Hillstone Finance Weekly Update (Feb 13~ 17)

Hillstone Finance
15 min readFeb 17, 2023

Welcome to the weekly update from Hillstone Finance. We have brought two news for this week:
1. Rayol Hwang participated in the NBN news
2. Duk-hyun Hong participated in the NBN news

NBN News (Feb 13, 2023)

Q. How is the current bitcoin situation?

A. As discussed in the FOMC, the rise in asset prices is putting pressure on inflation. When asked if he had raised financial indicators by 0.25% after knowing about them in advance, Powell avoided giving a direct answer. Unlike the 10 indicators related to employment, the recent employment indicators showed a discrepancy, and the increased jobs did not directly affect interest rates. Although upward indicators were seen in employment, the crucial question is whether the increase in interest rates can be sustained while wages continue to decline, as was the case with the employment decline of non-technical companies and the increase in the service industry mentioned earlier.

Q. WSJ said, “The U.S. economy’s attempt at a no-deal rate, we will raise the key interest rate at the end of the year,” what do you think?

A. Currently, it seems easier to see the biggest impact on Bitcoin not from interest rates, but from its comparison to the US dollar. When the dollar is strong, Bitcoin has experienced a tremendous decline.

Q. What do you think about the outlook for the benchmark interest rate and the Bitcoin market decoupling phenomenon?

A. When the euro actually stops raising interest rates, the dollar tends to strengthen, and at the same time, Bitcoin tends to weaken. If the timing comes for a switch to a weak dollar due to factors such as forecasts for a weakening dollar, interest rate increases being stopped, and employment weakening, it could be a big boost for Bitcoin. While it is difficult to predict the rise of Bitcoin this year, the problem is that unexpected crises that can greatly impact the virtual asset market can always emerge. Recently, there have been issues such as the Kraken hacking incident and the SEC’s fine, as well as internal problems such as the Terra Luna incident and exchange problems, which can cause negative effects.

Q. Is Ethereum Shanghai Upgrade a Good Thing? Is it bad news?

A. In the case of Ethereum, it is in a stagnant state compared to the rise of Bitcoin. In this aspect, it seems that it has already been reflected in the market and will not have a very big impact. However, it was heading in a very suitable direction in response to the MiCA regulation in Europe, but it is showing changes in response to very steep regulations associated with the SEC. In a situation where clear regulations have not yet been issued, there is a need for further analysis. It is expected to have little impact on the simple aspect of increasing the supply.

Q. What is the flow of the altcoins?

A. Recently, there was also a pumping of altcoins due to the issue of funds inflow from China. Most altcoins have gone through a cycle of rising once. This cycle can be seen as a rising cycle that occurs with the rise of Bitcoin. Bitcoin, which had been rising for a while, is now hesitating and is in a sideways trend again. If Bitcoin changes to a rising mode, a circulating pumping can happen again. It is difficult to predict which altcoin will rise, but the rise of altcoins is also determined by the movements of Bitcoin. However, with Bitcoin’s recent decline in its upward trend and the difficulty of determining which altcoin will rise based on information such as trading volume and on-chain data, it is currently a challenging situation to make a clear statement.

Q. Paycoin has been re-designated as a cautionary event. Is there a crisis?

A. Although Paycoin did not have as much of an impact as Wemix, it is a coin that has significant meaning in payment. The flow of Korean exchanges and the government itself started talking about STO from February, but there is a stance of trying to strictly distinguish other coins outside security and utility coins, making the journey for payment coins seem difficult. Personally, I desperately hope that it does not become the second Wemix.

Q. Can we look forward to the NFT market this year?

A. Although NFTs have entered a period of stagnation, it is expected that they can revive when combined with STO. Currently, coins related to STO have a significant weakness in that it is difficult to activate them for practical use. If they come out as a new use case by combining with NFT, they have a technical structure that can replace or supplement STO and rise again. Therefore, I think NFTs could once again receive attention in a completely different way.

Q. How will the U.S. CPI announcement affect the cryptocurrency market?

A. Overall, it seems more important to look at whether the dollar is strong or weak, and whether the economy will go into a recession in the real economy, rather than simple indicators. In particular, if the economy continues to run smoothly, the stability of macroeconomic indicators will be important, and it will be better to pay attention to these aspects.

NBN News (Feb 17, 2023)

Q. What is the U.S. SEC’s move on the STO?

A. STO is a method of issuing securities representing an interest in ownership of a company or asset using a blockchain.

STO is one of the financing models such as IPOs and ICOs, and aims to trade and distribute securitized assets on the blockchain.

