Sophia’s Thoughts on Crypto’s Fading Big Ken Energy
Margot Robbie may have insinuated that Bitcoin has big Ken energy (or Kenergy, if you have been following the latest Barbie hype). But the crypto market just hit a bad streak and Bitcoin briefly traded below $29,000 again. Where did all of the crypto Kenergy go?
These are Sophia's Thoughts:
A major development came yesterday, when a new US judge rejected the notion that tokens are not security. This opens up the way for further litigation by the SEC. Which, in turn, makes the future of crypto in the US much more uncertain now.
Then there was a major hack at Curve Finance, enabled by a software vulnerability in its algorithms. Hacks are a key risk inherent in crypto. But, in this case, a benevolent hacker recovered some of the lost funds.
To make things worse, Sam Bankman-Fried is suspected of orchestrating a 90% loss in the new meme coin launched on Coinbase’s new network. This development highlights the potential for market manipulations even within systems managed by Coinbase.
One good crypto news this week: several crypto bills offering clarity about how crypto will be regulated in the US were discussed in Congress. Maybe soon the US will have a clear framework for crypto companies to operate.
CNBC has put their trust in us and featured Indicia’s sentiment data in their August crypto market preview. Are you ready to do the same? Join us for free now.
🚀 Last week’s market performance
Big Ken Energy was sparse in the crypto market last week. Bitcoin (BTC) and the crypto market as a whole flatlined. They posted a modest 1% gain by the end of the week. The biggest loser of the week is Curve DAO Token (CRV). This is the native token of the Curve Finance platform that experienced a major hack. It ended the week 16% down. The hack at Curve Finance also led to huge gains at Uniswap (UNI), one of its key competitors. Uniswap posted a 15% gain.
Sophia was mostly neutral last week but with a slight bearish tendency. She perceived some crypto fundamentals to be weak.
🧐 What is your crypto mood today?
In each Sophia's Thoughts newsletter, we ask about your crypto mood. Your response to this question helps Sophia get a better sense of the pulse of crypto markets. And this ultimately translates into better insights for you when combined with Sophia's AI models. Your data empowers Sophia to provide you with even better intelligence going forward!
🌋 Terraform’s Uphill Battle
In a new development, another US judge took a look at the claim whether cryptos are securities and reached a different conclusion. In the SEC vs Terraform Labs case, the judge denied a motion to dismiss the case. The lawsuit takes aim at the operator of TerraUSD, a defamed stablecoin that wiped almost half a trillion Dollars when it collapsed last year. The SEC claims that Terraform Labs committed fraud and violated securities law.
Terraform attempted to get the lawsuit dismissed because the judge in the Ripple decision already ruled that securities law does not apply to open token sales. But the Terraform judge disagreed. He implied that individuals that buy tokens openly on crypto exchanges may do so because they expect profits from the token operations. It depends on how the tokens are marketed by the token operators. In the Terraform case, the tokens were clearly marketed with an expectation of future profits. So, they are securities based on the Howey Test.
This ruling makes the future of crypto regulation in the US more uncertain again. As lawsuits battle their way through the U.S. judiciary system, we can expect more judges to have varying arguments and decisions. This will certainly add more confusion to this already confusing landscape.
The market reacted negatively to the news. Bitcoin dropped below $29,000 when the decision was announced on July 31. But it has since recovered.
⤵️ The Curve Crisis
Curve Finance was the second largest decentralized exchange in crypto. Then, a hack showed a vulnerability in the programming language used to code segments of the Curve platform. The glitch led to more than $40 million in losses. It caused investors to panic. Curve saw a 50% percent decline in the total amount of crypto committed on its platform. Curve DAO Token (CRV), the native token of the Curve platform, lost as much as 32% before it recovered. It is currently trading at a 16% loss since the hack was announced.
