The Wolf Den #680 - A Tale of Two Intros
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In This Issue:
A Tale Of Two Intros
Bitcoin Thoughts And Analysis
Legacy Markets
Blur Goes Toe-To-Toe With OpenSea
The Future Of Staking | Lex Sokolin, ConsenSys
A Tale Of Two Intros
A mere cough, sneeze, or blink could make you miss a wealth of news in the fast-paced crypto space. Last Thursday, the industry was hit by a double whammy of unfavorable news, but surprisingly, prices only experienced a minor dip.
The first story that made waves was the SEC's filing of charges against Do Kwon and Terraform Labs, which could potentially have far-reaching implications. The second story uncovered that Binance had sent suspiciously large sums of money to a U.S. trading firm. However, these developments are hardly surprising in the world of cryptocurrencies.
In Friday's edition, I briefly touched on the SEC's charges against Do Kwon and Terraform Labs. Now that we have had the weekend to analyze the allegations, I thought it was worth revisiting the topic. I believe that the Binance story is equally deserving of attention.
This is a tale of two newsletter intros that seeks to give you the depth of analysis that you deserve.
What The SEC Is Really Saying
Anticipating the looming charges against Do Kwon, we were left to ponder the extent to which the SEC would embark on this endeavor and the subtle implications they would expound on. Without further ado, let us delve into some salient highlights extrapolated from the official complaint.
There Was Fraud… A Lot Of Fraud.
The existence of fraudulent activity has now been unequivocally demonstrated, dispelling any uncertainties that Terra's downfall was solely attributable to market forces and an unworkable concept. Notably, portions 121, 156, and 172 of the complaint distinctly expose that Chai, a payment company in South Korea, had not adopted Terra, and a US-based trading firm had artificially sustained the peg. This revelation dispels the facade of the entire Luna ecosystem. Additionally, the Luna Foundation Guard was a mere ploy employed by Kwon to funnel investor funds into his own coffers. I have included a screenshot of the relevant portions of the complaint for your perusal.
Securities Galore
The SEC did not limit its scrutiny to LUNA alone; it extended its investigation to UST and wLUNA. The SEC conducted an exhaustive analysis of these assets and made intriguing observations concerning stablecoins. Specifically, UST was classified as a security because of its association with Anchor, which was touted as a profitable investment opportunity. "Defendants engaged in efforts to engineer, develop, and support the Anchor protocol, for the purpose of maintaining the promised returns to investors," as specified in section 76.
This rationale prompts us to question the fate of BUSD and its connection to Binance Earn, as well as USDC and its connection to Coinbase One. In the SEC's evaluation of UST and wLUNA, there was no mention of the Howey Test. Instead, the SEC employed terms such as "enumerated securities."
While I do not intend to delve too deeply into the legal complexities, it is imperative to note that the SEC possesses the necessary tools to prosecute crypto scams and can classify something as a security even in the absence of an anticipated return. This implies that Binance and Coinbase must exercise extreme caution if they wish to continue providing yield or staking services in the United States. My intuition suggests that Coinbase will emerge relatively unscathed, but I am less optimistic about Binance's fate onshore.
Unfortunately, the crypto industry is not receiving clear-cut operational guidelines; instead, it is subject to delayed punishments that necessitate meticulous interpretation and a great deal of guesswork. While this may not be the most equitable approach, we can glean valuable lessons from the Luna lawsuit and strive to avoid similar pitfalls in the future. Now, let us redirect our focus to the latest developments in Binance Land.
Did Binance Have A Capital Funnel?
To begin, it is essential to clarify some distinctions between Binance.US and Binance. While this may seem self-evident, a few critical details are worth noting. Binance asserts that Binance.US is an entirely American entity, entirely independent, and merely a U.S. partner. As you may be aware, Binance and Binance.US have their respective CEOs responsible for managing their distinct operations. These are separate companies that adhere to different laws and offer different products. Although Binance and Binance.US share a trademark, they do not share funds, or so we are told.
However, in the latest development from Reuters, it emerged that Binance transferred $400 million from Binance.US to a small trading firm managed by CZ, with documents in the Reuters leak proving the transaction. The SEC is already scrutinizing the U.S. company, which is not a positive development. Silvergate Bank is involved in the mess, and the firm that received the funds is known as Merit Peak Ltd.
This not only raises numerous conflicts of interest but also blurs the lines between these two companies that are supposed to be distinct. Catherine Coley, the former CEO of Binance.US at the time, dubbed the transfers "unexpected" and remarked that "no one mentioned them." The transfers occurred within the first three months of 2021, and Catherine Coley was removed from her CEO position in August. Brian Brooks, a former Comptroller of the Currency who subsequently assumed the CEO position, departed three months later. Could the illicit transfer of funds and executive musical chairs be linked?
The Reuters article did not specify the reason for the funds' transfer or why they were sent. However, such transactions should never transpire. Binance has not provided any comment on the matter, aside from Chief Strategy Officer Patrick Hillmann's statement that the company intends to pay fines to bring the investigations to a close. It is worth noting that a day later, news surfaced that Binance would be severing ties with its U.S. partners. This should not come as a surprise and has been classified as "old news," which was subsequently confirmed by CZ. Given the SEC's close attention, why would Binance want to conduct business in the U.S.?
