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Look back at August

Date
01/09/2023
Written by
Lykke
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Crypto markets ended in negative territory in August as hopes of rate cuts in the near term have evaporated. An environment with interest rates between 4–5 percent in the world’s largest economies make far riskier crypto assets less attractive to hold.

The first half of the month started off well for the crypto sphere, with Bitcoin trading around 29,000 US dollars. Then, by the middle of the month, the US dollar strengthened and the possibility of additional rate hikes to rein in on inflation resurfaced. This led to a sell off and massive liquidations, sending the price of Bitcoin below 25,000 dollars.

By the end of the month, a court ruling sparked hopes that the applications for spot Bitcoin exchange traded funds (ETFs) would soon be approved, enabling the crypto universe to recoup parts of August’s previous losses, before falling back.

In August, the monthly cryptocurrency exchange volumes fell to 407 billion dollars – the lowest level since October 2020. Binance remains the largest exchange. 

Bitcoin fails to break through 30,000 US dollar threshold despite spot ETF hopes

Bitcoin, the world’s largest cryptocurrency, traded between 25,000 and 29,900 dollars throughout the month. Hopes are, however, running high that long-awaited spot Bitcoin ETFs will soon be approved by the Securities and Exchange Commission (SEC) after a US court overturned an earlier SEC ruling relating to Grayscale Investments. 

Ten leading asset managers have filed applications and analysts expect that their approval will lead to massive inflows into these funds. This will in turn raise the demand for Bitcoin, given spot ETFs hold the underlying assets contrary to ETFs based on futures. Higher demand leads to higher prices. 

These US ETFs could account for up to a tenth of Bitcoin’s market value in terms of equity within three years, according to a report by the private wealth manager Bernstein. Bitcoin’s market capitalization is currently around 507 billion dollars, so more than 50 billion dollars could flow into Bitcoins according to this projection.

“Our contacts inside BlackRock have us think a spot #Bitcoin ETF approval is a question of when, not if," the CEO of Galaxy Digital Mike Novogratz told Bitcoin Magazine, predicting a decision within "four-six months. Meanwhile, Jacobi Asset Management listed the first spot Bitcoin ETF on Euronext Amsterdam on Aug 15. 

Bitcoin dropped more than 12 percent during August and traded around 26,000 dollars as of the middle of the month. It is still up 57 percent so far this year. 

Ethereum futures ETF expected to be launched by mid-October

There are no spot Ether ETF applications in the pipeline, but a dozen of applications for Ether futures ETFs are on the SEC’s table. “We think (they) have a very good chance of getting approved, and likely all of them launching on the same day, right around October 16th,” Bloomberg’s Eric Balchunas predicts.

It’s also worth mentioning that more than a third of Ether coin’s available supply are held by 10 addresses, according to the analytics platform Santiment. Ethereum lost more than 11 percent during the month.

SEC set to appeal judge’s Ripple ruling

The SEC is likely to file an appeal against the decision announced by judge Analisa Torres on July 13. She ruled that sales of the crypto currency XRP on public exchanges should not be considered as security but treated as one if sold to institutional clients. This ruling is viewed as a precedent for other crypto assets being traded in the US. 

The regulator and Ripple executives have informed judge Torres that they are available for trial proceedings during the second quarter of next year. Ripple’s cryptocurrency XRP shed more than 27 percent in August.

Litecoin successfully halved

Litecoin’s halving took place on Aug 2, diminishing the coin’s mining reward from 12.5 Litecoin to 6.25 Litecoin. Its next halving is scheduled in four years, so in 2027. Litecoin dropped 31 percent over the month.

Binance continues to operate in the grey zone 

Binance continues to do business in China, despite the country’s crypto ban, and has also kept processing transactions with at least five Russian banks under Western sanctions, Wall Street Journal reported. It also continues to serve Belgian residents through its Polish unit, despite being banned in Belgium.

The world’s largest exchange is also being dumped by suppliers, such as the British credit card processing company Checkout.com, which cited concerns over money laundering, sanctions and compliance controls. Binance will also no longer be able to use Paysafe’s services, which provide cross-border payments in euros, from September 25. 

On a positive note, Binance obtained El Salvador’s first full regulatory license and started a Japanese crypto exchange during the month. Binance decreased more than 12 percent.

Coinbase expands into Canada

There was little news regarding the court case filed by the SEC against Coinbase during the month. The US largest crypto exchange did, however, launch operations in Canada and bought a stake in Circle, the issuer of the stablecoin USDC, for an undisclosed amount. 

PayPal launches its own USD stablecoin, tapping on growing stablecoin market

On Aug 7, PayPal launched its fully backed stablecoin PYUSD, which is redeemable 1:1 into US dollars. Both Coinbase and Kraken, another leading US crypto exchange, now list PYSD. 

Last year, stablecoins settled over 11 trillion US dollar on-chain transactions, dwarfing the volumes processed by PayPal (1.4 trillion dollars) and almost surpassing the payment volume of the payment card provider Visa (11.6 trillion dollars), a report from Brevan Howard Capital Management showed.

The size of the stablecoin market could swell to 2.8 trillion US dollars by 2028 from 124 billion today, according to the private wealth management company Bernstein. Singapore’s regulator showed foresight as it revealed a new regulatory framework that strives to ensure a high degree of stability for stablecoins regulated in the city state.

US tax authorities tighten taxation of crypto assets

The US Internal Revenue Service (IRS), announced that all staking incomes must now be reported in US residents’ tax declarations. The US Treasury also published plans which would force both centralized and decentralized crypto exchanges, as well as crypto payment processors to report their clients’ crypto asset transactions, which would then also be passed on to the IRS. 

UK also toughens crypto rules

Crypto asset players will as of Sept 1 be forced to “collect, verify and share information about crypto asset transfers, known as the ‘Travel Rule,’” the Financial Conduct Authority (FCA) said. They remain responsible for achieving compliance with the rule, even when using third-party suppliers. 

US regulator sues an NFT offering for the first time

For the first time, the SEC sued a company, in this case Impact Theory, for raising money through unregistered non fungible tokens (NFTs). This move has created great uncertainty in the NFT universe. The NFT market’s trading volume was roughly 25 billion dollars last year. This figure can be compared to the traditional art market which generated sales of around 68 billion dollars, shown by data from DappRadar.

Dubai & Hong Kong grant licenses to crypto players

Dubai’s regulator granted a full crypto license to the Japanese bank Nomura’s crypto unit Laser Digital, while Hashkey Exchange obtained Hong Kong’s first license to operate a cryptocurrency exchange for retail investors by the territory’s regulator. The Switzerland-based crypto bank SEBA Bank also obtained an approval in principle (AIP) for a license to operate regulated digital assets by the same regulator. 

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