The Fed, EU Bitcoin Ban Fails, Luna Season, Bored Apes Buy Crypto Punks & Avoiding NFT Rug Pulls
What’s On My Mind by Lark
Well, at long last it has finally happened. The Federal Reserve has officially raised interest rates in the USA by 0.25%. It has also indicated up to 7 interest rate hikes to follow this year with a further 4 possible in 2023, which is a rather aggressive policy stance. They currently expect inflation to finish the year at 4.3%. Which is still some very tough inflation. Key stocks indices took a small hit on the news. Now the question will be what will be the short to medium term impact of rate hikes on the crypto market. Historically speaking we might be looking at short term downward pressure, followed by strong price action closer to the end of the year. But we are to an extent in uncharted territory with commodity prices soaring, the war in Ukraine, and the coming economic default of Russia and the unwinding of Russian equities. While it is nice to finally have some kind of certainty from the FED, a lot of uncertainty still remains in the market due to a range of other factors. Bitcoin, the bellwether of crypto, is still stuck in consolidation. I am keeping a watch on $34,000, closing under this would signal a lower low and a potential further sell off. A close above $46,000 would likely indicate a major upward reversal is coming. Until one of these levels is reached we are waiting. Riding the tides of the markets.
EU Bitcoin Ban Fails
This week the European Parliament voted on a bill that would have essentially made it illegal for exchanges across the EU to list Bitcoin for trading. The reasoning being that the environmental impact is too high, and that BTC does not meet the incredibly vague criteria they set out for environmental sustainability. This provision was in an early draft of the bill, and was later removed, only to be added again at the 11th hour before the vote. THE GOOD NEWS is that this provision was struck from the bill 32 to 23.
There has been another asset that has been beating the market. LUNA, the core asset of the Terra blockchain has been a big run recently, although it is cooling off a bit. But why has LUNA pumped so much? Well let’s explore just that.
Staking: A little over 40% of the LUNA supply is staked. Showing a strong core of long term believers in LUNA. Not only do you get staking rewards, but also regular airdrops. Both of which are good for holders, especially in a down market where it is increasingly hard to find gains.
Anchor & UST: After fears a few weeks ago about a potential bank run due to falling rewards in Anchor and the drama around the Abracadabra fallout it has become apparent that UST is keeping hold of its peg to the dollar for now. Especially after Terra Labs front man Do Kwon announced that Terra intends to be the biggest holder of Bitcoin, and that this BTC will be used to back the UST stablecoin. There is also another key factor here. The markets suck right now. And Anchor still offers 19.5% APY. Better to be in stables getting a rate like this versus watching altcoins bleed to death. The more UST that is demanded, the higher the price of LUNA as it requires burning LUNA to make more UST.
Dapps: Luna has managed to become a top blockchain with only a few dapps, and clever integrations of the UST stablecoin across the defi space. BUT LUNA is now starting to see a new wave of Terra native applications coming to the chain. Protocols like Stader Labs and Mars protocol, but there are literally dozens of apps in some stage of deployment, with more planned.
Although I recently reduced my position in LUNA, I remain bullish on the asset, and think it has some interesting catalysts for the coming months. That being said, the market remains super risky, so be careful about apeing into any positions. Dollar cost average and buy on dips for those looking to start or increase a position.
Bored Apes Buy Crypto Punks
The company behind the Bored Ape Yacht Club, Yuga Labs, has officially bought the IP for Crypto Punks and Meebits, both creations of Larva Labs. The community had long been frustrated that Crypto Punks, the cheapest of which is around $180,000, gave users zero rights over their IP of the image they owned. The fact that Crypto Punks creators Larva Labs made a deal to completely sell the IP of all punks is kind of crazy. The deal also saw the transfer of the majority of the Punks and Meebits owned by Larva Labs being sold to Yuga as well. And you know what I think? This is great. Larva Labs has for far too long hindered the growth of these iconic collections. Yuga has already stated that IP will be given over to owners. Meaning that Punks and Meebits are now in essence more valuable items. Hopefully this will be the beginning of a new era for these classic collections. If how Yuga Labs has managed the Bored Apes is any indication then good things await Punks.
How to Avoid NFT Rug Pulls by Sam
Crypto moving towards mainstream adoption means shaking off the perception that it’s full of scams. Sadly, it may be NFTs that have the biggest problem with buyers getting the rug pulled, so it’s important to have your radar on and avoid rip-offs.