Crypto Exchange Curve Sees $1.5 Billion Removed After Hack (Bloomberg)
Curve Finance Hacker Returns $5.4 Million, But CRV Dumps 15% (Cryptopotato)
Hacks such as the one that Curve experienced can happen in the decentralized finance (DeFi) space. That’s because operations are fully automated through smart contracts and users only transact digitally on online platforms. Luckily, Curve Finance was able to recover $5 million with the help from a benevolent hacker. But hacks and algorithmic vulnerabilities are risks that DeFi investors need to consider when deciding on investments.
Curve Finance’s $62M exploit exposes larger issues for DeFi ecosystem (TechCrunch)
Crypto investors lost nearly $4 billion to hackers in 2022 (CNBC)
Crypto Hacks and Exploits Cost Traders $303M in July; Worst Month of 2023 (CoinDesk)
👨🦲 SBF gone BALD, maybe?
Another scheme investors need to be wary of is rug-pulling. That’s the kind of scam that occurred with Bald (BALD), a meme coin making fun of Coinbase CEO Brian Armstrong’s head. The Bald project launched on July 30 using the new Base network of Coinbase. It initially attracted millions in investments. But, a day after its launch, investors pulled millions of liquidity, causing it to crash by 90%. It briefly recovered. But, now, the token has become essentially worthless.
This rug-pulling scam has been linked to wallets controlled by Alameda Research. That’s the cryptocurrency trading firm linked with Sam Bankman-Fried (SBF), who is infamously known for the FTX collapse. SBF has been under house arrest in his parents’ basement. He has lost most technology privileges by only being allowed to use a flip phone and pre-approve websites.
The internet has ravish theories as to whether SBF was actually involved in the scam. In particular, some speculate that SBF designed the scam to showcase vulnerabilities in Coinbase’s Base network. That would indirectly help the SEC in proving that Coinbase is not hack-proof. But there is no direct evidence, yet.
🏛️ A regulatory brightspot
In the aftermath of the Ripple lawsuit, it became apparent to regulators that a clear framework for crypto is necessary. For the first time, Congress will take up four different bills tackling crypto on their own.
The Financial Innovation and Technology for the 21st Century Act defines “blockchain” and “digital assets” as well as the roles of the CFTC and SEC in crypto oversight.
The Blockchain Regulatory Certainty Act emphasizes that non-custodial crypto businesses should not be subjected to the same regulations as custodial cryptocurrency exchanges.
The Clarity for Payment Stablecoins Act provides a legal framework for the issuance of payment stablecoins.
The Keep Your Coins Act grants the right for consumers to maintain custody of their digital assets in self-hosted wallets without Government interference.
The legislators who presented these bills are taking different approaches to regulating the markets. It is difficult to speculate how these bills will perform going through Congress or what impact they will have on the crypto market. But, the reception has generally been positive both from crypto users and businesses.
Crypto’s Big Ken Energy may have faded last week. But, one thing we know is that crypto is always ready to offer new swings. As we highlighted last week, we expect continued volatility and sideways movements in crypto markets until a new development takes over the conversation.
Indicia Labs does not provide investment, tax, or legal advice. You are solely responsible for determining the suitability of any investment, investment strategy, or related transaction based on your personal investment objectives, financial circumstances, and risk tolerance. Indicia Labs may offer educational information about digital assets, which may include blog posts, articles, third-party content, news feeds, tutorials, and videos. This information does not constitute any form of advice, and you should not rely on it as such. Indicia Labs does not recommend buying, earning, selling, or holding any digital asset and will not be responsible for any decisions you make based on the provided information. Any content provided by Indicia Labs may contain errors, inaccuracies, or outdated information and should not be relied upon for making any investment decisions and Indicia Labs and its affiliates hold no responsibility for the accuracy of the provided information or content.
As with any asset, the value of digital assets can fluctuate, and there is a significant risk of losing money when buying, selling, holding, or investing in digital assets. Consult your financial advisor, legal or tax professional regarding your specific situation and financial condition, and carefully consider whether trading or holding digital assets is suitable for you.
Indicia Labs is not registered with the U.S. Securities and Exchange Commission and does not offer securities services in the United States or to U.S. persons. You acknowledge that digital assets are not subject to protections or insurance provided by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation.