Early Investing

News Fix: Crypto Bear Market Edition

News Fix: Crypto Bear Market Edition

We’ve made it to the dog days of summer. The crypto markets haven’t exactly been hot — in fact, they’ve been pretty cold for the last few months. But that doesn’t mean it’s all bad news. 

Market Update

The crypto market is still in bear market territory. But it enjoyed a nice 20% “bear market rally” in July. 

In fact, the crypto relief rally we wrote about a couple weeks ago is still going strong. Last Wednesday, the Fed raised interest rates by 75 basis points for the second month in a row to combat inflation. Interest rate hikes are typically followed by a pullback in investing activity across all markets. But the crypto market was clearly bracing itself for much worse. So bitcoin’s price actually surged 8% to around $22,500 following the news. As I write, bitcoin is trading around $23,044. And ethereum is up 53% month over month. 

While this is good news, this crypto bear market isn’t over yet. So stay disciplined and prepare for more rough patches over the coming weeks. 

Now let’s get into the news fix.

SEC Charges 11 People in Crypto Ponzi Scheme

On Monday, the SEC announced that it charged 11 people in the creation and promotion of a crypto pyramid and Ponzi scheme. According to the SEC, Forsage.io — a website that allowed millions of retail investors to use smart contracts on the Ethereum, Binance and Tron blockchains — operated as a pyramid scheme for more than two years. The site raised more than $300 million from retail investors. 

Forsage.io is not the first bad actor to operate in the crypto space. But there are plenty of law-abiding crypto proponents who are working to ensure that crypto has a bright and (hopefully) well-regulated future. Take Ethereum founder Vitalik Buterin for example. Buterin has urged the crypto community to “call out scammers” when they see them. His response to Forsage.io? “Please leave and don’t pollute the ethereum ecosystem.”

New York Slams Robinhood With $30 Million Fine

The New York Department of Financial Services (NYDFS) fined Robinhood’s crypto division for anti-money laundering and cybersecurity violations. According to the NYDFS, Robinhood understaffed its compliance program and had “critical failures” in  cybersecurity. The NYDFS also claims the company’s crypto division failed to provide customers with a dedicated phone number for registering complaints as required by New York law.

This isn’t the first time Robinhood has faced legal troubles. In 2020, the SEC charged Robinhood $65 million for allegedly misleading customers about how it makes money. In June 2021, FINRA fined Robinhood close to $70 million over its failure to protect customers. 

It doesn’t look good. But Robinhood seems capable of weathering its latest legal storm. 

Nomad Token Bridge Loses Nearly $200 Million to Hack

We got another lesson in the importance of security this week. Nomad — a cross-chain token bridge that allows users to send and receive tokens between different blockchains — was hacked on Monday. Attackers stole close to $200 million, nearly all of Nomad’s funds. 

How did it happen? According to a researcher at crypto investment firm Paradigm, a recent smart contract update made it easy for users to spoof transactions on Nomad. “All you had to do was find a transaction that worked, find/replace the other person’s address with yours, and then re-broadcast it,” the researcher tweeted

Nomad said an investigation is ongoing and that it intends to trace and recover the lost funds.

Nomad is not the first token bridge to suffer an attack. Over the last six months, two other crypto bridges — Harmony’s Horizon Bridge and Ronin Bridge — have also been hacked. This is why interoperability is the future of crypto. Interoperability allows different crypto networks to talk to each other. Bridges are a workaround in the meantime, but they’re vulnerable to attacks. The sooner interoperability becomes a widespread feature in the crypto world, the better. (In fact, we recently recommended an interoperability coin to First Stage Investor Members. Click here to sign up and learn more.)

Pearson Plans to Sell Textbooks as NFTs

College textbooks are notoriously expensive. When a class requires a particular book, students must purchase it through campus bookstores or online (or use a textbook rental service like Chegg). When students are done with a book, they often resell it. Textbook publishers like Pearson haven’t found a way to profit from those secondhand sales — until now. 

Pearson CEO Andy Bird said the publisher plans to sell digital textbooks as NFTs, which would allow the company to track the ownership of a book even when it changes hands. “In the analog world, a Pearson textbook was resold up to seven times, and we would only participate in the first sale,” Bird said. But “technology like blockchain and NFTs allows us to participate in every sale of that particular item as it goes through its life.”

Selling books as NFTs hasn’t taken off quite the same way that selling art as NFTs has. But if more publishing houses follow Pearson’s lead, it could become a very interesting development.

A New Bitcoin Whale Appears

A new bitcoin whale has entered the chat. 

Crypto whales are people or entities that hold large amounts of crypto. Sometimes they own enough to impact prices. Over the last half of July, a bitcoin whale (still unidentified by the crypto community) bought nearly $3 billion worth of crypto. 

Crypto whales are interesting. They’re not always good for the crypto ecosystem. If they buy a large chunk of a crypto and keep it locked in a wallet, they diminish that crypto’s liquidity. If they sell a large amount of crypto at one time, they can create downward pressure on that crypto’s price. All of this can negatively impact other crypto investors.

But that doesn’t mean it’s all bad. Crypto whales can also signal immense confidence in the crypto market. The latest bitcoin whale isn’t a sign that investors should panic. It’s just something to keep in mind.

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