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Tom Rodgers
Tom Rodgers Head of Research
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ETC Group Crypto Minutes Week #30

Bitcoin retakes $40,000, Amazon, Goldman Sachs, Twitter, Tesla and Shopify all cause crypto confidence, while exchanges and DeFi platforms cut leveraged trading and synthetic token trading in a bid to placate regulators.

Amazon crypto lead sends markets flying

An Amazon (NASDAQ:AMZN) job posting for a digital currency and blockchain product lead was spotted by journalists on 23 July 2021. News that the world’s third-largest company, with a market cap of $1.86 trillion, is dipping its toe into crypto sent the price of Bitcoin (BTC) flying back towards $40,000.

Amazon is looking for a Seattle-based “experienced product leader” within the Payments Acceptance and Experience team “to develop Amazon’s Digital Currency and Blockchain strategy and product roadmap”. This, naturally, led market watchers to speculate that Amazon was preparing to accept Bitcoin payments. One anonymous insider quoted by British business paper CityAM claimed that the e-commerce giant is seeking to accept cryptocurrency as payment on its platform by the end of 2022 as well as developing its own token.

This isn’t just going through the motions to set up cryptocurrency payment solutions at some point in the future – this is a full-on, well-discussed, integral part of the future mechanism of how Amazon will work. It begins with Bitcoin – this is the key first stage of this crypto project, and the directive is coming from the very top… Jeff Bezos himself. Unnamed Amazon insider, CityAM, 26 July 2021

The source went on to claim that Ethereum (ETH), Cardano (ADA) and Bitcoin Cash (BTC) would be “next in line” after Bitcoin, before bringing eight of the most popular cryptocurrencies online. Clearly such a move would be a huge step forward for cryptocurrency adoption worldwide.

In a press statement, Amazon flatly denied it was looking to accept Bitcoin payments in the short term, but left the door open to the possibility that it could do so in future.

The speculation that has ensued around our specific plans for cryptocurrencies is not true…[however] we’re inspired by the innovation happening in the cryptocurrency space and are exploring what this could look like on Amazon. We believe the future will be built on new technologies that enable modern, fast and inexpensive payments. Amazon statement, 26 July 2021

Speculation over the exact status of Amazon’s crypto ambitions caused elation over the weekend with markets gaining an average of 15% on the news.

Do you want to innovate on behalf of customers within the payments and financial systems of one of the largest e-commerce companies in the world? You will leverage your domain expertise in Blockchain, Distributed Ledger, Central Bank Digital Currencies and Cryptocurrency to develop the case for the capabilities which should be developed, drive overall vision and product strategy, and gain leadership buy-in and investment for new capabilities. You will work closely with teams across Amazon including AWS to develop the roadmap including the customer experience, technical strategy and capabilities as well as the launch strategy. Amazon.com job posting, Digital Currency and Blockchain Product Lead 23 July 2021

In other institutional crypto news this week, Tesla (NASDAQ:TSLA) is holding onto its 1.3bn Bitcoin position in Q2, Goldman Sachs (NYSE:GS) has filed to launch a DeFi and Blockchain ETF with the US market regulator and the $200bn market cap Shopify (NYSE:SHOP) is now allowing merchants to sell NFTs — the vast majority of which run on the Ethereum blockchain — directly through their stores.

Twitter (NYSE:TWTR) CEO Jack Dorsey also made the first public statement about how Bitcoin could be integrated into his social media platform in a 22 July Q2 2021 earnings conference call.

The world’s largest cryptoasset could be integrated into Twitter products including Tip Jar, Subscriptions, Commerce and Super Follows, Dorsey told analysts.

I think this is a big part of our future. I think there is a lot of innovation to be had, especially as we think about decentralising social media more and providing more economic incentive. So I think it’s hugely important to Twitter and to Twitter shareholders that we continue to look at the space and invest aggressively in it. DJack Dorsey, Twitter CEO, 22 July 2021

Square (NYSE:SQ) has invested heavily in Bitcoin, holding around $300m in BTC on its balance sheet as well as running the Bitcoin Clean Energy Initiative to promote the use of renewable energy in Bitcoin mining. As ETC Group reported earlier this month, Square has also committed to building a mainstream crypto wallet to open adoption to 100 million new crypto users.

> Regulators win as exchanges, DeFi platforms scramble to cut risk

Over-leveraged traders have been responsible for some of the most excessive volatility in crypto markets over the past two years. When markets rise or fall, traders using extreme indebted positions to maximise their gains are often wiped out.

Most recently, as Bitcoin markets recovered to $40,000, over $880m in leveraged short positions were closed out by exchanges. This incredible wealth destruction has been going on for far too long in crypto markets.

Data from TheBlockCrypto shows that by mid-July 2021 there were nearly three times as many short positions as long bids in the market, and recent price increases have wiped out nearly a billion dollars-worth of contracts.

