First Mover Asia: Cryptos Dive Deep Into the Red

Editor-in-Chief's note (Jan. 20, 2023, 2:04 UTC): Due to an editorial lapse, the section of this edition of First Mover Asia on Solana and other Ethereum competitors included an unqualified prediction and other opinionated language that doesn't belong in a column of this type. The language has been modified accordingly.

Good morning. Here’s what’s happening:

Prices: Bitcoin slumped nearly 3%, but held well above its recent $16K support; other major cryptos dive more deeply.

Insights: CoinDesk reporter Sam Reynolds looks toward a post FTX future. The industry might be better off if major initiatives such as Grayscale Bitcoin Trust and Solana wound down.

Cryptos Take a Late Weekend Plunge

By James Rubin

Four days before the U.S. Thanksgiving holiday, crypto markets decided they didn't have much for which to be thankful.

Bitcoin was recently down 2.8% over the past 24 hours (UTC), although it managed to hold snugly above its most recent $16,000 support for a 12th consecutive day. Last week, the largest cryptocurrency by market capitalization weathered the cascade of misadventures tied to crypto exchange FTX's collapse, although Joe DiPasquale, CEO of crypto fund manager BitBull Capital, wrote in an email to CoinDesk that investors should gird themselves for a rocky week ahead.

"The last week saw bitcoin trading in a very tight range, unable to breach $17K conclusively," DiPasquale wrote. "However, given the sideways action, we can expect volatility in the coming week."

Ether was recently trading below its most recent $1,200 support and was down over 6% from Saturday, same time. The second-largest crypto in market value has plummeted almost 10% from its high of $1,275 last week. Other major cryptos dove deeply into the red with sports fan coin CHZ plunging more than 14%. CHZ and fan tokens for national soccer teams had been on an upswing recently amid euphoria for the World Cup, which kicked off Sunday with Ecuador defeating the host nation Qatar.

Popular meme coin DOGE, and Crypto.com's CRO token, were recently trading down more than 10%.

The CoinDesk Market Index (CDI), an index measuring cryptos' performance, was down 0.4% and about where it stood a week ago. The Fear and Greed index, a measure of market sentiment about crypto, remained in extreme fear territory – its standing throughout much of the growing FTX crisis.

Crypto prices veered from equity markets, an increasing occurrence in recent weeks as the major indexes each closed slightly higher on Friday two days after the Commerce Department's monthly retail report showed surprisingly resilient consumer spending. The tech-heavy Nasdaq was up 0.01%, while the S&P 500, which has a strong tech component, and the Dow Jones Industrial Average (DJIA) climbed 0.48% and 0.59%, respectively.

Traditional markets have also been unaffected by FTX's spectacular flameout and now daily revelations about its mismanagement. On Sunday, CoinDesk's Shaurya Malwa (a regular contributor to this newsletter) wrote that whoever was behind the $600 million exploit of FTX on Nov. 11 had started exchanging millions of dollars worth of ether to ren bitcoin (renBTC), a token that represents bitcoin on other blockchains.

Earlier in the week, Malwa reported that funds stolen from FTX were steadily converted to ether over the past week, making the exploiter one of the largest holders of the token.

BitBull's DiPasquale said that bulls will be looking for ongoing support above bitcoin's brief low at about $15,500 earlier this month as FTX's severe liquidity problems became apparent. "Once that range is evident, consolidation around that low could see the price shooting toward $18k in the near term," he wrote.

Would Crypto Thrive Again Through Subtraction?

By Sam Reynolds

In a year, we might look back at the spectacular fraud-filled collapse of FTX as a good thing.

Its demise has confirmed many people’s worst fears about the digital assets industry: that it's an unregulated free-for-all, established behind elaborate corporate structures in jurisdictions that are conveniently out of reach of Western courts.

For the most part, this is correct (see: the leviathan of legal entities that is FTX).

There’s also the question that’s being answered in real time about how much of crypto is “funny money,” a concocted entity without worth based on an unsustainable structure, and not “sound money,” a fundamental store of value.

