Bitstamp Monthly Briefing – July 2023

Each month, we bring you a comprehensive overview of the most significant developments in the world of crypto. From groundbreaking innovations to noteworthy macro events and the performance of crypto assets, we curate all the essential information to keep you up to date, well-informed, and give you a sneak peek at what lies ahead.

Let’s dive in.

Market recap – July 2023

The total crypto market cap decreased by 1.3% MoM and reached $1.14tn at the end of July. Trading volume at leading crypto spot exchanges we track decreased by 2% in the same period, dropping to $324bn.

BTC dominance decreased by 2.7 pp MoM to 49.8%.

Source: Total crypto market cap,Bitcoin dominance

Best performing CMC 100 assets in July

• +87% XDC Network (XDC) - Expanded presence in the Japanese market through a partnership with SBI VC Trade
• +65% Bone ShibaSwap (BONE) - Saw a notable surge in daily active addresses in July
• +48% XRP (XRP) - US judge ruled that Ripple did not break federal securities laws by selling XRP on public exchanges

Worst performing CMC 100 assets in July

• -26% Curve DAO Token (CRV) - Multiple stablecoin pools on Curve were exploited for $50M+
• -25% Rocket Pool (RPL) - Underwent a bearish breakout from its upward trend earlier this year
• -24% Pepe (PEPE) - Potential profit taking following June gains

Key macro & crypto events in August 2023

• August 2: Litecoin (LTC) halving
• August 3: BoE Interest Rate
• August 4: US Non-Farm Payrolls
• August 10: US Inflation Rate
• August 15-16: Blockchain Futurist Conference (Toronto)
• August 16: FOMC Minutes
• August 16: GB Inflation Rate
• August 28-30: Science of Blockchain Conference (Stanford University)
• August 31: EU Inflation Rate

XRP ruling sparks crypto optimism

After almost three years of anticipation, the crypto industry finally received clarity on the legal status of Ripple's XRP token and sales. On July 13, a US federal district judge ruled that XRP is not a security “in and of itself” and that certain XRP sales and token distributions should not be seen as investment contracts. The ruling directly responded to the SEC's claim that these actions constituted unregistered security sales.

The court's focus was not on the nature of the XRP token itself, but rather on how it was sold or distributed to counterparties. The ruling determined that transactions where investors did not expect profits from Ripple, such as blind sales on third-party platforms, and token distributions to employees and developers without monetary investment were not investment contracts under the Howey Test. However, the court did find that tokens sold directly to “sophisticated individuals and entities” should have been registered with the SEC.

The crypto markets responded positively to the news, with XRP's price surging by over 70%, and trading volumes reaching their highest levels since 2021. Regulated exchanges like Bitstamp quickly made XRP trading available in the US.

XRP price performance and volume

Source: XRP Price & Volume

This ruling brought optimism to the crypto community, as it potentially could offer clearer guidelines for token sales and distributions and provide long-requested guidance for future US regulatory compliance. Other cryptocurrencies that had recently faced SEC scrutiny, such as SOL (+21%), ADA (+24%), and MATIC (+21%), also experienced notable rallies on the day of the announcement. However, it remains uncertain whether the Ripple ruling will set a precedent for similar regulatory cases involving crypto companies and token projects, and the SEC has already raised the possibility of appealing the decision.

Hard money: A comparison of Bitcoin and gold

‘Hard money,’ characterized by its limited supply due to the difficulty and cost of creation, offers a reliable store-of-value and serves as a long-term savings instrument, safeguarded against inflation. Historically, precious metals like gold, prized for their physical allure and functional properties, have served as a favored form of hard money. However, the true value of gold is widely acknowledged to come from its scarcity and the challenging process of finding, extracting, and refining it.

Since its inception in 2008, Bitcoin has garnered attention as a potential new form of hard money. Similar to gold mining, bitcoin mining demands substantial investments and energy as miners utilize immense computational power to solve complex mathematical problems and create new blockchain blocks. Consequently, advocates argue that bitcoin's scarcity and energy-intensive nature are central to its intrinsic value.

