The Weekly Axis - Nov. 25, 2023

In a short holiday week here in the US, the big news in crypto was from Binance, which gave us some interesting price action. Other tokens have been flying, and we have a Deep Dive on token values.

We’ll hit a couple of these here, with more explanations, analysis, and discussion on the site

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CZ Steps Down: Binance's Money Laundering Fiasco

Changpeng Zhao - AKA CZ - the CEO of Binance, has stepped down amid some serious legal entanglements with the U.S. government. Binance, as you know, is a titan in the crypto exchange world, and this development might have significant implications for the industry.

First, let's acknowledge the role Binance has played in global crypto adoption. Since its inception in 2017, Binance has been instrumental in bringing crypto to the masses, with millions of users worldwide. The charges against CZ and Binance primarily stem from inadequate KYC/AML processes, rather than outright criminal activities. This highlights a common challenge in the crypto space: balancing rapid innovation and growth with regulatory compliance.

For financial advisors, this scenario underscores the importance of staying updated on compliance and regulatory developments in crypto. Your clients may have questions or concerns about the security and legality of their crypto investments, especially in light of such high-profile legal cases. It's crucial to guide them through these complexities and reassure them about the measures taken by platforms and regulators to protect investors.

Now, looking at the bright side, CZ's shift away from Binance's leadership could actually benefit the industry. Freed from the burdens of legal battles, he's likely to invest more in DeFi projects, potentially driving innovation and growth in this sector. Binance, having settled its legal issues, can focus more on its global operations without the shadow of ongoing U.S. legal challenges.

This development contrasts starkly with other recent crypto crises (like FTX, Celsius, Voyager), which involved asset liquidations and significant market impacts. Binance's situation is different – they've got the resources to pay the fines without needing to liquidate assets, which is a positive for market stability.

As advisors, it's important to communicate to clients that the crypto world is maturing, with clearer regulations and stronger compliance norms emerging. This evolution could lead to a more stable and trustworthy environment for crypto investments.

In conclusion, while CZ stepping down is a significant event, it's not necessarily a negative one for the crypto industry. It might just signal a new phase of growth and maturity, with enhanced focus on regulatory compliance and innovation. Keep an eye on how this unfolds and use these insights to inform your clients and shape your advisory strategies in the ever-evolving world of crypto.

Will the Developing World Skip TradFi and go Straight to DeFi?

Picture this: a world where the internet revolution bypassed desktops and laptops, and instead, people embraced the digital realm through mobile phones and apps. Well, believe it or not, this scenario actually played out in countries like India and various nations in Africa. They skipped the traditional route and went straight to mobile internet access.

Now, let's draw a parallel to the world of crypto, blockchain technology, and decentralized finance. As the global middle class expands and more individuals seek opportunities to invest and grow their money, they are witnessing the power of the internet and its impact on the financial system. They see others participating in the global economy, moving their assets, and exploring lending and borrowing options.

Here's the kicker: just like they skipped over traditional banks and financial services, these individuals are likely to leapfrog into the world of crypto and blockchain. They'll embrace the convenience of mobile apps that allow them to easily participate, earn money digitally, and invest in stable coins. And why not? They've already been earning and communicating digitally, so it's a natural progression.

Now, what does this mean for you, financial professionals? Well, it means that the financial system is evolving, and you need to be prepared. As more and more people shift towards decentralized finance, you'll need to understand how to navigate this new landscape. You'll need to grasp concepts like custody and wallets, familiarize yourself with different DeFi protocols, and leverage the transparency that blockchain offers.

The shift may bring more users and more money into the blockchain-based ecosystem, which will likely bring more apps and use cases for the casual user, rather than focusing on the crypto power users. The increased adoption could lead to higher crypto asset prices as well (as discussed in last week’s Ethereum Investment Thesis).

So, keep your finger on the pulse of this evolving landscape. As more individuals embrace crypto and blockchain rails, we can expect increased demand for Layer 1 tokens like Bitcoin, ETH, and Solana. Prices may rise as these tokens become essential for processing transactions and securing block space.

In conclusion, the world is changing, and the financial system is evolving. Embrace the potential of decentralized finance, stay informed, and be ready to adapt. The future is knocking, and it's time to answer the call.

So, let's break it down. Each crypto token represents a project, protocol, or infrastructure within the crypto ecosystem. Take Bitcoin, for example. Its value is influenced by factors like increasing adoption, decentralization, and global transactions. By evaluating these aspects, you can gauge the potential value of Bitcoin and how it may accrue over time.

But here's the thing: not all crypto assets follow the same valuation techniques. Each token has its own unique characteristics and factors to consider. Let's look at Ethereum, for instance. Its value is tied to the adoption of the Ethereum network, which is being embraced by major players like BlackRock and Visa. As more companies utilize the network, the demand for Ether (ETH) increases. Additionally, understanding the issuance policy of the token, such as how many tokens exist and who holds them, is crucial in determining its value.

Now, let's talk about some other tokens like Filecoin, Chainlink, and Solana. Filecoin focuses on data storage, while Chainlink offers cross-chain interoperability, and Solana is a fast smart contract chain. Each token's value is influenced by factors specific to its project and protocol. For example, with Filecoin, you'd want to assess its potential to replace traditional data storage services like Amazon Web Services. Evaluating adoption, issuance policies, and token utility are key in understanding their value.

As financial professionals, it's important to recognize that not all crypto assets move in sync. Each token requires a case-by-case analysis, just like publicly traded companies. You'll need to consider factors like revenue potential, expenses, and growth projections. The metrics may differ, but the principles remain the same.

So, how does this affect you as a financial advisor? Well, it opens up a whole new world of investment opportunities. By understanding the value of different crypto assets, you can identify potential growth areas for your clients' portfolios. It's about staying informed, keeping an eye on adoption trends, and evaluating the fundamentals of each token.

Hope you had a fantastic Thanksgiving weekend

— Adam