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First Mover Asia: How Inaccurate Data Misled Investors to See Massive Outflows From This Crypto Exchange; BTC Holds Steady Over $20K

·8 min read

Good morning. Here’s what’s happening:

Prices: Bitcoin holds above $20K; ether climbs late Wednesday.

Insights: Inaccurate data led investors to believe that crypto exchange KuCoin's holdings were smaller than expected, according to KuCoin CEO Johnny Lyu.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

Prices

Bitcoin (BTC): $20,576 +2%

Ether (ETH): $1,194 +5.5%

Biggest Gainers

Asset

Ticker

Returns

DACS Sector

Avalanche

AVAX

+5.6%

Smart Contract Platform

Ethereum

ETH

+4.3%

Smart Contract Platform

Solana

SOL

+4.3%

Smart Contract Platform

Biggest Losers

Asset

Ticker

Returns

DACS Sector

Terra

LUNA

−5.7%

Smart Contract Platform

Cosmos

ATOM

−1.4%

Smart Contract Platform

Bitcoin Holds Above $20K; Ether Climbs Late on Wednesday

Bitcoin rested above $20,000 for a third consecutive day.

The largest cryptocurrency by market capitalization was recently trading at about $20,600, up better than a percentage point. Bitcoin had plunged below the psychologically important barrier last week before a late weekend rally. Many analysts have adopted a clear-eyed view of the current crypto climate that has suffered the dual body blows of protocol fiascos and macroeconomic uncertainty. They do not see prices rising any time soon, barring an unexpected turn for the better in the ongoing battle with inflation.

"You're seeing carnage out there," said David Nage, portfolio manager for asset management firm Arca, on CoinDesk TV's "First Mover" program. "You're seeing Celsius. You're seeing Voyager. You're seeing BlockFi. You're seeing a number of different headlines come in over the last few months."

Yet, Nage also viewed positively bitcoin's ability for much of the past month to remain in its current $18,000-$20,000 range. "Bitcoin has held steady around this trading pattern," he said, adding: "We talk about digital assets as a durational effect in terms of things that are going to happen and change with society and our economic systems. Bitcoin is definitely a part of that."

Ether, the second-largest crypto by market cap, was recently trading at roughly $1,190, up more than 5%. Other major cryptos also traded slightly higher with STORJ rising nearly 6% at one point and RUNE climbing more than 5%. Troubled crypto lenders CEL token dropped over 8%.

Equity markets rise slightly

Cryptos tracked major equity markets as they've done far more frequently than not in recent months, with the tech-focused Nasdaq, S&P 500 and Dow Jones Industrial Average all up, albeit ever so slightly. Investors who have been concerned about the U.S. central bank's efforts to tame inflation may have drawn some encouragement from the release of minutes of the Federal Reserve's June meeting indicating a firm commitment to its current, hawkish monetary policy. U.S. Labor Department figures released Wednesday morning showed strong hiring in May, a sign that the economy has not been cooling sufficiently to stem inflationary pressure.

Crypto industry news centered on Voyager Digital's Chapter 11 bankruptcy filing Tuesday, which will allow the firm to reorganize with the intent of paying back at least some of its creditors. Voyager Digital followed by just a few days a bankruptcy filing by crypto hedge fund Three Arrows Capital, which filed for chapter 15 protection tied to an ongoing liquidation effort ordered by a court in the British Virgin Islands.

Toronto-based Voyager estimated that it had more than 100,000 creditors and somewhere between $1 billion and $10 billion in assets. The firm recorded the same range for its liabilities and faces delisting by the Toronto Stock Exchange. Crypto lender CoinLoan and crypto futures exchange CoinFLEX have limited and halted withdrawals, respectively in recent days.

"Healthy markets here"

Arca's Nage noted optimistically "some normalization..., some healthy markets here" in recent funding for digital asset projects. "If you want to call it a crypto winter, whatever you want to call it, if we looked at the venture and private side, what we're seeing is really healthy activity from the private markets," he said.

He added regarding the broader outlook for the industry: "We continue to get a few more these shots to the solar plexus, sentiment will probably reach its slowest peek and then we'll probably rebound. But it's going to be a long time. From a private markets perspective, we're telling our founders, really be prepared for more than two years, 36 months actually."

Markets

S&P 500: 3,845 +0.3%

DJIA: 31,037 +0.2%

Nasdaq: 11,361 +0.3%

Gold: $1,739 -1.44%

Insights

KuCoin Held More Bitcoin Than Initial Data Feeds Indicated, Says CEO

Contagion risks emerged in the crypto market after May’s implosion of terraUSD (UST), an algorithmic stablecoin that tracked the U.S. dollar. Three Arrows Capital, or 3AC, a prominent crypto fund, took on “heavy losses” on its UST position, which alongside poor market conditions, contributed to the firm’s collateral requirements going topsy-turvy and several loans turning into bad debts.

