🔮 Yen It Rains - It Pours, Poly-tical Predictions, SOL Passes ETH, Russia Turns to Digital Currencies

Yen It Rains, It Pours

The recent interest rate hike by the Bank of Japan (BoJ) spurred a market-wide selloff over the weekend and into the Monday open, with U.S. indexes dropping over 3% and the total crypto market cap down over 11%. The hike led to forced unwinding of the common "carry trade", where investors borrow Yen at low interest rates and effectively capture free margin by converting the borrowed Yen into higher yielding currencies like the dollar. Post-hike, many large investors were forced to cover their positions and sell off assets, ultimately creating downward pressure on global markets, with crypto being the first to sell off over the weekend as worries grew. The strengthening yen marks the end of an era of low-cost yen loans that supported global investments and underscores the challenges faced by markets as interest rate differentials shift. Not to mention the exceptionally tense geopolitical backdrop.

In the U.S., the Federal Reserve's dovish tone during the July 31 FOMC meeting raised the possibility of a rate cut in September, contingent on economic conditions aligning with expectations. This follows the Bank of England's decision to cut rates by 25 basis points from its 16-year high. However, economic data, such as the PMI index falling below 50 and the unemployment rate rising to 4.3%, suggests an economic slowdown and in return is sparking fears of a recession. Although market expectations have migrated toward a 50 basis point rate cut, broader markets remain wary, as signs of economic weakness challenge optimism about monetary easing. Despite these concerns, the yield curve has been trending positively since July, and the Global Net Liquidity Index has reversed its downtrend, which can allude to liquidity conditions improving.

The shock waves were felt strongly in the digital asset markets which saw the largest leverage wipeouts in three years as a result of the weekend turmoil. Despite the recent drop, Bitcoin has still risen 232% since November 2022 while the Nasdaq has returned just over 50%. On-chain data suggests strong growth, as active DeFi loans have doubled year-over-year, lending protocols have generated 30% more revenue in 2024 than in all of 2023, and Solana's on-chain trading volumes have increased 2.5 times year-to-date. While altcoins have largely struggled YTD, the Alt Season Index suggests a near-bottom, with stablecoin supply recovering since July, indicating potential liquidity booms, paralleling global liquidity trends. Despite macroeconomic volatility and the upcoming election, positive signs suggest that the darkest moments may be leading to dawn.

Top Stories

Poly-tical Predictions

In July 2024, Polymarket saw a surge in its monthly trading volume, reaching $387 million, a 71% increase from the previous month. This figure exceeded the cumulative volume of the previous nine months ($376 million) and surpassed the platform's total volume over the past three quarters, indicating unprecedented growth. Polymarket also achieved a record high of 44.5K active traders, representing a 51% increase from the previous month and a 190% average monthly growth rate over the past three months, effectively tripling its user base each month. Despite potentially inflated user numbers due to multiple wallets per entity, this growth underscores Polymarket's success in attracting users. Open interest on Polymarket has grown more than 12-fold since early 2024, reaching over $88 million by the end of July. The platform's expansion is fueled by the popularity of betting markets amid events like the 2024 U.S. presidential election, the European football championship, and the Olympics. A significant portion of Polymarket's volume, over $474 million, comes from bets on the U.S. presidential election, comprising more than 45% of its total volume. Prediction markets like Polymarket offer a potentially more accurate reflection of market sentiment than traditional polls, making them attractive to users. As the U.S. presidential election nears, it will be interesting to see if Polymarket can maintain its growth momentum. See similar: Polymarket crosses $1 billion in cumulative volume, driven by US political bets

Source: The Block

Vitalik Buterin: Ethereum Ready for Massive On-Chain User Growth

Vitalik Buterin, Ethereum's co-founder and chief scientist, stated that the Ethereum ecosystem is now capable of supporting "tens of millions" of users and urged developers to balance the needs of new web3 users with veteran dApp enthusiasts. Speaking at the BaseCamp Summit, Buterin emphasized transitioning from small-scale, clunky applications to those capable of widespread adoption. He stressed the importance of creating user-friendly applications without relying on centralized infrastructure like Google accounts, appealing to both beginners and advanced users to unlock mass adoption. Buterin also highlighted the role of CeFi firms, such as Coinbase, in bringing more users on-chain and emphasized the need for improved cross-chain interoperability among Layer 2 networks. He championed ERC-3370 and ERC-7683 as key upgrades for simplifying cross-chain transfers and urged developers to prioritize research on enhancing interoperability and account abstraction across Layer 2 ecosystems.

