The Protocol Newsletter: Analyzing Recent Cryptocurrency Market Turmoil

The Protocol Newsletter: Insights on Blockchain and Crypto Markets

Welcome to The Protocol newsletter, where our primary focus is on the evolving world of blockchain technology. Although we typically steer clear of delving deeply into the volatile realm of crypto markets, the recent upheaval compels us to address it. This past week has served as a stark reminder for founders and developers about how fluctuating prices can significantly impact the fortunes of the industry. Read on for a comprehensive overview.

Network News

Bitcoin’s price (illustrated here as a series of fluctuating red and green candles) is now nearing the convergence of its 50-day and 200-day simple moving averages, a situation often referred to as a “death cross.” (Omkar Godbole/CoinDesk/TradingView)

DEATH CROSS!

The cryptocurrency markets faced one of the most significant sell-offs in recent history, with Bitcoin (BTC) plummeting from $70,000 to $50,000 within a week. This dramatic decline has cast a shadow over an industry that had recently been buoyed by optimism. Despite a slight recovery in prices on Tuesday and Wednesday, every cryptocurrency in the benchmark CoinDesk 20 index remains in the red, with Ethereum (ETH) experiencing its largest single-day drop since May 2021. The widely referenced Fear and Greed Index for the crypto market has shifted from “greed” to “extreme fear,” and Bitcoin’s price chart is forming a concerning pattern known as the “death cross,” as noted by CoinDesk’s Omkar Godbole.

Currently, many experts view this downturn as a temporary market blip. (Interestingly, memecoins seem to be making a comeback.) The pressing question is whether this turbulence will reignite the existential anxieties that founders, developers, and project employees faced as recently as late last year.

Various macroeconomic and crypto-specific factors have been identified as triggers for the recent sell-off: speculation over rising Japanese interest rates (which have since been retracted), a disappointing U.S. jobs report, escalating tensions in the Middle East, underwhelming earnings from tech companies, a cooling AI hype, aggressive selling by bitcoin miners, and rumors that market maker Jump Trading might be liquidating ETH due to regulatory pressures. The culmination of these factors resulted in approximately $1 billion in liquidations within crypto futures markets, along with $350 million in decentralized finance (DeFi) liquidations.

As is often the case during turbulent times, some players managed to capitalize on the situation, with opportunists attempting to buy the dip or share encouraging messages. Interestingly, large Bitcoin holders, known as whales, increased their holdings during this market storm, while smaller investors appeared shaken and reduced their investments, as reported by CoinDesk’s Krisztian Sandor based on data from blockchain analytics firm IntoTheBlock. Bitcoin exchange-traded funds (ETFs) held up relatively well, with only $168 million in net outflows on Monday, significantly lower than the “couple billion” that Bloomberg Intelligence senior ETF analyst Eric Balchunas anticipated. Notably, Ethereum ETFs even recorded net inflows.

In a fascinating twist, an address linked to the notorious $200 million Nomad cross-chain bridge exploit from 2022 reportedly re-entered the market, acquiring approximately $40 million in stablecoins to purchase ETH at significantly reduced prices, as reported by The Defiant. Tron founder Justin Sun took to X to announce the creation of a $1 billion fund aimed at combating “FUD,” an acronym for “fear, uncertainty, and doubt.” It is worth noting that DeFi platforms managed to continue their operations throughout this chaotic period, efficiently processing liquidations of crypto collateral, with the lending protocol Aave reportedly generating an impressive $6 million in fee revenue.

Sean Farrell, a crypto analyst at FundStrat, expressed optimism regarding the market bounce, stating that while he was “encouraged” by the resilience shown, it would be prudent to retain some liquidity in case of further fluctuations in the upcoming weeks.

This T-shirt, purchased at Goodwill a couple of years ago for $3.99, has an ambiguous original meaning, but for me, it represents a cheeky interpretation of “Buy the Freaking Dip.” (Bradley Keoun)

RONIN RUN-IN:

It has been merely two years since the Ronin Network made headlines by enduring a staggering $625 million exploit, marking one of the largest attacks in the history of decentralized finance (DeFi), an area frequently plagued by security breaches. This incident profoundly impacted Ronin, which is an Ethereum-compatible blockchain tailored for gaming and developed by Sky Mavis, the creators of Axie Infinity. As a result, the project has updated its protocols to emphasize security, stating, “This incident led Sky Mavis to become a fully antifragile, zero-trust organization. Sky Mavis has implemented rigorous internal security measures to prevent future attacks. All code has been fully reviewed and optimized, with security experts auditing the entire architecture.”