Unregulated exchanges and those operating in legal grey areas have been responsible for encouraging this kind of risk among retail traders, by offering positions with up to 125x leverage across crypto spot and futures products.

But regulators have been fighting back to protect consumers.

To a certain extent, unlicenced exchanges have been able to get away with such products because regulators have been so far behind the technological curve when it comes to these complex, cross-border cryptoasset instruments. But now that exchanges are facing elevated levels of scrutiny, exchanges are rushing to slash access to their riskiest products.

Many exchanges have been forced to create specific regional subsidiaries — FTX US, Binance US and Bittrex US for example — which do not offer heavily leveraged futures or perpetual futures trading contracts, but rather a more simplistic buying and selling mechanism. Some would argue these moves are in the hope of skirting US securities laws. Binance US is reportedly eyeing an IPO into American markets, while FTX recently closed a $900m Series B funding round for a valuation of $18 billion.

FTX announced on 25 July it was lowering its leveraged trading limit from 101x to 20x, and on the same day Binance said it had cut leveraged futures contracts trades from 125x to a maximum of 20x.

And as of 26 July, Binance has also ended crypto margin trading against the British Pound, the Australian Dollar and the Euro, Reuters reported.

Decentralised exchange Uniswap (UNI), too, has cut back on the number of synthetic tokens it offers on its automated platform, citing “the evolving regulatory landscape”. Uniswap is the world’s largest exchange of its type, moving more than $350m of crypto value in the last 24 hours.

It had offered liquidity pools and token trading representing futures contracts for lumber, crude oil, gold, silver, and other sophisticated financial instruments typically regulated at the exchange level by the CFTC and SEC.

In a blog post on its website, it said it had delisted over 100 tokens that could be at risk of being classified as securities.

Today, consistent with actions taken by other DeFi interfaces, we have taken the decision to restrict access to certain tokens through app.uniswap.org. These tokens have always represented a very small portion of overall volume on the Uniswap Protocol. Uniswap, internal statement, 23 July 2021

This week, the Texas securities regulator also issued a cease-and-desist order against crypto lending protocol BlockFi.

But it is Binance, the world’s largest cryptocurrency exchange by volume, that has been hardest hit by closer regulatory attention.

The German market regulator BaFin warned Binance it was operating illegally in April 2021, and Binance has since stopped offering tokenised stocks to its customers.

Financial watchdogs in Singapore, the UK, Japan, Italy and Thailand have all raised concerns about Binance carrying out unauthorised activities in recent months, while authorities in two locations where the company is supposedly headquartered have both disowned the exchange.

Binance was founded in China but moved out of the country after the CCP’s crackdown on crypto in 2017. In 2018, amid wild press interest and huge fanfare, Binance allegedly moved its headquarters to the so-called ‘blockchain island’ of Malta. Two years later, the country’s market regulator dropped a bombshell: that Binance was not authorised to operate on the Mediterranean island.

Wikipedia (still a source for a lot of reporting) states that CZ Zhao’s company is headquartered in the Cayman Islands. After this was reported in the wake of other crackdowns, the Cayman Islands regulator said Binance was not authorised to operate in the country.

Stronger regulation always breeds confidence, which in turn creates more efficient and transparent markets. So these moves by the biggest players in the market to get out ahead of regulatory actions should inspire greater trust across the board. As an aside, institutional investors are often not allowed to get involved in such extreme levels of leverage on unlicensed exchanges, preferring instead the relatively safety of exposure to the asset class through centrally-cleared crypto ETP and ETF products that are traded on regulated and recognised stock exchanges.

Markets

BTC/USD

Bitcoin saw its strongest trading in more than a month this week, as the world’s largest cryptoasset climbed more than 20% against the US dollar to recapture $40,000, if only briefly. At the beginning of the week, BTC dipped 5.6% from a $30,982.55 start to $29,237.32, but quickly rebounded away from that three-week low, eventually climbing 39% to peak at $40,651.04. While BTC could not hold this level for long, as the week came to a close, the store of value coin was stretching back towards the round-number level, ending at $38,775.22.

BTC/USD graph
Data as of 27 July 2021 | Source: TradingView

ETH/USD

Ethereum volatility shrunk this week as bears fought with bulls for control, tipping Ether to a weekly high of $2,032.62 before weakening 15.5% to a low of $1,718.11. From this point the native currency of the programmable money blockchain climbed almost 10% to finish the week at $1,883.69. In the near term all eyes are on whether the psychologically-important $2,000 level will turn into support or resistance.

ETH/USD graph
Data as of 27 July 2021 | Source: TradingView

LTC/USD

Litecoin markets approached the $100 lows seen at the end of June, as sentiment indicators shifted bearish, at least in the short-term. The payments protocol found little support across the week, sliding gently from a $132.38 start to finish the week 13.9% lower at $113.90. One bullish point would be that traders expressed no appetite for LTC to dip below $103, rebounding 10.0% to finish this week's session.

LTC/USD graph
Data as of 27 July 2021 | Source: TradingView

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