Solana Surpasses Ethereum in Monthly DEX Volume for the First Time

In July 2024, Solana's decentralized exchanges (DEXs) surpassed Ethereum in monthly on-chain trading volume, processing $54 billion compared to Ethereum's $52 billion, according to DefiLlama. Solana now accounts for 29% of DEX trades, slightly ahead of Ethereum's 28%. While including Ethereum's Layer 2 networks would still give Ethereum an edge, Solana's rise is notable. This growth is largely driven by memecoins, with platforms like pump.fun enabling the rapid issuance of new tokens, resulting in over 17,100 tokens created in a single day. Leading Solana DEXs include Raydium, Drift, and Orca, with a combined $1.4 billion in 24-hour volume. Despite past challenges, Solana has consistently ranked in the top 10 for DEX volume since mid-2022, with a significant leap to $28 billion in late 2023. If Solana's memecoins continue to drive market activity, the network may maintain its competitive position among top blockchain networks.

Source: DefiLlama

Grayscale Bitcoin Trust Holdings Drop 55% Amid Spot Bitcoin ETF Competition

Grayscale Investments reported a 55% drop in its flagship Bitcoin Trust (GBTC) holdings in the first half of 2024, losing over 348,000 Bitcoin as investors moved to other funds. The decline, valued at $22.4 billion, followed GBTC's conversion to a spot Bitcoin ETF in January when it held nearly 620,000 Bitcoin. During this period, GBTC's holdings fell from $26.3 billion to $17 billion due to competition from other asset managers. Despite the asset reduction, GBTC's value declined by only 35% due to Bitcoin's rising price. Grayscale reduced GBTC's management fee to 1.5% and launched a Mini Trust with a 0.15% fee. While GBTC saw $19 billion in net outflows, ETFs from BlackRock and Fidelity had net inflows of $20 billion and $10 billion, respectively. Bankruptcy estates like Genesis and FTX also sold significant GBTC shares, adding to outflows. Despite challenges, Grayscale's successful conversion of GBTC into a spot Bitcoin ETF set the stage for this year's ETF launches, with its Mini Trust aiming to stay competitive.

Regulation

Russia Turns to Digital Currencies Amid Sanctions and Economic Struggles

Russia, the world's eleventh-largest economy, is turning to digital currencies to address monetary issues caused by war-related sanctions. The State Duma has approved a draft bill to experiment with international crypto payments to circumvent these sanctions, with the Federation Council expected to approve it swiftly. Due to sanctions, Russia's imports dropped 8% in Q2 2024, and cross-border payments now take up to three months. Only a few Chinese banks are willing to defy sanctions, while India and the UAE are more cautious. However, the Chinese-owned platform Qifa facilitates USDT stablecoin payments between China and Russia. This move marks a shift from Russia's previous stance, as the central bank proposed a total ban on cryptocurrencies before its 2022 invasion of Ukraine. Crypto analyst Ani Aslanyan noted that the U.S. would likely monitor these channels to block sanction-violating payments and that only a select group of large exporters who mine their own crypto might meet regulatory requirements. If President Vladimir Putin signs the bill into law, the Bank of Russia could establish requirements by September 1, with transactions possibly starting before the end of 2024.

