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Crypto awaits the Fed's remarks

Crypto awaits the Fed's remarks

All eyes are on the Federal Reserve this week as Fed Chair Jerome Powell is expected to lay out rate hike plans for the remainder of the year on Friday. [Rudy Sulgan via Getty Images]

There’s never a dull moment on the blockchain. Here’s what you need to know this week:

Crypto markets sold off over the weekend. A closer look at how BTC and ETH responded to market pressure, and what caused the slump. 

CryptoPunks surpassed Bored Ape Yacht Club by a key metric. Plus the latest headlines from the world of NFTs.

The Federal Reserve released guidance for crypto banks. A new tiered system can determine how “novel” institutions can access the central bank.

MARKET UPDATE

A closer look at crypo’s late-August slump and the contributing factors

Crypto markets can be a lot like weather in the Midwest — never the same for very long. After July’s Ethereum merge rally saw crypto’s market cap recover from the depths of June’s selloff and retake the $1 trillion mark, things got rocky again last Thursday. The market has since shed about $1.2 billion, dipping below that psychologically significant $1 trillion dollar mark three times, most recently on Monday. So how are BTC and ETH faring? And what’s contributing to the downward pressure? Let’s take a closer look.

  • Several Federal Reserve officials recently spooked markets with the possibility of another 0.75% rate hike in September, suggesting that inflation might not have peaked yet. Last Thursday’s comments from St. Louis Fed President James Bullard coincided with tailspins in both the equity and crypto markets as the likelihood of a less hawkish 0.50% rate hike next month decreased. Now, markets remain skittish as investors and analysts await Fed Chair Jerome Powell’s remarks this Friday at the Federal Reserve Economic Symposium, where he is expected to discuss planned rate increases for the remainder of the year.

  • Bitcoin has shed roughly 10% since last Thursday, with intraweek lows in the $20,000 range. The largest cryptocurrency’s price drop accelerated on Friday after $210 million of leveraged (borrowed) BTC was liquidated to pay back lenders after prices began their descent alongside the broader stock market — the S&P 500 is down roughly 4% in the same time frame.

  • Ethereum is down about 12% over the last week, and the price drop prompted issues for an NFT lender. Over the weekend, a group called BendDAO that specializes in NFT-collateralized loans (this enables Bored Ape owners to borrow money against the value of their simian NFTs) struggled with liquidity issues when depositors drained the company’s reserves from 10,000 wrapped ETH to 5 ETH, adding downward pressure to the second biggest crypto by market cap. By Monday, some depositors returned, giving the firm time to vote on new ways to “build confidence” like adjusting its liquidation threshold. 

Why it matters… As major financial institutions continue to double down on crypto, and stock and crypto markets remain near peak correlation, macroeconomic uncertainty continues to drive the market. And this week (like most recently), the primary macroeconomic driver is the Federal Reserve’s strategy to combat inflation. As one investment advisor recently told Forbes, “Investors are hanging on every word that the Fed is saying.” 

PUNKY BUSINESS

Bored Ape Yacht Club Gets Punk’d

On Monday, classic NFT art project CryptoPunks overtook the ubiquitous Bored Ape Yacht Club for the title of digital collection with the highest floor (aka minimum purchase) price for an individual NFT, a designation that BAYC had held since December 2021. As of Tuesday morning, CryptoPunks’ floor is about 71 ETH. BAYC’s floor? About 63 ETH.

The change in market leadership came not as a result of surging popularity for CryptoPunks but from the ongoing impact the crypto winter has had on sales volumes and prices even for well-known NFT collections like BAYC, whose floor price has dropped more than 50% from its April all-time high. 

Meanwhile, leading NFT marketplace OpenSea has seen its trading volume plummet this month to its lowest level in more than a year, as the red-hot enthusiasm for NFTs has cooled during the larger crypto down cycle. 

Despite the market downturn, lots of interesting developments in the space are continuing to emerge. Here’s what else you need to know this week in NFT news.

  • Spanish football powerhouse Atletico Madrid is launching an NFT collaboration with popular web3 fitness app Stepn. The collection between the soccer club and the “move-to-earn” app that pays users crypto for exercising will feature 1,001 soccer boot NFTs. 

  • The Pudgy Penguins NFT collection is having a banner month, with its floor price up 69% over last month. The Pudgys have been working on extending their presence into the physical realm of plush toys and children’s books.

  • Tom Brady-backed NFT-site Autograph is rolling out a new product that combines collectibles with exclusive in-person events. The company says Signature Experiences will feature everything from exclusive merch to a chance to meet TB12.

FED & COMPANY

The Federal Reserve’s new rules for crypto banks

Last Tuesday, the Federal Reserve released “final guidance” for “novel” institutions like crypto custodians to access the U.S. central bank. The 49-page document outlines how “institutions offering new types of financial products or with novel charters” (like Custodia, a Wyoming-based crypto bank) can obtain “master accounts,” a financial status that enables direct banking with the Federal Reserve.

The Fed’s guidance includes a new multi-tiered evaluation process that ranges from “more streamlined” review for FDIC-insured banks to “more extensive review” for institutions that “engage in novel activities.” Regarding the new guidance, Fed Vice Chair Lael Brainerd said the goal was to “support a safe, inclusive, and innovative payment system.”

NUMBERS TO KNOW

$185M 

The total revenue Nike has received from NFT sales, making it the undisputed leader in the space among traditional brands. The apparel brand collected more than seven times as much revenue as Dolce & Gabbana, which ranked second according to data from Dune Analytics. 

$56M

The amount raised in a Series B round by Estonian startup Ready Player Me, a maker of avatars for use in virtual worlds. The company, which counts Andreessen-Horowitz among its investors, is focused on creating avatars that can be used across metaverse experiences and not just in one virtual space. 

2,000,000+

The approximate number of Ethereum Name Service names that have been issued as of last week. ENS names are web3 usernames that represent long alphanumeric crypto wallet addresses — sort of like how you type in coinbase.com into your browser instead of our full IP address. The popularity of custom .ETH usernames has been increasing rapidly ahead of the upcoming Ethereum merge — the service went from the 1 million to 2-million-name mark in roughly 90 days, while it took almost 5 years to attract the first million. 

840,000

The number of app downloads for Nigeria’s central bank digital currency (CBDC), the e-naira, since it launched in October. The government says it is looking to drive greater adoption of the e-naira by focusing on connecting with citizens who lack bank accounts. (CBDCs are state-issued money, unlike BTC, which is decentralized.)

AROUND COINBASE

The latest security tips and features to avoid online scams

  • Password recyclers, take note — strong, unique passwords (and multifactor authentication) are essential to help you boost your online security. That’s why Coinbase has added enhanced password protection. Anytime a customer creates or changes their password, Coinbase automatically checks to see if the password has ever been exposed to a third-party data breach and alerts you if so. Learn more here.

  • As if dating were not difficult enough, a type of scam called a “romance scam” has seen an alarming rise on dating and social apps lately. These social engineering scams can be hard to detect at first, but we’ve identified some things you should be on the lookout for in a new article on the Coinbase blog.

  • The upcoming Ethereum merge is one of the most important events in crypto’s history, and will play a key role in defining its future. Learn all about what is taking place with the merge from Coinbase’s Jesse Pollak on this episode of the CRYPTO 101 podcast. (When it comes to your Coinbase account and the merge, see here for what you need to know.)

TOKEN TRIVIA

Which consensus mechanisms does Solana use?

A

Proof of work & proof of stake

B

Proof of copy & proof of time

C

Proof of history & proof of stake

D

Proof of time & proof of space

Find the answer below.

Trivia Answer

C

Proof of history & proof of stake