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In This Issue:
The Year Of The Regulator
Bitcoin Thoughts And Analysis
Legacy Markets
The Distribution Of ETH On Exchanges
The Concentration Of Bitcoin Mining
Lido’s Dominance Is Weakening
The Year Of The Regulator
Stepping into 2023 is like opening Pandora's Box. For those celebrating the Chinese Zodiac, 2023 is the year of the Rabbit, symbolizing good luck, elegance, and beauty. However, for those involved in the crypto industry, 2023 is the year of the Regulator, symbolizing potential crackdowns, injustice, and turmoil.
Regulators, mount up.
Recently, the Biden administration released an official blog outlining their stance on crypto regulation, indicating that it is a top priority for the year. The blog focuses on several key points, including a "framework," enforcement, investor protection, and the connection between legacy finance and crypto.
The concept of "framework" is shrouded in ambiguity. The White House statement claims that a framework has been "laid out," but it remains unclear what this refers to. In March of last year, the Biden administration released an executive order titled "Executive Order on Ensuring Responsible Development of Digital Assets," which could be the framework they are referencing. However, this has done little to promote "responsible development" in the crypto industry.
The comments on enforcement and investor protection in the blog were generic and offered little in the way of concrete guidance. It appears that the administration's plan is to maintain the appearance of strength in the face of disruption, rather than taking meaningful action. Cryptocurrency is being used as a scapegoat to distract from more pressing issues such as inflation, recessions, and increasing debt. It is likely that the only time this administration will approve of cryptocurrencies is when they announce their own Central Bank Digital Currency (CBDC).
One notable aspect of the blog is the administration's fear of crypto's deepening ties with legacy finance. The following two statements, taken from the blog, demonstrate this concern.
“We encourage regulators to continue these efforts, including those designed to address and limit financial institutions’ exposure to the risks of digital assets.”
“It would be a grave mistake to enact legislation that reverses course and deepens the ties between cryptocurrencies and the broader financial system.”
The Biden administration is aware that it cannot prevent the strengthening of ties between cryptocurrency and legacy finance. The administration may continue to resist approving a Bitcoin ETF, but this stance will only be sustainable for so long before it becomes too costly. As Congress shifts towards more favorable views on cryptocurrency and pressure from other countries increases, the United States fears the potential loss of investments to other countries. Ultimately, this will likely force the hand of the U.S. to accept cryptocurrency and Bitcoin will ultimately triumph. This is why it is important to continue to advocate for global adoption of cryptocurrency.
In an ideal world, regulators would provide clear direction, but unfortunately, this is not the case with the Biden administration. Instead, they choose to observe rather than lead, which may create a rocky path forward. However, the cryptocurrency space will continue to learn from its mistakes and confront regulators as it always has. The longer the U.S. delays in making decisions, the stronger the industry will become on its own.
While this may lead to temporary setbacks, it is important to remember that cryptocurrency moves in only one direction - forward. Progress is inevitable, and the crypto space will continue to evolve and adapt.
Bitcoin Thoughts And Analysis
Bitcoin had another bullish weekly close, the 4th green candle in a row. As you can see, price is still short of the key area of resistance, around $25,200. A break above that line would signal a break in bearish market structure - a higher high to end the series of lower highs and lower lows. The 50 and 200MAs are there as well, with a potential death cross incoming.
It is going to take some major fuel for Bitcoin to push through that area. Definitely possible, but I still favor a correction first, which I continue to watch for.
On the daily chart, Bitcoin is still overbought with bearish divergence (not shown).
Legacy Markets
Shares in Europe and US equity futures declined on Monday due to caution ahead of interest rate decisions and big-company earnings on both sides of the Atlantic. The Stoxx Europe 600 index dropped 0.6% led by tech stocks such as Prosus NV which fell over 5% after a decline in Hong Kong's tech sector. European bonds also fell as Spanish inflation unexpectedly quickened, increasing bets on a higher interest rate from the European Central Bank. The S&P 500 and Nasdaq 100 contracts declined, however, Wall Street advanced on Friday. The Federal Reserve is expected to raise interest rates by a quarter point on Wednesday. The Bank of England and the ECB are also projected to raise interest rates by half a percentage point a day after the Fed. Hedge funds are betting on a decline in the Treasury after a strong start this year, building a bearish bet on bond futures on record. Oil prices fell due to mixed signals on demand from China and tensions in the Middle East.
