It has been announced last Thursday that the last stop before the Merge on September 19, the Goerli testnet, was implemented successfully, creating a rally across interrelated parts of the ecosystem such as Solana, Polygon and Lido, as depicted in the figure below.

Figure 1: Price and TVL Developments of Major Crypto Sectors

Source: 21Shares, DeFi Llama, Coingecko

Key takeaways

• Europe gets a 6th AML authority to oversee crypto
• Bitcoin’s NUPL increases, enters Hope/Fear phase
• The impact of Tornado Cash ban is rippling through the DeFi sector
• Netflix builds a metaverse to promote a movie
• Successful ETH Goerli testnet merge, next landmark is the mainnet merge on Sep 15/16

Macro, Regulations; Spot, and Derivatives Markets

The US dollar dipped by from Wednesday to Friday against the euro and other major currencies after the Consumer Price Index appeared to have risen only 8.5% in July, less than expected thanks to energy prices declining by 4.6% and gasoline 7.7%. On the other hand, China is cutting interest rates amid economic slowdown and unemployment on the rise.

In its earnings report, Coinbase reported a net loss of $1.1B in Q2, including impairment charges. The company also missed the $874M revenue estimate, reporting $803M. On the flip side, Coinbase expressed eagerness to continue with their targetted M&As to make the best out of the bear market.

Less than a week after the US Treasury banned Tornado Cash, the Dutch authorities arrested one of its developers who was later revealed to be Alexey Pertsev as a result of investigations that started in June. This news spread a wave of agony among the crypto community, unable to comprehend why authorities would go after developers who merely write code rather than the actual users who have committed illicit activities on the crypto mixer.

While Tornado Cash spurs controversy around the globe, NFTs have been doing rounds in Europe, as a regulator expressed concerns at a conference in South Korea that NFT collections are to be treated like crypto under the Markets in Crypto Assets (MiCA) law. As technical negotiations for the MiCA framework are still taking place until the end of September, parties are negotiating the mechanisms determining when NFTs are both fungible and not unique and thus would fall under MiCA obligations.

In other news, the EU is set to create a sixth anti-money laundering authority, AMLD6, to have direct oversight over the crypto industry. In a bid to reduce jurisdictional arbitrage between different member states, the European Commission first announced its plans in July 2021 and then the European Council published an update towards the end of June 2022, revealing January 2023 to be the date AMLD6 is to be established. The European Parliament aims to discuss it further with its members after the continent’s August vacation.

In the US, the CFTC and SEC have proposed a new law obliging hedge funds with over $500M of net assets to disclose their crypto exposure along with information related to concentrations and borrowing in a confidential filing. This new law aims to enhance the Financial Stability Oversight Council’s ability to monitor systemic risk and bolster wider regulatory oversight.

In a bid to combat illegal gold mining, which accounts for half of Brazil’s gold mining industry, a new bill in the South American country is proposing to tokenize mined gold via blockchain technology.

On-chain Indicators

Figure 2: Net Unrealized Profit/Loss Ratio of Bitcoin (YTD)

Source: Glassnode

The Net Unrealized Profit/Loss ratio, like the name suggests, aims to describe the state of profit and loss of a certain network. Figure 2 shows that Bitcoin has entered the Hope/Fear phase after a month of capitulation. In fact, the ratio has increased from 0.08 to 0.12 over the past week, indicating higher profitability.

Read the full report here

Media Coverage

Our very own Director of Research Eliezer Ndinga were featured in a report MarketWatch covering the Merge and how it will resonate with price developments of ETH. You can read more about it here.

News

UN Development Arm Advises Developing World to Ban Banks from Holding Crypto

What happened?

The UN Conference on Trade and Development, UNCTAD, released a warning to emerging economies that the rising use of crypto for domestic payments challenges states’ authority in monetary matters, and may cause leakage of development funds.

Why does it matter?

Whether it’s in Afghanistan, Lebanon, or Venezuela, we’ve seen unarmed communities benefiting from blockchain technology for remittance. In some cases, getting paid in crypto has become a necessity when countries are sanctioned or have their banking systems failed.

Our thesis at 21Shares has always been that imposing a holistic ban on crypto would essentially cause more harm than prevent evil. On numerous occasions, data banks and think tanks have reported that illicit activity in the crypto industry is in decline. Chainalysis reports that illicit activities represent 0.15% of all crypto transactions in 2021.

Read more!

Research Newsletter

Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com

Disclaimer

The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.