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On-chain privacy is key to the wider mass adoption of crypto

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On-chain privacy is key to the wider mass adoption of crypto

Innovations in the crypto space appear daily. Whether through decentralized applications or new ways to implement and use nonfungible tokens (NFTs) within decentralized finance, blockchain technology is innovating at the speed of light. The only thing missing? Widespread adoption. One thing holding this back is the very public nature of the blockchain. DeFi, as it operates now, lacks meaningful privacy. In order to catalyze broad adoption for businesses, governments and individuals, those executing blockchain transactions should expect regular, consistent privacy.

First, we need to define what privacy means. It does not mean pseudonymity, which cryptocurrency purports to have now. Meaningful privacy means that a personal financial account will not be traced and an individual’s wealth will not be exposed. It means a business can protect trade secrets. Privacy means a government’s finances are the business of its people — not the business of dangerous neighbors.

Related: In crypto, no one cares who you are: Here’s why that’s a good thing

Cryptocurrency is just that — a currency. With the Canadian trucker convoy and the Russian war on Ukraine bringing about a crypto vibe shift, it will continue to be treated as a currency regardless of whether it is regulated as one. It is a financial asset, and our current understanding of personal financial privacy supports the move toward privacy across DeFi. The European Union has adopted the General Data Protection Regulation, to which every internet entity operating within the EU is beholden. On a more traditional level, fiat banks have multiple privacy protocols, many of which are subject to human error. Privacy is natural, and often unvalued until it is removed.

Privacy is crucial for corporate crypto transactions

It’s impossible to deny that corporations and large traditional financial institutions are pivoting to crypto, with news that giants such as Commerzbank are applying for crypto custody business licenses. Corporate treasuries are starting to see the benefits of using crypto for solving a problem that has plagued them for decades: instantaneous cross-border payments. Lack of privacy for those transactions will stunt broader adoption because until the privacy of such institutional transactions is secured, it will remain a niche offering.

Companies have a right to protect trade secrets, including those related to finance and payments to employees and contractors. Hedge funds, which will benefit enormously from moving assets onto the blockchain, must be able to protect their financial movements. If every asset movement can be tracked, private businesses are unable to protect themselves, and competition is diluted. It is just as reasonable to expect privacy in business as it is to expect privacy for individuals. As crypto experiences wider adoption, it will continue to be stunted every step of the way until the problem of privacy is solved.

Related: The loss of privacy: Why we must fight for a decentralized future

Privacy does not threaten regulation

The good news is that it is possible for privacy in DeFi to be both responsible and secure. We all know that regulation is growing, and as frustrating as they can be for the Wild West of blockchain projects, guardrails can enable growth. People do not trust something they do not understand, so when regulations come, they signal that the people leading governments know what’s happening and what needs to be overseen. That is a good thing. Governments can — and should — regulate crypto exchanges, fiat on- and off-ramps, and individuals who are subject to local, regional and federal laws wherever they reside. Privacy does not threaten or disable regulation. Governments codify privacy on social networks. Why should financial networks be an exception?

The bottom line is that once DeFi is secure and can be used privately, people will feel more comfortable using crypto. Because people do not trust something they do not understand, we have to invite them using the paradigm of expectation that comes with other financial endeavors. Another way we can invite people into the space is by disconnecting the argument for privacy from the discussion of anonymity. This will help resolve the problem new adopters face when they falsely consider crypto to be an easy way to facilitate illegal transactions. Until there is a reasonable expectation of privacy, DeFi will remain a risky venture for both private parties and businesses.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Kieran Mesquita is chief scientist at Railgun, a decentralized smart contract project that brings privacy to cryptocurrencies operating seamlessly with DeFi. He has an extensive background in developing technologies for blockchain and DeFi projects. He was an early adopter of Bitcoin and one of the first people to develop its GPU mining software.

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Low inflation or bust: Analysts say the Fed has no choice but to continue raising rates

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Low inflation or bust: Analysts say the Fed has no choice but to continue raising rates

As economic conditions continue to worsen, financial experts worldwide are increasingly placing the blame at the feet of the United States Federal Reserve after the central bank was slow to respond to rising inflation early on.

