WEEKLY CRYPTO MARKET WRAP – 21 AUGUST 2022

CRYPTO MARKET UPDATE

The week saw some bearish price action with all major cryptocurrencies erasing the gains over the last few weeks. Data suggest that over $537 million from 156,155 traders have been liquidated in the crypto market in a day — with Bitcoin followed by Ethereum being the major impacted.

One of the major reasons behind the fall is the Fed’s expected rate hike expected next month. Analyst are expecting a 0.5% or 0.75% rate hike to keep inflation in check. Data also suggest a decrease in DeFi activity
over the last couple of days; with a 34% drop in volume in the last 24hrs. DeFi activity is crucial in keeping the markets liquid and also supporting price action.

In addition to the Fed’s expected rate hike; Ethereum price has faltered a bit over concerns over the merge and its impact. As we are nearing the merge date expected between the 15th and 19th of September — Investors are getting a bit cautious on fears of the unknow since this will be the first time that a network is transitioning from one consensus to another, hence there are a lot of unknowns.

CONCERNS OF THE ETHEREUM MERGE

The upcoming Ethereum [ETH] Merge has been highly anticipated and so far all the test runs have been successful. Although this suggests that the Merge might turn out smooth, there are concerns that investors should consider especially on tokens that run natively on Ethereum. The major concern is that
the Merge may lead to a fork that might have unexpected and unfavourable outcomes.

Blockchain network hard forks have historically yielded two networks, with each having its own native token. There are a variety of ERC-20 tokens that operate within the Ethereum network, which means that a fork would likely affect them too which includes the USDT stablecoin which is among the top 5 largest cryptocurrency. This could lead to a scenario where stablecoins and tokens locked in smart contracts might not be redeemable. If this concerns does hold true stablecoin holders might panic and start liquidating their holdings. Such an outcome would create a substantial amount of sell pressure and could have a disastrous effect on the entire industry.

Are these concern’s legitimate only time will tell since this is the first time that a network is transitioning from one consensus to another. However, it is important to note that the total value of ETH locked in DeFi dropped substantially in the last six months.

Many ETH holders might have decided to move their coins in anticipation of the potential disruptions that might be associated with the Merge. Additionally, a large amount of ETH shift into ETH 2.0 staking pools
was also witnessed during the same period. Meanwhile, the amount of ETH flowing into ETH 2.0 staking facilities increased drastically during the last six months.

These outcomes confirm that many ETH holders have taken measures to protect their interests once the
Merge takes place.

TORNADO CASH DAO SHUTS DOWN

Tornado Cash is an open-source cryptocurrency “mixer” that allows people to shield their transaction history on the Ethereum blockchain. It’s permissionless, meaning anyone can interact with it, and immutable, meaning its code, having already been deployed, cannot be altered.

The DAO that manages ~$21.6 million has now shut down and gone offline — this was after a series of actions taken by different authorities and private entities in the wake of US sanctions, which were announce against the controversial mixer. Companies like Circle froze funds worth $75,000 and the
exchange dYdX also blocked certain account from Tornado Cash. It is reported that Tornado Cash is being used as a means to launder money which is estimated to be $7bn since 2019.

SOUTH KOREA BANS 16 EXCHANGES (KUCOIN)

South Korean authorities have increased oversight of the crypto market in recent months, especially in the wake of the collapse of Terraform Labs’ TerraUSD (UST) stablecoin and its native token LUNA. Recently they have banned 16 exchanges which include big names like KUCoin since these exchanges are not registered in South Korea.

The authority warned that unregistered exchanges lacked protections such as certified information security management systems, which are required under Korean law. The banned exchanges have been targeting South Koreans by running ads with Korean-language websites, and by holding promotions
targeting local consumers.