blockchain. The new Terra blockchain will go live on 27th May if the proposal passes successfully. The existing network will be renamed to Terra Classic, while its token will be renamed as $LUNC.

Regulations and Adoption

The main key giveaway on the regulatory side this week had been the Biden’s Administration's plans to demand crypto exchanges to separate retail and corporate clients’ funds. The key driver behind the proposition could be due to Coinbase’s recent alert that customers will lose money if they go bankrupt. Within the exchanges vertical, Binance was found to be seeking regulatory approval in Germany, trying to obtain a license for operation. Bitmex’s Founder was recently sentenced to 6 months of home detention instead of jail time due to violating the US Bank Secrecy Act (BSA). However, the event did not stop Bitmex’s expansions efforts. They have launched a spot trading service beyond solely focusing on derivatives. While traditional players are trying to gain exposure in crypto, FTX US expanded its offerings to traditional finance by offering 0 commission stock trading. There will be no minimum balances, 0 fee brokerage account, 0 commission trading and free market data.

Speaking of crypto’s adoption, the trend was preserved as we saw multiple traditional players tipping their toes or expanding their exposures in crypto. For example, one of the Big 4 Accounting firms, EY, has launched a new supply chain service, OpsChain, on Polygon Nightfall. This service is co-developed with Polygon and will allow organizations to create tokens or NFTs as a representation of assets and inventory within companies that can be traced on the blockchain. Nomura is preparing to launch a crypto subsidiary in the traditional banking side, and Julius Baer is also planning to offer their high net worth clients crypto exposures.

The race for building an EVM wallet is heating up as we saw multiple companies gearing up their efforts to launch a Metamask competitor. First it was reported that Revolut had plans to launch a non-custodial crypto wallet on Ethereum. The function will be similar to Metamask, one of the most popular non-custodial wallets. GameStop also has released a self-custodial Ethereum wallet instead of a non-custodial one for users to store, send and receive cryptos and NFTs. Robinhood also has indicated its plans to launch a custodial wallet for users to trade cryptos and NFTs. In other news, the E-Commerce giant eBay will be launching their 1st NFT collection, with 13 limited-edition NFTs in partnership with Web3 platform OneOf. Spotify and Instagram are pilot testing the NFT features on their platforms via selected producers/artists.

DeFi and NFTs

Ethereum($ETH) Co-Founder, Vitalik Buterin said “The Merge” upgrade will happen in August. This upgrade will shift Ethereum from a Proof-of-Work to a Proof-of-Stake blockchain. Alternative Layer 1 blockchain, Fantom($FTM) has seen a price pump this week. $FTM token dropped to $0.25 on 11 May and rose as high as $0.51 on 24 May. The price movement is likely fueled by the speculation that Andre Cronje, the founder of Yearn Finance, is returning to Fantom since he committed the github of Fantom’s stablecoin project. Ethereum’s scaling solution, Optimism, is going to launch a new upgrade named Bedrock. The upgrade will bring higher speed, lower cost, and Ethereum Virtual Machine (EVM) Compatibility to the solution.

In the DeFi market, Near’s ($NEAR) Layer 2 solution, Aurora($AURORA) launched Aurora+, which offers users 50 free transactions per month and airdrop to early users. In light of the brief depeg event that occured to $USDT, Tether announced that they had reduced the commercial paper holding to improve the reserves’ quality. In the meantime, Tether also requested the state of New York’s supreme court to refrain the public from examining documents related to Tether’s reserves during the last several years. However, the request was denied.

In the NFT market, Aave($AA