Financial markets are currently experiencing their worst stretch of losses in recent history, and it doesn’t appear that there is any relief in sight. May 24 saw the tech-heavy Nasdaq fall another 2%, while Snap, a popular social media company, shed 43.1% of its market cap in trading on May 23. 

This past couple of months have been absolutely brutal for the markets… 8 consecutive weeks of red candles in the #SPX, #NASDAQ and #BTC… no significant bounces pic.twitter.com/hgU2VwIoxh

— Crypto Phoenix (@CryptoPheonix1) May 24, 2022

Much of the recent turmoil again comes back to the Fed, which has embarked on a mission to raise interest rates in an attempt to get inflation under control, financial markets be damned. 

Here’s what several analysts are saying about how this process could play out and what it means for the price of Bitcoin (BTC) moving forward. 

Will the Fed tighten until the markets break?

Unfortunately for investors looking for short-term relief, economist Alex Krüger thinks that “The Fed will not stop tightening unless markets break (far from that) or inflation drops considerably and for *many* months.”

One of the main issues affecting the psyche of traders is the fact that the Fed has yet to outline what inflation would need to look like for them to take their foot off the rate-hike gas pedal. Instead, it simply reiterates its goal “’to see clear and convincing evidence inflation is coming down’ towards its 2% target.”

According to Krüger, the Fed will “need to see Y/Y [year-over-year] inflation drop 0.25%–0.33% on average every month until September” to meet its goal of bringing down inflation to the 4.3%–3.7% range by the end of the year.

Should the Fed fail to meet its PCE inflation target by September, Krüger warned about the possibility that the Fed could initiate “more hikes *than what’s priced in*” and also begin exploring the sale of mortgage-backed securities as part of a quantitative tightening campaign.

Krüger said:

“Then markets would start shifting to a new equilibrium and dump hard.”

A setup for double-digit sustained inflation

The Fed’s responsibility for the current market conditions was also touched on by billionaire investor and hedge fund manager Bill Ackman, who suggested that “The only way to stop today’s raging inflation is with aggressive monetary tightening or with a collapse in the economy.”

In Ackman’s opinion, the Fed’s slow response to inflation has significantly damaged its reputation, while its current policy and guidance “are setting us up for double-digit sustained inflation that can only be forestalled by a market collapse or a massive increase in rates.”

Due to these factors, demand for exposure to stocks has been muted in 2022 — a fact evidenced by the recent decline in stock prices, especially in the tech sector. For example, the tech-heavy Nasdaq index is now down 26% on the year. 

With the cryptocurrency sector being highly tech-focused, it’s not surprising that weakness in the tech sector has translated to weakness in the crypto market, a trend that could persist until there is some form of resolution to high inflation.

Related: Bitcoin price returns to weekly lows under $29K as Nasdaq leads fresh US stocks dive

How could Bitcoin fare going into 2023?

According to Krüger, the “base case scenario for upcoming price trajectory is a summer range that starts with a rally followed by a drop back to the lows.”

BTC/USDT 1-day chart. Source: Twitter

Kruger said:

“For $BTC, that rally would take price to the start of the Luna dump (34k to 35.5k).”

Crypto trader and pseudonymous Twitter user Rekt Capital offered further insight into the price levels to keep an eye on for a good entry point moving forward, posting the following chart showing Bitcoin relative to its 200-day moving average.

BTC/USD 1-week chart. Source: Rekt Capital

Rekt Capital said:

“Historically, #BTC tends to bottom at or below the 200-MA (orange). The 200-MA thus tends to offer opportunities with outsized ROI for $BTC investors (green). […] Should BTC indeed reach the 200-MA support… It would be wise to pay attention .”

The overall cryptocurrency market capitalization now stands at $1.258 trillion, and Bitcoin’s dominance rate is 44.5%.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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ECB: One in ten households in eurozone population centers now own cryptocurrency

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ECB: One in ten households in eurozone population centers now own cryptocurrency

The survey took place in the EU’s major economic areas such as France, Germany, Italy, Spain, Belgium, and the Netherlands.

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ECB: One in ten households in eurozone population centers now own cryptocurrency

On Tuesday, the European Central Bank, or ECB, published the results of a new survey conducted in six eurozone areas; the Netherlands, Spain, Italy, Belgium, France, and Germany. Together, approximately 10% of respondents from the surveyed countries said they own cryptocurrencies. Out of this group, only 6% of respondents said they own digital assets worth more than 30,000 euros. Meanwhile, 37% of respondents said they owned up to 999 euros in crypto.