Mt. Gox Transfers $2 Billion in Bitcoin Amidst $9 Billion Payout Process

Defunct cryptocurrency exchange Mt. Gox transferred over $2 billion worth of bitcoin to a new address on Tuesday, as reported by Arkham Intelligence. The transaction, involving 33,105 BTC, was completed at 7:28 p.m. ET to an address starting with "bc1q26," though the ownership of this address remains unknown. This move is part of Mt. Gox's ongoing effort to repay creditors, distributing billions of dollars in bitcoin through exchanges like Bitbank, Kraken, Bitstamp, and SBI VC Trade. Bitstamp began distributing assets to creditors on July 25, following the trustee's statement that repayments had been made on July 5, 16, and 24, totaling over 17,000 creditors as of July 24. Despite these distributions, wallets linked to Mt. Gox still hold approximately $5.29 billion in bitcoin. The potential market impact of these payouts remains uncertain, though a report from Glassnode suggests that many creditors may hold their assets long-term, reducing sell-side pressure. As of now, Bitcoin's price has slightly decreased by 0.54% to around $66,223. Mt. Gox, once the largest bitcoin exchange, suffered a massive security breach in 2014, losing at least 850,000 BTC.

Source: Arkham

SEC to Amend Complaint Against Binance, Possibly Avoiding Court Ruling

The Securities and Exchange Commission (SEC) plans to amend its complaint against the cryptocurrency exchange Binance, which could circumvent a court ruling on whether certain cryptocurrencies, such as Solana, qualify as securities. The SEC informed Binance that it intends to revise its complaint, specifically regarding the classification of "Third Party Crypto Asset Securities," including tokens like SOL, ADA, MATIC, and others, previously alleged to be investment contracts under the Howey test. This move suggests the SEC aims to address issues beyond just these tokens, as indicated by Binance in a joint status report filed on Monday.

Democrats Urge CFTC to Finalize Ban on Political Event Contracts

Senator Elizabeth Warren and other Democratic lawmakers are urging the U.S. Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam to finalize a rule banning event contracts that allow betting on political outcomes. They argue that such bets "cheapen the sanctity" of the democratic process by prioritizing financial gain over political convictions. The proposed rule seeks to prohibit event contracts related to political contests, gaming, war, terrorism, and assassination from being traded or cleared through a CFTC-registered entity. Event markets like Kalshi and Polymarket, which enable users to bet on outcomes of future events, including upcoming U.S. elections, have seen increased activity in recent months.

Senator Lummis Proposes BITCOIN Bill to Establish U.S. Bitcoin Reserve

Senator Cynthia Lummis, a Republican from Wyoming, introduced the Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act of 2024, which proposes creating a national Bitcoin reserve. The bill calls for the U.S. to acquire 1,000,000 BTC over five years, inspired by former President Trump's pledge never to sell the government's Bitcoin holdings. Lummis argues that substantial Bitcoin holdings can bolster the country's financial security and serve as a hedge against economic uncertainty. It likens Bitcoin to gold, emphasizing its potential to enhance U.S. financial leadership in the digital age. The bill mandates including digital assets from Bitcoin forks and airdrops in the Strategic Bitcoin Reserve and prohibits their sale for five years unless authorized by law. The proposed Bitcoin Purchase Program aims to acquire up to 200,000 Bitcoins annually over five years, with the assets held for at least 20 years. Lummis, a strong Bitcoin advocate, has previously introduced legislation to clarify digital asset regulations, protect consumers, and combat illicit crypto activities.

Other Domestic Regulation Updates

• Elon Musk said he sees merit in Bitcoin following Donald Trump's speech at Bitcoin 2024
• SEC sues BitClout founder Nader Al-Naji
• DraftKings Exits NFT Business Amid Class Action Suit Charging They Are Securities
• Grayscale Bitcoin Mini Trust begins trading following SEC approval

Other International Regulation Updates

• Hong Kong lawmaker advocates for including bitcoin in reserves following Trump's speech
• UK’s FCA Fines Coinbase $4.5MM for Serving High-Risk Customers
• Slovenia Issues €30MM Digital Bond, Europe’s First, on BNP Paribas Blockchain

Pain & Gain

Pain

• Attacker exploits IBC hooks vulnerability to steal tokens on Terra blockchain
• Notorious Whale Of Engineering Governance Attack

Gain

• Morgan Stanley to allow wealth advisors to pitch bitcoin ETFs to some clients
• Cantor Fitzgerald to Launch $2B Bitcoin Financing Arm
• Web3 Startups Raised $2B in Q2
• DEX Market Share Reaches All-Time High; Centralized Exchange Volume Slips