A turbulent and volatile quarter in the crypto world ended about a month ago. If we take a deeper look at the currencies themselves, we will find that out of the top ten, five currencies ended the quarter in decline, and five in growth. This uneven behavior of the currencies also characterizes the various segments in the industry: decentralized finance, meta-verse and Israeli currencies.
Looking at the beginning of the year, the return of the crypto market is still highly negative. But let’s start by trying to map what actually made the third quarter unique.
● A bad year for crypto is a really bad year for crypto miners
● Ethereum 2.0: The big update in crypto is complete
● After the collapse of the Terra Luna cryptocurrency: an arrest warrant against the founder and other executives
Interesting correlation with traditional markets
Since the beginning of the year, the cryptocurrencies show a very deep negative return. The top ten currencies showed a negative return of 61.3% since the beginning of the year, and this is in correlation to the stock market, which also shows a negative return since the beginning of the year.
But in September, an interesting thing happened: while the leading stock indexes showed a negative return, Bitcoin remained relatively stable, and the correlation weakened relatively.
Why did this happen? “This mainly raises a question about the source of the correlation that existed,” notes Eli Mizroh, CEO of Silver Castel. “There are two theses for the correlation. The first is that in recent years a lot of institutional money entered the crypto field, and when the declines began, the institutions – as they sold normal risk assets – also sold crypto. Because of the continuous declines, much of the liquid institutional money has already left, and did not return even in the corrections that were in the markets during the year, so the correlation weakened.
“The second explanation that is gaining momentum is that the declines in Bitcoin are not necessarily related to what happened in the markets, but to the normal cycle of the crypto, which simply synchronized this year with the declines in the markets. If this thesis is correct, we will begin to see a split between the behavior of the crypto and the stock market.”
The main events that led to the increases
So Bitcoin ended the quarter in relative shambles, but the big event of the quarter was undoubtedly the upgrade of the Ethereum network to version 2.0, and Ethereum added 24.5% to its value this quarter.
Upgrading the Ethereum network was the first of several steps designed to allow the network to work at higher volumes, and at lower costs. However, at this stage of the upgrade there was no reduction in fees, and the main increase in the value of the currency was before the upgrade. It was actually followed by many realizations by investors who mistakenly believed that the upgrade would now lead to a reduction in fees and an immediate increase in speed. By the way, at the beginning of this month, the Ethereum network launched the second stage in the process – the Shanghai upgrade.
The upgrade of the Ethereum network also affected coins of projects that are a second layer on top of the network, including the coin Polygon (MATIC), which completed an increase of more than 60% in the last quarter. Polygon is a 2 Layer project, designed to be a “force multiplier” for the Ethereum blockchain, and actually enables transfers on the Ethereum network at significantly lower costs than going through the original Ethereum network.
Another coin that stood out in the quarter is XRP from Ripple Labs, which rose about 44%. Elad Nomberg, VP of the investment house Proxibit, notes that “the company is in advanced legal proceedings with the SEC (Securities and Securities Authority in the US), which is trying to prove that the issuance of XRP is an illegal securities issuance. In recent weeks, Ripple has seemed to have the upper hand, as it runs a stubborn defense and tries to deny the claim that XRP passes the ‘Howie test’ – the test that determines whether a financial asset is a security or not. In September, Ripple filed a motion for summary judgment based on the evidence it presented, and investors seem to be encouraged by the imminent end of the legal battle, which has occupied the company for so long,” says Nomberg.
The intervention of the American regulator is felt more and more in the field of crypto: “We see an increase and expansion in the enforcement of the regulation mainly in the USA. In July, the SEC contacted the US stock exchanges regarding nine tokens that were registered as currencies, claiming that they were securities. As a result, the exchanges immediately deleted the tokens from trading, and the companies and the exchanges are exposed to lawsuits for the illegal issuance and registration of securities,” says Shay Datika, founder and CEO of the digital asset trading company INX.
“Several days later, the SEC contacted the KIK company in a similar matter. In this case, too, the token was deleted from the exchanges. In August, the authority contacted Voyager, claiming that they promoted the sale of a financial product that is not an asset in ways of misleading the public.
