WEEKLY CRYPTO ROUNDUP – DEBT CEILINGS, CHINA’S MOVES, WORLDCOIN’S RISE 

Market Movements

The world of cryptocurrency was given a boost by news of new regulations in Hong Kong and the potential avoidance of a US Government shutdown, lifting Bitcoin by 3.45% in the last week to A$41,696 (US$27,137). Other significant cryptos didn’t miss out on this week’s wave, with Ethereum, XRP, Cardano, and Polygon also recording gains. The Crypto Fear and Greed Index sits at a neutral position of 51.

What the Debt Ceiling Deal Means for BTC and Digital Assets

In the stillness of the weekend, major political forces in the United States, namely the Biden administration and House Speaker Kevin McCarthy, inked a deal to elevate the debt ceiling. While this deal still awaits Congressional approval, its potential impacts on the world of Bitcoin (BTC) and other cryptocurrencies have already begun to unfold.

Initially, as news of the deal started to circulate, BTC and other leading cryptos rallied, seemingly answering the queries around the crypto-markets reaction to such a fiscal adjustment. However, there is an undercurrent of concerns as some analysts view this higher debt ceiling as a bearish development in the long run. The rationale is that the treasury may issue a significant quantity of T-bills, effectively diverting liquidity that might have flowed towards risk assets.

On a more positive note for Bitcoin, a contentious 30 percent tax on Bitcoin miners, proposed earlier by the Biden administration, has been scrapped. This legislation would have mandated Bitcoin miners to reveal details such as their energy consumption, source of electricity, and its monetary value. The tax was justified by the administration as a measure to counter “environmental damage,” but it was met with robust opposition from politicians across the political spectrum.

Hong Kong-China Digital Asset Dance Continues

Is China contemplating a foray into crypto? The official answer remains ‘no,’ yet recent developments suggest that China might be using Hong Kong as a proving ground for potential involvement in the crypto space.

Before China’s crypto ban in 2021, Hong Kong served as a thriving crypto hub. In a seemingly unexpected about-face, Hong Kong’s Securities and Futures Commission (SFC) has announced its intention to start accepting applications from June 1, with retail trading anticipated to commence in late 2023.

Interestingly, Greenland Holdings, a financial services firm allegedly partially owned by the city of Shanghai, is expected to apply. If true, this would mark the first application by a Chinese state-owned company. One key stipulation of the licensing process is that platforms must carry out identity checks to ensure that traders are not based in mainland China.

China’s seemingly contradictory stance on digital assets extends beyond this development. The country has recently launched a large-scale blockchain education program and has also committed the equivalent of at least USD 14 million annually until 2025 to establish itself as a global digital economy hub, according to a white paper released by the Beijing Municipal Science & Technology Commission in late May.

Furthermore, the state-sponsored television station aired a video on Hong Kong’s new regulations featuring a Bitcoin image with the caption “Buy Bitcoin.” This has raised eyebrows among observers and further fuelled speculation about China’s future in crypto.

The new Hong Kong regulations come with stringent non-compliance penalties and a requirement for platforms to keep 98% of assets in cold storage. Insurance requirements for assets in cold wallets will be comparatively lower, given their higher security levels. However, rules for derivatives, DeFi, NFTs, and utility tokens are still being developed. These mixed messages, combined with the many unresolved regulatory grey areas, create a challenging landscape for businesses seeking to formulate long-term strategic plans in the digital asset sector.

Other Headline Stories

Consortium Farenheit Heats Up with Celsius Acquisition

Farenheit, a consortium involving Arrington Capital and US Bitcoin Corp, has won the bid for the assets of the defunct crypto lender Celsius Network, previously valued at US$2 billion (A$3B). However, the acquisition is still subject to regulatory approval.

Presidential Hopeful DeSantis Backs Bitcoin

Florida Governor Ron DeSantis, despite glitches during his presidential campaign launch on Twitter Spaces, declared his support for Bitcoin to half a million listeners. Republican senator Warren Davidson remarked on the absence of President Biden’s proposed 30% tax on Bitcoin mining in the recent deal to raise the US Government debt ceiling.

Ledger Reverses Recovery Plan

After a controversial misstep, Ledger is reversing its Ledger Recover service. CEO Pascal Gauthier admitted to a miscommunication on the launch, saying the company will instead speed up the open-sourcing of its tech.

Hong Kong Opens Doors to Retail Traders

From today, new crypto rules in Hong Kong will allow retail traders to participate in the market on licensed exchanges. While none are currently approved, this move may indicate a softening stance from China, which has previously banned crypto trading.

AI Comes to Crypto’s Aid?

AI has been on the rise, seemingly overshadowing the buzz around crypto. However, Hunter Horsley, CEO of Bitwise, believes that AI could trigger the next crypto bull run. He sees the potential for blockchain technology to establish authenticity amid a flurry of deep fakes and AI-generated misinformation. In addition, he contends that AI agents will find features like blockchains, stablecoins, smart contracts, DeFi, and yet-to-be-invented tools “natively useful”.

Anticipating the Bull Run

While Bitcoin has been in a consolidation phase for the past few months, Glassnode reports that a large number of Bitcoin buyers from 2021-2022 remain underwater and are likely waiting for break-even prices to sell. However, the analytics firm notes that BTC is trading slightly above the long-term holders’ cost basis, suggesting that we’ve entered the ‘transition’ phase of the bull cycle. This comes after the ‘capitulation’ stage and precedes the ‘equilibrium’ and ‘euphoria’ stages.

Earlier this week we covered crypto on-chain data in depth – you can read that full article here.

Analyst PlanB believes that if Bitcoin can cross above its two-year realised price (around US$29.5K/A$45.15K), it would historically signify the start of a bull run. Analyst Credible Crypto echoed similar sentiments, predicting Bitcoin might hit a new all-time high this year, based on parallels between the current setup and 2020. Former Bitmex CEO Arthur Hayes, however, thinks the bull run will take a bit longer. “I think next year is when we cross that barrier, then we get the blow-off top” he commented.

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