About: Investoom Weekly is the newsletter by the market intelligence company Investoom that provides AI-powered investment insights through social sentiment data, onchain data and financial data. Investoom democratizes the access to hedge fund insights.

Overview of the topics

• Crypto Highlights: The Terra blockchain protocol creator is being sued by the US Securities and Exchange Commission for fraud.
• Financial Data: Analysts predict that the minimum and maximum prices of LUNC in 2025 will respectively be $0.0089 and $0.028.
• Social Data: Investors seem to be optimistic that inflation will decrease and that in the future there won’t be a relevant recession.
• Onchain Data: The $495 million worth of short futures liquidated in January led to a significant amount of automatic BTC purchases.
• Deep Dive: Launched in January, ordinals are a protocol that allows data to be stored on Bitcoin’s blockchain network.

Crypto Highlights

SEC charges Terra founder with fraud

The Terra blockchain protocol creator, which suffered a major meltdown last year, is being sued by the US Securities and Exchange Commission (SEC) for securities fraud. The collapse of Terra (LUNA) had a relevant impact on the crypto industry and the SEC alleges that Terraform Labs and its co-founder, Do Kwon, engaged in a fraudulent scheme that provoked a minimum of $40 billion in market value losses.

In September 2022, South Korea issued an arrest warrant for Do Kwon, while Interpol purportedly issued a red notice, which is a call to international law enforcement agencies to locate and apprehend an individual pending legal action, such as extradition or surrender. Although Kwon has maintained that he is not evading authorities, the complaint against him mentions that his present location is unknown. As a result, South Korean authorities went to Serbia earlier this month in an attempt to locate him.

Kwon, along with Daniel Shin, founded Terraform Labs in 2018 and launched the crypto Luna later that year. In 2020, the company created the stablecoin Terra USD, which was linked to Luna to help maintain its value at $1. Hence, when Terra USD began to plummet last year, so did Luna, causing billions of dollars invested in these cryptocurrencies to disappear.

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Financial Data

The collapse of the Terra ecosystem

The collapse of the Terra ecosystem in May 2022 was based on Terra Luna Classic (LUNC), which was significantly impacted by the FTX exchange crisis in November 2021. Since then, the market capitalization has dropped from $1.5 billion to $993 million.

Before analyzing the collapse, one should note that the Terra 2.0 blockchain uses the proof-of-stake (PoS) consensus mechanism to verify transactions. Even Ethereum (ETH), the leading crypto, has adopted the PoS mechanism, intensifying competition among PoS blockchains. Furthermore, at any given time, the network has 130 validators, and as a PoS platform, it is recognized for being highly energy-efficient and eco-friendly.

But why is the Terra crash so relevant? A stablecoin is designed to protect its holders against the volatility of other cryptos by being pegged to a fiat currency or supporting crypto. In the case of Terra USD (UST), it was linked to Luna Classic (LUNC). However, the system faced a major setback when LUNA prices began to destabilize, resulting in a decline in UST prices, and in 2022 it collapsed. Despite LUNC's success during the first years, with it even being among the “top 10 cryptos” by market value at the end of 2021, the entire Terra ecosystem collapsed, causing a fork that introduced a new version of Luna.

The Terra Ecosystem Revival Plan 2 is now implemented and it allows both versions of the Luna token to coexist. The future of LUNC is instrumental in determining whether a failed cryptocurrency can make a comeback and grow. However, following the May 2022 collapse, LUNC's performance has been lackluster. If it manages to perform well in the future, it won’t only be a cause for celebration for this crypto but also for the broader industry.

Concerning LUNC, analysts have made predictions about its future value in 2025. Telegaon predicts that the minimum and maximum prices of LUNC in 2025 will be $0.0089 and $0.028, respectively. Coinpedia is not optimistic about the future and predicts that LUNC will have a high trading price of $0.002846 and a low trading price of $0.001094 in 2025.

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Social Data

What about the broader crypto market?

On Thursday, the crypto market showed a rise in prices, disregarding the US government's tougher regulatory approach. Bitcoin (BTC) gained 2.06%, increasing to $24,500.00, while Ether (ETH) was up 1.21% at $1,679.31. Vijay Ayyar, VP of Corporate Development and International at crypto exchange Luno, declared that the market bottomed out in November and is turning bullish.

