Summary: A cryptocurrency protocol was hacked causing the hacker to run away with $610mn, but the assets were later returned. The US Senate passed on the infrastructure bill without changing the regulation on cryptocurrencies. Lastly, Coinbase published the best quarterly result in the company's history.
Returning $610mn worth of crypto-assets stolen in hack
A hacker managed last week to hack the blockchain interoperability protocol called Poly Network, running away with around $610mn worth of crypto-assets. Poly Network enables multiple blockchains to function together, for instance, Ethereum and Binance Chain, known as interoperability. At the hand of interoperability, this is often relatively complex, making them a target for hackers. Taken the $610mn worth of crypto-assets into account, it is among the most significant hacks that have occurred in the industry. Only comparing the fiat value and not the influence on the crypto-market, the well-known Mt. Gox hack occurring back in 2014 was at the time worth around $460mn. To some extent, the consequences of the Poly Network hack got dramatically downplayed some days after the hack as the hacker started returning the funds to the protocol. As of today, all funds across the respective cryptocurrencies have been returned. Poly Network later declared the hacker a white hat hacker signaling the hack was executed based on good intentions. However, some have later speculated that the funds were solely returned as the hacker could not safely trade that amount of funds into fiat without leaving a trail to the authentic identity of him – or herself. This hack shows how fragile a lot still is in the crypto-market, and that it comes with extensive risk.
No amendment to the US infrastructure bill
The US infrastructure bill has been the main topic for several weeks in a row. Shortly, the US infrastructure bill intends to heavily regulate the crypto-market by broadening the definition of brokers to potentially force miners, validators, and third-party developers to comply with know-your-customer (KYC) procedures which they are simply not able to. Last week several senators formed an amendment to the bill explicitly excluding miners, validators, and software developers from the definition of brokers. In essence, the bill would then exclusively define brokers as someone who is a broker like cryptocurrency exchanges. Upon voting for the amendment, senator Richard Shelby blocked the voting for each amendment, including the crypto amendment, as he was not pleased with the military spending’s in the bill. Senator Richard Shelby later wrote on Twitter that he as a matter of fact supported the cryptocurrency amendment. The infrastructure bill will now be passed on to the House. This means the crypto-market gets one more chance to get it changed as the House can amend the cryptocurrency regulation in the bill. Whether they will do that, only time will tell. The bill is expected to go into effect in 2023 at the earliest.
Coinbase beats Q2 2021 expectations
The most notable publicly-listed crypto-oriented company, Coinbase, published its Q2 2021 result last week. The company easily beat the expectations across the line on both revenue and net income set by analysts. Coinbase generated a revenue of $2.2bn beating the consensus of $1.78bn expected from analysts. The majority of Coinbase’s revenue comes from trading fees, in particular retail trading. Of the company's revenue, slightly more than $1.8bn came from retail trading with only marginally more than $100mn coming from institutional clients – even though, institutional clients traded more than twice as much compared to retail clients. Thus, the company is highly dependent on retail trading activities to financially perform well. As more banks and brokers are entering the market to let retail clients trade cryptocurrencies, it is expected that Coinbase’s steep retail trading fees will come under severe pressure, potentially reducing the revenue from this source even though the volume stays the same. From its revenue, the company could report a solid net income of $1.61bn, whereas analysts expected a net income of $569mn. In Q1 2021 the company turned over a net income of $771mn. Along with 22 other companies, Coinbase is a part of our cryptocurrency equity theme basket of companies giving exposure to the industry.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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