What’s a rug pull?
The term you’ll hear often around NFT scams is rug pull, or just rug. It’s a verb too, so you can say you got rugged (although hopefully you won’t need to).
Most simply, it means buyers send their money for NFTs and then the project disappears with the funds. Nowadays, the term is used loosely and is a little vague, referring to a variety of situations.
Hard and soft rugs
In a hard rug, buyers send money, receive nothing back, and then the project’s website and social media channels all shut down. In other cases, you may receive an NFT before the project shuts down, but what you received is now worthless.
A soft rug is less clear. In this case, you get your NFT and the project remains up and running. Except it isn’t really developing anything, it’s just doing the bare minimum to give the appearance that it’s working.
These schemes can drag on indefinitely, allowing the developers to keep picking up royalties from secondary sales.
Soft rugs can be difficult to identify because there are cases where development slows down for non-scammy reasons, and teams who are working but not good at communicating what they’re doing.
And then there are also developers who simply give up. Strictly, this is perhaps not actually a scam, as they didn’t plan to walk out from the start. But on a practical level, the end result is the same.
Why are scams common?
As a newly expanding area, the NFT space is wide open to fraud, flakiness, and everything in between. There have been a ton of newcomers, pseudonymity is the norm, and FOMO has at times been sky high.
And besides actual scammers, there are some unreliable, inexperienced creators who aren’t initially dishonest but don’t anticipate what they’re committing to. There are no conventional business arrangements, and it’s hardly a surprise if some projects end up going nowhere.
How to avoid rugs
Research the team
If the team is doxxed, that’s a start, but don’t leave it at that. Check their socials and dig around as much as you can. If a project is promising things like high caliber gaming or a fashion line, then it should have a more corporate approach with verifiable credentials.
Away from the corporate projects, pseudonymity is common in the NFT space, but the point of a pseudonym is that it’s a persistent identity so you can still check track records and connections.
If creators and developers are well-connected in the NFT space and have produced good work before, then it doesn’t matter whether they’re pseudonymous or use real names. The priority is that they’re known and they check out.
Look at social media
With NFTs, this means Twitter and Discord. Make sure a project’s following is real and not bought. You can simply check for engagement, or you can use a Twitter auditing tool.
In Discord, you can see whether a project is engaged with its community. If the team is making promises, look for solid evidence suggesting they can deliver, watch out for grand plans that are unrealistic, and be wary of teams who react badly to fair questions.
Check the roadmap
This has become more difficult since there’s now a kind of standard offering, including some or all of: metaverse, merchandise, and tokens. Look at whether what’s offered is viable and actually ties in with the project, rather than being just generic space-filler.
Also–and this might sound counterintuitive–certain kinds of projects that don’t have any roadmap at all can be very trustworthy. This is in the case of skilled creators who are focused purely on producing art, meaning you’re simply buying into the artist and the quality of their work.
Look for liquidity
Find projects that have their NFTs spread around many owners, creating more liquidity. If there’s a low supply concentrated among a small number of whales, then they control prices and there’s nothing organic that you can get the measure of.
Be aware also that sketchy projects might trade their own NFTs between multiple wallets, to give the impression of activity and high prices.
Buy on secondary
The absolute surest way to avoid rug pulls is by avoiding mints altogether and buying from proven collections on secondary markets.
This is actually a good approach to NFTs anyway. There’s a misconception that to profit you must always be chasing whitelists, but this isn’t true. Prices on secondary rise and fall in waves that you can catch. And on top of that, there are collections that mint, do very little for a while, and then later get picked up on and rise in price.
On the whole, take your time, choose your mints carefully, and if in doubt then keep hold of your precious ETH. There will always be new opportunities around the corner.
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Lark and the Wealth Mastery Team
TCL Publishing ltd (director Lark Davis, owner of Wealth Mastery) is not providing you individually tailored investment advice. Nor is TCL Publishing registered to provide investment advice, is not a financial adviser, and is not a broker-dealer. The material provided is for educational purposes only. TCL Publishing is not responsible for any gains or losses that result from your cryptocurrency investments. Investing in cryptocurrency involves a high degree of risk and should be considered only by persons who can afford to sustain a loss of their entire investment. Investors should consult their financial adviser before investing in cryptocurrency.