“The appeal was made after Voyager had already announced a request for Chapter 11 (bankruptcy), and in addition, the SEC began to intervene in the activities of entities that engage in loans of crypto products (lending/staking), and it claims that these are products that need supervision.
“This is, for example, the lawsuit against BlockFi, alleging that its loan products need a license, and the lawsuit and settlement against Kim Kardashian, alleging that she did not disclose the compensation she received when she promoted crypto products,” Datika points out.
The stock markets benefit from the volatility
In the field of decentralized finance, we see a nice increase in the two decentralized exchanges Uniswap (30%) and Pancake (50%). The decentralized finance sector experienced the most significant upheaval since the beginning of the year, with the collapse of Terra and Celsius, which activated the contagion effect in the sector and caused the collapse of other entities.
“One of the things that characterized the entities that collapsed was their centralization. Perhaps because of this, the investors chose to ‘return to the sources’, and put their trust back in decentralized exchanges,” notes Nomberg.
The third quarter, which is characterized by volatility, was very good for trading platforms as a whole, decentralized and less decentralized, as also reflected in the performance of Binance’s currency. Among the ten largest, the currency of the Binance exchange also added 29.6% to its value in the third quarter.
Against this background, we note that Binance, one of the leading exchanges in the world, announced at the beginning of September that it stops supporting within its trading arenas the leading stable currencies USDP, USDC and TUSD, and in fact, it converted these currencies that customers left with it for trading to its own stable currency – BUSD .
In Israel: the entities began to receive licenses
The two most interesting things regarding the five Israeli issuers are the recovery in the quarter of the Celsius currency, and the departure from the Bancor index.
Celsius is in the process of bankruptcy and debt consolidation, in the framework of which it is also releasing funds it deposited as collateral from various platforms, and these will be directed to the debt consolidation. The CEO of Celsius, Alex Mishansky, resigned from his position at the beginning of the quarter, when in the debt settlement process more and more claims began to be heard that the company was in fact insolvent a considerable time before it announced the freezing of investors’ funds.
Bankor, a crypto project that built a decentralized mechanism for rapid currency exchange and allowing investors to function as automatic market makers and provide liquidity to the market in exchange for interest, was hit along with the entire decentralized finance sector by the strong volatility in the markets.
In addition to this, in the local market, according to Haim Venetia, CEO of the Proxibit investment house, “the significant move of the quarter came precisely from the Capital Market Authority, which began to grant permanent licenses to financial entities in the field of crypto, thus raising the crypto level in Israel to a level. This is a welcome step, which will certainly increase the confidence and level of certainty of investors in Israel.”
Two entities have received a license so far: the HBH company, which builds infrastructures for crypto trading for the banks and institutional entities, and the veteran crypto broker Bits of Gold. The Authority also published a comprehensive circular on risk management in financial assets such as crypto, with detailed requirements for managing the custody of customer funds. “This puts the industry in a place it has never been before, it has a clear framework for how it should be conducted, it is a new era,” noted Yuval Roash, founder and CEO of Bits of Gold, upon receiving the license.
Another angle
In the strategic plan of the Tel Aviv Stock Exchange: trade in crypto
The Tel Aviv Stock Exchange this week published its strategic plan for the next five years, one of the main pillars of which is the establishment of a blockchain-based trading platform for crypto and digital assets. The exchange is working to create a blockchain infrastructure that will enable the tokenization of digital assets of various types and smart contracts.
The way of establishment has not yet been decided, and several potential courses of action will be examined, including the conversion of existing infrastructures to innovative technologies, as well as the establishment of dedicated platforms based on the innovative technologies. The platform will be adapted to a number of asset types that will be gradually added to it, including tokens, cryptocurrencies, NFTs and digital bonds.
We note that the exchange and the accountant general have already begun an experiment to issue crypto-based government bonds. According to the exchange, the main challenge in this area is the lack of regulatory clarity. However, leading exchanges in the world have already begun to establish blockchain platforms for trading in digital securities, and now the exchange of Tel Aviv includes this in its strategic plans.