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Texas mining shutdown and the first lawsuit in the form of the NFT. Key events of the week

15.07.2022

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10 min

Bitcoin has fallen by 2,48% over the past seven days. The highest values were reached by the asset on July 8, when 1 BTC was trading at $22 527, the lowest values were registered on July 13 — $18 910 per one coin. As of July 15, 9:20 UTC, bitcoin exchange rate is $20 929 (according to Binance).

The value of the second most capitalized cryptocurrency, Ethereum, has remained virtually unchanged over the past seven days, adding only 0,16%. The price of ETH is $1 220. The native token of the cryptocurrency exchange Binance (BNB) rose 0,49% and is trading at $239,2.

The total capitalization of the crypto market fell from $998,3 billion to $959,2 billion for the week, with bitcoin dominating 41,1%. Ethereum's share is 14,1%.

Texas miners shut down operations

Nearly all industrial miners suspended their operations in Texas this week at the request of the local Electric Reliability Council of Texas (ERCOT). The reason was high temperatures in the state and the risk of overloading power grids. The Texas Blockchain association said the shutdown released about 1 000 MW, more than 1 percent of the state's total grid capacity. Among the companies that shut down installations are Riot Blockchain, Argo Blockchain and Core Scientific.

The shutdown of the miners resulted in a 27% drop in bitcoin hashrate, down to 159,41 EH/s. This was the first time this situation occurred in five months, with a drop to 157,89 EH/s on February 5, 2022.

According to financial holding company JPMorgan, in July the average cost of mining bitcoin fell from $24 000 to $13 000, which may have a negative impact on the rate of the first cryptocurrency. Analysts explained that “the production cost is perceived by some market participants as the lower bound of the Bitcoin’s price range in a bear market.”

Development of the situation with Celsius

Celsius' liabilities to customers and creditors exceeded the amount of assets in its accounts by $1,2 billion. That's according to documents provided by the company as part of its bankruptcy and restructuring proceedings. Thus, the total debt of Celsius is $5,5 billion. After repaying loans from DeFi-protocols Maker, Aave and Compound, the platform returned $1 billion in collateral, and the company now has a total of $4,3 billion in its accounts.

Even before the platform settled with the protocols, the cryptocurrency exchange FTX refused to buy it, because during the inspection of documents, experts found that the company's liabilities exceeded the assets by 2 billion dollars.

In the bankruptcy filing, Celsius noted that “the amount of assets on its platform grew faster than it expected” and the company made “certain poor asset deployment decisions.” The remaining creditors include Symbolic Capital Partners, which holds 2 000 ETH ($2,39 million as of July 15) as collateral; Pharos USD, which has $81 million in unsecured debt; and FTX CEO Sam Bankman-Fried's company, Alameda Research, which has $13 million.

3AC bankruptcy case

A US court allowed lawyers in the bankruptcy case of Three Arrows Capital (3AC) to issue subpoenas to the hedge fund’s founders Kyle Davies and Su Zhu to appear at the meeting. Earlier, Teneo Restructuring’s lawyers appointed to assess the fund’s assets, were unable to locate Davies and Zhu and get into 3AC’s Singapore office. They also noted the lack of “cooperating with the proceeding in any meaningful way” and raised concerns that 3AC’s founders would try to move the remaining assets offshore.

In addition, Teneo was collecting information on 3AC's bank accounts, cryptocurrencies and transactions in recent months. However, many of the fund's counterparties, citing company policy, refused to provide this data without a court request.

Regulation of the crypto market

This week, the European Central Bank (ECB) recommended a ban on mining and regulation of stablecoins. The bank described the rapid development of the crypto market as a threat to financial stability, which requires the urgent introduction of controls. The ECB identified three areas of concern: climate risks from cryptocurrency mining, decentralized finance (DeFi) and stablecoins.

The International Organization of Securities Commissions (IOSCO) and the Bank for International Settlements (BIS) stated that stablecoins must meet the same security standards as traditional forms of payments. The organizations adopted a proposal to regulate stablecoins, which had been under consideration since October 2021. The new guidance includes rules on risk management, government regulation, and transparency standards.

The International Organization of Securities Commissions (IOSCO) published a roadmap for the development of standards to regulate the global crypto market. The first proposals are due to emerge by the end of 2023. Among the key priorities, the organization highlighted investor protection, maintaining market integrity, and adapting the rules of securities regulation to the cryptocurrency industry.

A task force chaired by a representative from the Monetary Authority of Singapore (MAS) will develop the rules. Within the group, two separate committees will be set up: for crypto/digital assets and decentralized finance (DeFi), led by the UK Financial Conduct Authority (FCA) and the US Securities and Exchange Commission (SEC), respectively.

