July Overview

Your Monthly Brief into the World of Digital Assets

JKL Group

18 min readJul 31, 2023

1. Market update

2. July in a Nutshell

3. Regulators

Ripple’s Partial Victory: A New Chapter in Crypto Regulation?

4. Crypto Projects

Azukis: The Downfall of a Blue Chip NFT

5. Institutions

6. Mining

7. August Preview

Bitcoin performance calendar
Macroeconomic events
Crypto events

1. Market update

Bitcoin remained mostly range-bound in July. It traded within a 7.5% corridor over a period of 32 days before weakening towards $29k.

The market focus in the early month remained on the anticipation of increased crypto adoption by TradFi institutions. Following feedback from the SEC, prominent ETF providers like BlackRock, Fidelity and Invesco have resubmitted their spot ETF applications, all specifying Coinbase as their partnership exchange to provide market surveillance. BlackRock CEO Larry Fink also made favorable comments that Bitcoin is an “international asset” akin to “digitizing gold”.

The news gave a positive boost that carried momentum from the previous month, but the effect was much more pronounced for Coinbase stock that maintained strength throughout the month. It revisited above $100 per share, the highest since August 2022. By contrast, the effect was short-lived for Bitcoin, which stopped short before the $31.5k resistance level.

On 13 July, the U.S. District Court of the Southern District of New York ruled that the sale of Ripple’s XRP tokens on crypto exchanges did not constitute investment contracts. As a result, altcoins rallied especially for those that were labeled “securities” by the SEC in the recent lawsuits against Coinbase and Binance. Once again, there was a lack of buying power to push Bitcoin through the key resistance. This foreshadowed a revisit lower towards the vicinity of $29k as we approached the monthly close.

Looking at macroeconomic factors, June U.S. CPI was reported at 3.0% YoY, which was lower than the 3.1% forecast. PPI numbers also signaled receding inflation pressure. Nevertheless, some analysts cautioned over these numbers citing base effects from last year, as well as sticky wage growth that remained above 5%. In line with expectations, the Fed delivered another 25 bps hike on 26 July.

Chinese GDP grew 6.3% on an annualized basis and fell some way short of expectations. This raises concern that the country’s economic growth may be weaker than anticipated and highlights an urgency for policymakers to deliver more stimulus. Moreover, Chinese property developers are not out of the woods with their debt problems, and unemployment appears to be a growing problem.

On-chain metrics continue to paint a generally bullish picture. As noted by prominent crypto analyst Will Clemente, 55% of Bitcoin has not moved in at least two years. This demonstrates a reluctance from holders to sell at the current price, or a general conviction that prices should go higher from here. According to CryptoQuant author IT Tech, both the short-term and long-term Spent Output Profit Ratio (SOPR) have remained above 1.0, indicating that most investors are currently in profit. This behavior is consistent with “early stages of the bull market”, and unless there is another black swan occurrence, prices should be working its way up.[1]

Source: Twitter @willclemente / CryptoQuant

Chinese on-chain analyst 0xCryptoChan notes that a golden cross is developing between the Long-Term Holders (LTH) realized price and the overall realized price. In 2016 and 2019, the bullish cross between these two metrics resulted in significant rallies.[2] Using a modified measure of the 350-day moving average, he estimates that Bitcoin price could increase above $46,000 if the golden cross materializes this time around.[3]

2. July in a Nutshell

3. Regulators

Ripple’s Partial Victory: A New Chapter in Crypto Regulation?

In a recent turn of events, Ripple, the company behind the XRP cryptocurrency, has scored a partial victory in its legal tussle with the U.S. Securities and Exchange Commission (SEC).

On 13 July, the U.S. District Court for the Southern District of New York delivered a ruling that could potentially reshape cryptocurrency regulation.

The court ruled that Ripple’s programmatic sales of XRP tokens did not infringe federal securities laws. However, it was simultaneously determined that the company’s institutional sales constituted violations of those laws. Such mixed verdict has sent ripples across the crypto community, bringing a degree of regulatory clarity while also leaving room for further debate.

The SEC has long maintained that most digital assets should be registered before they can be sold to the public. The Commission argues that these assets often function similarly to traditional securities and should therefore be subject to the same regulatory oversight to protect investors. This stance, however, has been met with resistance from many in the cryptocurrency industry who argue that digital assets are fundamentally different from traditional securities and should not be subject to the same regulations.