Across all of the countries surveyed, investors in the fifth income quintile (or the wealthiest 20% of the population) consistently had the highest proportion of cryptocurrency ownership relative to other income groups. The Consumer Expectation Survey asked adults aged 18 to 70 if they or anyone in their household owned financial assets in various categories, such as crypto-assets.

The survey was included in a new report published by the ECB the same day regarding the growing adoption of crypto assets despite their risk factors. As cited by the ECB, 56% of respondents in a recent Fidelity survey said they had some exposure to crypto-assets, up from 45% in 2020. Increased availability of crypto-based derivatives and securities on regulated exchanges, such as futures, exchange-traded notes, exchange-traded funds, and OTC-traded trusts, have contributed to the momentum.

In addition, increased regulation has been taken as a sign that public authorities endorse crypto. As an example, the ECB cited Germany allowing institutional funds to invest up to 20% of their holdings in crypto. However, the ECB highlighted at the end of the report that if current trends in digital asset adoption continue, then they will eventually pose a threat to financial stability.

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Weak stocks and declining DeFi use continue to weigh on Ethereum price

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Weak stocks and declining DeFi use continue to weigh on Ethereum price

Ether’s (ETH) 12-hour closing price has been respecting a tight $1,910 to $2,150 range for twelve days, but oddly enough, these 13% oscillations have been enough to liquidate an aggregate of $495 million in futures contracts since May 13, according to data from Coinglass.

Ether/USD 12-hour price at Kraken. Source: TradingView

The worsening market conditions were also reflected in digital asset investment products. According to the latest edition of CoinShare’s weekly Digital Asset Fund Flows report, crypto funds and investment products saw a $141 million outflow during the week ending on May 20. In this instance, Bitcoin (BTC) was the investors’ focus after experiencing a $154 weekly net redemption.

Russian regulation and crumbling U.S. tech stocks escalate the situation

Regulatory uncertainty weighed on investor sentiment after an updated version of the Russian mining law proposal came to light on May 20. The document in the lower chamber of the Russian parliament no longer contained the obligation for a crypto mining operators registry nor the one-year tax amnesty. As cited by local media, the legal department of the Duma stated that these measures could “possibly incur costs on the federal budget.”

Additional pressure on Ether price came from the Nasdaq Composite Index’s 2.5% downturn on May 24. In addition, the heavily-tech stock-driven indicator was pressured after social media platform Snap (SNAP) tumbled 40%, citing rising inflation, supply chain constraints and labor disruptions. Consequently, Meta Platforms (FB) shares fell by 10%.

On-chain data and derivatives are in favor of bears

The number of active addresses on the largest Ethereum network’s decentralized applications (DApps) has dropped by 27% from the previous week.

Ethereum network’s most active DApps in USD terms. Source: DappRadar

The network’s most active decentralized applications saw a substantial reduction in users. For instance, Uniswap (UNI) V3 weekly addresses decreased by 24%, while Curve (CRV) faced 52% fewer users.

To understand how professional traders, whales and market makers are positioned, let’s look at Ether’s futures market data.

Quarterly futures are used by whales and arbitrage desks due, primarily, to their lack of a fluctuating funding rate. These fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers request more money to withhold settlement longer.

These futures should trade at a 5% to 12% annualized premium in healthy markets. This situation is technically defined as “contango” and is not exclusive to crypto markets.

Ether futures 3-month annualized premium. Source: Laevitas

Related: Bitcoin price returns to weekly lows under $29K as Nasdaq leads fresh U.S. stocks dive

Ether’s futures contracts premium went below the 5% neutral-market threshold on April 6. There’s an evident lack of conviction from leverage buyers because the current 3% basis indicator remains depressed.

Ether might have gained 2% after testing the $1,910 channel resistance on May 24, but on-chain data shows a lack of user growth, while derivatives data point toward bearish sentiment.

Until there’s some morale improvement that boosts the use of decentralized applications and the Ether futures premium regains the 5% neutral level, the odds of the price breaking above the $2,150 resistance seems low.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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