The situation with cryptocurrencies in Russia

The Central Bank of the Russian Federation spoke out against the issuance of stablecoins in Russia. The regulator believes that private stablecoins are characterized by higher risks because the pool of assets underlying them is not owned by the owner. The Central Bank also noted that factually the price of stablecoin is not stable, and pointed out that there are no guarantees of repayment at the nominal price of assets in collateral. Representatives of the regulator stressed that only the ruble is a legal tender in Russia, its only alternative could be the digital ruble.

The Federation Council passed a law establishing the specifics of taxation involving digital financial assets (DFAs) transactions and utilitarian digital rights (DPRs). It clarifies the treatment of VAT, personal income tax (PIT), and income tax. The government noted that the establishment of certain conditions is necessary for the effective operation of the digital economy, the implementation of digital projects, and the development of a competitive digital rights market in Russia.

On July 11, the Cabinet of Ministers approved the development of a system to monitor the effectiveness of state support measures, including preferential business lending programs. The system will operate on the basis of the blockchain of the Federal Taxation Service (FTS), to which more than 70 financial institutions are already connected. Lenders will provide data on loans not only to the relevant ministries but also directly to the service of FTS.

The Ministry of the Interior is working jointly with other departments to increase penalties for intermediaries of crypto scammers. Currently, droppers are prosecuted under Article 172 of the Criminal Code of the Russian Federation (“Illegal banking activities”), but the Interior Ministry proposes to make this type of offense a separate offense. In this case, the penalty for assistance in the laundering of stolen funds could be up to seven years in prison.

NFT market news

The High Court of England and Wales allowed Fabrizio D’Aloia, founder of Italy-based online gambling company Microgame, to file a lawsuit against anonymous people by sending non-fungible tokens (NFTs) to their addresses. D’Aloia had previously fallen victim to fraudsters, sending more than $2,2 million to the addresses of scammers allegedly providing brokerage services.

Playboy Magazine will build a virtual mansion, MetaMansion, in The Sandbox metaverse. As part of the project, users will have access to the brand’s unique content and NFT collections, as well as the opportunity to participate in games and events. MetaMansion is directly linked to the Playboy Rabittars NFT collection launched in 2021. Token holders will have access to exclusive features of the virtual mansion, but specific details and the launch date of the MetaMansion project are not yet known.

GameStop, a video game retailer, launched a public beta of its own NFT marketplace. It is a non-custodial marketplace where users can trade non-fungible tokens, as well as create their own collections. In the future, the company plans to expand its functionality and add other products, such as Web 3.0 gaming. NFT statistics and rankings are available on the platform, as well as educational content.

Social media network Snap plans to integrate NFT into its app. The tokens will be used as filters for pictures and videos. Testing is scheduled for the end of August. There will be no payment for demonstrating NFT, but Snap is looking into cooperation with third parties to help authors monetize their work.

New bitcoin rate predictions

Wall Street investors called the $10 000 mark for the bitcoin price the most likely. According to the survey, 60% of 950 investors are confident in the BTC price halving. At the same time, they question the likelihood of its return to the $30 000 level. 40% of respondents believe that the asset will be able to grow to this mark.

Crypto analyst Justin Bennett warned that the bitcoin rate may collapse because the cryptocurrency market is affected by several macroeconomic factors: the record 40-year inflation rate in the United States, tough measures by the Federal Reserve (Fed) to combat it, the fall in the value of stocks and the global recession. According to him, a bear flag forming on the BTC price chart indicates a possible decline to the ~$8 500 mark.

Cryptocurrency analyst Benjamin Cowen abandoned his suggestion that the price of bitcoin could reach $100 000 by the end of 2023. According to him, as long as the US Federal Reserve System (Fed) continues to pursue its tight monetary policy to fight inflation, the first cryptocurrency’s rate will decline. Cowen cited the dollar's bull market as another negative factor. He noted that as long as the trend continues, bitcoin, like other high-risk assets, will remain under selling pressure.

According to businessman Kevin O'Leary, the digital asset market will soon begin to capitulate on a large scale, triggering fear and panic among crypto investors. He added that cryptocurrency rates have not yet bottomed out, despite a drop in total market capitalization of more than 50% from their peak values. The entrepreneur noted that no major player has collapsed yet, but it is only a matter of time. He believes that the cause of the collapse will be high leverage and “some kind of relationship in a counterparty holding that they have not disclosed.”

New materials in the GetBlock Magazine's knowledge base

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“No need to wait for a new bullish cycle:” what will happen to the crypto market during the earnings season.

How Celsius lost its customers' hundreds of millions of dollars on high-risk schemes.

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