23Bitcoin Is Coming Back, and That's Good News for the Market

Crypto Weekly

Bitcoin Is Coming Back, and That's Good News for the Market

Over the past week, the cryptocurrency market value has already been wiped out by $600 billion. Stocks haven't fared much better either. Dow Industrials ended their worst five-day stretch since mid-2020 on Wednesday. However, Bitcoin's pain may be the stock market's gain. Bitcoin lost more than a quarter of its value in the past week and fell to around $28,000 on Thursday – a far cry from the record high of over $68,000 reached just six months earlier.

Despite the decline in crypto outpacing the decline in stocks, Barry Bannister at Stifel believes that Bitcoin could act as a bellwether for capitulation among investors -- that point when the market can find a bottom. In a note, Bannister stated, "We monitor several factors which we believe will mark the capitulatory low for stocks. Among those factors is Bitcoin, a powerful speculative instrument, which we believe has downside potential of about $15,000."

Stifel predicts the S&P 500 will decline another 5% from Wednesday's close of 3,985 if Bitcoin falls another 50% to $15,000, wiping another $540 billion off its market cap. In the early hours of Thursday, futures were tracking the key index down 0.9%, which means we could be nearing a bottom of around 3,700.

"Bitcoin is late to the risk capitulation, and a washout, which we see coming for Bitcoin, helps time an equity low," Bannister said. Crypto markets have been pressured by multiple factors, including the failure of stablecoins, which tie their value to a real asset, usually the U.S. dollar. TerraUSD's devaluation from its peg pushed Bitcoin prices down during the past week. The third-largest crypto and the bedrock of the crypto economy, Tether, also slipped off its peg this week, signaling further stress in the digital asset market. However, Bitcoin has also shown a correlation with other risky investments, such as stocks, especially tech stocks, over the past year. Stock prices have fallen in the year 2022 due to a rising interest rate environment, inflation and recession worries, and significant disruptions to supply chains from the Russia-Ukraine war and Covid-19 lockdowns in China.

The Federal Reserve has already raised interest rates aggressively this year, and it is likely to keep doing so as inflation has reached a four-decade high. As part of tightening monetary policy, the central bank is also expected to reduce its bond holdings and shrink its balance sheet. Yet Bannister believes one of the factors in this year's stock market crash--interest-rate increases-have not affected Bitcoin enough.

"Equities thrive on excess liquidity, and a plummeting global M2 money supply (translated into dollars) negatively impacts the S&P 500, but more so Bitcoin," said Bannister. "Tighter financial conditions should sharply weaken Bitcoin as well, and we were surprised when Bitcoin had held $30,000 despite weak stock markets." The situation could deteriorate further.

Bannister said that the final capitulation in cryptos may not come until the third quarter of this year. Bitcoin has proved to be sensitive to gross domestic product economic data—and usually falls when the manufacturing purchasing managers index drops.

Stifel sees that happening into the third quarter of 2022, "indicating that a last, capitulatory Bitcoin drop may be still ahead."

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Building a Virtual Country in the Metaverse

Agroup of heavily armed security guards stands guard at the entrance to the Solana Hacker House one evening in early April near the South Beach Bitcoin conference, a relatively unoccupied part of Miami's Wynwood neighborhood. The security guards here aren't your typical ones. Their intensity is belied by the very benign scene behind the metal detectors - essentially a large group of nerds discussing blockchain development in an open-air event space, punctuated by Fun Dimension, a giant arcade. From the look of those guys, they hold a lot of crypto. One of those guys, co-founder, and CEO of Star Atlas, Michael Wagner, and his team have been building a massively multiplayer online (MMO) game based on the Solana blockchain since 2014. It was released in January. The Star Atlas project is highly ambitious and still in its early stages. The first module of the game allows players to play and purchase NFT assets.

It boasts graphics worthy of a Triple-A (highbudget) game and a sci-fi plot unfolding in 2620. On the newly discovered planet Iris, factions compete for valuable resources, using Atlas’s in-game currency to purchase virtual ships and items to fulfill their objectives and live their lives virtually online. Players use layers of hierarchical decentralized autonomous organizations (DAOs) to decide the game's governance through the meta-currency Polis. They mirror the structure of state and local governments, from the local to the regional to the top level. “We think of Star Atlas as a kind of independent nation-state,"

As in Axie Infinity, players can earn a living in Star Atlas through play-to-earn features. Another player may decide to become an Uber driver in space, shuttle players between planets in exchange for Atlas tokens, which can also be exchanged for fiat.

“There's a vibe and energy here that's supportive and conducive to building in crypto. We're building what amounts to a global country and a virtual economy for people to participate in this grandiose vision," Wagner admitted to Jessica Klein, who had been hired to interview him, "but there's real potential here." Wagner introduces himself to Jessica as a "huge advocate for Bitcoin," wearing red pants and a white Solana shirt covering his broad shoulders with a disarming smile. From another party city, Las Vegas, Wagner relocated to Miami - where he is building his career. Atlas’ co-founder Pablo Quiroga and its new head of growth, Estefan Ramirez

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Vazquez, have moved to Miami. "There is a lot of energy and vibe here to crypto development," he says. He estimates that the Solana Hacker House alone attracted between 1,000 and 5,000 people.

Wagner explains that Discord is essentially the company's headquarters. Although the company is global, it employs close to 200 people spread across 26 countries, from New Zealand to central Africa. Rust engineers are hard to find in any blockchain company, but Star Atlas hasn't had much of an issue finding them. Leadership receives emails from qualified engineers every day, Wagner says, and has thus far hired 45 engineers, the majority of whom engineer blockchain applications.

