Casey Wagner

While equities struggle to bounce back from their <a href="https://blockworks.co/tag/banking" target="_blank" rel="noreferrer noopener">banking</a> crisis-induced slump, cryptos have been able to stay in the green — and it’s partially due to the Federal Reserve’s current course of action, analysts say. 



“Bitcoin had been mostly declining, up until the Fed injected liquidity into the banking system,”&nbsp;



Dessislava Aubert, research analyst at Kaiko said during a call on Tuesday. “Both the Fed and the Swiss National Bank intervened.”



The central bank recently booked the biggest increase to its balance sheet since March 2020. A reversal of Fed policy as certain banks need more liquidity as economic conditions worsen is a major switch from the near-zero interest rates investors have been used to for the past decade.&nbsp;



“​​The new Fed emergency program has been seen as a form of quantitative easing,” Aubert said. “We saw last week that the Fed&#8217;s balance sheet increased by $200 billion, so a lot of people were quick to say that it is a reversal of the quantitative tightening cushion over the past 10 months…basically, it all depends on what happens [Wednesday].”



Cryptos have also been impacted by the recent depegging of Circle’s <a href="https://blockworks.co/tag/usdc" target="_blank" rel="noreferrer noopener">USDC</a> from its dollar mooring, which has also been linked to the banking crisis. 



USDC fell to an all-time low of around $0.87 on March 10 after Silicon Valley Bank (SBV) — where $3.3 billion in USDC reserves were held — collapsed. 



Binance’s native token, <a href="https://blockworks.co/tag/busd" target="_blank" rel="noreferrer noopener">BUSD</a>, was also removed from many trading platforms. While it still exists on Binance, the delisting of BUSD across most centralized exchanges is really the death of the token, Clara Medalie, Kaiko’s head of research, said on the call. 



“Tether is dominant on centralized exchanges, and centralized exchanges account for the vast majority of trade volume and crypto markets,” Medalie said. “What we&#8217;re seeing is risk essentially concentrated into a single stablecoin, whereas even BUSD was a nice counterweight to USDT. Now that we won&#8217;t have that in the future, it will be interesting to see whether USDC will be able to reclaim some market share.”&nbsp;



How the stablecoin market shakes out will determine how much fiat is floating in cryptocurrency markets, according to analysts.&nbsp;



Of crypto trades involving fiat currently on the market, 47% are executed with dollars, according to Kaiko.&nbsp;



“The main question is that in the United States now that it&#8217;s increasingly difficult to deploy US dollars on exchanges…will the euro emerge as sort of the next dollar? Or will there be another fiat currency?” Medalie said.



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Bitcoin Investors Can Thank the Fed, Kaiko Researchers Say

<div id="highlights-block_6349657a95461" class="highlights">
 <ul>
 <li>The SEC and Ripple Labs agreed to forgo a trial, opting for a summary judgment that could come before the end of the year</li>
 <li>XRP is up more than 8,000% since its issuance but down 75% from its April 2021 all-time high</li>
 </ul>
 
</div>



Nearly two years after the SEC filed a lawsuit against Ripple Labs and two of its executives for allegedly issuing an unregistered security, the battle seems to be approaching its end. Last month, both the regulator and cryptocurrency issuer <a href="https://cms.blockworks.co/ripple-and-the-sec-agree-on-one-thing-let-the-judge-decide-xrps-fate/" target="_blank" rel="noreferrer noopener">agreed to allow</a> a judge to issue a summary judgment, therefore bypassing a trial and hopefully settling the matter before the end of the year.&nbsp;&nbsp;



Even amid the drama, XRP, the token in question, is still up more than 8,000% since its issuance. Its liquidity somewhat miraculously has <a href="https://cms.blockworks.co/xrp-price-jumps-9-as-judge-overrules-sec/" target="_blank" rel="noreferrer noopener">remained strong</a> as well. 



