Ripple v SEC: What it Means For Crypto!

On Thursday’s episode of NFA Live, one inspired viewer commented that Gary Gensler was akin to Gollum from The Lord of the Rings: once one of us, now lost to the dark side. They had a point.

When Gary was named as the incoming head of the SEC back in 2020, there was considerable excitement in the crypto industry. Having once taught blockchain at MIT, here was someone who understood the technology and recognised its potential. Surely he would be the one to usher in sensible regulations that would allow the sector to grow and thrive in the United States.

Well, we couldn’t have been more wrong. As soon as he’d got his feet under the desk, the agency announced it was suing XRP issuer Ripple and its two top executives for allegedly selling unregistered securities. However, perhaps to Gary’s surprise, Ripple didn’t roll over, choosing instead to stand and fight. And so began one of the most epic battles the crypto space has seen.

Sadly for Gary, that battle has not gone his way, with the presiding judge recently ordering Ripple to pay a $125 million fine to settle the case. That may sound like a lot, but when you consider that the SEC was seeking a $2 billion penalty, it becomes clear that Ripple has got off lightly. It’s a huge win for the company - and for crypto.

In today’s video, we bring you up to speed on what’s been happening in this consequential case and examine what the result means for both parties involved - and of course for the wider industry. Is this the end of the SEC’s heavy-handed approach to crypto? What are the implications for its other anti-crypto suits? And might we soon see the back of Gollum Gary once and for all?

You can watch that video here.

🎥 New from Coin Bureau - LIVE Weekly News Show! 🎥

You may have noticed that the most recent edition of the Coin Bureau weekly news video was in fact a live broadcast from CB HQ. Guy and Nic have been keen to do more live content and the news seemed like a great place to start.

The show was a big success, so keep a lookout for another live stream tomorrow. The show starts at 9am Eastern Time (2pm UTC/3pm CET/5pm Gulf Time) and you can watch it via the link right here. Check it out and let us know what you think!

📈 Crypto Market Forecast 📈

After a wild couple of weeks, it looks like crypto is finally in for some calmer weather. Given the bullish catalysts over the last few days (such as the Fed being dovish), and the relative absence of catalysts this week, the market should be a breeze. The only macro factor to watch out for is the PCE for July, which will be published on Friday, and could cause a little bit of volatility.

In terms of crypto factors, the only one visible on the horizon seems to be NVIDIA’s Q2 earnings, which will be published on Wednesday. Obviously, these earnings could be incredibly bullish (or bearish) for altcoins in the AI/DePIN niches. Considering how beaten down the cryptos in these niches have been, they could have upside surprises if NVIDIA’s earnings exceed expectations.

On that note, it appears that the crypto market has been strongly correlated to small cap stocks of late. This can be clearly seen on the chart of the Russell 2000, which seems to mirror the recent price action of most major cryptos almost perfectly. This is not surprising given that small cap stocks and cryptos pump when interest rates dump, and interest rates have been dumping.

Speaking of which, the yield on the 10-year treasury looks like it’s about to roll over. Notably, the same is true for the US dollar as measured by the DXY, and even for oil. This is again not surprising given the three are related. What is surprising is that all three of them foreshadow a lowering in inflation and a loosening of financial conditions, which should be bullish for crypto.

Regarding potential bearish factors, there only seem to be two big ones. The first is the possibility that the US government could dump or continue dumping the BTC it seized from the Silk Road marketplace. To refresh your memory, the US government had promised to sell this BTC last year, but has yet to do so. It recently sent some of it to Coinbase, possibly to sell.

The second bearish factor to keep in mind relates to BTC’s use as collateral for various projects and protocols. For example, Tron’s USDD stablecoin is backed by 12k BTC worth over 700 million dollars. Or at least it was until Tron founder Justin Sun allegedly moved this BTC without the DAO’s backing. It’s not clear what he plans on doing with it, but it could be related to wBTC.

That’s a whole other rabbit hole.

When it comes to potential bullish factors, at the time or writing, we’re still waiting for the Trump Organization to announce what sounds like a DeFi/RWA protocol that involves tokenized real estate. This protocol could be revealed as soon as this week and many other crypto projects will be making big announcements in the near term, such as Cardano’s hard fork this Tuesday.

Whereas Trump’s DeFi protocol could give a boost to the DeFi sector, the pending launch of his fourth NFT collection could revive the NFT niche. As it so happens, most NFT collections appear to have bottomed in both crypto and fiat terms. Like most altcoins, these collections have yet to recover. The difference is that almost all of them have been down only since 2021.

This begs the question of how NFTs could make a comeback given all the baggage from the previous cycle. Besides new NFT collections from Trump and other prolific personalities, it seems that GameFi could be the answer. This is because many GameFi cryptos leverage NFTs. Whether this will make all the still overpriced digital art pieces pump is another question entirely.

😔 Prediction Markets: The Next Leg 😔

Prediction markets have emerged as one of the most culturally and financially popular niches over the past year. Their popularity tends to fluctuate in a four-year cycle, much like Bitcoin, but with a key difference: instead of hinging on a halving event, their rise is tied to elections.