Right now, we can watch this all come apart. Here are two examples.

1. GBTC’s current discount

Grayscale’s Bitcoin Trust (GBTC)’s shares are now trading at a discount of 45% below the net asset value.

(CoinDesk is an independent subsidiary of Digital Currency Group [DCG], which also owns Grayscale.)

A total of $10.53 billion in capital is right now handicapped because it holds shares in something that trades less than the value of the asset it holds. And there’s no way to redeem these shares for bitcoin.

Data on a 13F form (a quarterly form filled out by fund managers) shows that institutions have been dropping GBTC during the last few quarters thanks to DCG’s buyback programs. This has made DCG the largest shareholder of the Trust.

The end goal for GBTC is to transform it into an exchange-traded fund, but the Securities and Exchange Commission blocks that with every chance it gets.

So why not wind down the trust? Sure, many of the large holders will take a loss, but there are billions of dollars of impaired capital that should have a better home.

2. Ethereum killers' struggles

Speaking of impaired capital, many would-be Ethereum killers have been struggling mightily.

Solana began the year with a total value locked of over $6 billion and may end the year with under $200 million if current trends continue. When compared to its peak value of $10 billion at the height of the bull market, there’s just over 2.8% of its locked-in value currently left. Many of the protocols that operate on Solana have been totally wiped out, according to data from DeFiLlama.

Surely, some of the venture capitalists that backed Solana and encouraged retail investors to ape-in during the "Solana Summer" took profit during the early days. But any exposure remaining on the balance sheets must be an anchor.

Just like the investors who apparently did their due diligence on FTX and missed the glaring holes the new CEO found in a week, how could these investors miss the problems with Solana? Did their due diligence not reveal that a good majority of the ecosystem was effectively a Russian nesting doll of fakery, as CoinDesk reported a few months ago? Or did they just want to put the pump on the coin?

But for as much as we talk about Solana that could be a distraction from larger would-be ethereum killers lurking beneath the surface. Has anyone checked in on Polkadot, Klaytn or Waves recently?

3:00 p.m. HKT/SGT(7:00 UTC) Germany's Producer Price Index (MoM/Oct)

9:30 p.m. HKT/SGT(13:30 UTC) The Chicago Fed National Activity Index (Oct)

5:45 a.m. HKT/SGT(21:45 UTC) New Zealand Trade Balance NZD (YoY/Oct)

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Bahamas Regulator Orders FTX Crypto Transferred to Government Wallets; Bitcoin in Narrow Band Between $16.5K and $17K

Is a battle brewing over the jurisdiction of FTX's bankruptcy proceedings? CoinDesk's Nikhilesh De explained the Bahamas regulatory order requiring the exchange to transfer its crypto to government wallets, and how it may complicate bankruptcy proceedings. Also Ropes & Gray Counsel Daniel Gwen joined the discussion. Plus, IDX Digital Assets CIO Ben McMillan provided his crypto markets analysis as bitcoin (BTC) ignores the FTX chaos, for now.

Bitcoin Financial Services Firm Unchained Capital Cutting Staff, Reshuffling Management: While the company has no exposure to FTX, the extended bitcoin bear market is taking a toll on parts of the business.

Crypto Exchanges' Proof of Reserves Have Too Many Shortcomings A Bank of America Research Report Stated: The cryptocurrency industry also needs a clear delineation between trading platforms and market makers, the bank said.

Crypto Firm Genesis Block Ceases Trading Services Amid FTX Contagion, Reuters Reports: The Hong Kong-based company was once Asia’s largest bitcoin ATM player.

‘Grayscale Discount’ Widens to Record 43% as FTX Contagion Spreads: The added pressure comes after Genesis Global Capital – a corporate sibling to bitcoin trust manager Grayscale Investments – halted customer withdrawals from its lending unit this week.

Ripple Seeks Crypto License in the Republic of Ireland, CNBC Reports: Ripple has turned its attention to countries outside the U.S. due to its ongoing lawsuit with the U.S. Securities and Exchange Commission.