GM Seedphrasers 👋 Tell your friends to tell their friends, we’re your crypto crystal ball because we see the future better then we see the past.

📓 Today’s Agenda:

• 🔥 Hot Headlines

• 🗓 The 3-Month Summary

• 🔮 A Crystal Ball Reading

• 🪧 Arbitrum In Hot Water

📉 Crypto & The Markets:

• Allbridge is hacked for $570k - Take a look

• Bittrex Exchange is winding down U.S. operations - Read more

• Hong Kong’s Crypto Ambitions Get a Boost From U.S. Crackdown - Read more

🖼️ NFTs:

• Pudgy Penguins toys soft launch internationally - Check it out!

• Daniel Alegre Takes Over as Yuga Labs CEO - Learn more

• NBC Sports is bringing a Virtual Kentucky Derby - Check it out

• Nakamigos floor surges past 0.5 ETH - See more!

• Zeneca teases a new partnership that he’ll announce at 10:30 AM EST - Take a look

🖼️ AI:

• Slide deck gurus are being replaced by AI - Watch this!

• AI experts disown Musk-backed campaign citing their research - Take a look

🗓 The 3-Month Summary

We’re officially through the first quarter of 2023...to say this quarter was jam-packed would be an understatement. So here’s our three defining moments so far.

1️⃣ The ‘S’ banks go down

It was a bad time to have your money at a bank that started with the letter ‘S’. Silvergate, Silicon Valley Bank, and Signature Bank all collapsed. These weren’t small banks either:

What happened: The business plan of banks can be simplified into 4 words: “borrow short, lend long”. This means most of the money a bank receives from depositors is used to buy long term debt, typically from the US government.

The interest rate on that debt has been extremely low, so some banks decided to buy longer term bonds in order to get a slightly higher rate. But, when the Fed started raising rates, those bonds became less valuable.

On top of that, the economy took a turn for the worst and start-ups were burning through cash. They needed to get more money out of the banks. One big problem, the banks didn’t have their money. It was tied up in long term bonds.

Econ 101: This is confusing. Let’s go through an example:

• Seedphrase Bank buys a 10-year bond for $1,000 with an interest rate of 2%

• Time passes and interest rates are now 5%

• The same bond we paid 1,000 for is now worth less because the market would rather buy the 5% interest rate bond

• Customers need their money so banks are forced to sell their bonds for 80 cents on the dollar

This is fine if there’s a small number of customers that want their money back, but if everyone does this, then you have a bank run. And that’s exactly what we had.

Why it matters: These banks were all crypto-friendly banks. Believe it or not, most crypto start-ups can’t get an account at just any bank. There is a lot of regulation around the types of customers a bank can work with, and rather than go through all the red tape, many banks decide it’s easier to just not offer services to crypto companies.

Now we have all of these crypto companies that don’t have a way to pay employees, make rent, etc. This was the scariest part and it’s the reason why we saw USDC temporarily drop to $0.87.

2️⃣ US regulators make a statement

As if the banking crisis wasn’t enough, the first quarter saw a long list of regulatory actions against crypto companies:

• SEC issues Coinbase a Wells notice

• CFTC charges Binance with “willful Evasion of Federal Law and Operating an Illegal Digital Asset Derivatives Exchange”

• SEC forced Kraken to shut down their crypto staking program

• SEC charges Justin Sun (founder of Tron) for fraud and securities violations

• SEC sues Paxos for selling BUSD as an unregistered security

Wow…the SEC had a busy few months. One common thread to pull from all these headlines is the uncertainty around whether crypto is a security. Not even the CFTC and SEC can agree:

Many companies are willing and able to comply with regulations but without knowing who’s in charge, it’s tough to follow the “right” rules.

In spite of all the negative headlines, we did have some big winners this quarter…

3️⃣ Bitcoin is still king

Bitcoin was the star student in Q1. Paid attention in class, got good grades, and acted as the store of value we know it to be.

This bitcoin dominance chart breaks down bitcoin compared to the total market cap of all of crypto. As you can see, it was up only this quarter, reaching a new local high of 46% which we haven’t seen since June 2022.

On top of all that, Bitcoin NFTs (called Ordinals) gained massive popularity this quarter. This sparked a debate in the core bitcoin community about whether the bitcoin network should be used for non-payment transactions. For now, it looks like Ordinals are here to stay.

Of course, crypto is more than just bitcoin. Let’s compare the top 10 coins by market cap on 1/1/23 to 3/31/23:

Highlights:

• BTC up 72% 📈

• ETH up 52% 📈

• USDC market cap decreases 36% 📉

• SOL back in the top 10 by market cap 📈

• Blur and Arbitrum airdrop tokens to their community 🤯

• Total crypto market cap up from $800B to $1.12T 📈

Takeaway: Overall, most coins were up big in the first quarter of 2023. With fears surrounding the stability of the banking system, bitcoin and the rest of crypto have proven to be a strong alternative that people can count on in uncertain times.

Let’s end our look back at the first quarter of 2023 with a poem:

In Q1 of 2023, the crypto world did soar, New records were broken like never before,

Bitcoin led the charge with its steady climb, As investors flocked in, one at a time.

Ethereum held strong with its smart contract ways, While altcoins thrived in the sun's golden rays,

NFTs continued their rise to the top, And DeFi grew stronger, it just wouldn't stop.

But with all the highs, there were lows to behold, As regulations tightened, and scams took their toll,

The market saw dips, and corrections took place, But the crypto world held on, with its usual grace.

So Q1 of 2023, a chapter now closed, With memories made, and stories composed,

But the future's still bright, with much left to see, As the crypto world continues its journey to be.

Reply back with a better one for a surprise.

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🔮 CRYSTAL BALL

We don’t just live in the past at Seedphrase, we keep you posted on what to look out for in the future too. Here are the biggest headlines to look out for in Q2 2023 👀

• Ethereum Shanghai upgrade scheduled for 4/12/23

• zkEVM and zk-rollups stay hot

• BAYC ‘Journey to Evo2’ begins in May

• Bitcoin Ordinals can continue to grow with new infrastructure built out

🪧 Arbitrum In Hot Water

Just over two weeks after the Arbitrum airdrop we have our first alleged scandal with the team.

What’s going on: Each $ARB token represents a vote in the Arbitrum foundation ecosystem. For each proposal, a majority of votes is required to pass the proposal. Makes sense, nothing crazy here.

Well, the first proposal went up for vote (AIP-1). The vote was for 750M ARB tokens to be allocated for administrative and operational costs. For whatever reason, the community decided to vote against the proposal. Well, that’s the way a DAO works and you have to live with the results of the vote.

So what happened? Well, it turns out the Arbitrum foundation said the vote was just a formality and they have already spent 50.5M ARB tokens! What was the purpose of the vote?!

The team made a statement that the vote was a “ratification and not a request”.

That’s a bad look for a team in a moment where all eyes are on them! Here’s a link to the full statement from Arbitrum.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.