Mr. Wagner himself is not a software developer. Around their shared interest in gaming and computers, he and his high school friends formed a group called the LANarchists in the 1990s. Despite being really nerdy, he's proud of it (looking all grown up now that he's started working out regularly.) "I got into crypto through gaming and PC building," he told Jessica.

A guy from that group told Wagner about crypto and mining using graphics processors about a decade after high school. It had three GPUs inside a milk crate, and I remember looking at that and thinking, "I can do that." By 2015, Wagner had quit his "regular job" and switched to crypto full time. He founded his first company in 2016, Tokes, at the "intersection of crypto and cannabis," a timely complex nexus. Despite the legalization of cannabis in Nevada, it remained illegal on the federal level, which meant retail companies couldn't use traditional banking methods. Back then, providing the companies with a crypto token seemed like the perfect solution. Still, cryptocurrency was stigmatized after its association with Silk Road, and cannabis sales licenses in Nevada were limited. No one wanted to risk losing their licenses by accepting cryptocurrency.

He and his co-founders, Daniel and Jacob Floyd (now both at Star Atlas), opted to take a different route. Instead of going to cannabis retailers, they met with dozens of policymakers to eventually pass Assembly Bill 466. "We could create an in-state, private stable coin," However, that bill was passed shortly before COVID-19, so just as Tokes was gaining momentum, the team's work was put on hold. In addition to Blockchain gaming, Wagner and his team explored "DeFi" (decentralized finance) and NFTs (non-fungible tokens). In his view, DeFi is the first cryptocurrency gaming product. Wagner is an active yield farmer in DeFi and has seen the gamification in borrowing and moving funds to find the best spread. Wagner attributes much of the game's concept to Daniel Floyd, now Star Atlas' chief product officer. He crafted a plot around three interplanetary fighting factions: the alien-like Oni, the armored Uster, and the human-like Mud. Tokes, however, is still alive - active but "a little dormant," as Wagner puts it. Tokes is going to enter the Metaverse through a product that players can "use in the game," Wagner explains. In fact, Star Atlas intends to incorporate it into itself.

The likelihood and potential for people to consume their digital purchases through 3D immersive environments rather than by shopping on a 2D website is very high. “You log in via your avatar, maybe you're playing a game, perhaps you're hanging out with some friends, and while you're socializing, you're looking at your shopping list," he says. "Pay with digital currency, and the package gets delivered to your home. Nothing prevents this from happening."

The virtual store in Star Atlas is still a long way from being able to sell cannabis. There is a booth with several screens showing

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the company's high-quality animation in a different section of the Hacker House, past empanada trucks, and other "NFT Metaverse" exhibitors. This is the only demonstration the company has done so far.

Daniel Floyd's vision for the game looks like something from "Star Wars" or the videogame "Star Citizen," which influenced Floyd's design. Quiroga is hanging close to the screens, and he describes meeting Wagner in Las Vegas. While standing behind him in line at a coffee shop, Quiroga commented on Wagner's cycling keychain - he and Wagner are both cyclists, and during one of those rides, Wagner introduced him to the blockchain.

"I think it will not be out of line for me to say that Star Atlas is a flagship project being built on Solana," says Wagner) and brought on crypto exchange FTX as the game's onboarding partner. The idea to build the game on Solana came to Wagner through a podcast in which Sam Bankman-Fried talked about it. Star Atlas ultimately selected Solana since it's "highly scalable." This is vital because Wagner believes "gaming will bring the next billion users into crypto."

In addition, he points out that Solana provides complex systems with low transaction costs and limited lag time during gaming scenarios. Developing a Triple-A game on a blockchain will appeal to current gamers, crypto natives, and pay-toearn players in developing countries. Plus, Wagner and his team want the experience to be as immersive as possible - not just a fun escape but also a place where players can buy cannabis, govern their communities, and even have a virtual job to earn real money.

Wagner says, "all the happenings on the Internet today will be reproduced in these immersive three-dimensional digital worlds." The problems that exist in the real world can easily be translated into Star Atlas. Wagner speculates that Star Atlas assets may cost anywhere between $15 and massive ships that can be auctioned for $5 million or $10 million. Social stratification, in other words, will be affected in Star Atlas, but Wagner proposes a Web 3-based solution to it. "The idea of pooled capital is practically possible with smart contracts in a trustless fashion, and this is where crypto and Web3 come into play," he says. Even though none of this will solve social stratification, it can "enable people to collaborate more freely." Players could afford to buy expensive ships as a collective, and wealthy ship owners could employ other players.

Imagine a fictional sci-fi game where people have real jobs and can even hire Web3inclined musicians to host concerts that people can attend by holding the right digital tokens they have bought using fiat money. They can form DAOs to purchase ships or make political decisions that may profoundly impact their fortunes in real life. Wagner offers this: “As we sit in the snow globe of a Solana pop-up in the heart of a lonely section of Miami heavily guarded by security, none of whom we can see from our fake grass seats. It makes you wonder - is it a problem if people become too detached from their actual surroundings, too immersed in a false reality to the point where the line between what's real and what's fake blurs?” Wagner says, "It's a step in the process of getting people into this new world." But Wagner isn't concerned. "Creating a place for people to escape is probably beneficial." "If you ask Elon Musk, there is a very high probability that tomorrow will be 100 years in the future."