The SEC U.S. Securities and Exchange Commission also applies regulations similar to ICOs to STOs, and STO issuers must comply with the SEC’s registration requirements.

Accordingly, Ripple has been sued by the SEC and is in a legal dispute.

The Korean guidelines for STO are currently difficult to judge, and are expected to change depending on the outcome of legal disputes.

Q. A field where ‘STO’ companies are more interested?

A. The Financial Services Commission announced STO guidelines to revitalize the non-monetary trust and investment contract securities markets using distributed ledger technology.

Unlike conventional securities transactions, new securities are issued and distributed using distributed ledger technology.
To this end, additional issuer account management agencies and over-the-counter transaction brokers are needed.

Non-monetary trust refers to investing in art works or real estate, etc.
Investment contract securities refer to contractual rights in which a specific investor invests in a joint business with another person and attributes profits or losses as a result.

The introduction of the STO guidelines is expected to make transactions between these non-monetary trusts and investment contract securities more active.

Q. Is it possible to establish and distribute ‘STO’ over-the-counter brokerage?

A. Over-the-counter transaction brokers are the same concept as platforms in charge of distribution.
It serves to broker the sale of investment contract securities and beneficiary securities outside the securities market, where only existing securities firms and banks could broker and distribute.

The broker must meet equity capital, scope of business, investment limits, target securities, business standards, prohibited acts, and other conditions.
Most regulations are subject to the same regulations as securities firms.

In particular, the issuer account management agency is in charge of issuing token securities.
Conditions such as satisfying the requirements for distributed ledger, satisfying manpower requirements, and collecting opinions on the requirements of major shareholders and executives must be satisfied.

When the initial distribution market is not active, there is also a content that the issuer account institution can be in charge of distribution within the regulatory sandbox.
In principle, the issuing account management agency can only issue.

Q. How should the STO business be carried out within the regulatory sandbox?

A. Currently, it is legally impossible to issue securities using distributed ledger, and real certificates or electronic registration methods must be used for issuance.

Therefore, over-the-counter transaction brokers or issuer account managers must operate in regulatory sandboxes or use existing infrastructure.

In the future, there is a possibility that the token market will operate in the over-the-counter market.
Currently, the listed market and the digital securities market will be operated with existing infrastructure, and if securities are issued with tokens, there is a problem that they have to be returned to securities for listing.

Q. SEC preparing to sue paxos…What do you think about this?

A. The SEC is likely to classify stablecoins as unregistered securities, and is taking a very strict position in terms of regulation.

However, it is expected that there will not be many cases where stablecoins are classified as securities.

Stable coins are generally issued in response to certain assets to ensure value stability, because these assets are not typically securities.

In order for stablecoin to be regarded as a securities, it is thought that the SEC needs to review in more detail the structure and purpose of its issuance.

Q. Ethereum Shanghai Upgrade Withdrawal Test Net Operation…What do you think about this?

A. Ethereum withdrawal testnet will be executed, and users will be able to experiment with withdrawal on Nestnet from the 6th.

The Shanghai upgrade is approaching, symbolizing uncertainty and risk.

It should be noted how Ethereum will react during the Shanghai Hard Fork and how Ethereum, which will be able to withdraw money, will affect the price.

Excessive withdrawal can be a negative factor, but if the upgrade is successful, it will be able to drive up prices.

Tracking withdrawals and staking data after the Shanghai upgrade will help investment.

Q. Emerging NFT and fierce companies dominate the market…What do you think about this?

A. The NFT market is booming again, and large domestic and foreign companies are interested in the NFT market.

Previously, attention was focused on defi, but now it seems to be the most interested in the NFT field.

NFT is also gaining popularity because it is convenient to create a community and easy to generate profits.

In addition, there are many factors that can combine metaverse and the real world, so NFT seems to grow.

However, the impact of regulations is weak, so caution should be taken when investing.

Tracking NFTs of large companies to find profits may be a good strategy.

NBN News (Feb 17, 2023)

Q. First, please briefly explain the concept of on-chain data.

A. First of all, blockchain is simply a book-like grouping of books that record transactions. All records of transactions occurring on this blockchain are referred to as on-chain data. Therefore, the on-chain data follows the characteristics of this blockchain.

Features of On-Chain Data

Integrity: The value of the data is accurate because the real transaction is verified through the agreement process.

Transparency: Due to the nature of the blockchain, this record is data that everyone can see.

Immutability: Once written data cannot be deleted or changed.

