First Mover Asia: Bitcoin Flirts With $23.4K as Fed's Powell Repeats Comment About Waning Inflation; Market Weighs DCG-Genesis Deal With Creditors
ALSO: Stakeholders in the venture capital industry explain why embattled crypto trading firm Alameda Research will not be missed.
Good morning. Here’s what’s happening:
Prices: Crypto prices continue their cautious move upwards as Federal Reserve Chair Jerome Powell continues to hint that the war on inflation is nearing its end. Meanwhile, investors are breathing a sigh of relief after DCG and Genesis reached a deal with creditors.
Insights: Alameda Research, a once-mighty force in the crypto investment world, will not be missed, say venture capital stakeholders.
Bitcoin, Ether Rise as Fed Chair Talks ‘Disinflation’ Again; Market Digests DCG-Genesis-Creditors Deal
Bitcoin is continuing its positive but cautious climb as Asia checks into the office, rising 2% on the day to $23,276 while ether is up 3% to $1,671.
Traders were feeling a sense of optimism as Fed Chair Jerome Powell repeated remarks from a week ago that the "disinflationary process had started." Powell’s dovish comments pushed bitcoin up slightly, added 266 points to the Dow Jones Industrial Average and sent the S&P 500 up 1.3% by the time U.S. markets closed.
While Powell suggested that the Fed was winning its fight to tame inflation, he was clear that the time was not yet right to declare victory, and that more rate hikes are a possibility if the job market doesn’t weaken.
“The reality is if we continue to get strong labor market reports or higher inflation reports, it might be the case that we have to raise rates more,” the Associated Press quotes Powell as saying in a talk at the Economic Club of Washington, D.C. “There’s been an expectation that it’ll go away quickly and painlessly. I don’t think that’s at all guaranteed.”
Powell said that the Fed will need to “see whether we’ve done enough” after more rate increases.
Meanwhile, crypto markets were relieved after CoinDesk reported that Genesis and its parent Digital Currency Group (DCG) have reached an initial agreement with its main creditors, meaning a long, messy court battle is unlikely. DCG is also the parent company of CoinDesk.
Speaking on CoinDesk TV, Ram Ahluwalia, CEO of digital asset investment adviser Lumida Wealth Management, said that after this deal DCG still has a “continued headache” but “doesn’t have a noose around its neck.”
“It’s going to continue to drain cash for them, but there’s a viable business on the other side of this,” he said.
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Why the Venture Capital Industry Won't Miss Alameda Research
The empire of Sam Bankman Fried was the center of the crypto universe for most of 2020-2022, and an active participant in the crypto venture capital community. What sort of impact will its demise have on the industry? Will its presence be missed, or is the VC sector better off without the embattled firm?
It’s the latter, say analysts.
For a while, during the bull run, it seemed like Alameda was attached to most of the hot crypto deals getting closed. Data from PitchBook shows that the former fund closed 38 deals in 2022, which is impressive considering that there are only 52 weeks in the year.
But Alameda Research is no more – bankrupt, along with FTX, in an epic collapse that’s one for the history books.
Certainly, the market seemed to care a lot about this as it happened. The last two months of 2022 were a crypto winter as dark as any in history, with prices in free fall with seemingly no end in sight. Come January, and things are thawing out: Bitcoin is up around 40% in the first month of the year.
"We believe there is plenty of dry powder among crypto-native and crypto-focused VC funds to more than compensate for the fundraising gap left by Alameda and FTX,” Robert Le, a senior emerging technology analyst at PitchBook, told CoinDesk in an email.
Le thinks that the other major funds that PitchBook counts on its top 10 list of investors active in the crypto space will pick up the slack, such as a16z, Dragonfly and Pantera Capital.
Perhaps a fair question is, does the VC world want another Alameda? Although the firm closed 38 deals it wasn’t the biggest investor. That goes to Coinbase Ventures, as PitchBook puts its deal count at 121. Despite this, Coinbase Ventures just doesn’t have the same profile Alameda had. Its management team, for example, is lesser known than Alameda’s high-profile executives.
“The void left by Alameda shouldn't necessarily be completely filled by the market. It is possible their investments supported projects, which otherwise would not have had any traction, that increased the noise in an ecosystem geared towards delivering the next phase of thoughtful innovation,” Cumberland venture capital co-lead Nate George said.
Peering through Alameda’s investments via CryptoRank, and one can see what George means. There are dozens of now highly illiquid, worthless tokens that had investors lining up because Alameda led the round and it had Bankman-Fried’s blessing.
If there’s one sliver of good news for creditors, it’s that Alameda’s collection of portfolio companies is up around 57% in the last month, per CryptoRank data, compared to a loss of 78% during the last year.
It’s not a huge deal to sell off token holdings, Mark Pfeiffer, an insolvency lawyer at Buchanan Ingersoll & Rooney, explained to CoinDesk in an email. These ownership interests would just be another line item likely sold off during bankruptcy.
The exception to that would be FTT, FTX’s native token, which at one time accounted for a material portion worth billions on Alameda’s balance sheet. It’s up nearly 120% in the last month, and has become re-listed on major exchanges like Binance, KuCoin and Gate.io (at the height of the FTX crisis it was de-listed from most exchanges). FTT, now a security in the eyes of the U.S. Securities and Exchange Commission, isn’t something that can be sold as easily.
“It will be difficult, but not impossible, for the debtors to sell the tokens to monetize them,” Pfeiffer said.
CoinGecko data shows that while there’s been a surge in pricing for FTT and a major uptick in volume, the spread percentage is relatively high on most exchanges, and the depth shallow. It appears to just be a fun thing to punt around on-chain and not something of material value.
That’s OK, though. Alameda’s creditors have plenty of other altcoins they can sell.
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6:00 a.m. HKT/SGT(22:00 UTC) Germany's Harmonized Index of Consumer Prices (YoY/Jan)
In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:
Digital Currency Group started selling holdings in several investment vehicles run by its subsidiary and digital assets manager, Grayscale, at a steep discount, according to a Financial Times report. DCG is also the parent company of CoinDesk. Lumida CEO and co-founder Ram Ahluwalia shared his analysis. And what's next for crypto prices? Traders were waiting for a speech by Federal Reserve Chair Jerome Powell before they make their next moves. "The Crypto Trader" author Glen Goodman and Leichtman Law PLLC managing partner David Leichtman joined the conversation.
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Crypto Super Bowl Advertising Will Be Absent This Year: It's a notable change from last year's National Football League championship, where crypto ads were so prevalent the event was dubbed the "Crypto Bowl."
Ethereum Testnet Processes First ETH Staking Withdrawals: The upgrade on the Zhejiang testnet was the first of three dress rehearsals for the much anticipated Shanghai hard fork.
Dell Joins Hedera Governing Council to Explore Developing Decentralized Applications: The council that runs the Hedera public ledger now has up to 39 members, each of which run a node on the network.
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