opinion

Crypto SWOT: The Bank for International Settlements says crypto has “structural flaws”

Kitco Media
By Frank E Holmes
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Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Metaxa, rising 1,270.08%.
  • One of the biggest crypto lenders, BlockFi Inc., said digital-asset trading powerhouse FTX agreed to provide a $250 million revolving credit facility as concern increases across the sector about liquidity in the wake of the recent collapse in token prices, reports Bloomberg. Billionaire co-founder and CEO of FTX Sam Bankman-Fried said in a tweet that the exchange provided the support to help BlockFi “navigate the market from a position of strength,” the article continues.
  • FalconX, a digital asset trading platform and brokerage for institutional investors, has doubled its valuation to $8 billion, despite a major market downturn for cryptocurrency. FalconX’s new funding round shows that there is still some investor appetite for crypto. The company’s valuation puts it on par with some of the biggest names in the crypto space, according to Bloomberg.

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Chicken KFC, down 100%.
  • Recent market turmoil and the collapsing value of major stablecoins serve as reminders that “crypto is not sound money,” says the Bank for International Settlements. While the industry has exposed certain technological possibilities, cryptocurrencies do not meet other needs of usable digital money such as safety, accountability, efficiency, inclusion and openness, the institution commented in a report published this week and reported by Bloomberg.  
  • Cryptocurrency mining company Bitfarms has made an about-face on its holding strategy, selling 3,000 Bitcoin for $62 million over the past week, reports Bloomberg, to boost its liquidity amid the record-breaking bear market. Bitfarms is one of the first self-proclaimed Bitcoin hoarding miners to turn away from accumulating mined coins. The Toronto-based company is the latest of the public mining companies that have had to sell its crypto assets in order to stay afloat, the article continues.

Opportunities

  • Bitcoin may extend its rebound above $20,000, according to technical analysis. This could suggest a broader recovery across other cryptocurrencies which have also weakened significantly. Bitcoin soared 16% on Sunday ending an unprecedented 12-day drop which sent it below $18,000 for the first time since 2020, Bloomberg reports.  
  • Binance.US, the American affiliate of the largest global crypto exchange, is starting to offer zero-fee trading for Bitcoin, with plans to eliminate the charges for more tokens in the future. Users can see a live order book on the platform for matching trades and over time Binance.US expects to add more tokens to its free trading category, according to Bloomberg.
  • The company suing the U.S. Labor Department over threats to investigate cryptocurrency-friendly retirement plans is set to launch the nation’s first crypto-accessible workplace 401(k) this summer, company officials told Bloomberg Law. The rollout will likely transform what has, until now, been a theoretical showdown between fintech firms and federal regulators over the role of digital assets in employer-sponsored retirement plans, writes Bloomberg.  

Threats

  • South Korea has banned current and former employees of Terraform Labs from leaving the country, suggesting prosecutors are stepping up their investigation into the TerraUSD stablecoin collapse. Around $40 billion in market value was erased for holders of UST and its sister coin Luna when the stablecoin plunged far below its $1 peg, Bloomberg explains.  
  • Voyager Digital faces steep losses if the crypto broker is unable to recoup a loan it made to troubled digital asset hedge fund Three Arrow Capital, Bloomberg reports. Voyager said it may issue a notice of default to Three Arrows for failure to repay the loan. The broker’s exposure to Three Arrows included 15,250 Bitcoin and $350 million of stablecoin USDC, worth about $660 million based on Bitcoin’s price Wednesday morning in New York.
  • Bitcoin resumed a fall mid-week, moving in tandem with weakening stocks amid mounting concerns about a global recession. Cryptocurrencies have been moving for months in the same direction as stocks, and Wednesday’s moves were no exception as investor appetite for risk assets ebbed on growing fears about an economic downturn, according to Bloomberg.

Kitco Media

Frank E Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., a boutique investment advisory firm based in San Antonio that manages domestic and offshore funds specializing in the natural resources and emerging markets sectors. The company’s no-load mutual funds include the Global Resources Fund (ticker PSPFX), the World Precious Minerals Fund (UNWPX) and the Gold Shares Fund (USERX).

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk.

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Frank Holmes
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