Q. Due to the high market volatility recently, the demand for such on-chain data is also steadily increasing and developing?

A. Investors in 18–19 will remember well. In the bearish market, untested information such as “a whale is accumulating by buying certain coins” and “The project foundation is preparing to sell tokens in large quantities.” This has cost many investors.

These rumors have been struggling with the recent decline because of the use of online data. Since transaction-related information is recorded and disclosed on all nodes, transaction information cannot be hidden or manipulated on-chain data, and it acts as a watchdog, so previously indiscriminate information is filtered.

As such, the on-chain data itself has tremendous potential to build a more complete view of the cryptocurrency market based on facts that are clearly recorded, without exaggeration, falsehood, or falsehood.

Q. Among the various on-chain data, which on-chain data should I focus on?

A. It is good to see online data related to liquidity. One of the indicators to look at to understand market liquidity is exchange-related liquidity-on-chain data.

Cryptocurrency exchanges are largely divided into two categories. There’s a CEX called the Centralized Exchange and a DEX called the Decentralized Exchange.

CEX is an exchange that users use through third parties trusted by both buyers and sellers at the time of cryptocurrency transactions. This is similar to a customer placing an asset in a bank based on trust in the bank. Just as banks store nominal money for customers and help them trade, centralized exchanges host investors’ digital assets to help manage and trade assets. These CEXs include Upbeat, Binance, Kraken, and Coinbase.

Unlike CEX, DEX is an exchange that supports P2P transactions. Simply put, it’s an exchange where no intermediary or manager acts as a broker, and DEX is a smart contract system that opens the currency market with a single currency wallet and trades immediately if the terms of the mutual transaction are met.

These DEXs include Uniswap, Sushi Swap, Balancer, Kiber, Dodo, etc. Why mention an exchange when we’re going to look at liquidity? That’s because the definition of liquidity is different depending on CEX and DEX. The CEX is basically traded in the asking price window.

Q. Can I understand that coins with little transaction volume on the centralized exchange also have little price fluctuation?

A. If you trade altcoins with little liquidity, you have to take a loss. For example, if the sale price of a new small exchange or new altcoin with little transaction is 1 million won and the purchase price is 100 won, the trader will have to bear a huge loss due to low liquidity. Only when some liquidity is secured in the beginning can the transaction continue naturally and the market be formed.

Q. So how can we check liquidity in DEX?

A. In CEX, the deposit and withdrawal sheetjacks are executed after trading with books, so it is easy to secure liquidity by filling the order book tightly. But in DEX, for example, it’s like I’m taking my wallet and going out to a rural marketplace to make a direct cash transaction. Because all orders/closures are recorded in transactions, they are essentially slower and less fluid than CEX.

AMM came out to overcome these difficulties and facilitate liquidity supply. Instead of the asking price window, it’s an algorithm called AMM that supplies liquidity to form a market, which is usually deposited in two token ratios.

Q. There is a content about methics and polygons that have recently been detected in online data, right? First, please introduce the polygon coin.

A. Polygon is an Ethereum extension tool and platform, and Polygon’s default token is $MATIC. Polygon, or MATIC networks, is a Layer 2 scalability solution that leverages side chains for off-chain calculations while ensuring secure asset security using plasma frameworks and Proof of Stake (PoS)-based distributed networks.

The MATIC network aims to provide blockchain developers with the resources they need to build world-class DApps across industries (defi, games, enterprise software, etc.) through a stronger framework that can increase transaction throughput per second. Current MATIC partners include Binance Labs, Coinbase Ventures, and ETHGlobal. MATIC founder JD Kanani is one of the first contributors to the plasma framework after Vitalik Buterin and Joseph Poon published a white paper in November 2017.

Q. What kind of activities did polygon do in detail?

A. Media and entertainment giant Disney was selected for a program to develop AR, NFT, and AI experiences, and Polygon was the only blockchain native platform among the six selected companies.

Another project to pay attention to is collaboration with Instagram. Meta announced on Instagram that the user directly issues an irreplaceable token (NFT) and supports in-app payment. According to TechCrunch, Meta said the update allows customers to access toolkits that can produce, display, and sell NFTs. First, it is possible to issue and sell polygon-based NFTs. When purchasing NFT directly from Instagram, in-app payment is possible like existing iOS and Android apps. Of course, there will be app store fees for purchases, but they will not charge fees for displaying or sharing NFTs on Instagram or Facebook, and they will not charge additional fees for NFT sales until 2024. In addition, both NFT-related producers and buyers who bought it on Instagram have greatly revitalized the polygon ecosystem, saying they don’t have to pay for NFT-related gas bills.