Blockworks sat down with Riyad Carey, research analyst at crypto data firm Kaiko, to discuss what the case means for the future of the industry and how to think about XRP’s recent price action.&nbsp;



Blockworks: What does the current court battle with XRP mean for the broader industry?&nbsp;



Carey: XRP was one of the earliest tokens to do an issuance, so I think this court case is pretty significant. It sort of speaks to the SEC and the stance it wants to take toward crypto. It&#8217;s a lot of years in the making, so I think the industry as a whole is probably watching it pretty carefully. But I wouldn&#8217;t panic or celebrate necessarily based on the outcome of this one court case.



Blockworks: If XRP is deemed a security, what could that mean for the rest of the industry? What should other issuers be thinking about right now?



Carey: I think XRP itself has sort of been treated as a de facto security since this court case started. It&#8217;s been delisted from the US exchanges, so it suffered the consequences already.&nbsp;



USD volumes are down, but that&#8217;s been supplemented by foreign volumes; Korean volumes, Mexican volumes, it has achieved some other adoption. I think token issuers would be wise to watch XRP and to think about what could be done differently. They should think about what were the main points that the SEC was looking at, to target XRP versus other issuers? The SEC only has a certain amount of bandwidth, so why did they choose to go for Ripple as opposed to other issuers? I think that&#8217;s important to consider.&nbsp;



Blockworks: What role do exchanges play in terms of deciding which tokens to list? How are their teams thinking about token classification?&nbsp;



Carey: I can&#8217;t speak to each exchange’s process, but I would say, generally speaking, they&#8217;re more mindful of what they&#8217;re listing now.&nbsp;



I used to work as a policy analyst, I would track the global regulatory developments, and it seemed like for about six months last year, every country around the world was warning the largest exchanges to not offer 100 times margin anymore. And so exchanges removed it, even the global exchanges that have historically not been super bound by regulations are being a little bit more mindful about their listings and the products that they offer.



But, in terms of XRP, I haven&#8217;t seen anything to indicate that the outcome of this trial would change anything significantly on a global scale.



Blockworks: What impact does regulation by enforcement have on the industry?



Carey: I think it kind of logically has a chilling effect in the US, but because it&#8217;s a global, decentralized technology, less activity in the US doesn&#8217;t mean that there&#8217;s less activity in general, it just means it moves elsewhere. But the thing is, people do want to innovate in the US, that&#8217;s just a fact of the world. It just puts projects in a tough situation where they don&#8217;t know what the rules are.&nbsp;



Blockworks: What have we seen with XRP in terms of price action? What does this signal?&nbsp;



Carey: Generally speaking, it&#8217;s moved with the broader market, but then the big catalysts have all been court related. Days where we have seen court filing and actions have all been the highest volume days of the year, so it does drive a significant factor in its price action.&nbsp;



XRP has seen legit, organic growth in the Mexican market, which at a time was the majority of its volume, which is super unusual. The Mexican exchange is Bitso, and XRP has been the majority of volume on the exchange consistently since March of this year. This is unusual as nearly every exchange we cover has BTC as the plurality of its volume.



People actually use XRP for cross-border payments, remittances and these types of transactions.&nbsp;



I was pretty surprised to see that the liquidity is still really good on the world&#8217;s biggest exchanges. There hasn&#8217;t been any noticeable disadvantage relative to its industry benchmark.





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Q&A: Kaiko Research Analyst on Ripple’s Legal Troubles and XRP’s Rally

<div id="highlights-block_62bc8f1cb2be3" class="highlights">
 <ul>
 <li>Bitcoin and ether fell back from previous record-breaking correlations with stock prices</li>
 <li>Traders still have an eye on equities though, and a rebound in stocks is expected to be good news for crypto prices</li>
 </ul>
 
</div>



Bitcoin and ether prices have decoupled from their previous all-time high correlations with equities, but experts say traders shouldn’t write off stock prices just yet.&nbsp;



In May, the correlation coefficient between bitcoin and the tech-heavy Nasdaq broke 0.8 for the first time — bitcoin’s correlation to the S&amp;P 500 also hit similar levels in early May. In June, the correlation between bitcoin and the S&amp;P 500 fell to around 0.5, according to <a href="https://charts.coinmetrics.io/correlations/#435" target="_blank" rel="noreferrer noopener">data</a> from Coin Metrics. A coefficient of 1 means the assets are moving in tandem, while a -1 signals the opposite. 