The company held funds from firms that included crypto lenders Voyager, BlockFi and Celsius. These funds’ 3AC exposure has led to Voyager filing for bankruptcy, BlockFi reaching a deal for its sale to crypto exchange FTX US, and Celsius turning to investment banking giant Goldman Sachs (GS) to lead a $2 billion raise for its distressed assets.

The fallout has ignited tensions throughout the crypto community with many observers questioning prominent exchanges’ and wallets’ liquidity. KuCoin, a popular crypto exchange based in Seychelles with a large Asian presence, is among the firms swept up in the industry-wide crisis.

Crypto Twitter last week claimed KuCoin was likely insolvent, with some talking heads urging users to withdraw their funds out of the exchange. This led to outflows, with some users pointing out – wrongly, as it turned out – that KuCoin’s 14 hot wallets had drained from over $1.8 billion to just $10 million within a day. (The tweet was later corrected.)

KuCoin founder and CEO Johnny Lyu, however, explained that inaccurate data feeds and mislabeled, on-chain wallets propagated rumors last week that led to the outflows.

“Most on-chain tracking tools can't present the exact balance of exchanges because many exchange addresses are not labeled on the blockchain,” Lyu told CoinDesk in a Telegram chat. “As a result, many online tracking tools, including Glassnode, miscalculated the balance of KuCoin (and maybe other exchanges too).”

Lyu said corrected data provided to Glassnode and others now accurately displays the exchange’s bitcoin holdings of between 15,000 and 20,000 bitcoins, not the few thousand the old data indicated.

Lyu added that not all exchange addresses were tagged on popular blockchain scanning tools, which also contributed to user worries.

“It's also worth noting that some KuCoin addresses are still not labeled on the blockchain, so this amount tends to be not taken into account by many statistical algorithms and tracking tools,” Lyu said.

“Due to a part of KuCoin wallets not being labeled on the blockchain, a big piece of data remains unaccounted for.”

Glassnode has not responded to CoinDesk's request for comment.

Important events

1 p.m. HKT/SGT(5 a.m. UTC): Japan economic survey (current/outlook)

7:55 p.m. HKT/SGT (11:55 a.m. UTC): European Central Bank President Christine Lagarde speech

8:30 p.m. HKT/SGT(12:30 p.m. UTC): U.S. labor force participation rate (June)

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Voyager Bankruptcy, Fundstrat Strategist on 3AC ‘Ponzi Scheme,’ Bitcoin Above $20K

FSInsight is accusing Three Arrows Capital of running a "Madoff-Style Ponzi Scheme." Fundstrat Global Advisors head of digital asset strategy Sean Farrell shared his findings. Plus, David Nage of Arca provided crypto markets analysis and Nansen research analyst Daniel Khoo discussed the depegging of staked ETH.

Headlines

Voyager Seeks Bankruptcy Protection Amid Crypto Credit Crisis: The Toronto-based lender filed for Chapter 11 bankruptcy in New York late Tuesday.

Binance Extends Zero-Fee Bitcoin Trading Globally: The crypto exchange is rolling out a program that started in the U.S. last month to its global client base.

Celsius Repays $183M on DeFi Exchange Maker, Gets Back Collateral, Blockchain Data Shows: The troubled crypto lender paid down $183 million of its debt to the decentralized exchange Maker, blockchain data shows, possibly in a bid to recover bitcoin-linked collateral that otherwise would remain trapped.

Solana-Based Chingari Tokens Plunge 87%, Developers Flag Big Sell Order: The team denies rumors of an exploit or insider trading.

Binance Resumes Local Currency Deposits with Brazilian Payment System Pix: Withdrawals should be resumed “shortly,” said the company, which had suspended that feature on June 17.

Longer reads

The Crypto CEO Who Doesn't Want the Job: The Mask Network's Suji Yan is building and funding Web3, and hoping it decentralizes away his role.

Other voices: How Wall Street Escaped the Crypto Meltdown (The New York Times)

Said and heard

"Customers with crypto in their account(s) will receive in exchange a combination of the crypto in their account(s), proceeds from the [Three Arrows] recovery, common shares in the newly reorganized Company, and Voyager tokens." (Voyager Digital CEO Stephen Ehrlich) ... "With deep regret I am resigning from the government. I will not be doing media interviews regarding this." (U.K. Minister and Economic Secretary to the Treasury John Glen/Twitter)