Crypto continues to consolidate in the red following Saturday’s selloff. Meanwhile, the tech sector is again leading stocks ahead of tomorrow and Wednesday’s inflation data and Federal Reserve interest rate decision. 🔻
In today’s Litepaper, we cover the backlash Gary Gensler is facing from some U.S. lawmakers following the Securities & Exchange Commission’s assault on crypto companies. 😲
Also, we’ll dive into a longer-term look at Bitcoin’s trend using a quarterly chart. And check out a Crypto 101 from our DEX series, this one on Liquidity Pools. 👀
Here’s how the market looked at the end of the trading day:
|Shiba Inu (SHIB)||
U.S. Security and Exchange Commission (SEC) Chairman Gary Gensler isn’t making many friends these days. In addition to receiving backlash from the entire crypto industry for his enforcement-first approach, some U.S. lawmakers are also taking action against him. ⚔️
United States Rep. Warren Davidson and House Majority Whip Tom Emmer introduced the “SEC Stabilization Act” to the House of Representatives today. They claim that U.S. capital markets must be protected from a tyrannical Chairman and that this legislation would fix the ongoing abuse of power and ensure protection in the markets’ best interest. 🛡️
The bill’s main suggestion is to remove the SEC chair position and replace it with an “executive director” that would oversee its operations. It also proposes adding a sixth SEC commissioner. Needless to say, the two lawmakers did not mince words about how they felt about Gensler’s approach to leading the SEC. ❌
Meanwhile, former SEC Chief John Reed Stark issued a warning on Twitter, saying, “Get out of crypto platforms now, I can’t say it any plainer…”
Get out of crypto platforms now, I can't say it any plainer. Having worked as an attorney in the SEC Enforcement Division for almost 20 years (including 11 years as Chief of the SEC Office of Internet Enforcement), I believe that we now know for certain that crypto trading…
— John Reed Stark (@JohnReedStark) June 8, 2023
Despite the current environment, Coinbase CEO Brian Armstrong remains optimistic. He says the crypto exchange remains dedicated to the U.S., elaborating, “We’re here to stay. I created this company in the United States because I believe – it’s a big market – but also there’s rule of law, and there’s a willingness to generally do the right thing even if it takes a few iterations.
So we are going to continue to be in the U.S. We’re going to be the leader in the U.S. The U.S. is going to get the right outcome, whether it’s through the courts, Congress, or the CFTC (Commodities Futures Trading Commission). Something is going to come to fruition. Maybe the 2024 elections will change this.” 👍
However, he believes the clash between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) is unproductive. Since both regulators have not been able to figure out clear regulations for the industry, Congress will need to step in and draft legislation to unblock the country’s crypto troubles. 📝
We’ll have to wait and see how this develops, as the legality of this move is still unclear. But what’s clear is that Gensler’s war continues to expand across several fronts. This time the shots are coming from his own side. Some might even call it…unfriendly fire. 😬
Since we’re nearly halfway through the 2nd quarter of 2023, let’s look at $BTC on a quarterly chart. 👁️
Note: I’ve removed all components of the Ichimoku Kinko Hyo system except for the Tenkan-Sen.
Firstly, we’ll examine the gap, indicated by the grey blob, between the bodies of the candlesticks and the Tenkan-Sen on Bitcoin’s quarterly chart.
Typically, such gaps tend to close within three to four candles, although it can sometimes take longer. This suggests a growing likelihood that Bitcoin will interact with the Tenkan-Sen.
Secondly, observe the striking resemblances between the current chart structure and the past structure. 🔭
Lastly, our focus shifts to the relationship between the Composite Index and the Relative Strength Index (RSI) in the context of Bitcoin’s candlestick chart.
The quarterly chart shows hidden bullish divergence, indicating that the current downward movement is likely to end and the overall uptrend will continue.
The RSI found support at the 50 level, which is a positive sign in a bull market, and the Composite Index is stabilizing after reaching lows not seen since Q2 2016.
On the bearish side, a quarterly candlestick closing at or below $16,500 would confirm a new and extended bear market. 🐻
Liquidity pools are the backbone of many decentralized exchanges (DEXs). They are smart contract-based pools of tokens locked in a reserve that facilitate trading by providing liquidity. In traditional finance, liquidity refers to the ease with which an asset can be converted into cash without affecting its market price. In DeFi, it refers to the availability of assets for trading in a DEX 🌐💰.
Taking the Plunge: How Do Liquidity Pools Work?