Indeed, the latest ruling marks a significant milestone in the cryptocurrency industry’s ongoing struggle with legal uncertainties. The decision provides some guidance on how federal securities laws might apply to cryptocurrencies, a point of contention for years.

Tom Emmer, the Republican party whip, notes that a “monumental development” is made by establishing that a token is separate and distinct from an investment contract.[4] Prominent crypto analyst Adam Cochran said that the verdict was a “big win” for Ripple, which is one of the more centralized organizations in crypto. It is also a very good result for all altcoins, because if listing XRP on exchanges does not qualify it as a security, the same is likely to apply for other tokens.[5]

The event has had a significant impact over XRP’s token price. Major crypto exchanges including Coinbase and Kraken, which had removed the token from their platforms, promptly reinstated it. As a result, XRP rose by 61%, raising its market capitalisation by a staggering $21.2b in less than a day.

Following the court’s decision, XRP’s trading volume surged 61%. On 17 July, XRP made up 21% of global crypto trade volumes, briefly surpassing Bitcoin that accounted for 20%, and Ether that stood at 8%.

As for the other altcoins, the court’s decision offers new precedents for outstanding lawsuits. This year, the SEC has targeted exchange platforms like Coinbase, Binance, and Bittrex, accusing them of operating unregistered trading platforms. These platforms list what the SEC categorizes as unregistered securities, including Cardano (ADA), Solana (SOL), Polygon (MATIC), and Filecoin (FIL). The latest U.S. court decision could provide these defendants with a new line of defence.

While many expected more of a landslide victory for Ripple and XRP, the court decision still projects a positive outlook for the altcoin. Stu Alderoty, Chief Legal Officer of Ripple Labs, said that from now on, XRP could be used by licensed banks for cross border transactions. On the contrary, SEC Chairman Gary Gensler expressed disappointment over the result, as well as the judge’s opinion that XRP was not a security when sold to retail investors.

Overall speaking, the full impact of the case remains to be observed. Gensler will be looking to recover from his setback, while Ripple and its lead executives have not been fully exonerated from possible civil consequences. Experts therefore anticipate both the SEC and Ripple to appeal over the next few months. Indeed, the judge’s decision can still be challenged in the Second Circuit Court of Appeals, and it is not uncommon for appeal courts to overrule the initial verdict.[6]

Regulators: Read More

1–15.07.2023

- Hong Kong Is ‘Embracing’ Web3 With New Task Force (Read More)
- Kraken Co-Founder Jesse Powell Under Federal Investigation on Claims of Hacking, Cyberstalking Non-Profit (Read More)
- BOND Token Slumps 10% as BarnBridge Faces SEC Investigation (Read More)
- CFTC plots own course on crypto by naming Polygon and Uniswap leaders to key advisory panel (Read More)
- Silk Road–Linked Bitcoin Worth $300M Moved by U.S. Government: On-Chain Data (Read More)
- Lummis, Gillibrand Revamp US Crypto Bill With Juiced-Up Consumer Protection (Read More)
- Founder of Bankrupt Crypto Firm Celsius Is Arrested on Fraud Charges (Read More)

16–31.07.2023

- Financial Stability Board Calls for Tougher Global Crypto Rules After Year of Turmoil (Read More)
- Deadlines for U.S. Spot Bitcoin ETF Approvals Come Into Sight (Read More)
- U.S. Secret Service Seizes Funds From Bahamian Bank Deltec Amid Fraud Investigation (Read More)
- SEC Chair Gensler Cites ‘Wild West’ of Crypto in Case to Increase Agency’s Budget (Read More)
- Kuwait Cracks Down on Crypto, Banning Payments, Investment and Mining (Read More)
- Binance, Billionaire Zhao to Seek Dismissal of CFTC Lawsuit (Read More)
- UK Information Commission to Make Inquiries About Worldcoin (Read More)
- Crypto Regulatory Framework Bill Endorsed by House Financial Services Committee (Read More)

4. Crypto Projects

Azukis: The Downfall of a Blue Chip NFT

Azukis shocked the market with a serious mistake in late June. They mismanaged their new release, and this caused the price of a floor Azuki to drop from around 15 ETH to just above 5 ETH at the time of writing, representing a whopping 65% drop in less than a month.

