Riding The Wave News Summary #43
Crypto’s Great Reset: How Digital Asset Investors Will Recover From The Market’s $1 Trillion Meltdown, & NFT prices take a gut punch as the crypto bear market deepens
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News
Table of Contents
Tweets
NFT prices take a gut punch as the crypto bear market deepens
US congress research agency weighs in on UST crash, notes gaps in regulation
US agencies warn against the influx of North Koreans in IT and crypto jobs online
Tweets
Crypto’s Great Reset: How Digital Asset Investors Will Recover From The Market’s $1 Trillion Meltdown
Crypto’s history has been defined by five resets. The first came in 2014 when what was basically the only bitcoin exchange in the world, Mt. Gox, imploded following a nearly half-billion-dollar hack. The second, in 2016, was The DAO Hack, when an attacker tricked a smart contract into giving away $60 million worth of ethereum, worth $8 billion today. The third, in January 2018, occurred when the ICO bubble popped, starting a year-long decline, wiping out 60% of the crypto market or more than $700 million mostly in the form of worthless junk tokens. The fourth took place in March 2020 when crypto lost 40% of its value along with most other global financial markets.
Each reset not only led to price-market capitalization increases, they also cleared the way for rapid innovation.
The fifth reset started last week. It may shape up to be the most important yet. This time the trillion-dollar market collapse was caused by a steep selloff in risky assets and the sudden evaporation of a $40 billion digital token called LUNA that backed the $16 billion stablecoin TerraUSD (UST).
“And so that’s what we're seeing in the past couple of months, particularly in the past week, just an unwinding of ridiculous levels of leverage. And in the case of the Terra problem from this past week—the Luna problem—it’s just a bad idea, bad structure. You can’t collateralize an asset, that’s supposed to be stable, with an unstable asset.”
The co-founder of another big backer, Su Zhu of Three Arrows Capital, said on Twitter that LUNA’s downfall was rooted in its execution, not its fundamental value proposition. Zhu continues to proudly display the #LUNA hashtag on his Twitter profile.
Luna founder Do Kwon went out of his way to antagonize competitors. In March he said that it was fun, or “entertaining,” to watch projects falter and tweeted that UST would destroy Dai, a similarly constructed stablecoin launched in 2014.
The good news here is that most investors don’t seem to be panicking, which should act as a shock absorber for the market. Ironically, that may be due to the fact that investors were already taking money off the table when Luna and Terra crashed. The industry had “some de-risking in the crypto space even before Terra’s collapse,” says Nikolaos Panigirtzoglou, JPMorgan Chase’s managing director of global markets strategy.
One other positive piece of news for the crypto market is the widespread belief that the Luna/UST crash will not lead to contagion throughout the crypto ecosystem or bleed into the traditional financial world. In fact, the industry passed a very big test last week when Tether briefly lost its peg on Wednesday morning, dropping to 95 cents before quickly recovering.
The overall crypto market has handled Luna’s crash well although LUNA and UST still remain extremely uncertain, especially with the community considering moving over to a new chain based on a fork of the original and starting over. On the bright, & more important side Crypto will likely continue to take this in stride.
NFT prices take a gut punch as the crypto bear market deepens
Without fail, crypto has a way of humbling even the most self-assured and this market is definitely not for the faint of heart. Nonfungible token (NFT) investors have entered what appears to be a bear market and the recent chaos is also impacting community morale.
Notably, Yuga Labs’ Otherdeed NFTs, Bored Ape Yacht Club (BAYC) and Mutant Ape Yacht Club (MAYC) have all seen a decrease in their floor price. BAYC has since recovered from a dip in floor price after the Otherdeed launch and has seen a minimal 3% decrease in the last seven days. MAYC has seen nearly a 13% decrease in floor price in the last seven days.
Even with the NFT market cooling, the pricing seems like a blowout sale to some investors looking to capitalize on news. As it would turn out, proclaimed blue-chip Azuki NFT took the biggest plunge in light of one of its founders, Zagabond, openly admitting to their tumultuous past plagued with rugging the CryptoPhunks and Tendies community.
While this may seem negative for crypto I would actually argue that this is a good long-term sign. NFTs were the only area of crypto that weren’t matching the market, now that they are, hopefully, everything can start rebuilding & we are at or closer to a bottom.
US congress research agency weighs in on UST crash, notes gaps in regulation
The Congressional Research Service (CRS), a legislative agency that supports the United States Congress, has published a document that contains a rundown on algorithmic stablecoins and points out key factors to look at in the TerraUSD (UST) crash.
In the report, the CRS described the UST crash as a “run-like” scenario and posited that there are policy issues connected to the risk of such events. According to the CRS, a “run” situation starts when holders are doubtful of the reserves that back the dollar peg of the asset.
The research agency further explained that run-like scenarios in traditional finance are guarded by regulation and other measures such as bank deposit insurance and liquidity facilities.
Meanwhile, United States Treasury Secretary Janet Yellen recently noted that the de-pegging of stablecoins like UST and Tether (USDT) is not a threat to the country’s financial stability.
I am always happy to see the US government being proactive, hopefully, they come out with stable coin regulations soon and then move to other harder to regulate areas such as DE-FI and GAME-FI.
US agencies warn against the influx of North Koreans in IT and crypto jobs online
The United States Department of Justice, State and the Treasury issued a joint advisery warning against the influx of North Korean workers in various freelance tech jobs, especially in the crypto industry
The public advisory was released on Friday, highlighting the critical red flags and identifiers for private firms to avoid hiring North Korean workers. The U.S. agencies warned that these workers pose a range of risks including theft of intellectual property, data and funds that could be used to violate sanctions.
The advisory noted that North Korean workers often use virtual private networks (VPNs) to purchase third-country IP addresses and stolen identities to hide their origin country.
To identify and weed out such workers from the U.S.-based companies, the advisery listed various red flags to be wary of, including inconsistencies in name spelling, nationality, claimed work location, contact information, educational history, work history and other details across a developer’s freelance platform profiles.
This is definitely a weak point for crypto, most crypto communities are extremely accepting of those that want to contribute and so they don’t do standard background checks or any research on potential hires at all. This culture of trust ironically destroys cryptos’ culture of privacy and security by failing in this human element and not always following data privacy laws & proper security procedures.
Disclaimer: The information in this Newsletter is not financial, legal, or tax advice. I only trade on Etoro; if you are reached out to by people requesting you join a group or provide money, it is not me. My only public social media accounts are this Substack page, my Youtube page, my Twitter page, and my Etoro page; any others you see online are not me.