Specifically, US presidential elections have a disproportionately large impact on the global popularity of prediction markets. This is no surprise considering a political change in the world’s largest economy tends to have a direct impact on policies concerning international relations, trade, and military alliances.

As we’ve mentioned in a previous issue of this newsletter, decentralised prediction market platforms like Polymarket have seen record-high increases in users, volume, and TVL in the months leading up to the 2024 US election. In fact, Polymarket surpassed $1 billion in cumulative trading volume last month, with more than half of it coming from wagers placed on political event contracts.

Given the size and popularity of these markets, regulators have been cautious about their influence on the outcome of such elections. The key concern is that prediction markets could be manipulated to sway public perception or create misleading narratives.

This is partly why the US Commodity Futures Trading Commission (CFTC) sought to limit access to such markets by regulating them as a form of futures markets. This made it harder to launch new markets and demanded more accountability from the platforms hosting them.

While this limited the growth of prediction market platforms, many accepted the change as being in the interest of consumers via the safeguards against fraud, insider trading, and other unethical practices from such platforms.

However, regulators don’t seem satisfied with just that. The CFTC took things up a notch in May this year by introducing a proposal seeking to ban the market for these political event contracts in its entirety. This has led to much controversy, as well as opposition from prediction market platforms themselves and leaders from across the fintech and crypto industries.

Given the looming threat of such a ban, prediction market platforms are now being forced to find ways to reduce their dependence on political event contracts for broader relevance. In the crypto industry, this has resulted in platforms looking to take one of two paths.

The first is to evade US regulatory control through decentralisation or jurisdictional exclusion and arbitrage. The second is to introduce new features and incentives that make non-political event contracts a more appealing market for participants. The logic is simple – platform revenue is driven by volume and to attract high volume you need deep liquidity in markets.

Currently, non-political event contracts have failed to attract the level of liquidity seen in political event contracts due to the lack of overlap in their appeal to the three types of market participants: the ‘savers’, the ‘gamblers’ and the ‘sharps.’

To put it simply, savers are risk-averse investors who avoid zero-sum markets such as prediction market contracts whose outcomes are binary. Gamblers, on the other hand, prefer making bets on quick outcomes rather than the undefined duration of a few non-political event contracts on prediction markets. This is why political event contracts whose outcomes occur on defined dates are most attractive to gamblers on prediction market platforms.

Finally, Sharps are market participants who use analysis and data to gain the edge on their bets. However, for the above reasons, non-political event contracts on prediction markets fail to attract savers and gamblers. This makes the profit opportunities for sharps to participate orders of magnitude smaller than in other financial markets.

To create an overlap of incentives between all three types, prediction platforms must ideally look to create structures for event contracts that make bets positive-sum, shorter duration, highly liquid and non-random.

While this is easier said than done, we’re already seeing the first wave of such incentive structures emerging in crypto.

For instance, Drift protocol’s B.E.T prediction market, which launched last week, claims to be the most capital-efficient such product out there. By integrating a prediction market platform with its DeFi suite, Drift allows users to create hedged positions by going long on a prediction market while simultaneously shorting Bitcoin. Each trade on the platform also earns yield automatically, powered by Drift’s borrow/lend engine. This is attractive to both savers and gamblers, as it allows for protected bets coupled with leveraged yield.

Meanwhile, platforms like Azuro and HedgeHog have focused on increasing liquidity through AMM-style markets. Hedgehog’s integration with Solana Blinks also allows it to increase efficiency from a user-experience perspective.

As for increasing participation in long-tail markets whose duration is undefined, one possible solution is to provide yield on the bets placed. Examples of prediction markets working on this include Predict.fun – a prediction market on Blast whose assets earn native yield. If you combine this model with the ability to take loans on your bets, you’ve got a winner.

There are also prediction markets looking to capitalise on the live-streaming market. These platforms attract users by offering markets for extremely short duration events – most of which last just a few hours. Examples of such platforms include Sweep and Over/Under.

While it’s impossible to predict which one of these will emerge as the next Polymarket should political event contracts be banned, it’s clear there’s a revolution brewing.

🔥 Hot Deal of The Week 🔥

The markets have seen a rebound this week. So, now might be a good time to brush up on your crypto research and make those portfolio adjustments before that long-awaited altseason comes around. To do that, you’ll probably want some hot tips on the most promising alts.

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🔮 Video Pipeline 🔮

* Notcoin Update: Any potential in 2024?
* Top 5 Crypto Stocks: Which are worth looking at?
* Bitcoin Mining: Status update and what it means for BTC?
* Universal Basic Income: Will it be required in the future?
 
🏆 What's New at CoinBureau.com This Week? 🏆

* Top Blast DApps 2024: 10 Best DApps on Blast Network
* USDC vs. USDT: Which Stablecoin is Best for You in 2024?
* Blast Network Review: L2 With Native Yield for ETH, Stablecoins
* The Complete Guide to Liquid Staking: Why It Matters in 2024?

📖 Quote of the Week 📖

In the short term, there may be tokens or projects that are rallying and defying logic. Similarly, there may be projects that you think are valuable, but haven’t budged in months. However, over time, the quality of the project will be borne out.  

“Time is the friend of the wonderful company, the enemy of the mediocre” - Warren Buffet

Team Coin Bureau

Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.