Investment bank JPMorgan recently worked with the Monetary Authority of Singapore to achieve its first DeFi.

It’s called MAS’ Project Guardian pilot program, and it’s trading in tokenized assets that are not limited to the country. We used Polygon to make these DeFi deals and we used a modified version of the DeFi protocol Aave.

Reddit, the largest social news community site in the U.S., has recently seen a surge in Avatar NFT sales through a collaboration with Polygon. In other words, Reddit’s digital artists can create NFTs on Polygon and sell them as avatars to users, and thanks to Polygon’s low gas and fast speed and efficiency, Reddit’s Avatar NFT has recently started mass trading.

In addition, recently, collaboration with MasterCard was announced. MasterCard, a global credit card company, announced that it will release “MasterCard Artist Accelerator” using polygon blockchain at “CES 2023” held in Las Vegas in January this year. MasterCard said it provides an opportunity for music artists to publish NFTs to learn how to expand their brands and build communities through accelerators. The master card did not specifically describe the accelerator participants. The accelerator program will end later this year with a live streaming artist showcase. MasterCard “The goal is to create a space for content production, collaboration, and ownership using blockchain in the Web 3.0 ecosystem by registering a card in the form of NFT and releasing a payment ‘next-generation wallet’. When the FTX crisis caused a huge decline in November last year, this partnership announcement showed a stronger price defense than other altcoins, and $MATIC was the first to respond to a rebound.

Q. The polygon market capitalization, which is rapidly expanding its scope of activities, is also one of the major coins, right?

A. Matic is currently the 9th largest project in the overall market capitalization, and is the 5th largest project except for Stable Coin. It has also recently boosted trading volume and driven the price increase of alt coins. There was no special announcement of BD partnership in the new year of 2023, but thick activities were detected in online data. Staking was the most noticeable thing when detected by online data.

Staking is a structure similar to depositing cash into a bank by entrusting digital assets to a blockchain network. It also means delegating digital assets for blockchain validation, and staking is the process of locking assets in cryptocurrency wallets, participating in the transaction verification process, and finally receiving newly issued coins as rewards. Three large staking movements were detected online as shown below.

At 21:07 (+UTC) on January 4, Amber Group staked 54.5M $MATIC ($43.8M). Amber Group is Asia’s largest cryptocurrency financial asset management company, comprising top asset management experts and hedge fund managers, including Morgan Stanley, Goldman Sachs, and Forbes Top 30. You can think of it as a company that is still unfamiliar in Korea. Among cryptocurrency asset management companies for institutional investors, Amber Group is showing excellent performance and rapid growth. In fact, since its establishment in 2017, cumulative transactions have exceeded $250 billion (about 280 trillion won), and monthly average transactions have exceeded $10 billion. It is also headquartered in Shenzhen and Hong Kong and serves multinational customers in more than 80 countries, including China, Korea, Japan, Southeast Asia, the United States, Canada, Europe and South America.

Another notable staking data is Falcon X. Falcon X staked around $57M $MATIC ($45.9M) around 21:07 (+UTC) on January 4. FalconX is an American cryptocurrency brokerage and digital asset trading platform founded in May 2018, with over 100 financial institutions across traditional finance, including hedge funds, monopolies, payment gateways, over-the-counter desks, cryptocurrency miners, and exchanges.

Finally, large-scale staking of existing exchanges was also captured by on-chain data. Coinbase is the largest cryptocurrency exchange in the United States in San Francisco. As we promised, we detected the occurrence of the above 3 large $MATIC staking events on January 4th. The total amount of staking is about 160 million units of $MATIC, which is equivalent to about 190 billion won in the current value of won.

Q. We looked at large-scale coin movements through on-chain data. Then, how are you diagnosing the future situation of the polygon?

A. Recently, $MATIC showed price defense in the bearish market due to non-on-chain activity Business Development, and showed signs of rebound through on-chain activity Staking.

Non-on-chain BDs such as partnership announcements are difficult to respond in advance unless they are project insiders, but on-chain data detection is more important for general traders because they can respond to the above on-chain activities, staking and volume movement.

In particular, large-scale staking means that large-scale staking is preceded by large-scale token withdrawals on the exchange, which not only lowers distribution, but also lowers downward pressure on token prices and increases upward pressure. However, the lifting of staking may have an impact on potential price declines, so keeping an eye on the above-mentioned addresses will make wise investment decisions such as large-scale volume movements in the future.

That is all for this weekly update.

Thank you.

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