<div class="wp-block-image">
<figure class="aligncenter"><img decoding="async" src="https://lh3.googleusercontent.com/o0MhaK6N_M9A14tljOY3FoWyVnz9CU1wtTzlLLWLU_3Szzzv8aWzW8Jr096jug_pU31jlVt3U0-ixEd7z2idLTXz_2PVbtRQoNXLEUJZkVpdNKER-9YJZQWEJH9DuAn2jhlpCfX4GLopRw5psw" alt=""/><figcaption>Source: Kaiko</figcaption></figure></div>


“Previous all-time highs were reached in the aftermath of the March 2020 crash, where all financial assets experienced extreme drawdowns, which saw BTC&#8217;s correlation with the S&amp;P 500 hit 0.76,” said Clara Medalie, strategic initiatives and research director at data provider Kaiko.



<blockquote class="wp-block-quote">“Since May&#8217;s all-time highs, bitcoin&#8217;s correlation has since retraced following a divergence in trading patterns for the two asset classes.” </blockquote>



Ether, which for the past six months has traded almost as one with bitcoin with a correlation coefficient of 0.9, has experienced the same trend. In May, the correlation coefficient between ether and the S&amp;P 500 broke 0.7 before falling to around 0.60 in June, according to <a href="https://charts.coinmetrics.io/correlations/" target="_blank" rel="noreferrer noopener">data</a> from Coin Metrics. 



“This divergence was spurred by a wave of dramatic collapses of some of the industry&#8217;s largest firms, causing crypto prices to tank far faster than equities,” Medalie said.&nbsp;



But even as bitcoin and ether begin to trade more independently from equities, the broader trend is likely to continue.&nbsp;



“Crypto is highly correlated to equities, so if equity markets were to turn around, this would likely have a bullish effect on crypto,” Medalie said.



<blockquote class="wp-block-quote">“It is clear that investors have treated equities and cryptoassets as risky assets over the past few months amid an increasingly fraught macro environment.” </blockquote>



Analysts are not holding their breath for a stock market bounce anytime soon, especially with current inflation levels and increasing uncertainty surrounding the Federal Reserve’s plans for interest rate increases.&nbsp;



“No one wants to buy the dip anymore after seeing a few stock market rebounds get completely faded,” Edward Moya, senior market analyst at OANDA, wrote in a note Wednesday. “Investors removed $10 billion out of equity funds last week and it doesn’t seem likely that sentiment will dramatically improve that the Fed will be able to deliver that soft landing.”&nbsp;



Traders are still keeping a close eye on stocks, Dan Matuszewski, co-founder of investment firm CMS Holdings, said. Invesco’s QQQ Trust, known as the Qs, is one tech-heavy ETF Matuszewski said he’s always watching.&nbsp;



“We mostly do what the Qs are doing,” Matuszewski said. “They’re a pretty good proxy for a while now, at least until things calm. I say this because we come in every day and sometimes we’re really just trading the Qs.”



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Crypto’s Correlation to Equities Dips Following All-time Highs in May

Sebastian Sinclair

<div id="highlights-block_62bb849667773" class="highlights">
 <ul>
 <li>The $53 million investment round comes as venture capital funding in crypto is beginning to wind down</li>
 <li>Funding, Kaiko said, will also be used to further strengthen its position by bolstering its suite of products</li>
 </ul>
 
</div>



Institutional and enterprise crypto data provider Kaiko said Tuesday it has raised tens of millions in a Series B funding round in a bid to strengthen its infrastructure and product offerings.



