This Week in Crypto: It’s Beginning to Look a Lot Like...Contagion

Bitcoin and other cryptocurrencies continued to trade sideways throughout the week, with the world’s largest cryptocurrency hovering above its familiar US$17,000 perch for now.

At the time of writing, Bitcoin (BTC) is trading at US$17,215.94 (+2.18%) while Ethereum (ETH) is trading at US$1,282.27 (+3.95%). Major altcoins such as BNB, Avalanche (AVAX), and Polkadot have also been trading in green within the same period.

“Until we get beyond some key pricing data and the FOMC decision, Bitcoin seems stuck in a seesaw around the $1700 level. Cryptos haven’t had any fresh developments stemming from the FTX collapse and that has provided a quiet period,” Oanda’s Edward Moya said on Thursday.

“It is no surprise that FTX founder Sam Bankman-Fried reportedly will face a market manipulation inquiry. The legal dissection of FTX and all of management will take months and dominate the headlines but might not drive the crypto market unless it exposes an unforeseen domino fall in the cryptoverse,” he added.

Elsewhere, the broader financial markets ended a five-day losing streak, with S&P 500 gaining 0.9% and the tech-heavy NASDAQ climbing 1.4% on Thursday. However, investors are expected to remain skittish ahead of November’s inflation report and the Federal Reserve’s final meeting of the year.

As for the crypto markets, fears of a contagion are rife as rumours of bankruptcy continue to swirl around key industry players like Amber Group and Genesis (more on this below). Analysts at Standard Chartered have also warned that BTC could fall as low as US$5,000 in 2023, and while banks aren’t always the biggest crypto advocates, it’s probably not going to be a Merry Christmas and a Happy New Year for crypto.

Hong Kong amends AML and CTF law

Hong Kong will soon subject crypto service providers to the same AML (anti-money laundering) and CTF (counter-terrorsim financing) laws that are being applied to traditional finance companies.

According to a December 5 amendment to the law, Hong Kong’s Legislative Council voted to add VASP (virtual asset service providers) to the Anti-Money Laundering and Counter Terrorist Financing Ordinance by June 1 2023.

Last month, the Hong Kong SAR Government set out its policy stance and approach towards developing a vibrant sector and ecosystem for virtual assets (VA) in Hong Kong in a post on its official blog, as the city moves towards legalizing crypto trading for retail investors and position itself as a hub for digital assets.

Just yesterday, Nikkei Asia reported that three asset management companies – CSOP Asset Management, Samsung Asset Management, and Mirae Asset Global Investments – have applied with the Hong Kong Securities and Futures Commission (SFC) to launch ETFs (exchange-traded funds) tracking cryptocurrency futures.

Goldman Sachs goes discount shopping

According to Reuters, investment banking giant Goldman Sachs is planning to spend tens of millions of dollars to scoop up crypto firms at a discount in the wake of the FTX implosion.

“We do see some really interesting opportunities, priced much more sensibly,” Mathew McDermott, Goldman’s head of digital assets, told Reuters, adding that the company is doing due diligence on a number of crypto firms.

FTX filed for Chapter 11 bankruptcy in the US on November 11. Its spectacular fall from grace has hit valuations and sparked chaos within the crypto markets, with a number of crypto firms either either following suit or tethering on the edge of collapse.

“It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that,” McDermott said.

“FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform,” he added.

Genesis provides update

US-based crypto lender Genesis has is working to preserve client assets and strengthen liquidity, according to a letter sent to its clients last week.

“Working in consultation with highly experienced advisors and in close collaboration with our owner, DCG, we are evaluating the most effective path to preserve client assets, strengthen our liquidity, and ultimately move our business forward,” Genesis interim CEO Derar CEO said in the letter.

“We anticipate that it will take additional weeks rather than days for us to arrive at a path forward.”

All other parts of Genesis’ business are “fully operational,” he added.

Genesis froze withdrawals on November 16, citing “unprecedented market turmoil” caused by the collapse of FTX, which led to “abnormal” levels of withdrawals that exceeded its liquidity.

Last week, the Financial Times reported that Genesis and its parent company Digital Currency Group (DCG) owe customers of crypto exchange Gemini US$900 million. Venture capital company Digital Currency Group, which owns Genesis Trading and cryptocurrency asset manager Grayscale, owes US$575 million to Genesis’ crypto lending arm, Chief Executive Barry Silbert said in a letter to shareholders last month. Gemini has now formed a creditor’s committee in an attempt to recover funds from Genesis and DCG.

Last Sunday, Coindesk reported that creditor groups in negotiation with Genesis currently account for some US$1.8 billion of loans, with the number likely to continue growing.

Judge orders Celsius to return user funds

A US Bankruptcy Judge has ruled that some users of embattled crypto lender Celsius Network should receive their deposits back.

According to a Bloomberg report, the ruling by Judge Marin Glenn involves around US$44 million of cryptocurrencies, specifically customer funds that were not in the platform’s flagship interest-bearing lending service, which only represents a small percentage of the overall amount of customer funds still stuck in Celsius.

A recent court filing indicated that around 58,300 users held assets worth US$210.02 million in its interest-bearing Earn Program and Borrow program. However, only 15,680 customers held around US$44 million in Celsius’ Pure Custody program, and its this group of users who will likely receive their deposits back.

Celsius announced Chapter 11 bankruptcy proceedings in July. Prior to the company’s bankruptcy, it was reported that FTX was interested in making a deal with Celsius but walked away because of the state of its finances – the platform had a US$2 billion hole in its balance sheet, and FTX found the company too risky to deal with.

Trading Volume

According to data from CoinMarketCap, the global crypto market cap stands at US$858.76 billion, a 1.98% increase since yesterday. The total crypto market volume over the last 24 hours is US$37.44 billion, a 0.92% increase.

Meanwhile, data from Cryptoquant indicates that crypto “whales” have been cutting down on their BTC holdings since June.

The chart above shows BTC UTXO value bands – the distribution of all unspent transaction outputs. It shows the behaviors of whales (represented by the pink area) or retail investors separated by the number of coins they hold, along with price actions.

Whales, represented by the UTXO value band of 1,000 to 10,000 BTC, have decreased their holdings by 367,000 BTC since June.

“We will need to see whales increasing their holdings for a price rally to be sustainable. An upward trend in bitcoin prices is typically related to large holders accumulating bitcoin,” CryptoQuant said.

Fear & Greed Index

Risk appetites are sapped – the Crypto Fear and Greed Index currently stands at 26, indicating “ fear” – a sign that investors are skittish. The index uses 5-6 measurements to assess the current sentiment of the market and then rates that level of emotion on a scale of 1-100 – 1 is extreme fear and 100 is extreme greed.

Sentiment climbed to reach 40 on 6 November, but it has remained in the low to mid 20s for the past month.