Positive Crypto Momentum Building Even with Record High Inflation
Market Movers
The largest coins by market cap were in the green for the week, highlighted by Ethereum rising over 15%
Lido DAO (LDO) was our pump coin of the week, rising a staggering 147%
LDO allows ETH users to convert their ETH to stETH (staked ETH). This week stETH slipped from its peg to ETH and is trading at a 2.4% discount at the time of this writing (via Decrypt, CoinMarketCap, CoinMarketCap)
It’s worth noting that stETH cannot be converted back to ETH until after the Ethereum “Merge” when ETH 2.0, the PoS version, is created (via Decrypt)
First Sip
If you’re already a crypto native, feel free to skip to “Table Talk.”
WHAT ARE CRYPTO MIXERS?
Crypto mixers, also called crypto tumblers, are a way of obfuscating the origin of your cryptocurrency. With many cryptocurrencies having public blockchains, its a way of breaking the “link” between a wallet and its history with assets. This week’s “DeFi Download” features a report about crypto mixer usage, but in this section, we’ll break down the different kinds of crypto mixers and how they work.
Just like with crypto exchanges, centralized and decentralized crypto mixers exist.
The centralized version works much like a bank. You show up, deposit your Bitcoins or some other cryptocurrency that they support, and they return an equivalent amount minus the fee. These kinds of crypto mixers are considered custodial because the centralized service holds the cryptocurrency until it can be appropriately mixed when other users deposit.
Decentralized crypto mixers, on the other hand, are non-custodial, and their operations are controlled by smart contracts. Primarily, two different kinds of decentralized crypto mixers exist.
In one case, users send a transaction with the amount of crypto they would like mixed to the mixer and receive a key in exchange that proves they own that crypto. Then, that user can later unlock the crypto by providing that key from a separate wallet address at a time of their choosing.
The other case is what’s called a CoinJoin mixer. CoinJoin mixers allow users to create a pool of coins which are then redistributed randomly.
In all cases of mixers, it becomes incredibly difficult to discern the history of coins and who owns them, which makes them an effective money laundering tool through the same mechanism that preserves privacy.
Table Talk
CPI RECORDS 40-YEAR-HIGH
This past Wednesday, the Bureau of Labor and Statistics revealed their CPI number for the month of June: 9.1%.
The number represents CPI’s biggest year-over-year change since 1981.
As we can see, energy costs are playing a huge role in the record-high CPI number for June, with most of it being due to the cost of oil being up over 27% from a year ago (via MacroTrends). Although CPI is a complex metric, the role that rising energy costs have in recent record-high inflation numbers is evident.
The Nasdaq (+0.67%) and Bitcoin (+0.45%) weekly performances were largely unaffected by Wednesday's CPI numbers; however, 2 days of price action likely do not accurately reflect the market’s ultimate reaction to the news.
The Fed Open Market Committee meets on July 27th to determine the next interest rate increase. They’ve signaled another 0.75% rate increase, but we’ll see how the CPI numbers and the next week-and-a-half shift the needle (via WSJ).
NFT Buzz
NFT MARKETPLACE OPENSEA LAYS OFF 20% OF STAFF
OpenSea, the world’s largest NFT marketplace, Co-Founder Devin Finzer revealed in a Thursday tweet that the company has let go of roughly 20% of its employees.
In his lengthy tweet, Finzer cited the combination of a crypto winter and broad macroeconomic instability as reasons for the move as the company prepares for a “prolonged downturn.”
OpenSea’s move mimics the actions of many popular crypto players (ex: Coinbase, Gamestop) who have responded to the economic and crypto slide by letting go of some of their employees.
With many VC firms having quite a bit of “dry powder” left, it’ll be interesting to see how crypto companies will need to incentivize new employees to come after these widespread layoffs if they receive an infusion of capital (via MorningBrew).
DeFi Demographic
ILLICIT CRYPTO MIXER USAGE PEAKING PER CHAINALYSIS
Chainalysis is a leading crypto data firm that offers insights about on-chain transactions and their sources for investigations, compliance, and risk management (via Chainalysis). Their research department releases reports detailing their insights—this week’s featured crypto mixer usage.
Crypto mixers are services that allow you to deposit your BTC or some other supported cryptocurrency and receive different BTC coins of equivalent value back. While there are privacy-related use cases, the tool also serves as a money-laundering machine. For a longer primer on how crypto mixers work, check out this week’s “First Sip” section above.
Other services commonly used for crypto laundering include online gambling and decentralized exchanges. Still, per Chainalysis’s report, roughly 10% of all funds leaving wallets connected to criminal activity were sent to crypto mixers (via Chainalysis).
The lion’s share of those transactions are those from sanctioned entities located in Russia and North Korea (via Chainalysis).
Mixers, while providing an essential privacy service, also enable criminal activity. With a rapidly increasing share of usage by criminal entities, this begs questions about the ethics of standing up and maintaining such a service without safeguards that attempt to minimize criminal activity. With their increasing criminal usage and the spotlight provided by Chainalysis, we’ll see how long they last.
Final Cup
CPI for June came in at 9.1%, a 40-year-high. Stocks and crypto markets did not react poorly to the news; however, it has only been a few days.
OpenSea has let go of 20% of its workforce. Expect similar moves to be made by large crypto players as a response to unfavorable macro conditions.
Criminals’ usage of crypto mixers peaked this past quarter, with North Korean and Russian sanctioned organizations predominating the volume increase.
Meme of the Week (via Reddit)
Pat + Ari ✌️
Disclaimer: None of this is investment advice, financial advice, or trading advice. CRYPTOPONG does not endorse any of the cryptocurrencies, DeFi applications, or NFT collections mentioned in this article. Perform your own due diligence and/or consult a financial advisor before investing. All of the opinions expressed here are our own unless cited otherwise.