Good morning. Here’s what’s happening:
Prices: Bitcoin and other cryptos liked the sound of inflation slowing by more than expected in November.
Insights: The South Korean city of Busan wants to be a blockchain hub, but it is forgetting a few inconvenient truths.
Inflation Slows, Bitcoin Accelerates
Former FTX boss and crypto wunderkind Sam Bankman-Fried went to a Bahamian jail, was denied bail and verbally pummeled at a congressional hearing by the executive who replaced him as the exchange's CEO.
Binance saw a torrent of withdrawals hours after a report that U.S. prosecutors were considering criminal charges against the exchange. Shares of crypto-friendly bank Silvergate plummeted to a two-year low.
The digital asset industry had a memorable 24 hours, though not for the reasons it would prefer.
Yet, crypto markets only had eyes for encouraging inflation figures from November.
Bitcoin was recently trading at $17,765, a 3.2% gain over the past 24 hours, as investors embraced the latest consumer price index (CPI) data, which showed prices rising 7.1%, lower than the 7.3% projected by economists responding to a FactSet survey. The CPI soared over 9% earlier this year.
“It’s pretty clear that the back of inflation has been broken," Jacob Sansbury, co-founder and CEO of Pluto, a provider of DIY automated investing services for retail investors, wrote to CoinDesk. After all, CPI prints are trailing indicators."
Sansbury added: "This is an auspicious sign for bitcoin and crypto, along with other risk assets. I’m not saying that a bottom has formed yet fully for the crypto market, but from today’s lower-than-expected CPI print, it’s pretty clear that a bottom is very, very close."
Ether was recently changing hands at $1,319, also up 3.4% from Monday, same time. Most other major cryptos had a solid green hue with AVAX, the token of base layer network Avalanche, and LINK, the token of software platform, Chainlink recently rising 5.8% and 3.2%, respectively. The CoinDesk Market Index (CDI), an index measuring cryptos' performance, recently climbed nearly 2.4%.
U.S. equity indexes embraced the encouraging CPI figures more quietly as the tech-heavy Nasdaq and SP 500 climbed 1% and 0.7%, respectively. The Bureau of Labor Statistics on Tuesday also showed core inflation, which excludes more volatile food and fuel costs, increasing 6% versus expectations of 6.2% and offered additional evidence that the U.S. central bank's monetary hawkishness during the past six months has been working.
U.S. Treasury yields, which hovered above 4% just a few months ago, sank to 3.5% on Tuesday. On Wednesday, the Fed is likely to raise the interest rate 50 basis points (bps), a decline from its streak of four straight 75 bps increases.
Meanwhile, Bankman-Fried was remanded to custody and will face an extradition hearing on Feb. 8, 2023. The U.S. Attorney's Office for the Southern District of New York unsealed the indictment earlier on Tuesday, announcing that officials were charging Bankman-Fried with wire fraud, conspiracy to commit money laundering and campaign violation allegations, among other alleged crimes. FTX collapsed last month after CoinDesk found irregularities in its balance sheet.
In a Tweet on Tuesday, Binance founder and CEO Changpeng "CZ" Zhao wrote that he welcomed a “stress test” of withdrawals on his exchange to address rising user redemption requests from the platform.
Of cryptos' Tuesday price surge, Bob Ras, co-founder of exchange and digital asset ecosystem Sologenic, noted cautiously in an email to CoinDesk that the bounce was not "as substantial as many had hoped for."
"This isn’t to say there won’t be more upside for major crypto assets here soon. It’s certainly possible, if not likely," he wrote, adding that the emergence of China from its Covid lockdowns, could affect inflation in the months ahead.
"There’s just too much uncertainty for a full-blown market breakout for crypto assets and equities that are further along the risk curve,” he wrote.
The South Korean city of Busan seems hell-bent on being a blockchain hub. But will anyone care about its government enterprise blockchain initiatives and quest to build the first city-run crypto exchange?
Part of Busan’s status as the "center of a global digital information ecosystem," as government literature describes it, is to integrate blockchain technology into all facets of government service. That means, according to The Korea Herald, that blockchain will be the technology that powers the city’s blockchain-based ID service called B-Pass, B-Fresh, its seafood logistics service, B-Tour, a tour platform, to name a few.
