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Tesla adds to a crisis of confidence in the crypto markets, BNP Paribas spots an opportunity for high-end customers, while J.P. Morgan and Grayscale claim the worst of the collapse is now over.
This week in crypto was marked by the revelation that Tesla has sold off most of its bitcoin holdings, adding to a crisis of confidence already sweeping the crypto markets.
In Tesla’s Q2 earnings report, released on Wednesday (July 20), the world’s largest electric vehicle maker revealed that it has sold 75 percent of its bitcoin holdings.
Tesla had held bitcoin since at least February 2021, when the company first revealed to the US Securities and Exchange Commission (SEC) that it had purchased $1.5bn worth of the crypto-asset.
At the same time, Tesla informed the SEC that it would begin accepting bitcoin as a form of payment, helping send the share price of the currency from around $40,000 to just under $60,000 in less than two weeks.
Just two months later, CEO Elon Musk announced that Tesla had U-turned on accepting bitcoin as payment, citing environmental concerns. This precipitated bitcoin's first 50 percent drop of the last year or so, as it crashed below $30,000.
Since then, Tesla appears to have ridden the bitcoin rollercoaster all the way up and all the way down again.
After touting the “long-term potential” of digital assets this time last year — both as an investment and as a liquid alternative to cash — Tesla has now converted $936m worth of bitcoin back into fiat currency.
It is unclear exactly what price Tesla sold the majority of its bitcoin at, but we do know that in Q2 when the sale took place, bitcoin took another 50 percent plunge back into the same price range where Tesla had likely acquired it.
Nevertheless, at its peak in 2021, Tesla’s bitcoin was once worth $2.48bn, according to an SEC filing.
As for Musk himself, he did not speak ill of bitcoin during Tesla’s earnings call, pointing instead to macroeconomic factors as the reason for the sale.
“The reason we sold a bunch of our bitcoin holdings was that we were uncertain as to when the COVID lockdowns in China would alleviate, so it was important for us to maximise our cash position,” he said.
“This should not be taken as some verdict on bitcoin,” he said, adding that Tesla is open to increasing its crypto holdings in future.
BNP Paribas to enter crypto-custody market
Another big story to break in crypto this week comes courtesy of BNP Paribas, France’s largest bank by asset value.
On Wednesday (July 20), BNP Paribas Securities Services confirmed rumours that it plans to launch a digital asset custody service in partnership with crypto firms Fireblocks and METACO.
BNP Paribas said the tie-up will allow institutional clients to store, issue and settle digital securities alongside their traditional assets.
In a press statement, the bank said it has selected Fireblocks as its hot wallet, tokenisation and connectivity infrastructure layer, and METACO to integrate its “bank-grade” digital asset custody platform into BNP Paribas’ existing infrastructure.
In crypto custody, a hot wallet refers to a wallet that is connected to the internet, and is therefore vulnerable to cyber-attack, whereas a cold wallet is not connected to the internet.
Stealing from a cold wallet would usually require physical possession of or access to the cold wallet, in addition to any associated PIN codes or passwords.
Wayne Hughes, head of digital assets at BNP Paribas Securities Services, said the partnership is a milestone in the bank’s journey towards “multi-asset” connectivity.
“Our objective is to offer our clients a single view of all these different types of assets for complete transparency, greater operational efficiency and risk management,” he said.
“Leveraging on the combined expertise of leading technical providers will allow us to extend our custody offering to a wider scope of regulated digital assets as the market evolves.”
Evolution or devolution?
It remains to be seen, however, whether the crypto-asset markets are presently in a state of evolution or devolution.
As VIXIO has covered extensively, major crypto firms Celsius, Voyager and Three Arrows Capital (3AC) are facing bankruptcy proceedings, liquidation orders or a combination of both.
These proceedings not only draw attention to the billions of dollars of customer money that has now been lost or frozen: they also allege serious fraud and market manipulation, neither of which bode well for crypto’s quest to be taken seriously.
One major market participant who appears keen to allay these fears is J.P. Morgan, the world’s largest bank by market cap.
In an investor report seen by CoinDesk, J.P .Morgan said the most “intense phase” of crypto’s deleveraging crash is now over, and that demand from retail investors is beginning to return.
Bitcoin and ethereum have rallied 30 percent and 70 percent respectively since hitting new lows for the year in June, and smaller holders have grown their balances of these assets at the expense of larger holders.
Nonetheless, a deleveraging of one form or another continues across the industry. This week it was the turn of crypto exchange Blockchain.com to announce significant layoffs due to bear market financial problems.
On Thursday (July 21), Blockchain.com said it plans to cut 25 percent of its staff, reducing its team from more than 600 to about 450 employees.
The firm reportedly cited a $270m shortfall from unrepaid loans it had extended to 3AC as one of its main challenges.
What doesn’t kill it makes it stronger?
Despite the unrelenting layoffs and court cases the industry is currently facing, its main backers continue to be optimistic.
In its Bear Markets in Perspective report published this week, digital asset firm Grayscale concurred that crypto’s most recent boom cycle was unlike others due to the addition of previously unavailable forms of leverage, offered by both centralised and decentralised finance (defi) platforms.
Nonetheless, Grayscale remains confident that crypto is anti-fragile.
“At the time of this writing, every market cycle that the crypto industry has gone through has left the ecosystem stronger than the previous,” the report notes.
“In crypto, we have seen that failure has not been fatal to the industry, but, instead, a necessary step in progressing to the future.
“Despite price declines, liquidations, and volatility, the crypto industry continues to build and innovate, pushing the boundaries of what is possible.”
Perhaps. But when a company such as Celsius, which stands accused of running a multi-billion-dollar Ponzi scheme, is still planning to pay out more than $730,000 to officers, shareholders and directors during its first 30 days of bankruptcy, it would seem that fixing crypto’s image problems may be easier said than done.
