Week 31, 2023 - Weekly Market Outlook

Introduction

In this weekly market outlook, we examine the most recent advancements in the crypto space. Base, Coinbase's Layer 2 went live and over $80 million was bridged over in the first week. Binance is under more scrutiny with the DOJ looking at more charges towards CZ and Binance. Lastly, Curve, the biggest stable DEX in crypto has been hacked for $62 million causing their founders loan on Aave to be potentially liquidated.

We also examine the staking of Ethereum, which is becoming more popular, and the appearance of liquid staking derivatives in the cryptocurrency market.With an emphasis on Bitcoin and Ethereum, we present an update on the state of the cryptocurrency

Bald and Base go Live

Base is a Layer 2 blockchain network on Ethereum, incubated by Coinbase. It's designed to be a "safe", affordable, and user-friendly platform for building on-chain applications, with full decentralization as its goal, thanks to collaboration with Optimism.

Base caught attention with the meme coin Bald, named after Coinbase's CEO. It soared to a market cap of over 90 million, mainly from the creator's 40 million in liquidity. The creator later withdrew the liquidity, gaining over 3000 ETH, a move that underscored the risks in crypto.

In July, developers were given access to Base to test products, followed by the mainnet launch for builders on July 13. However, it initially lacked a user-friendly bridge interface. From August 9, Coinbase users will be able to deposit crypto directly into Base, making it more accessible. Some early users have lost millions due to the liquidity pull. The official launch is slated for August 9, with the bridge now ready for end users. Additionally, a special event called "Onchain Summer" will grant over 100 Ether to developers and creators.

Binance and DOJ

The U.S. Department of Justice (DOJ) is reportedly weighing fraud charges against the crypto exchange Binance. The situation is complex, as prosecutors are considering alternatives to avoid the risk of an FTX-style bank run, according to sources cited by news site Semafor.

U.S. officials' concern is that an indictment against Binance could ripple through the entire cryptocurrency industry. As a result, they are exploring other options such as fines or deferred or non-prosecution agreements. Binance has remained silent on the issue, and the Justice Department has not yet responded to inquiries.

This isn't the first time Binance has faced scrutiny from U.S. authorities. Earlier in the year, the Commodity Futures Trading Commission (CFTC) sued the company and its CEO, Changpeng Zhao, accusing them of willfully evading U.S. laws.

The potential fraud charges and the ongoing uncertainty surrounding Binance's legal standing in the U.S. may understandably alarm users of the platform. While there have been no immediate actions taken against Binance, the situation serves as a stark reminder of the regulatory risks that come with crypto exchanges.

For those of you with assets on Binance, it may be best to withraw your assets. There's no clear indication that assets on the platform are in immediate danger, but the evolving legal situation could lead to unforeseen consequences. It seems its better to be safe rather than sorry.

The new Curve wars

The hacking of Curve Finance has revealed significant issues in the DeFi world, leading to the sequel of Curve Wars

Hackers stole about $62 million from Curve Finance through a bug in the Vyper compiler contract programming language. This failure affected several Curve liquidity pools, and while the hack was only 4% of Curve's total value locked, it raised concerns about DeFi's vulnerability.

Curve Finance's Founder, Michael Egrovo (Mich), added complexity to the situation. Mich had taken a $100 million loan on AAVE, collateralized with $280 million of CRV tokens, to buy mansions in Australia. If the hacker were to market sell the stolen assets, Mich's position would be liquidated. To avert a market crash, Mich sold CRV tokens Over The Counter (OTC) to large investors, potentially saving this DeFi generation.

Key players in the crypto space, including Justin Sun, DCFGod, DWF Labs, Cream Finance, and anonymous wallets, are involved in the unfolding events. Mich's position has led to proposals to force payment and reduce the risk of a system collapse.

The Narrative

Ethereum staking has surged as a result of this. The use of liquid staking derivatives has increased. The Liquid Staking Derivatives financing space is a recent development in the market.

LSDfi expands on LSDs to open up new market potential involving validator monopolies, staking yields, risk reduction, and even validator censorship. By encouraging healthy competition among validators and preventing one party from controlling the consensus layer, these approaches offer special potential for users.

LSDs, tokens that users obtain when they stake their assets, are the foundation of LSDfi. These tokens improve network security while also enabling users to increase their income beyond their staking payouts. The flexibility and liquidity that LSDs offer consumers is a crucial component. This means that even without locked assets, users can still benefit from staking cryptocurrency. Staked assets are represented by LSDfi, which can be exchanged, lent out, restated, or used in arbitrage transactions on secondary markets. Read more here to learn more about LSDfi

Crypto Market data

Bitcoin appears to have finally broken out of its month-long range. The unfortunate news is that it collapsed downward. Right now the place to keep in mind is 26,000 and 27,000. If these levels can hold then market structure will hold. The biggest issue for crypto right now is the US stock market and the dollar. The US stop market looks like it will be having a pullback while the dollar looks like it wants higher. Till we have seen the downside of the US stock market, it might be best to wait to bid Bitcoin.

If you decided to trade Ethereum this week, I hope your mental health is in peace. Trading Ethereum has been awful, it's been a consistent chop for the past weeks. Ethereum looks like it's heading to $1720, which is where I will be placing some buy orders. If you're not interested in trading Ethereum, there is a magnitude of Alts being launched on-chain, but be careful—you can be roughed up.

The DeFi Sector

With Ethereum chopping around this week, the best performing chain is Tron

I have come to the realization that every time Ethereum has a down week, Tron outperforms other chains. Tron outperformed so well because it offers the highest yield for stablecoins. The Tron network offers about 30% on stablecoins. But this yield is extremely unsustainable, so use caution if you want to use the tron network.

Base does not seem to be available on DeFi Llama but if it was it would be one of the best performing chains of the last week. Over $80 million has been bridged over to Base.

Best and worst performers

The top gainers of this week seem to be diverse but there is a slight narrative here. That being Open exchange and Flex Coin. Open Exchange is the first crypto marketplace where you can trade claims. Open exchange and Flex Coin are partners and are run by former Three Arrows founders. While both these projects may not have the best ethical practices, they both are trading at an All Time High and have the potential to become even bigger in the space.

The top losers are filled with a bunch of DeFi blue chips, because of the recent Curve hack. All these platforms were affected by this hack. Once the funds have been retrieved from the hack, the projects probably bounce.

The week ahead

For now Bitcoin is trading sub $30,000,We broke below the month-long range. I think we will start trading back at $27,000 and that is when you want to potentially position yourself. If you want to position yourself, waiting for strength or a leverage flush is best. Till then no point in trying to force a trade.Ethereum appears to be in dire straits and may be headed lower. For Ethereum, a claim of $1700 or $1918 is the best long. There is no purpose in interacting with Ethereum until that. It is preferable to go on chain and start trading the alts there if you are eager for gains. There are thousands of alt launches every day, but be careful—you can be roughed up.

If you are not in any positions yet, it might be best for the market to show some strength. It's also great to start researching new narratives and projects. You can read those here.