The problem is this initiative represents yesterday’s thinking on blockchain. Others have tried integrating permissioned enterprise blockchain into digital infrastructure, and it has failed. A few weeks ago, CoinDesk reported that two major enterprise blockchain projects were ending: Shipping giant Maersk and IBM abandoned TradeLens, a blockchain solution for optimizing supply chains, while the Australian Stock Exchange said it was abandoning a blockchain-powered clearing and settlement system because of a poor cost-benefit ratio.
“It’s a Web2 business model, but a little bit of Web3 pixie dust sprinkled on. And once the pixie dust kind of wears off, the value proposition doesn’t look so hot,” Paul Brody, head of blockchain at global consulting giant Ernst Young, told CoinDesk in a previous article.
This is on top of IBM’s blockchain team being effectively wound down in early 2021, and Microsoft discontinuing its Azure cloud services for blockchain a few months later.
It isn’t exactly clear how the powers that be in Busan will do anything differently that could change the equation on enterprise blockchain. It’s probably that they can’t.
The reason why there hasn’t been a success story in this field is that the technology itself is slow compared to other database platforms.
“The problem was the cost in computing power to implement. Blockchain technology is slow and requires a great deal more computer power. Blockchain is the Model T of distributed ledger technology. They are amazing but now dated,” explained Burke Files, a consultant, when asked about why the U.S. Food and Drug Administration isn’t implementing blockchain technology as it once claimed.
Busan’s other blockchain venture is the creation of a government-run crypto exchange. In a recent announcement from the city, authorities said that the project had some setbacks, but its still on track for a launch next year.
Setbacks indeed. FTX was an early contractor on the project, but that’s obviously not going to work now that the exchange has collapsed and the former CEO has been arrested.
Binance and Huobi are also involved, but there’s been little to show for what should be a very simple project.
Even if it's built, will anyone want to use it? There will certainly be benefits for traders when it comes to Korean won on-ramps and expedited know-your-customer procedures. But will people be comfortable trading on a government-run platform? It’s a fiat exchange, and many will no doubt find it antithetical to Satoshi’s vision for crypto.
Busan might also be opening itself to some major headaches via liabilities.
What if the exchange is hacked? Or what if a listed token is the victim of a rug pull? When dealing with offshore exchanges this can add a level of complexity, but serving the city of Busan with a legal notice will be a lot easier for a Korean lawyer then tracking down an exchange that’s registered in Seychelles but has no central office.
Of course, the whole thing could be a Potemkin Village designed to look like busy work and extract dollars from tax payers. When CoinDesk visited the Busan blockchain center in August, it was just a co-working space with a handful of people. Hardly indicative of the makings of a global technology hub.
In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:
As the world watches, major events impacting crypto are unfolding simultaneously. Congressional hearings on the collapse of FTX began just hours after Sam Bankman-Fried was arrested in the Bahamas. New U.S. economic data showed the consumer price index (CPI) rose at a 7.1% annual pace in November, which was down from October, a sign that inflation is cooling. Crypto markets have reacted positively. "First Mover" guests included Kennyhertz Perry partner Braden Perry, Defiance ETFs co-founder and CEO Sylvia Jablonski and whistleblower and Nym security consultant Chelsea Manning.
With Founder Facing Charges, New CEO Says FTX Embezzled Customer Cash: Sam Bankman-Fried is now a criminal defendant, and CEO John Ray III told lawmakers FTX embezzled customer funds "right in front of their eyes."
Crypto Market’s Near-Apocalypse in 2022 Turns Zombie Tokens Into Dead Coins: The number of cryptocurrencies has dropped by about 1,000 since February, the biggest-ever decline, according to Statista. Often tokens are removed from pricing sites like CoinGecko because they're no longer trading – even if they still technically exist on the blockchain.
Binance's CZ Welcomes 'Stress Test' as Exchange Resumes USDC Withdrawals: The world's largest crypto exchange by trading volume has endured a wave a withdrawals amid concerns about reserves. Withdrawals of the stablecoin USDC were paused for several hours but have now resumed.
Grayscale Bitcoin Trust Discount Reaches Record 50%: The shares have not traded at a premium to bitcoin since last March.