1. Prices dropped

The Facts:

• On May 19, Bitcoin dropped from ca. $43’000 to down to $30’000, a -30% drop.
• The total crypto market cap decreased by ca. $500 billion, accompanied by massive liquidations of $8.6 billion worth of leveraged positions across all crypto assets.
• A strong reaction followed the drop, and Bitcoin managed to rise back to $40’000 after the daily lows were reached.

Why it’s important:

• The quick drop in the crypto markets was one of the larger ones seen to date and was exacerbated by liquidations both in the spot and futures markets. As a result, a lot of leverage was taken out of the market: Open interest across Bitcoin futures and perpetual swaps has decreased from ca. $14 billion to $5.5 billion since the last Bitcoin all-time high.
• The initial impulse for the drop seemed to have come after Elon Musk tweeted about Tesla suspending purchases with Bitcoin and concerns about its environmental impact, which brought up worries that Tesla might sell their Bitcoin. Additionally, fears about stricter regulations in China and the U.S. (as outlined below) may have further spooked investors.

2. “China bans Bitcoin”… again

The Facts:

• Three self-regulatory organizations in China have affirmed their 2017 stance on Bitcoin and other digital currencies, originally based on a notice issued by the People’s Bank of China.
• The member institutions “shall not provide crypto-related services such as trading, custody, or lending.”
• The original PBoC notice also specifically prohibited any ICOs, one of the hotter topics of the 2017 bull run.

Why it’s important:

• China banning Bitcoin has almost become a tale as old as time. However, in the light of recent advances of the Chinese CBDC, reiterating the 2017 stance now might have a signaling effect on what China’s vision for the future of payments and financial services is.
• While financial services related to cryptocurrencies are restricted, China still remains one of the largest Bitcoin mining hubs, and its OTC cryptocurrency markets are rumored to function well.

3. BlockFi credits BTC instead of USD

The Facts:

• BlockFi, a large crypto lender, accidentally credited users promotional rewards in BTC instead of USD.
• Some users are said to have received, for example, 700 BTC instead of $700. While most balances were corrected “within hours,” a few users might have managed to withdraw the BTC from the platform.
• BlockFi has threatened legal action to those users and had temporarily suspended withdrawals.

Why it’s important:

• While BlockFi’s CEO has now said that the total exposure is less than 200 BTC, the news may have contributed to spooking the already volatile markets, since it was unclear how many BTC were withdrawn (and potentially sold off quickly) from the platform.
• It also might make users more vigilant to potential counterparty risks.

4. $10k transaction reporting requirements to IRS proposed

The Facts:

• A recent tax-related report by the U.S. Treasury indicated a more stringent screening of crypto markets for potential tax evasions.
• It proposes reporting requirements for businesses, which would have to notify the IRS of any transaction exceeding $10k in value of digital currencies.
• The report also acknowledged a “rise in importance” of cryptocurrency transactions over the coming decade.

Why it’s important:

• The new proposal would put additional burden on companies transacting in cryptocurrencies. While reporting requirements already exist and many U.S. citizens using cryptocurrency exchanges have already received specific inquiries from the IRS, this proposal would further clarify the required thresholds.
• It is also interesting that the U.S. Treasury clearly stated its positive outlook for the importance of crypto over the next years. This is in line with some of the supportive U.S. regulations seen in the last months, for example regarding stablecoins or banks interacting with public blockchains.

5. PancakeBunny exploited for $45M

The Facts:

• PancakeBunny, a yield aggregator on Binance Smart Chain, has been exploited on March 20 for 114k BNB and 697k BUNNY tokens.
• The attacker used flash loans to manipulate the protocol’s BUNNY mint price.
• The team has since released a detailed post-mortem along with a plan to compensate affected users and holders.

Why it’s important:

• The PancakeBunny exploit highlights that many of the newer, innovative DeFi protocols still need to be treated as early-stage beta software. Flash loans, which are often used in such exploits, help to identify – albeit painfully, through such attacks – potential issues in this early stage.
• While an exploit of the size of $45M is quite significant, the total amount of value extracted from various DeFi hacks so far is much larger.

In other news

• Harbor tax legislation for forked crypto assets reintroduced in Congress (via The Block)
• OCC, Fed, FDIC mulling forming an interagency policy team on crypto (via CoinDesk)
• Dutch Central Bank reverses decision on tighter checks for crypto withdrawals (via The Block)