London-based Eight Roads — which has a 50-year investment history and manages $8 billion in assets — led the $53 million round with participation from growth-equity investment fund Revaia. Existing investors Alven, Point9, Anthemis and Underscore also participated, according to a statement Tuesday.



Its latest injection of capital follows a previous $26 million Series A funding round with a post-money valuation of $93.6 million at the time, roughly a year ago. The valuation stemming from Kaiko&#8217;s latest round was not disclosed.



Kaiko&#8217;s funding comes as the crypto downturn begins to chill <a href="https://cms.blockworks.co/vc-funding-slows-again-in-june-but-experts-say-worthwhile-projects-will-get-money/" target="_blank" rel="noreferrer noopener">venture capital flows</a>. Crypto firms have received a total of $3.65 billion in venture funding for the month of June to date, down from May’s total of $4.21 billion, data from Dove Metrics shows.



Venture funds outside the digital asset space are also flashing signs of a drop in total realized and unrealized returns versus capital invested, as macroeconomic factors — including rising interest rates — begin to take effect, research by data provider <a href="https://pitchbook.com/news/reports/q2-2022-pitchbook-analyst-note-did-vc-fly-too-close-to-the-sun" target="_blank" rel="noreferrer noopener">PitchBook</a> shows.



Kaiko said its injection of capital will also help expand its global presence. The firm currently has offices in Paris, London, New York and Singapore.



&#8220;The blockchain industry has experienced tremendous institutional interest and with it, the need for high-quality data has never been greater,&#8221; Kaiko CEO Ambre Soubiran said in the statement. &#8220;Over the next year, we will solidify our position as an industry leader of institutional data solutions, serving as a critical bridge between centralized and decentralized financial marketplaces.&#8221;



Founded in 2014, Kaiko offers a suite of products including market data, portfolio solutions, rates and indexes, pricing services, decentralized finance data as well as digital asset research. The company&#8217;s clients include ICE Global Network, Deutsche Börse, Oanda, Bloomberg and some of the largest asset managers and investment banks across North America and Europe.



The provider counts companies such as Coin Metrics, CryptoCompare and Simplex as major competitors in the heavily contested crypto data analytics arena.



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Crypto Data Provider Kaiko Gets $53M To Enhance Product Suite

Shalini Nagarajan

<div id="highlights-block_62b03fe6f3b26" class="highlights">
 <ul>
 <li>FTX’s acquisition is expected to close in the third quarter of 2022</li>
 <li>CEO Sam Bankman-Fried earlier told Blockworks he expects a wave of M&#038;A activity throughout the market downturn</li>
 </ul>
 
</div>



Cryptocurrency exchange <a href="https://cms.blockworks.co/tag/ftx/" target="_blank" rel="noreferrer noopener">FTX</a> has struck an agreement to acquire Canadian cryptoasset trading firm Bitvo, the company <a href="https://www.prnewswire.com/news-releases/ftx-acquires-alberta-based-restricted-dealer-to-expand-canadian-presence-301570318.html?tc=eml_cleartime" target="_blank" rel="noreferrer noopener">announced</a>, Friday.



FTX didn’t disclose the terms of the deal. The announcement comes during a period of turmoil in the cryptocurrency industry, with asset prices extending losses in a broad sell-off for several days. Companies in the space, including <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">Celsius</a>, <a href="https://cms.blockworks.co/crypto-fund-three-arrows-capital-facing-potential-insolvency-report/" target="_blank" rel="noreferrer noopener">Three Arrows Capital</a> and Babel Finance, have all disclosed liquidity issues, raising fears that more turbulence might be in store for investors.



The Bahamas-based firm noted that Bitvo secured the first license to offer cryptoasset trading services across Canada. It is also registered with the intelligence agency Financial Transactions and Reports Analysis Centre of Canada.