Certain proponents assert that Bitcoin offers a more dependable form of hard money than precious metals, largely due to its well-designed supply and demand structure. To explore this claim, let's consider a hypothetical scenario in which both gold and bitcoin experience an equivalent increase in prices.

In the case of gold, rising prices incentivize miners to invest in their operations and expand their geographic reach, leading to increased gold output. However, the surplus supply saturates the market, causing price declines and a self-cannibalization effect when demand fails to match the increased supply.

Similarly, as the price of bitcoin increases, miners are also incentivized to expand their operations. However, the Bitcoin protocol incorporates a critical feature known as the 'difficulty-adjustment mechanism' to counter an excessive influx of new bitcoin into the market. This mechanism automatically increases the difficulty of the mathematical problems miners must solve as more computational energy enters the network, thereby maintaining a predefined release schedule (block confirmation time of approximately 10 minutes at the time of writing). According to proponents, the finite supply and difficulty adjustment make Bitcoin a superior store-of-value compared to precious metals and other commodities, addressing the self-cannibalization issue often observed in traditional commodities and further enhancing Bitcoin's value proposition.

BTC price and block confirmation time (minutes)

Source:BTC Price & Confirmation Time

Recommended reads

Tether's and USD Coin's relationship with bitcoin's price by @brianq

The behavior of stablecoins, particularly Tether (USDT) and USD Coin (USDC), can provide useful insights into the direction of the overall crypto market. Key metrics to monitor include mean dollar invested age, absolute holdings of wallets with $100k to $10m in stablecoins, supply on exchanges as a percentage of total supply, and supply held by top exchange addresses. Unusual movements in stablecoins can signal potential bullish or bearish trends in the crypto market, providing valuable opportunities for profit.

Here you can find a comprehensive overview of the stablecoin industry by The Generalist with Basho.

BlackRock CEO Larry Fink says Bitcoin could ‘revolutionize finance’ (video)

In a recent interview, BlackRock CEO Larry Fink expressed a change in his perspective on crypto, particularly BTC. He stated that he believes Bitcoin has the potential to revolutionize the financial system by tokenizing assets and securities. Fink, who was previously skeptical of cryptocurrencies and suggested they were used for illicit activities, now sees bitcoin as an international asset that could serve as an alternative investment option. He compared it to gold, explaining that it could be used as a hedge against inflation and the devaluation of currencies in various countries.

Breaking down Worldcoin's launch by Kaiko

Worldcoin's launch was controversial due to its goal of creating a global identity network using eye scans. The tokenomics of Worldcoin are complex, with various supply distinctions, inflation rates, and some unclear language. Despite significant interest, liquidity remains relatively low compared to other token launches, possibly indicating a need to assign a higher dollar value to the token to incentivize people to participate in the eye scanning process.

Investing in AI: Navigating the hype by Kai Wu

This blog discusses the potential transformation of the economy due to artificial intelligence (AI) and the surge in AI-related stock valuations. To assist investors in finding lesser-known stocks that could benefit from the AI revolution, the authors created an AI-based financial analyst using GPT technology. They emphasize the importance of understanding "intangible value" to navigate the hype cycle, taking lessons from the dot-com bubble.

Teaching GPT to send bitcoin payments @DocumentingBTC

As a bonus, here’s a short video on how ChatGPT learned to send bitcoin payments (with human help of course).

No information in this blog is intended to provide any personal investment services or advice nor is an investment recommendation. Clients are responsible for making their own investment decisions. Bitstamp accepts no responsibility for any damage and/or loss arising from the use of information provided herein. Past performance is not necessarily an indicator of future results. Please consider your individual position and financial goals before making an independent investment decision.

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Don’t invest unless you’re prepared to lose all the money you invest. This is a high risk investment and you’re unlikely to be protected if something goes wrong. Cryptocurrencies are not regulated by the Financial Conduct Authority. Your investment may go down as well as up. You may be required to pay Capital Gains Tax on any profits you earn. You should think carefully about whether dealing in crypto assets is suitable for you in light of your financial situation and risk appetite.  

For more information on risks inherit to cryptocurrencies please visit: https://www.bitstamp.net/risk-warning/