Key events this week:
International Monetary Fund’s world economic outlook, Monday
China industrial profits, PMIs, Tuesday
Eurozone GDP, Tuesday
US Conference Board consumer confidence, Tuesday
Earnings Tuesday include: UBS, Unicredit, Snap and Advanced Micro Devices
Eurozone Manufacturing PMI, CPI, unemployment, Wednesday
US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
FOMC rate decision, Fed Chair Jerome Powell press conference, Wednesday
Earnings Wednesday include: Meta Platforms and Peloton Interactive
Eurozone ECB rate decision, President Christine Lagarde press conference, Thursday
UK BOE rate decision, Thursday
US factory orders, initial jobless claims, US durable goods, Thursday
Earnings Thursday include: Alphabet, Apple, Amazon, Qualcomm and Deutsche Bank and Santander
Eurozone S&P Global Eurozone Services PMI, PPI, Friday
US unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.6% as of 10:11 a.m. London time
S&P 500 futures fell 0.9%
Nasdaq 100 futures fell 1.3%
Futures on the Dow Jones Industrial Average fell 0.6%
The MSCI Asia Pacific Index fell 0.4%
The MSCI Emerging Markets Index fell 0.6%
Currencies
The Bloomberg Dollar Spot Index fell 0.1%
The euro rose 0.3% to $1.0906
The Japanese yen was little changed at 129.95 per dollar
The offshore yuan was little changed at 6.7532 per dollar
The British pound rose 0.1% to $1.2398
Cryptocurrencies
Bitcoin fell 2.4% to $23,235.43
Ether fell 3.2% to $1,590.32
Bonds
The yield on 10-year Treasuries advanced three basis points to 3.53%
Germany’s 10-year yield advanced six basis points to 2.30%
Britain’s 10-year yield advanced three basis points to 3.35%
Commodities
Brent crude fell 0.3% to $86.40 a barrel
Spot gold was little changed
The Distribution Of ETH On Exchanges
According to blockchain analytics platform Nansen, 55% of Ethereum exchange holdings are concentrated on Coinbase and Binance. Specifically, 35% of the tokens are held on Coinbase and 20% on Binance, totaling 13.64 million ETH. Given that only 14% of the entire ETH supply is currently being staked, and a significant portion of the supply is held on exchanges, there is a significant potential for spot ETH to be directed towards staking. Although Coinbase currently lags behind Lido in terms of the percentage of Ethereum staked, it may change as Coinbase continues to gain more stakers and market pressure drives consolidation among exchanges. Furthermore, regardless of where staking occurs, it is a positive development for the Ethereum ecosystem. The upcoming launch of Ethereum 2.0 in Shanghai will likely be the dominant narrative in the coming months.
The Concentration Of Bitcoin Mining
Currently, two major Bitcoin mining pools, Foundry USA and AntPool, control more than half of the network's mining power. As of the beginning of 2022, the top five pools controlled just over 60% of the network's mining power, but this concentration has since risen. The main reason for this trend is that pools have learned to move their servers closer to major mining facilities for better latency and improved functionality, leading to rapid growth and outcompetition of other miners. Additionally, as these pools grew, miners opted to join them as payouts became more reliable. With the hashrate at an all-time high, smaller pools have become less popular as they struggle to keep up with the competition. While this concentration of mining power technically increases the likelihood of a 51% attack, the growing hashrate continues to counterbalance this risk. It is important to note that market efficiency and concentration are expected, and thus, this should not alarm Bitcoin investors.
Lido’s Dominance Is Weakening
I find this article to be particularly compelling as it relates to the aforementioned information on Ethereum and delves into a new perspective with the presented data. Prior to the availability of liquid ETH staking on platforms such as Coinbase, Lido was the predominant solution for Ethereum staking. However, with the emergence of alternative options, Lido's market share has decreased rapidly, dropping from 85% to 73% in a short period of time. Additionally, the influx of new ETH entering the staking market on Lido has also decreased, declining from 80% to 40%. This is indicative of a healthy decentralization within the ecosystem.
Wall Street Is Coming For Crypto | Gary Cordone
Gary Cardone deeply understands market cycles from a historical perspective. Known for being a disruptor in multiple industries, Gary is fascinated by crypto and knows where to stand to best capitalize on the opportunity. As one of the “adults” in the room, Gary’s point of view and advice is a must listen for investors looking to succeed over the next decade.
In this episode with Gary, we discussed:
How Gary’s Background Led To Crypto
Gary’s Movement Through Markets
Stand Where There Is Disruption
The Crypto Opportunity
“We Wanted More Damage”
Investing For The Future
Nobody Really Understands Crypto
You Can Now Buy A Picaso
FTX Explodes, Gary Lost Money On FTX
Bridging Analog to Digital
The Way Markets Evolve
The Trick Is To Pivot and Embrace Big Players
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.