In the Crypto Pause, Legal Winds Whisper a Prelude to a New Era

• Republic chose Avalanche for profit-sharing investment note
• Binance agreed to pay $4.3 billion in settlement with US regulators
• Kraken crypto exchange sued by US SEC for failure to register

Avalanche elevates tokenized assets, while crypto rally takes a pause

This week, the crypto markets took a breather, registering a 2.9% decline in the total market cap, while the bitcoin dominance inched a little higher but remained below 52%. Among the blue chips, bitcoin recorded a modest weekly gain of 0.8%, whereas ether experienced a 2.1% dip over the week. Concurrently, funding rates on bitcoin perpetual contracts in major exchanges eased as well this week, indicating softening of the bid interest on BTC longs.

Among the major Layer 1 coins, NEAR and AVAX stood out by posting impressive gains of 14.5% and 11.4% respectively over the week. Data sourced from The Block indicates that the Near blockchain achieved a significant milestone, recording an all-time high daily transaction count of 1.68 million. The strategic partnership announcement between Republic and the Avalanche blockchain served as the catalyst, amplifying the positive momentum AVAX gained from noteworthy announcements by JP Morgan and Citi from a week earlier.

Fintech startup Republic Crypto is gearing up to introduce its upcoming revenue-sharing tokenized security, R/Note, on the Avalanche blockchain. Through R/Note, Republic aims to distribute stablecoin dividends to investors who participated in the company's venture portfolio. Upon the successful exit of specific investments, Republic plans to allocate holders their proportional share, reaching up to 25% of the dividend pool. Having already completed a pre-sale round that garnered over $30 million from both individual and institutional investors, Republic intends to establish a secondary market for R/Note once it is live on the Avalanche blockchain.

Key gaming tokens, MATIC and Solana, experienced a decline in value following their classification as securities in the recent legal action taken by the SEC against Kraken. The US SEC filed a lawsuit against Kraken on Monday, alleging that the exchange had operated unlawfully as a securities platform without obtaining approval from the SEC. The SEC outlined a comprehensive list of tokens traded on Kraken that it deems as securities, many of which have been subject to previous SEC enforcement actions. Kraken asserted its intention to defend itself against the lawsuit, arguing that the regulation of cryptocurrency exchanges should be determined by Congress. The exchange challenges the SEC's perspective on digital assets, deeming it "incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy". Kraken assured its more than 10 million clients that the lawsuit will not impact their services. It's worth noting that the SEC had previously resolved charges related to Kraken's staking services earlier this year.

Decoding the cryptic tale of Number 4, Binance's settlement charts a new course

Just as the optimistic momentum from ETF prospects began to wane and the markets sought a new direction, news surfaced about Binance reaching a settlement on its US criminal case. This development prompted a market sell-off as an immediate response, resulting in 24-hour liquidations of crypto perpetual future contracts across exchanges totaling over $227 million. The majority of the impact was felt by leveraged long positions. As per DeFiLlama data, at the time of writing, Binance experienced a net outflow of around $1 billion in assets within the last 24 hours. In contrast, OKX has seen a net inflow of $152 million during the same period. Despite the outflow, Binance continues to hold the largest assets at present, totaling over $67.6 billion.

Binance, the world's largest crypto exchange, faced criminal charges related to sanctions violations and breaches of money-transmitting laws. The exchange agreed to pay a substantial settlement of $4.3 billion, marking one of the largest penalties ever obtained by the SEC from a corporate defendant. Changpeng "CZ" Zhao, the founder of Binance, pleaded guilty to charges in Seattle and has agreed to pay a substantial $50 million fine. As part of the settlement, he will step down from the CEO position. The new CEO will be Richard Teng, a former Abu Dhabi regulator who later served as Binance's regional markets head. In addition, Binance is set to undertake a "complete exit" from the U.S. under its agreement with FinCEN. To ensure compliance, a monitor will be appointed for five years to oversee Binance's sanctions compliance program, and the U.S. Treasury Department will have access to Binance's records and systems during this period.

In retrospect, while the immediate price action appeared negative, this event holds the potential to bring a positive shift to the industry. Since March, the US criminal case against Binance has been a  significant overhang for the crypto sector. Resolution through the settlement offers much-needed clarity and dispels uncertainty associated with Binance’s legal proceedings. Binance's consistent publication of proof of reserves over the past year suggests a lack of major concerns with customer holdings, underlining the capacity to navigate a substantial fine. This process not only positions Binance to fortify its compliance standards to the highest levels but also serves as an impetus for other major crypto exchanges to enhance their compliance measures, contributing to the establishment of robust industry-wide standards.

Macro pulse 

Leading up to the Thanksgiving holiday, traditional financial assets, especially US equities, displayed a subdued risk appetite, rising by +0.9% compared to the previous week. The FOMC minutes seemed to have little to no discernible impact on the markets as it reiterated the Fed’s cautious approach on rates. Oil futures experienced a slight weekly decline of 0.4%, with investors exercising caution in anticipation of the scheduled OPEC+ meeting on Sunday. Elsewhere, the US Dollar index dipped 0.5% and the 10-year US Treasury yields slipped by 6 bps while the Gold & Silver index rallied 3% week on week.

*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on November 22, 2023 

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