The new collection named Azuki Elementals was announced in a holders-only event held in Las Vegas, where the project founder Zagabond enthusiastically told Azuki owners to “check your **** wallets”.[7] Each original (OG) Azuki holder was airdropped an unrevealed Elemental that would only be uncovered after the minting event on 27 June.

This is not the first time the team employed the airdrop tactic. In March last year, only two months after the Azuki’s initial launch, the team threw a party in Los Angeles for their community, known as The Garden. During the party, Zagabond made a surprise appearance on stage and told the attendees to check their wallets.[8] At the time, each Azuki holder received two Something NFTs, now called Beanz. This was regarded as a sensational marketing maneuver and helped propel Azuki’s floor price from around 8.8 ETH to above 25 ETH over a span of less than two weeks. Moreover, this reinforced Azuki’s status as a leading NFT blue chip, comparable with the likes of Crypto Punks and Bored Ape Yacht Club.

The new Elementals collection consists of 20,000 profile picture (PFP) NFTs, as opposed to 10,000 in the original collection. This means half of the Elementals was airdropped to the existing holders, while the remainder was going to be sold at a price of 2 ETH. On minting day, OG Azuki holders were scheduled to have a ten-minute presale window starting at 9:00am PST, followed by another ten-minute window for Beanz holders beginning 9:10am. If the collection was not sold out, a public sale was meant to commence at 9:20am.

It is no doubt that the team intended to create fear-of-missing out (FOMO) which they succeeded. The Elementals were minted out in the first 15 minutes and there was no need for a public sale. Around 7,600 Elementals were minted by OG Azukis, and the rest were minted during the Beanz presale.[9]

Source: Twitter @wizardofsoho / @_happyKC

Due to technical issues, the reveal was delayed by around two hours. The Azuki community waited patiently and joked lightheartedly about how easy it was to generate $40 million of revenue in a such a short time. Clearly, crypto degens are still interested in buying NFTs and the market is far from dead.

But after waiting patiently, the Azuki community stared at their latest acquisitions in dismay. The Elemental PFPs had little differentiation with the original collection. Although some of them were animal characters like cats, frogs and sloths that were new additions to The Garden, most of them were humans that gave off a very similar vibe to OG Azukis. For instance, a side-by-side comparison showed that both collections were identical in terms of facial structure and angle.

To make matters worse, the project team made an error that caused “twin” Elementals to be created. It was observed that there were totally five pairs of twin Elementals, or ten pictures, that appeared indistinguishable and even had the same metadata.[10]

The series of blunders represent another major setback facing the Azuki project team since last May, when Zagabond inadvertently disclosed his previous involvement in three NFT projects, all of which failed or were regarded as “rug pulls”.[11] This damaged the Azuki’s hard-earned reputation and forced the team to put considerable effort to restore confidence. Factoring into the fact that the entire NFT market was in a downward trajectory, the Azuki team really did a remarkable job. By the turn of year, Azuki floor price was back above 15 ETH and they were outperforming all of their competitors. Certainly, no one could have predicted the Elementals flop.

Post incident, Crypto Twitter was filled with criticism on the Azuki team for their lack of planning and foresight on such a lucrative mint, resulting in huge disappointment. Many highlighted the lack of differentiation between Azukis and Elementals, effectively diluting the OG collection by three times the supply.

Sora.eth said that apart from the art style and technical issues, the Elementals mint suffered from two other shortcomings. First, the team pursued unusually aggressive mint tactics and this backfired when buyers saw less-than-ideal results. Second, whales and collectors who had paid large premiums for rare OG Azuki traits were not rewarded sufficiently. That said, the team still produces the best PFP art in the Web3 space, and lower prices incentivized buyers to join the Azuki community.[12]

Some tried to reassure and said that there is still hope. Alex Hugh Sam describes the Elementals mint as a “huge mistake” but trusts that the project team can steer the ship out of difficulty.[13] Spirit DAO Manager Bamedi said that while initially “feeling flat”, he has since spent time to examine the new collection and believes that it is “looking good”, especially for rares and grails. He is also confident that the team would listen to feedback and figure out a direction soon.[14]

Looking at on-chain statistics, we see that the Azuki floor price has dropped to around one-third of where it was prior to the mint. Unique holders dropped from above 4,595 before the incident to 4,374, exacerbating the downward trend that began since the NFT winter. It appears that The Garden is having more leavers rather than attracting new participants.