Earlier this week, the crypto market was uneasy due to increased regulatory scrutiny from US authorities on digital currencies. In fact, the New York State Department of Financial Services instructed the technology company Paxos to stop producing new Binance USD stablecoins (BUSD), a crypto pegged to the dollar. Paxos declared that the Securities and Exchange Commission (SEC) notified the company that it could suggest an action alleging that BUSD is a security.

As of Thursday, Bitcoin’s price was at its highest level since August 2022. It happened as in 2021 the crypto market suffered a loss of $1.4 trillion due to turmoil, bankruptcies, and failures of crypto projects and companies. This was compounded by the crash of FTX. Analyst Hasegawa stated that there is a shift from alternative coins to BTC following regulatory action. Apart from the transition, the recent crypto rally on Wednesday was a surprise, and it was led by Bitcoin.

Despite the regulatory headwinds for the crypto market, there seems to be a trend of investors shifting their focus from altcoins to bitcoin. This may be due to Bitcoin being the only cryptocurrency classified as a commodity, which can lead to less regulatory scrutiny. BTC market dominance is thus increasing as a result of this shift in focus. In fact, Gary Gensler, the chair of the SEC, has emphasized that the agency doesn’t view it as a security and that for this reason, BTC is subject to different regulations than stocks.

The market's bullish sentiment towards risk assets has been supported by the belief that the economic downturn may not be as severe as expected and that the FED may slow the pace of interest rate hikes. Investors seem to be optimistic that inflation will decrease and that there won’t be a relevant recession in the future.

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Onchain Data

Short liquidations helped BTC to peak

New data from on-chain and futures markets indicate positive signs that the dominant crypto, BTC, is making a recovery. A lot of short liquidations took place and the futures market is indicating renewed balance. Hence, market speculators have been pulled out, leading to an improvement in both the on-chain and exchange net flows of the spot market.

Futures market data show a balance between long and short positions. As the market moves, investors adjust their positions to avoid liquidation, which occurs when a trader's position is automatically closed due to insufficient margin to cover losses. However, in January, many investors were caught off guard by a sharp drop in Bitcoin's price, leading to an all-time high of 85% short position liquidations. This reduced the number of investors with open short positions and the futures market volume. Hence, analysts suggest that the futures market has now returned to a balanced state.

Short liquidations refer to a situation where traders, which have speculated on the price of an asset falling, are forced to close their positions by buying back the asset to avoid further losses. This buying pressure can push up the price of the asset. In the case of Bitcoin, the dominance of short liquidations in January has helped to fuel the current rally in cryptos. During the month, more than $495 million worth of short futures were liquidated, which led to a significant amount of automatic Bitcoin purchases and, in turn, drove up the price of BTC.

The year-to-date liquidations have occurred in three different large waves, that peaked at $165 million in one day of liquidations. This increased buying pressure due to short liquidations is a fundamental factor in the recovery in the price of Bitcoin. According to Glassnode “Across both perpetual swap, and calendar futures, the cash and carry basis is now back into positive territory, yielding 7.3% and 3.3% annualized, respectively”.

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Community

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Deep Dive

What are ordinal inscriptions?

The increase in the price of Bitcoin, which has broken an eight-month record, arrives as investors and major brands flock to its blockchain to inscribe content using ordinal inscriptions.

But what is an ordinal? Launched in January by software engineer Casey Rodarmor, an ordinal is a protocol that allows data to be stored on Bitcoin’s blockchain network. Invite 3 friends to read the full article

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News of the week

• Banks: Italian banks to cut 27% of branches over next 7 years. [Read more].
• Technology: Only 9% of Americans think A.I. development will do more good than harm. [Read more]
• Markets: Stocks slip as rates rise to their highest levels in three months. [Read more]
• Investments: Top Chinese investment banker Bao Fan is the latest CEO to go missing. [Read more]

Read the full version here.

About

Investoom is a Munich-based Fintech Startup democratizing the access to quantitative investment insights that are used by big hedge funds, but are inaccessible to retail investors. We are a market intelligence company that provides AI-powered investment insights through social sentiment data, onchain data and financial data.

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