World Bank rescue package throws lifeline to crypto markets

From the editor’s desk

Dear Reader,

Some investors in the cryptocurrency space share something in common with a number of those who criticize its volatility and perceived lack of value. Despite the fact that the two groups are on opposite sides of the fence when it comes to their support for the sector, for both, it’s pretty much just a game.

The fervor among memecoin enthusiasts, for instance — such as those awaiting this week’s “Doge Day” with puppy-like anticipation and high hopes for a spike in the joke-coin’s value — almost makes the crypto-skeptics’ point for them.

Yet as we have increasingly seen, the joke might be on both groups at their respective far reaches of the digital asset attitude spectrum, for crypto these days is anything but a game.

As the World Bank this week announced a hefty US$170 billion emergency funding package to address the current perfect storm of war, plague and famine (now wearily familiar to most of us as Russia’s war on Ukraine, the Covid-19 pandemic and surging inflation) there was a rare bright spot as Bitcoin enjoyed a bump in its value, alongside many other cryptos. Equity indices also ticked up on the news.

In previous editions of The Current Forkast, we noted the increasing correlation between crypto and traditional finance, and the reaction of both sets of markets to this week’s move by the World Bank underscores that dynamic.

Yet even though the vast majority of the crypto community regards the industry as a serious development in the future of finance, its “game” connotations are more than just imaginary.

A recent hack of Ethereum’s Ronin bridge blockchain, on which the immensely popular play-to-earn game Axie Infinity runs, saw only one alleged winner: North Korea, which this week was accused by the U.S. of having been behind the US$620 million heist.

Axie Infinity may give its player community plenty of fun (and in some cases livable sums of money), but Pyongyang’s track record of using attacks on crypto exchanges is reportedly one means by which it is funding its nuclear and ballistic missile program.

Either you think crypto is a joke or it’s a serious threat, but it cannot be both at the same time. The reality is that it’s here to stay — and its expanding role is being defined by all of us.

Until the next time,

Angie Lau,
Founder and Editor-in-Chief
Forkast

Forkast.Insights | What does it mean?

For diehard crypto libertarians, the market’s recent recovery may be a little difficult to swallow. A cash injection from the World Bank designed to bolster a flagging global economy has had the effect of helping to restore confidence in crypto markets.

Crypto’s very origins lie in the quest for a decentralized, democratizing financial system that didn’t rely on governments or bodies such as central banks and others to keep the lights on. That message is frequently found inside blocks mined on the Bitcoin network. 

Yet cryptocurrencies are inextricably intertwined with macroeconomic forces, which compromises the ability sought by its evangelists to resist real-world influences such as inflation and wars. Although some lament the increasingly obvious loss of crypto’s aspirational isolation from the push and pull of such things, it should be seen as a relatively low price of admission for its growing global acceptance. 

All assets are affected by the world around them. Crypto’s influences have included cycles of hype and overpromising, and the star power of big-name investors adding them to their portfolios, alongside more fundamental market dynamics. 

This isn’t a bad thing. It demonstrates that part of crypto’s value lies in its ability to function as a credible destination for investment. The remainder of its value comes from applications that solve problems Web 2.0 hasn’t been able to crack. This points to the persistence of its strong independent streak. 

Forkast.Insights | What does it mean?

Although North Korea’s economy is a byword for mismanagement and underdevelopment, its cyber-warfare capabilities are rather more advanced. 

The accusation that the Lazarus Group was responsible for such a major crypto hack comes as no surprise to security experts. Pyongyang’s hackers have been honing their crypto attack skills for years. 

In 2018, North Korea successfully built and deployed a piece of malware named AppleJeus, which poses as a cryptocurrency trading platform in order to steal funds from people attempting to use it. It has been wildly successful, netting some US$320 million of ill-gotten gains since it was set up. 

With its recent exploits, the Lazarus Group is believed to have accumulated more than US$1 billion of stolen crypto, which raises the uncomfortable question for the Web 3.0 community that state-sponsored cyberattacks appear to be gathering pace. 

The most profitable hacker groups have been based in Russia, with three-quarters of all ransomware attacks last year originating from the country. That sends a clear signal to other states facing sanctions by Western nations: There can be easy money in crypto for anyone willing to put in the dirty work.

Forkast.Insights | What does it mean?

The unofficial chief of the BSN has made it clear that digital collectibles with the attributes of financial products will not be tolerated by Chinese regulators. In fact, three national-level self-regulatory associations in the banking, securities and internet finance industries last week urged their members to “resolutely curb” a wave of “financialization and securitization” in the NFT space.

The call from these industry lobbies is significant, as they were established by government regulators and their moves are reflective of official thinking. It echoes a development in the crypto industry just under a year ago, in which days before China intensified a crackdown on crypto mining and trading, two of the three associations warned against the risks of crypto trading.

If Chinese regulators opt to take a zero-tolerance approach to secondary marketplaces for digital collectibles, that will deal a blow to platforms that don’t impose resale restrictions, and the number of platforms affected could be high. According to He, more than 90% of the 300 Chinese NFT companies built using BSN technology are engaged in activities associated with digital collectibles.

One area that Chinese regulators will likely focus on is trading frequency. If the authorities are looking to legalize NFT trading and recognize them as commodities, they may find themselves needing to follow the big industry players’ lead — and set timeframes for resales to preempt speculative behavior to which they’re so averse.