However, on Monday, Ronin announced via X that an upgrade to its bridge had inadvertently created a vulnerability, allowing hackers to abscond with approximately $12 million in ETH and USDC. Co-founder Aleksander Larsen reassured users that around $850 million of funds were secure on the project’s bridge. It was later revealed that the hackers might belong to the “white hat” category, often returning stolen funds for a reward. The official Ronin account highlighted that the amount of ETH and USDC withdrawn in a single transaction represented the “maximum amount” that could be extracted, indicating that the bridge’s withdrawal limits served as a vital security measure to prevent further damage during this exploit. A detailed post-mortem is anticipated in the coming week.

Elsewhere:
Protocol Village

Here are the top highlights from our Protocol Village column, showcasing significant upgrades and news in blockchain technology from the past week.

• Mysticeti: This consensus protocol, based on directed acyclic graphs (DAG), has successfully reduced consensus latency to 390 milliseconds, establishing Sui as the fastest consensus layer in the industry, now live on the Sui mainnet following a successful testnet phase.
• Polyhedra Network: This team has launched a new platform called “Proof Arena,” designed to allow creators of zero-knowledge (ZK) proof systems to scientifically compare their systems while ensuring all variables remain constant. Initially, benchmarks will be generated for Polyhedra’s own “Expander” ZK-proof system, and others.
• Injective: Stakers on the Injective blockchain have approved the “Altaris Mainnet Upgrade Proposal,” known as “IIP-420.” This major update aims to enhance user experience across trading, staking, and development, introducing several new features, including advanced oracle systems.
• Transak: A Web3 payments infrastructure provider, has officially introduced wire transfers as a new payment method for U.S. users, a complex process that required extensive product development to ensure a seamless user experience.
• Succinct: This platform has released SP1 1.0, a production-ready version of their zkVM, which enables builders to create real-world ZK proofs with Rust while providing significant improvements in performance and cost. Succinct is now trusted by major players like Polygon and Celestia.

Money Center
Fundraisings

Check out a video walkthrough of “Duper,” a game developed on the Arbitrum One blockchain by the on-chain gaming studio Curio.

Deals and Grants

Arthur Hayes’s post on the ‘Airheads’ Bitcoin Ordinals collection has generated significant interest.

Data and Tokens
Regulatory and Policy

Calendar

• Aug. 6-8: Asia Blockchain Summit, Taipei.
• Aug. 7-9: Science of Blockchain Conference, New York.
• Aug. 19-21: Web3 Summit, Berlin.
• Sept. 1-7: Korea Blockchain Week, Seoul.
• Sept. 12-13: Global Blockchain Congress, Southeast Asia Edition, Singapore.
• Sept. 18-19: Token2049 Singapore.
• Sept. 19-21: Solana Breakpoint, Singapore.
• Sept. 25-26: European Blockchain Convention, Barcelona.
• Sept. 30-Oct. 2: Messari Mainnet, New York.
• Oct. 9-11: Permissionless, Salt Lake City.
• Oct. 9-10: Bitcoin Amsterdam.
• Oct. 10-12: Bitcoin++ mints ecash, Berlin.
• Oct. 15-17: Meridian, London.
• Oct. 18-19: Pacific Bitcoin Festival, Los Angeles.
• Oct. 21-22: Cosmoverse, Dubai.
• Oct. 23-24: Cardano Summit, Dubai.
• Oct. 25-26: Plan B Forum, Lugano.
• Oct. 30-31: Chainlink SmartCon, Hong Kong.
• Nov. 10: OP_NEXT Bitcoin scaling conference, Boston.
• Nov 12-14: Devcon 7, Bangkok.
• Nov. 15-16: Adopting Bitcoin, San Salvador, El Salvador.
• Nov. 20-21: North American Blockchain Summit, Dallas.
• Feb. 19-20, 2025: ConsensusHK, Hong Kong.
• May 14-16: Consensus, Toronto.
• May 27-29: Bitcoin 2025, Las Vegas.