Seasoned crypto investor and commentator Jason Choi said a few days after the minting incident, on 2 July, that a 1.5 ETH floor is the market standard for “Tier 2” NFTs and that is plausible as an eventual outcome for Azukis. On 26 July, as Azuki floor briefly falls below 5 ETH, Choi added that “people tend to underestimate the likelihood of things they don’t like happening”, reinforcing his bearish take.[15]

On a positive note, it appears that Azuki whales still have good conviction towards the collection and team. Most whales did not sell their Azukis, while some new large buyers entered and helped absorb some of the selling pressure.[16] Andrew Kang, who holds the most Azukis, bought nine more Azukis on 28 June, increasing his total to 299.[17] He is also the largest holder of Elementals at 581 and have not sold any one of them. Adrian Cheng, the Hong Kong tycoon behind one of the city’s largest real estate developers, is holding strongly onto his 101 Azukis and 34 Elementals, including the #1 ranked Elemental.[18] On 31 July, Cheng published a tweet that hinted towards an upcoming collaboration with one of his shopping malls.[19]

There has also been some damage control from the Azuki team. Four days after the failed mint, the team held a community call on Discord to address the situation. The issue of duplicated Elementals has been mitigated, and there are plans to update the Elementals artwork to improve its differentiation from the OG collection. The team also elaborated its plans to develop an anime series featuring its character universe.

If anything is certain, it is that the team would not easily give up the goose that lays golden eggs. They have had successful experience of dealing with a crisis and knows what is required of them to do so. Also, as noted by Punk #2898, they still have some ammo in the arsenal. These include a partnership with IPX (Line Friends), as well as a token economy that many have anticipated for.[20]

But as floor prices continue to fall, more holders are calling it quits. Twitter user cheesypoof said in mid-July that he has sold their OG Azuki for a loss.[21] He suggests that no one is feeling comfortable except for the project team who has made bank and is fine “chilling out” while the collection falters. He is also disappointed that the team took limited measures to improve the situation.

The Elementals mint also brought second-order effects to the wider NFT space. As shown by Dune Analytics, all major collections suffered a hard dump in the few days following the incident. Sibel, co-founder of nftftc, said that it drained a significant amount of buying power from the market, and as such, the NFT market is unlikely to recover for at least another six months.[22] Overall, the mishap of Elementals is another blow for depressed NFT markets, in which all major collections are down 60–96% compared to the all-time highs.[23]

For now, the price chart of Azuki reflects a grim picture — there is simply a lack of buyers to support the continuous selling pressure. With repeated mistakes by the project team, this time is going to be an uphill battle for them. The NFT community is harsh and unforgiving, and the Azuki team may have already gotten too many chances. While some have painfully capitulated and sold their Azukis, those who choose to stay appear to be experiencing the denial and bargaining phases of their Kubler-Ross cycles. In the coming months, Azuki holders will likely come to terms with the hard truth that their favorite collection had fallen from grace. They are no longer considered as top-tier NFTs.

Crypto Projects: Read More

1–15.07.2023

- Poly Network Attack Conjures Billions of Dollars in Tokens That ‘Did Not Exist’ (Read More)
- Bored Ape Yacht Club NFT Floor Price Sinks to 20-Month Low (Read More)
- Value locked in Solana’s liquid staking protocols surged by 91% in H1 (Read More)
- CryptoQuant Parent Raises $6.5M Round Led by Atinum Investment (Read More)
- Arkham Intelligence Rolls Out Crypto Data Marketplace; Privacy Advocates Cry Foul (Read More)
- Tokenized U.S. Treasurys Surpass $600M as Crypto Investors Capture TradFi Yield (Read More)
- Polygon Proposes Token Switch From MATIC to POL for More Utility (Read More)
- Crypto Project Multichain Shuts Down, Says CEO Arrested in China (Read More)

16–31.07.2023

- Celo Proposes to Ditch Own Standalone Blockchain for Layer-2 Network on Ethereum (Read More)
- Chainlink’s Interoperability Protocol, Connecting Blockchains to ‘Bank Chains,’ Goes Live (Read More)
- Solana Labs rolls out Solang compiler to enhance Ethereum compatibility (Read More)
- Crypto Traders Flock to Unibot as Telegram Bot Tokens Near $100M Market Cap (Read More)
- Binance Labs Invests $10M in DeFi Lender Radiant, RDNT Jumps 10% (Read More)
- Sam Altman’s Worldcoin Crypto Project Officially Launches (Read More)
- ZkSync-based Era Lend loses $3.4 million in DeFi exploit (Read More)
- Curve Finance Exploit Puts $100M+ Worth of Crypto at Risk; CRV Token Tumbles (Read More)