Although this introduction has been lengthy, both stories are significant news breaks in the ongoing crypto narrative. It is remarkable that the market can withstand such setbacks, indicating that the bottom is likely in, unless something unforeseen blindsides us or stocks plummet. In better news, a new narrative is emerging that the East will lead the next bull market, implying that not all is bleak.
Bitcoin Thoughts And Analysis
$25,212. Dare I mention that number again?
Price is once again spending the week hovering around $25,000, flirting with resistance and the line that would signal a higher high and the end of bearish market structure.
The red 200 MA and blue 50 MA are both offering further resistance in this area.
Nobody said it would be easy.
Last week’s candle was a marvel, bullishly engulfing the previous 3 candles. Bitcoin looks ready to go for the breakout. If it can get above $25,212, there is basically no resistance back up to the $28-$30K region.
That said - it is STILL resistance, so there’s no reason to get excited get, or to do anything.
Legacy Markets
US equity-index futures fell due to concerns that the Federal Reserve will maintain borrowing costs at high levels for a longer time. European stocks were mixed as optimism about China's economic recovery, which caused a rally in Asia, waned. While this has led to inflows into global assets linked to the Chinese economy, the wider market sentiment remains negative, with the Federal Reserve resolute in its fight against inflation. Moreover, increasing geopolitical tensions are preventing investors from becoming more bullish.
Goldman Sachs and other investors are betting on Chinese equities to resume a rally as the country deepens its stimulus and relaxes pandemic restrictions. Nevertheless, the broader market sentiment remains negative, with the Federal Reserve determined to fight inflation. Stocks last week ended on a subdued note following hawkish remarks by several Federal Reserve officials. Investors also watched growing tensions between the United States and China, which held a controversial spy balloon operation, with the two superpowers trading barbs over issues such as Taiwan, North Korea, and Russia.
Key events this week:
Earnings for the week are scheduled to include: Alibaba, Anglo American, AXA, BAE Systems, Baidu, BASF, BHP, Danone, Deutsche Telekom, Holcim, Home Depot, Hong Kong Exchanges & Clearing, HSBC, Iberdrola, Lloyds Banking Group, Moderna, Munich Re, Newmont, Nvidia, Rio Tinto, Walmart, Warner Bros Discovery
US financial markets closed for Presidents’ Day holiday, Monday
PMIs for Japan, Eurozone, UK, US, Tuesday
US existing home sales, Tuesday
US MBA mortgage applications, Wednesday
The Federal Reserve minutes from Jan. 31-Feb. 1 policy meeting, Wednesday
Eurozone CPI, Thursday
US GDP, initial jobless claims, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
G-20 finance ministers and central bank governors meet in India, Thursday-Friday
Japan CPI, Friday
BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.1% as of 10:59 a.m. London time
S&P 500 futures fell 0.2%
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average fell 0.2%
The MSCI Asia Pacific Index rose 0.6%
The MSCI Emerging Markets Index rose 0.5%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0688
The Japanese yen was little changed at 134.09 per dollar
The offshore yuan was little changed at 6.8670 per dollar
The British pound was little changed at $1.2027
Cryptocurrencies
Bitcoin rose 1.5% to $24,924.25
Ether rose 1.5% to $1,711.35
Bonds
Germany’s 10-year yield was little changed at 2.45%
Britain’s 10-year yield declined four basis points to 3.48%
Commodities
Brent crude rose 0.7% to $83.58 a barrel
Spot gold was little changed
Blur Goes Toe-To-Toe With OpenSea
Blur's meteoric rise to the top of the NFT world has been nothing short of extraordinary. Despite having only been in existence for a few months, Blur has already surpassed OpenSea's daily trading volume (on February 15th) and compelled its rival to revamp its platform to remain competitive. Before delving into the rivalry, it is essential to note that most of Blur's growth occurred in the past few weeks.
On February 14th, NFT hype skyrocketed when Blur users began redeeming care packages for the BLUR token, which has now ascended to the top 100 on CoinMarketCap. The day after the airdrop, Blur's daily transactional volume quadrupled, and Coinbase announced that it would list the token once sufficient liquidity was achieved, which has already occurred. Everything is working in Blur's favor.
However, OpenSea is not willing to concede without a fight. To counter Blur's encroachment on its market share, OpenSea made a significant announcement regarding impending changes to its platform. For OpenSea users, I recommend reading the announcement HERE, but the summary is this: a 0% fee for a limited period, optional creator earnings, and leniency on other operators. The rivalry has evolved into a royalty war.
The upshot of all this is that NFT creators and consumers emerge as the victors. Without competition, OpenSea would have been able to consolidate its dominance into a monopoly. OpenSea has now agreed to become more transparent with its royalties in a bid to compete with its new rival - an excellent example of the benefits of competition. On another (related) note, YouTube's new CEO, Neal Mohan, has expressed favorable views about NFTs and web3. While NFTs may seem "mainstream," they are still in the nascent stage of their evolution.
The Future Of Staking | Lex Sokolin, ConsenSys
After Kraken closed its staking program in a $30 million settlement with the SEC, and Brian Armstrong warned that the staking for U.S. retail customers may have come to an end, staking became the hottest topic in crypto. I invited Lex Sokolin, the Chief Cryptoeconomist at ConsenSys, to my podcast to talk about staking and its role and future in crypto.
In this episode with Lex, we discussed:
Staking
More capital is better?
Voting & bad actors
Free market
US attacks on crypto
ConsenSys ecosystem
Multichain vs. one chain
Crypto adoption
Crypto moves according to a price
Macro
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.