Echoes of Builder's Delight amid Capital Crunch and Contagion Fears

• Altcoins plummeted over the weekend in response to Robinhood's announcement
• Delio, the largest Korean lender, temporarily suspended deposits and withdrawals
• Hong Kong and Singapore regulators actively spearhead initiatives to foster a supportive environment for crypto businesses
  

Weekend plunge: Alts suffer, bitcoin held stronger

The total market cap of crypto universe continued to shrink but held above the $1 trillion mark and bitcoin's dominance rose to 47.5% as alts got smoked amidst a sharp move down over the weekend. Among the blue chip names Bitcoin dropped -4.6% (vs previous week) however ether broke its 6-week trend of outperforming bitcoin by posting losses of -9.9% week on week. Last week, the alts were already experiencing significant selling pressure following the SEC's release of a list of tokens classified as securities. Adding to the downward momentum, the popular trading platform, Robinhood, announced on Friday that it would cease support for Cardano, Polygon, and Solana starting June 27th. This announcement further intensified the one-sided market sentiment, leading to sharp downward movements over Saturday morning, Asia time. The market's reaction was negative (but not surprising). During events like these, the altcoins tend to experience the most substantial price declines, followed by ether, while bitcoin is relatively less affected. This pattern contrasts with a bull market, where the dynamics are typically reversed.

Capital crunch, contagion fears

A recent report from a crypto market intelligence platform reveals that the supply of bitcoin on exchanges has reached its lowest level since February 2018. This significant drop has been amplified by growing concerns surrounding legal allegations against Binance and Coinbase, further exacerbating the liquidity challenges that have persisted since the FTX collapse. Consequently, it also indicates an increased likelihood of more frequent appearances of Bart on the price pattern. Higher cost and limited access to capital worsens the liquidity problem, and the market still grapples with persistent concerns about credit contagion, indicating that these fears are far from dissipating. Earlier this week, Delio, the largest Korean crypto lender, temporarily halted deposits and withdrawals due to issues faced by Haru Invest, a yield platform that had suspended such transactions a day earlier. In response, Upbit, South Korea's largest crypto exchange, announced the blocking of all withdrawals to Delio-based wallets. Delio's website claims holdings of approximately $1 billion in BTC, $200 million in ETH, and around $8.1 billion in altcoins, although it does not provide specific details on the source or timing of price estimations. While the situation is still unfolding and far from resolved, if it worsens, it could potentially have ripple effects on the South Korean crypto market ecosystem.

Furthermore FPG, a prominent crypto prime brokerage firm overseeing assets worth over $50 billion, has halted all trading activities, as well as deposits and withdrawals, in the aftermath of a cyber security incident. This unfortunate event has resulted in a loss estimated to be in the range of $15 million to $20 million for the company. However, FPG has emphasized in a recent Twitter post that their account segregation measures have mitigated the overall impact of the attack. According to the company, they are actively collaborating with government agencies and Chainalysis to recover the lost assets.

Crypto critiques, builder's delight

As an industry we are at a stage where most of the flaws are exposed, which gives an opportunity to the most hardcore doubters to criticize, but these flaws have given the builders the opportunity to continue working in an environment where they can just focus inwards given the one-sided bearish sentiment in the market. We continue to see the offshoots of growth especially from the regulatory side in Asia. The Singapore subsidiary of Swiss digital asset bank, Sygnum, has received in-principal approval for a Major Payment Institution License (MPIL) from the Monetary Authority of Singapore (MAS). SBI Digital asset holdings and SIX-backed exchange, AsiaNext, has been granted in-principle approval of the Capital Markets Services (CMS) license from the MAS. Hong Kong legislator, Johnny Ng, on Twitter has invited Coinbase and other crypto exchanges to establish official operations in the city-state amidst US regulatory challenges. According to a Financial Times report, the Hong Kong Monetary Authority (HKMA) recently raised inquiries with HSBC and Standard Chartered regarding their decision to not accept crypto exchanges as clients. Regulators in Asia, as well as in Dubai, Hong Kong, and Singapore, are spearheading initiatives to address crypto-related issues. Their efforts aim to establish a framework that can serve as a global standard for running crypto businesses. Although history doesn't repeat itself in exact ways, it often serves as a reminder of past experiences. Personally, I recall the phase between 2018 and 2020, where the key to success was continuous building and survival. Despite the considerable effort and time invested, there came a point when the sentiment shifted, and those very critics who once doubted the industry labeled builders’ achievements as luck.

Macro pulse

Among tradfi assets US equities rallied +2.5% vs previous week, potentially on easing concerns over inflation and the Fed's decision to pause rate hikes. However, the possibility of future rate hikes remains open. Oil futures extended their downtrend, dropping 5.4% week on week, due to concerns over declining demand from China. Elsewhere the US Dollar index declined by -1.1% , 10-year US treasury yields remained unchanged and the Gold & Silver Index fell -0.6% compared to last week.

Note: Weekly (7 calendar day) performance figures are as of 8am SGT on June 15, 2023.

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