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The growth of DeFi market, Bitfinex & Tether are sued, Block.one’s app
DAILY
June 03  |  5 min read

Tulip Season Coming to an End?

BeQuant Analytics, a daily cryptocurrency market analysis contributor

It is well known that Tulip season runs from the end of March until mid-May, but the flowers are usually at their best halfway through April. Similarly, despite the relatively sanguine start to the year, just like Tulips, the crypto markets blossomed in early April and the bulls have not looked back since. As a result, by the time June was upon us, Bitcoin’s price was up over 100%, as are many other crypto assets (see table below).

These cryptocurrency prices had all grown by June: Bitcoin, Ethereum, XRP, Bitcoin Cash

Year to date price changes. Source: COIN360

The move was, in part, led by the huge expansion of leverage products and the exponential growth of the Decentralized Finance (DeFi) market, even though ETH may have underperformed BTC, it was instrumental in supporting the risk on trade. The futures market also flipped on its head and having traded in backwardation, the BTC curve squeezed higher, forcing shorts to scramble and the curve moved into contango (premium). As a guide, at its peak, the total amount of ETH locked in the credit ecosystem of MakerDAO stood at 2.11%. In turn, the team went on a rate hiking spree that resulted in the stability fee rising to almost 20% to re-peg the stablecoin. Since then, the amount of ETH coins locked has declined dramatically to 1.5%.

Another major development this year was the news surrounding Tether and Bitfinex. Specifically, the New York State Attorney General (NYSAG) announced that it is suing Bitfinex and affiliated firm Tether (USDT). The suit alleged that Bitfinex and Tether engaged in “undisclosed, conflicted transactions to cover Bitfinex’s losses by transferring money out of tether reserve funds.” It is alleged that Bitfinex commingled client funds through Crypto Capital, in other words, the firm mixed funds held on behalf of clients with its own capital. Furthermore, according to the attorney general’s office, over $700 million was drained from Tether’s reserves. The court has reportedly ordered the operators of the companies to immediately cease the dissipation of the United States dollars that back tether tokens and to produce investigation-related information and documents. Despite the initial panic selling, the cryptocurrency market was able to stabilize and subsequent reports over the coming weeks that the exchange is looking to raise $1billion in an initial exchange offering (IEO) saw the market rally like it was December 2017.

Among the top tier assets, XRP is the standout underperformer. Not only was it forced to contend with the release of the JPM Coin, but the investment bank also upped its plans to expand an existing blockchain project to include settlement features. As reported by several media outlets, the blockchain-based Interbank Information Network (IIN) set up by JP Morgan currently allows its over 220 banking members to quickly address payments that contain errors, or get held up for compliance reasons. To make matters worse for XRP, about one billion XRP coins owned by Ripple were released from escrow at the same time as the major BTC rally was taking place. Ripple owns about 53.5 billion XRP, which is roughly 54% of the total supply. The company releases one billion of its holdings each month and sells a portion of it to third parties in privately arranged over-the-counter (OTC) transactions.

In terms of most recent developments, Bitfinex is seeking to launch Tether dollars (USDT) on the Lightning Network. According to reports, the launch will take place later this year and the efforts to get the launch going are reportedly already underway.

In other news, Block.one, the startup behind the EOS blockchain, announced a new social media application late last week. Block.one’s app, dubbed Voice, allows users to post and share content. The firm claims that real users, instead of bots, will be using the platform, likely referring to the issues the likes of Twitter and Facebook have suffered recently. User activities will also be registered on the EOS blockchain, potentially giving them more control over the information they share, according to Bloomberg. At the same time, EOS holders voted to reduce the annual inflation rate from 5% to 1% as of June 1, according to data on the voting platform maintained by EOS Block Producer (BP), EOS Authority.

Finally, it was reported that startups that conducted initial coin offerings (ICO) years ago may be eligible for relief from potential enforcement actions by the U.S. Securities and Exchange Commission (SEC). In his opening remarks at the agency’s FinTech Forum in Washington, D.C., SEC Director of Corporation Finance, William Hinman, said that cryptocurrencies are capable of shifting from being a potential security to very clearly not being one. “Digital assets may evolve into an instrument that no longer needs to be regulated as such,” he said. Hinman has made a similar point before. In a 2018 speech, he implied that Ethereum may have resembled a security during its ICO at its launch, but said that by last year it was sufficiently decentralized that it had evolved away from being a security.

Thank you for reading,
The BeQuant’s Analytics team