Blockstone Capital Weekly Digest: Thursday 13 April 2023
Updated: Apr 14
A summary of the most important developments in the digital asset industry, every week
As we journey deeper into 2023, the crypto market is steadily regaining its footing with Bitcoin leading the charge.
On Monday, BTC rose above $30K for the first time since June 2022, marking an impressive 82% growth year-to-date, and effectively wiping out more than two quarters of the bearish onslaught from the previous year.
In tandem with Bitcoin’s recovery, crypto-related stocks such as Coinbase and Marathon Digital are also witnessing gains, with a 3.3% and 9.5% rise respectively observed today.
Meanwhile, ETH has made a triumphant return to $2K, likely driven by the excitement surrounding its Shapella upgrade. YTD, the asset has enjoyed a surge of 60%.
Yesterday, the spotlight was on the US inflation data release, with investors eagerly anticipating a decline in inflation figures. The year-over-year CPI for March was reported at 5%, marking the lowest inflation rate in nearly two years. This has raised hopes that the Federal reserve may pause its rate-hiking cycle, with the upcoming rate decision slated for May.
Should the Fed opt to slow down or halt rate hikes, risk assets like digital assets could experience further price gains. Indeed, the US bond market is already factoring in reduced long-term interest rates. At the time of writing, the yield on US two-year treasury bonds had fallen below 4%, down from its early March peak of 5%.
Carl, Vegard and Yev
Shapella is activated. Staked ETH withdrawals are finally enabled.
Last night, Ethereum successfully integrated its Shanghai and Capella upgrades (collectively termed the 'Shapella' upgrade). This milestone event is slated to be the next key driving force for the crypto market, allowing stakers to 1) fully-withdraw their staked ETH from the Beacon chain or 2) partial-withdraw, removing only their accumulated rewards.
As we write this note approximately seven hours post-Shapella, there have been 70.8K withdrawals, totaling 162.7K ETH, as per Etherscan. More than $1.34bn in ETH is waiting to be withdrawn.
The majority of withdrawals range between 2.8 to 3.2 ETH, suggesting that it’s mostly staking rewards being withdrawn at this time. This aligns with expectations, as holders of over 32 ETH undoubtedly recognise the asset’s potential, making the probability of exiting at the current price – lower than when many users staked their funds – slim.
Interestingly, despite concerns about market volatility following the fork, the price of ETH has been doing the opposite to what everyone thought it would do, surging 4.3% in the past 24 hours to breach the psychologically significant $2K mark.
Regardless of what happens with the asset price in the coming days, with the Shapella milestone achieved, developers can now finally shift their focus towards addressing Ethereum’s other issues – scaling problems – UI issues and network centralisation – among others.
On a shorter-term horizon, we believe the ability to withdraw will de-risk ETH for institutions and encourage greater staking adoption. In recent weeks, platforms such as Bybit and Coinbase have made moves to bolster their institutional and retail staking services. Adding to this momentum,, Metamask Institutional announced plans to launch an institutional staking marketplace.
Following the activation of Shapella, market observers anticipate a surge in ETH inflows to liquid staking protocols (often referred to as LSD protocols). This aligns with recent research from Crypto.com, which ranked liquid staking as the second-largest crypto sector after DEXes, surpassing DeFi lending.
Paxos becomes the latest crypto company to withdraw from Canada
Stablecoin issuer Paxos is the latest company to withdraw from Canada, following in the footsteps of dYdX, OKx and Deribit.
Effective June 2nd, Canadian Paxos users will only be able to withdraw from their accounts.
The Canadian crypto market is currently experiencing a wave of exits as the country’s securities regulator, the CSA, implements measures to strengthen its supervision of digital asset platforms.
On February 22nd, it initiated a 30-day countdown for unregistered cryptocurrency trading platforms operating within the country to submit a stricter pre-registration undertaking (PRU) to their primary regulator. Those unable or unwilling to comply will be forced to off-board Canadian users.
At the time of writing, a total of 11 crypto platforms are listed as having filed Pre-Registration Undertakings in the country.
The swift timeframe and comprehensive demands laid out by the CSA underscore the regulator's growing apprehension about the potential risks associated with digital assets. The CSA also recently reiterated it finds the term ‘stablecoin’ misleading, opting to refer to these assets as ‘ Value-Referenced Crypto Assets (VRCAs)’ instead.
The likes of Paxos and dYdX bowing out of the Canadian market indicates a perceived imbalance between revenue opportunity vs regulatory costs. On the other hand, several major companies have reaffirmed their commitment to remaining in Canada.
Among these entities are Gemini and Kraken, both of which have recently reasserted their commitment to remaining in Canada. On Wednesday, Gemini divulged that it had submitted its pre-registration to the Ontario Securities Commission, underscoring its resolution to stay in the country. In a similar vein, Kraken disclosed two weeks ago that it had followed the same course of action as Gemini, characterising Canada as a cornerstone of its global business.
Anecdotally, a number of the Canadians we have spoken with have expressed approval of the stringent measures introduced by Canadian regulators to safeguard Canadian investors. Meanwhile, a small but growing faction are voicing concerns that the Canadian crypto industry is shrinking and becoming more concentrated, taking the trio of crypto exchanges merging as an example.
Another week, another DeFi hack...
Security concerns have long been a central topic in the DeFi adoption conversation and it looks set to remain that way. Last weekend, decentralised exchange SushiSwap became the latest blue-chip DeFi project to suffer from a major exploit.
The TL; DR is that attackers found an approval bug in SushiSwap’s Route Processor 2 and were able to take off with roughly $3.4m from the smart contract. The majority of addresses that approved SushiSwap’s problematic smart contract were on Arbitrum and Polygon, with the contract having been deployed on Arbitrum a few weeks ago for testing.
In response, SushiSwap announced on Tuesday that about $51K worth of user assets secured by white-hat hackers would soon be claimable. The exchange’s development team is now working on a Merkle Claim contract, allowing users to connect their wallets and retrieve their funds.
This incident serves as a stark reminder of the challenges facing DEXs like SushiSwap, which are pioneering AMM innovation but grappling with ongoing security issues. It highlights the necessity for stringent security practices during on-chain transactions, as even established and trusted protocols can fall victim to exploits.
Nevertheless, the breach doesn't seem to have significantly impacted the project, with SUSHI bouncing back and recovering from a 4% drop following the exploit.
Roundup of other key developments
FTX has recovered $7.3bn in assets. More
Montenegro's central bank to test CBDC with Ripple. More
Hong Kong’s ZA Bank offers crypto conversions, sets out banking for Web3 ecosystem. More
Tron’s TRX drops as Binance US delists the token. More
Crypto exchange BitGet starts $100m Asia-focused Web3 fund. More
South Korean crypto exchange Gdac hacked for nearly $13m. More
Maple Finance to Launch US Treasury Liquidity Pool. More
Tether blacklists address that drained $25m From MEV bots. More
El Salvador grants first digital asset license to Bitfinex. More
Warren Buffett calls BTC a gambling token. More