&#8220;Canada has shown a growing interest in digital asset trading, and we&#8217;re thrilled to help provide entry into one of the leading regulated crypto asset trading platforms in the world to the Canadian cryptocurrency community,&#8221; Bitvo CEO Pamela Draper said in a statement.



Alberta-based Bitvo will be integrated into FTX after the acquisition, which is expected to close in the third quarter of this year. 



FTX’s valuation rose to $32 billion after raising <a href="https://cms.blockworks.co/ftx-valued-at-32-billion/" target="_blank" rel="noreferrer noopener">$400 million</a> in its third fundraising round within six months in January, indicating that it is well placed to make acquisitions in the space.



CEO Sam Bankman-Fried <a href="https://cms.blockworks.co/ftxs-sam-bankman-fried-spots-opportunity-in-troubled-markets/" target="_blank" rel="noreferrer noopener">told Blockworks</a> in April that difficult market conditions could trigger a wave of mergers and acquisitions, and that it “wouldn’t be totally shocking” for the company to acquire some shrinking exchanges.



In May, Bankman-Fried personally bought a <a href="https://cms.blockworks.co/ftxs-sam-bankman-fried-spots-opportunity-in-troubled-markets/" target="_blank" rel="noreferrer noopener">7.6% stake</a> in trading platform Robinhood. In June, FTX <a href="https://cms.blockworks.co/crypto-exchange-ftx-launches-in-japan-following-domestic-acquisition/" target="_blank" rel="noreferrer noopener">expanded</a> into Japan following its acquisition of a local fintech Liquid Group and its subsidiaries, in a bid to navigate the stringent regulatory environment in the country.



A recent <a href="https://blog.kaiko.com/ftx-surpasses-coinbase-in-btc-trade-volume-cfd217ce1fd" target="_blank" rel="noreferrer noopener">report</a> from crypto research firm Kaiko shows bitcoin trading volumes on FTX exceeded Coinbase’s for the first time in May.



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Bankman-Fried Belies Bear, Bids for Bitvo

<div id="highlights-block_62aaed53cdd11" class="highlights">
 <ul>
 <li>Citigroup will also advise on offers, including Nexo’s bid to buy some of Celsius’ assets</li>
 <li>Abrupt user withdrawals echo the Mt. Gox meltdown in 2014, a crypto exec told Blockworks</li>
 </ul>
 
</div>



After freezing user accounts on Sunday, <a href="https://cms.blockworks.co/tag/celsius/" target="_blank" rel="noreferrer noopener">Celsius</a> has recruited Citigroup to advise the crypto lender on its next steps.



Celsius has brought on the bank in an advisory role, <a href="https://www.theblock.co/post/152230/citigroup-celsius-advising-after-withdrawal-freeze" target="_blank" rel="noreferrer noopener">The Block</a> reported on Wednesday. While Citigroup won’t directly provide any funds to Celsius, it will lay out possible financing routes, the report said.



In addition to its advisory role, Citigroup will reportedly help Celsius evaluate offers, including one made by rival lender Nexo, which formally approached its competitor to buy some of its distressed assets, at the time Celsius signaled liquidity issues. 



Nexo <a href="https://cms.blockworks.co/nexo-knew-celsius-was-in-trouble-before-lenders-withdrawal-freeze/" target="_blank" rel="noreferrer noopener">told Blockworks</a> it was aware Celsius had trouble with its withdrawal obligations and its findings pointed to the “unsustainability” of its business, even before the lender publicly admitted to it.



