Pirate refs aside, this week was a mixture of shivers [via concern] and shivers [via excitement]. Big themes this week: Firstly, China’s housing sector looked a little shaky and that spooked BTC et al. Secondly, the SEC is flexing [yet again] and Coinbase is still doing their best to appease. Thirdly, the digital asset market appears to be in therapy, analyzing whether it’s exhausted or just suffering from info-overload. Massive week, let’s do this..
1. Is it really a China-Lehman moment?
$300bn in outstanding debt (according to Jimmy Chang at Rockefeller Global Family Office) paired with a liquidity crisis is a reasonable cause for concern. Chinese property developer Evergrande Group was reportedly in financial trouble and although the PBOC [Chinese Central Bank, i.e. the government] stepped in with a ~$14bn loan, the market still feels jittery.
Evergrande’s situation reflects an opaque backdrop just like in 2008 however and homeownership is 90% in China with many Chinese citizens holding property as investments. Analysts don’t anticipate a bailout and the markets definitely bounced, but this does rhyme a little with 2007 Bear Stearns / FMAE & FMAC. With just 13 years between now and the last time the world panicked, it isn’t surprising the markets are somewhat skittish; international investment firms, including Blackrock and HSBC, have significant exposure to Evergrande’s debt.
The read-through for crypto markets is whether Tether hold any commercial paper in China backing their stablecoin. Tether happens to be the largest stablecoin making up $72.5bn of the total $125bn stablecoin supply and the concern rippled through markets as often digital asset allocators will move their positions into stablecoins when there are concerns the market is cooling off.
2. Gensler is so hot right now.
Hot and bothered, perhaps. We have seen the SEC’s Gazza [British variation on the name Gary] take the stage with unnerving investigations, menacing statements about speculative assets and threats to crypto lending recently. The treasury just weighed in with a proposal to crack down on stablecoins last week. It has definitely curbed some of the market enthusiasm alongside the Evergrande events.
However, GMI’s Raoul Pal observes ‘history tends to rhyme’ in his tweet thread yesterday, explaining that whilst the next 3-5 years will most likely be a tug of war between the market and the regulators, eventually:
“… we will get new securities laws for digit assets and that they will be cheaper, faster, fairer and much less onerous on issuers.”
How will we get there? Well, firstly with the help of regulated crypto entities like Coinbase who plan to propose a crypto regulatory framework to US officials in the next month. Blockchain Associations and lobbying groups like Coin Center will also get to play their part in the education and bi-directional conversations that need to be taking place. It is not going to be easy, but Mike Novogratz seems to think the SEC will ‘get there in the end’.
3. Not cooling off, just warming up for Q4! Right?!
JPMorgan may have said ETH is overvalued but there are a vast amount of subscribers to the Ethereum utility narrative who would claim otherwise, including VanEck’s Matthew Sigel and the Ethereum Foundation’s Justin Drake. Delphi Digital (who are top-notch analysts alongside Messari, Glassnode, et al) claim seasonal market exhaustion may be kicking in and that we may be due a rough Q4 for digital assets, but historically [change the ‘Daily’ to ‘Monthly’ on the dropdown], BTC has performed pretty well 4Q after a lacklustre Q3 and BTC still tends to lead with a ~42% dominance (CoinMarketCap). Either way, with institutional interest picking up for digital assets according to the recent Deloitte Blockchain Survey and institutional investment in DeFi increases [according to JPMorgan incidentally] the market sentiment appears to be quietly bullish.
And now for some light Ents…
CNBC put together a top-notch brief CeFi explainer for DeFi, walking through the creation of Bitcoin all the way to decentralized financial protocols. Well worth a watch especially if you play it at 2x - it’s just 5 mins viewing!
… brought to you by Institutional DeFi project Alkemi Network and the ALK token, now available on Uniswap!
Alkemi Network is building an on-chain liquidity network with a suite of tools and products that serve as onramps for everyone to participate in decentralized finance. For those who noticed the [subtle] pirate reference in the title, we were pleased to attend the DeFi Pirates Party in New York last night alongside our CeFi exchange partner, Nexus Markets. A good time was had by all.