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Digital Assets Update - 28.12.22

Updated: Jan 23


Market Overview by Josh Burke, DeFi Trader

The Strange Calm in the Crypto Storm: What's Going On?

The crypto markets have been experiencing a period of unusual calm in recent weeks, with bitcoin's historical volatility index reaching new lows of 11.46 - a level that has never been seen before. This lack of movement may be due to the fact that funds have largely been removed from exchanges and open interest has significantly reduced in size. The persistent headwinds faced by bitcoin remain a significant challenge for the market, with miners currently selling 100% of the bitcoins they mine. The top 10 miners alone have mined approximately 40.7k BTC and sold approximately 40.3k in 2022, contributing to the current state of market stagnation. It will be crucial for these challenges to be overcome in order for investors to regain confidence and become bullish again. Despite these challenges, there are also developments we view as positive happening in the crypto world. Jair Bolsonaro, the President of Brazil, has signed a bill into law recognizing many digital currencies as legal payment methods within the country. The bill also establishes a licensing regime for virtual asset service providers and sets penalties for fraud using digital assets. While cryptocurrencies will not be recognized as legal tender, this is a significant step forward in the acceptance and adoption of digital currencies as a viable payment option in Brazil. It is worth noting that the regulation of digital assets considered securities will fall under the jurisdiction of Brazil's Securities and Exchange Commission. The crypto law will take effect around June 2023, and it is also worth noting that Bolsonaro is set to leave office on December 31st, after which Luiz Inácio Lula da Silva will assume the presidency on January 1st. Lula, who served as the President of Brazil from 2003 to 2010, has previously made statements in favor of crypto and blockchain adoption.


NFT Market News by Matthew Linares, Senior Analyst

NFT Founders Pivot to “Real-World” Assets to Diversify Revenues Creators of many high profile NFT collections have begun to explore new sources of revenue due to volatility in the NFT markets. According to Chainalysis, of the $36 billion worth of NFT sales for 2022 over $19 billion was spent between January and March. However, since then, monthly spending on NFTs has declined to just over $442 million in November. As a result of these market trends makers of popular NFT collections have been looking for ways to expand their brands into real-world investments. This includes selling products that are not necessarily linked to blockchain technology. Some NFT projects such as Doodles and Pudgy Penguins have even hired musicians and other celebrities to help diversify their intellectual property into live events, music streaming, and physical merchandise. Other NFT projects, such as Knights of Degen, have taken a more varied approach, investing in a range of ventures including a minor league American football team, celebrity meet-and-greets, and even a line of vodka-based sauces. While some analysts are skeptical that NFT makers will be able to create successful businesses beyond selling digital art, others believe that the key to success in a slower economic environment is entertainment. Doodles CEO Julian Holguin has pointed out that "although entertainment is extremely saturated and consumers' attention is very fragmented, we [can] build really great stories that connect with people and just put smiles on people's faces." Pudgy Penguins CEO Luca Schnetzler also sees potential for his brand to "invade not only the metaverse but the real world." It remains to be seen whether these efforts to diversify will be successful, but it seems like the creators of NFTs are looking for ways to adapt to the changing market conditions and continue to find success in the face of declining demand for their products.



REGULATORY ROUNDUP: We're living through the era of regulatory recognition of digital assets. The legislation, litigation, and regulation happening today will dictate the entire future of our industry, and we have a historic chance to shape those changes by staying informed and exerting political influence.

  • Brazil President, Jair Bolsonaro, has approved a crypto regulation bill recently passed by that country’s Chamber of Deputies and Senate.


  • Outgoing Pennsylvania Sen. Pat Toomey has introducedanother piece of cryptocurrency legislation in his farewell address on the floor of the U.S. Senate. The Stablecoin TRUST Act—an acronym for Transparency of Reserves and Uniform Safe Transactions—would establish a federal regulatory framework for "payment stablecoins," and is designed to guide Congress towards a path of "sensible regulation of cryptocurrencies."


  • Japan's Financial Services Agency is seeking feedback on new regulations that would allow stablecoins issued outside the country to be listed on local exchanges. Under the draft regulation, local distributors will be allowed to handle payments-focused stablecoins if they maintain sufficient assets.



DISCLOSURE:


The opinions expressed herein are those of the author alone and do not represent Wave Financial, LLC or any of its affiliates. The author may hold investment positions in some of the assets discussed.


Nothing in this email or linked information should be interpreted as an offer or recommendation to buy, sell or hold any security or other financial product. Wave is federally regulated by the US Securities & Exchange Commission as an investment adviser. Registration with a federal or state authority does not imply a certain level of skill or training. Additional information including important disclosures about Wave Financial LLC also is available on the SEC’s website at www.adviserinfo.sec.gov.

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