Liquidity pools depend on liquidity providers (LPs) – users who lock up their tokens in a smart contract to facilitate trading. In return, LPs earn transaction fees based on the proportion of their contribution to the pool. The tokens are often locked in a 50/50 ratio, meaning if you provide $100 worth of ETH, you must also provide $100 of the paired token 🔄.
Key mechanics of liquidity pools:
- Automated Market Makers (AMMs)🤖📈: Liquidity pools use AMMs to facilitate trades and set prices. Instead of matching buyers and sellers, AMMs use algorithms based on the quantities of tokens in the liquidity pool to determine the price of each token.
- LP Tokens 💳: When you add liquidity to a pool, you receive LP tokens, representing your share. These tokens can be used to reclaim your share of the pool and any earned fees.
The Lure of the Pool: Benefits of Liquidity Pools
Liquidity pools come with a set of benefits that are enticing to many in the DeFi space:
- Earn fees 💸: LPs earn fees from the trades in their pool, providing a potential income stream.
- Permissionless and open 🚀: Anyone can create a liquidity pool or become an LP, promoting financial inclusivity.
- Increased market efficiency 📈: Liquidity pools provide constant liquidity, even for less popular token pairs.
Beware of the Deep End: Risks of Liquidity Pools
Just as swimming pools have deep ends, so too do liquidity pools come with risks:
- Impermanent loss 📉: This occurs when the price of your deposited tokens changes compared to when you deposited them. In some cases, the fees you earn may not cover this loss.
- Smart contract risk 🔓: As with all DeFi applications, there is a risk of bugs or vulnerabilities in the smart contracts of the liquidity pool.
Impermanent loss requires a little more explanation because it’s a little confusing.
Imagine you have ten gummy bears that cost $1 each and ten chocolate bars that cost $1 each. So, you have $10 worth of gummy bears and $10 worth of chocolate bars.
You put them in a magic bowl that balances the candies, even when your friends take some or add more.
Suddenly, gummy bears become super popular, and their price goes up to $2 each. But your magic bowl wants to keep things balanced.
So now, the bowl has seven gummy bears (worth $14) and 13 chocolate bars (worth $13). You started with equal amounts, but because gummy bears got popular, you ended up with fewer gummy bears and more chocolate bars.
This is similar to impermanent loss in DeFi. You put equal values of two tokens into a pool. If their prices change (like the gummy bears did), you could end up with more of the less valuable token (chocolate bars) and less of the more valuable one (gummy bears), causing potential lost profits.
Popular Platforms for Dipping Your Toes In
Ready to dive in? Here are some popular DeFi platforms with liquidity pools:
- Uniswap 🦄: Uniswap ($UNI) is the largest liquidity pool platform on Ethereum, offering numerous pools and a simple interface for becoming an LP.
- Balancer 🏦: Balancer ($BAL) allows for customizable liquidity pools with more than two tokens and varying weightings.
- Curve Finance 📐: Curve ($CRV) specializes in stablecoin pools, aiming to minimize impermanent loss and slippage.
Surfing the Waves of the Future
Liquidity pools have revolutionized trading in the DeFi world, and their use and importance are expected to grow as the ecosystem evolves. But, as always, understand the risks before diving in.
Bullets From The Day:
📉 Robinhood saw a 68% YoY decline in crypto trading during May. The retail trading app reported that crypto trading through its platform totaled $2.1 billion in May, compared to $6.6 billion a year earlier. Its sequential trend wasn’t much better, falling 43% from April to May. The drop comes as the U.S. Securities and Exchange Commission (SEC) named Cardano, Polygon, and Solana as securities in its charges against Binance.US and Coinbase last week. CryptoNews has more.
🌍 Venture Firm a16z opens first U.K. office amid U.S. crypto crackdown. Andreessen Horowitz is looking to open its inaugural international office later this year, joining the trend of U.S.-based companies exploring opportunities beyond their domestic borders. The choice to expand to the U.K. was made after many discussions with key stakeholders, including the U.K. prime minister, HM Treasury, U.K. policymakers, and the Financial Conduct Authority. U.K. officials have vowed to embrace web3 and protect consumers as they look to attract more business and tech investment. More from Bitcoinist.com.
☢️ North Korea’s cyber army stole $3 billion to fund its nuclear program. According to an analysis by The Wall Street Journal, state-sponsored hackers have netted more than $3 billion over the past five years from their crypto thefts. In April, the level of illicit activity climbed so much that even the U.S. Treasury warned of the hackers exploiting loopholes in the decentralized finance (DeFi) space. It comes as the hackers moved from espionage or attack capabilities for traditional geopolitical purposes to generating cash, with them becoming even more proficient in their craft. Estimates are 50% of the funds stolen are used to fund its nuclear program. CryptoNews has more.