Celsius’ move to pause user withdrawals and transfers due to “extreme market conditions” triggered a fearful crypto market sell-off reminiscent of Mt. Gox’s catastrophic <a href="https://www.reuters.com/article/us-bitcoin-mtgox-bankruptcy/mt-gox-files-for-bankruptcy-hit-with-lawsuit-idUSBREA1R0FX20140228" target="_blank" rel="noreferrer noopener">bankruptcy</a> in 2014, said Youwei Yang, director of financial analytics at StoneX. At the time, the Tokyo-based crypto exchange lost about 850,000 bitcoin in a hack, leading to the firm’s collapse.



In a <a href="https://blog.kaiko.com/celsius-reaches-boiling-point-c9b258f4474f" target="_blank" rel="noreferrer noopener">report</a> Wednesday, crypto research firm Kaiko said Celsius suffered from a combination of poor risk management, bearish market conditions, and overexposure to stETH (<a href="https://cms.blockworks.co/will-lido-staked-ether-trigger-the-next-big-crypto-crash/" target="_blank" rel="noreferrer noopener">staked ether</a>, a derivative of ether locked in the Ethereum Beacon Chain), which drove the firm into a “Lehman-esque” position.



<blockquote class="wp-block-quote">“Even if they do survive this onslaught, I don’t see how anyone can trust the likes of Celsius to keep their assets safe going forward,” Conor Ryder, research analyst at Kaiko, wrote.</blockquote>



Citigroup declined to comment, while Celsius didn’t respond to a request for comment by Blockworks. On Wednesday, Celsius CEO Alex Mashinsky did <a href="https://twitter.com/Mashinsky/status/1537147449088872449" target="_blank" rel="noreferrer noopener">post a brief note</a> on Twitter — his first since his company suspended withdrawals — thanking the Celsius community for their patience.



Citigroup’s appointment wouldn’t be a new one for the crypto lender. The bank reportedly advised Celsius on taking its bitcoin mining subsidiary business public. In May, the network <a href="https://www.prnewswire.com/news-releases/celsius-network-announces-confidential-submission-of-draft-registration-statement-by-bitcoin-mining-subsidiary-celsius-mining-llc-301547547.html" target="_blank" rel="noreferrer noopener">submitted</a> a confidential S-1 draft registration for the subsidiary’s initial public offering — expected to become effective after the SEC’s review.



<h3>Prospects for reorganization</h3>



Celsius has also <a href="https://cms.blockworks.co/celsius-lawyers-up-following-account-freeze-liquidity-crunch/" target="_blank" rel="noreferrer noopener">tapped</a> Washington, DC-based law firm Akin Gump Strauss Hauer &amp; Feld to explore potential financing options from investors, the Wall Street Journal reported.



Dane Lund of DeFi Alliance sees that as a move to head off potential small claims court actions from its customers, which would become impossible if the company files for bankruptcy protection.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Yesterday, the WSJ reported that Celsius engaged Akin Gump for restructuring advice. This tells unsecured creditors that efforts to seek judgments in court are unlikely to unlock liquidity soon enough to beat the automatic stay.&mdash; Dane Lund (@lund_dane) <a href="https://twitter.com/lund_dane/status/1537091805061296130?ref_src=twsrc%5Etfw">June 15, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The chaos triggered by Celsius is proof that not all lending platforms are equal, according to Mauricio Di Bartolomeo, cofounder of Canada-based crypto lender Ledn.



Clients will be further incentivized to ask the right questions to gain more information on how the yield they are paid is generated, he told Blockworks. “If they are not satisfied with the answers they receive, they could proactively choose to withdraw their assets or close their loans at that particular platform,” he added.



When asked how sustainable companies in the crypto lending space are, Bartolomeo said the models used to generate yield by each vary widely, and it would be unfair to characterize them under the same umbrella.



<blockquote class="wp-block-quote">“There are significant differences in the risk management policies and in the yield generation strategies being employed by the various lenders,” he said.</blockquote>



“Those lenders who took significant risks [such as] generating yield in DeFi with their depositors’ assets, lending uncollateralized to low credit quality borrowers, taking directional market risk with client assets may be finding themselves in some trouble now,” he added.



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