5. Institutions

1–15.07.2023

- Fidelity Leads Flurry of Bitcoin ETF Refilings to Answer SEC (Read More)
- Probability for U.S. Approval of a Spot Bitcoin ETF Is Fairly High: Bernstein (Read More)
- BlackRock Bitcoin ETF Application Refiled, Naming Coinbase as ‘Surveillance-Sharing’ Partner (Read More)
- Top Binance Execs Leave Company Over CZ’s Handling of DOJ Investigation: Report (Read More)
- Institutions Are Holding More Bitcoin Than Ever Before, Says Ark Invest (Read More)
- JPMorgan Doubts That the Approval of a US Bitcoin ETF Would Be a Game-Changer (Read More)
- Temasek Has No Plans to Invest in Crypto Exchanges For Now: CNBC (Read More)
- Google Play Changes Policy on Tokenized Digital Assets, Allowing NFTs in Apps and Games (Read More)

16–31.07.2023

- Binance Cuts Back Employee Benefits, Citing Decline in Profit (Read More)
- Polychain raises $200 million for fourth crypto VC fund, shakes up staff (Read More)
- Societe Generale Becomes First Company to Win French Crypto License (Read More)
- Nasdaq Halts Plan to Launch Crypto-Custodian Business in US (Read More)
- Elon Musk Rebrands Twitter to X, Spurring Scores of Wannabe Tokens (Read More)
- Crypto Exchange KuCoin to ‘Adjust Some Personnel as Needed’, but Denies Report of Major Layoffs (Read More)
- Meta Remains Committed to the Metaverse, Mark Zuckerberg Says (Read More)
- Sequoia Capital Slashes Crypto Fund as It Downsizes Amid Startup Crunch (Read More)

6. Mining

1–15.07.2023

- Crypto Miners Are Selling Despite Rebound in Prices (Read More)
- Bitcoin Mining Revenue Hits $184 Million in Q2 Amid Ordinals Fervor (Read More)
- UAE emerges as a pro-Bitcoin mining destination in the Middle East (Read More)
- Bitcoin Mining Is a Game of Survival, Consolidation and Potential AI Diversification: Bernstein (Read More)
- Struggling Bitcoin Miners Wary of Token’s Big ‘Halving’ Event (Read More)
- Vanguard Now Owns $560 Million Worth of Bitcoin Mining Stocks (Read More)
- Miner profitability will push bitcoin to $50K this year: StanChart (Read More)
- Crypto Miner Hive Drops ‘Blockchain’ From Name in Pivot to AI (Read More)

16–31.07.2023

- Next Bitcoin Halving Event Could Be a Stress Test for Miners: JPMorgan (Read More)
- Crypto Insurer Evertas Buys Bitcoin Mining Cover Specialist Bitsure (Read More)
- TeraWulf to increase bitcoin mining capacity with new Bitmain hardware (Read More)
- Crypto Miner Argo Blockchain Raises $7.5M in Share Sale; Stock Slumps (Read More)
- Bitcoin Miner Bitfarms Expands Operations in Paraguay After Securing 2 Hydropower Contracts (Read More)
- Bitmain launches Filecoin mining machines with a $38,888 price tag (Read More)
- Crypto mining is too loud for these American counties (Read More)
- Bitcoin Miners Buy Up Rigs as Prices Near All-Time Lows (Read More)

7. August Preview

After the July meeting, former Vice Chair of the Federal Reserve Richard Clarida commented over the potential conundrum of the central bank and said that, “If I was still over there what I would worry about is the following: If we don’t get a deceleration in wages and we don’t get a pickup in productivity, then we’re not going to hit our inflation target.” Therefore, any adverse surprises of these statistics may feed back into the market’s assessment over the possibility of further rate hike(s) in September and onwards.

Also very important is the economic slowdown in China, and for Bitcoin, the key issue is whether the Chinese government would introduce more aggressive monetary stimulus to support aggregate demand.

Bitcoin performance calendar

August is historically bearish for crypto markets. Over the past ten years, Bitcoin closed the month six times in red with a -6.7% median return.

Source: Glassnode, JKL Group. Data as of 30 July 2023.

Macroeconomic events

Crypto events

DISCLAIMER

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