Q9 Weekly | No FOMO at the FOMC

15 June 2023

• Markets retract following FOMC meeting, BTC nears $25k
• Binance.US suspends dollar deposits on its platform
• Considerable growth in Layer-2 scaling solutions

No FOMO at the FOMC

Markets pulled back following the Federal Open Market Committee (FOMC) announcement that the central bank would pause rate hikes for June. As anticipated, Fed officials held interest rates after 15-months of hikes, but signaled they would likely resume tightening at some point to cool inflation. While this move aligned with investors’ expectations, the market move has been toward the downside as the Fed indicated that this pause is likely not going to last.

Bitcoin (-4.6%) was changing hands near $25k and Ethereum (-9.9%) at $1.6k. Altcoins sold off with many falling over 20%, particularly those named last week by the SEC as potential securities.

Bitcoin Slides Following FOMC Meeting

Source: CoinDesk Indices

The great post-Covid inflation scare appears now to be decisively entering its final stage — in the US anyway. The big question now is how long this stage will last and how many more rate hikes will be needed to cool rising prices. Once driven by fuel and goods, the base effects from the fall in oil prices now mean that energy inflation is negative, and so the “headline” rate of inflation dropped from 4.9% to 4.0%. However, core inflation has barely changed.

Source: Bloomberg

The dominance of Bitcoin, Ether and stablecoins has surged to its highest level since February 2021 as investors fled from smaller tokens following last week’s US regulatory clampdown. The combined market cap of the two largest digital assets and stablecoins comprises 80.5% of the total crypto market value of around $1tn.

Altcoins suffered a dramatic sell-off last week after the SEC deemed multiple tokens as securities in lawsuits against crypto exchanges Binance, Binance.US and Coinbase. Top 10 crypto assets such as Binance’s BNB, Cardano’s ADA and Solana’s SOL — all tagged as securities in the lawsuits — lost as much as 30% of their value over the week. The market will likely remain Bitcoin focused for a while.

Investors Flee Altcoins

Source: TradingView

Robinhood ended its support for Solana, Polygon and Cardano amid SEC exchange crackdown. The firm also reported its crypto trading volumes fell 68% to $2.1bn in May.

Crypto Assets Targeted by the SEC

Source: CryptoRank

Binance.US has suspended USD deposits, with the embattled exchange saying that its banking partners will stop processing its dollar payments. However, the federal judge overseeing the SEC’s case against Binance declined to freeze its stateside division Binance U.S.’ assets, saying “there’s absolutely no need” for a restraining order.

Monthly trading volume has hit its lowest level since early 2020. Activity cooled significantly in May with total volume across 18 centralized exchanges falling dramatically.

Monthly Crypto Trade Volume Significantly Down

Source: Kaiko

Layer-2 scaling solutions on Ethereum have seen considerable growth over the last three months. Monthly gas usage to settle L2 activity on the base layer more than doubled between February and March 2023 and has not retreated in either April or May.

Growth in Layer-2 Scaling Solutions

Source: DuneAnalytics, Etherscan and Coinbase

Overall gas data seems to suggest that user activity on L2s is not only rising, but is fairly sticky, despite the subdued price action across the rest of the market. L2 gas expenditures currently only represents around 8% of the gas used on Ethereum, but this is up sharply from the 2% average in 2022. That traction is also evident in the 124% increase in TVL of these scaling solutions year-to-date, with around US$3.4bn locked in the L2 ecosystem.

In the News…

• Binance seeks to withdraw Cyprus’ unit crypto service registration
• Uniswap Labs releases plan for Uniswap v4
• Is the US trying to kill crypto?
• Bank of China’s BOCI issues first tokenized security in Hong Kong on Ethereum
• Coinbase invited to set up shop in Hong Kong after SEC lawsuit
• HSBC and Standard Chartered pressed by Hong Kong to take on crypto clients
• London lures a16z’s first international office with ‘predictable’ crypto regs
• Classifying crypto tokens as securities will hamper some blockchains’ decentralization efforts, Bernstein says
• 10 ways crypto and AI can make each other better (or maybe worse)
• Robinhood ends support for all tokens named in SEC lawsuit as securities
• Gensyn, blockchain-based AI protocol, has raised $43M in a Series A, led by a16z
• Taiko raises $22mn across two rounds for its ‘Type 1 zkEVM’
• Why the XRP army keeps fighting
• Snoop Dogg’s NFT Tour Pass lets fans ‘travel the world’ with him virtually