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Crypto Exchanges Are Suffering in the Bear Market

“Boris Johnson resigns, Musk tries to pull out of the Twitter acquisition, Voyager files for bankruptcy”

Stock Market Roundup

Boris Johnson resigned as Prime Minister on 7th July, following key ministers leaving his cabinet, including Rishi Sunak and Sajid Javid. There is now a large power vacuum in the Conservative party and a new Conservative leader and prime minister will be decided at the Conservative party conference in September. Current front runner for the top job is ex-Chancellor, Rishi Sunak. On the day of the resignation, the pound strengthened 0.8% against the dollar, with GBP/USD hitting 1.2. The Bank of England has warned that the UK economic outlook has “deteriorated materially”, largely caused by high inflation, while Andrew Bailey, Governor of the BoE believes that inflation in the UK could remain for longer than other developed nations. Additionally, UK trade performance in June fell to the worst level on record. Over the last two weeks, the FTSE100 has fallen by 0.6% and the FTSE250 has decreased by over 2%. 

In the US, the S&P 500 has been flat over the last fortnight, as has the Nasdaq100. US job numbers, released on Friday 8th July, showed 372k jobs were added in June. The high figure shows that the labour market is still very hot in the US. Elon Musk has announced the termination of his Twitter deal, while Twitter announced it is going to sue Musk to ensure the deal still goes forward. Twitter fell 9% on Friday, including after hours trading. Finally, legendary investor Jim Chanos announced he has taken up a short position in legacy data centres REITs. His rationale is that their largest clients, cloud providers such as Microsoft and AWS, will increasingly shift to utilising inhouse data centres instead of third parties. 

Crypto Market Roundup

Bitcoin’s price ended the week at $21,250, up 2.9% for the fortnight. Similarly, Ethereum was up 2.6% during the same time period. The total crypto market cap was also fairly flat for the last two weeks, only down 2%. Large Bitcoin holders, El Salvador and MicroStrategy have taken advantage of Bitcoin’s low price and have increased their positions. The El Salvadoran government bought 80 BTC at an average price of $19k while MicroStrategy added 480 BTC at a cost basis of $20,800 a coin from early May to late June. On 8th July, Binance temporarily removed fees on its main BTC trading pairs to mark the exchange’s 5th anniversary. Binance also recently obtained a licence to operate in Spain. 

The crypto volatility of the last six months has increased pressure on exchanges. CEO of FTX, Sam Bankman-Fried, warns that some smaller exchanges are “secretly insolvent”. Bankman-Fried later stated his company “has a few billion to support the industry”, a move to potentially stop financial contagion in the crypto space. FTX has already deployed some of this capital, providing lending platform BlockFi with a $400m revolving credit facility, a deal which gives FTX an option to purchase BlockFi for $240m. FTX also supposedly passed on an opportunity to purchase Celsius in June due to poor finances, according to The Block. 

Crypto exchange Voyager suspended trading, deposits and withdrawals on the 1st July, and a few days later filed for Chapter 11 bankruptcy. Voyager currently has $1 billion to $10 billion in liabilities and over 100k creditors. Similarly, Vauld, a major crypto lender has suspended withdrawals and hired Kroll as financial advisors. 

In Other News…

The Boring Company will accept Dogecoin as payment for its Vegas loop. The Musk owned company aims to provide fast underground transportation and rides will reportedly cost $1.50. 

A study by HMRC found that 1 in 10 British adults have purchased crypto assets. The same study found that 76% of the holders were 45 or younger and 69% were male. 

South Korean hedge fund, Uprise, lost $20 million shorting LUNA Classic. Uprise’s trading platform uses AI technology to trade crypto assets with leverage. The platform lost 99% of its clients assets when its short position was liquidated during one of LUNA’s large, irregular pumps. 

On Thursday 30th June, the EU finalised its regulations regarding the trading of crypto assets. Crypto asset service providers will need to receive permission from a national markets regulator and will need to disclose environmental impact. Stablecoins will also require a “sufficient… liquidity reserve”. 

The US has called for Japan to damage Russia’s crypto mining operations. Japan currently has 31 crypto exchanges operating in Russia, which if shut down would further economically isolate Russia.

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