Crypto Week: Another Attack and Big Hopes

Polkadot’s DeFi protocol Acala has suffered greatly after coming under attack. Hackers minted 1.2 billion aUSD native stablecoins, causing a drop of 98%. The Acala team is struggling to eliminate Depeg problems, but the situation remains unstable.

Inglorious Tornado Cash, that helps obfuscate the origins and destinations of cryptocurrency transactions making them hardly traceable, has been blacklisted by the U.S. Treasury. It is an open-source software based on Ethereum blockchain, and not the company. Although it is not a company, Tornado Cash’s unnamed developer was detained in Amsterdam. “Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” said Treasury Undersecretary Brian Nelson. He promised to “aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them”. Many crypto players along with traditional companies like Microsoft supported sanctions. All accounts in USDC related to the mixer were blocked. The Infura platform, that host many Ethereum-based applications, blocked its API  for Tornado Cash users. AAVE blocked all accounts that was associated with Tornado Cash apparently blocking the wallets of cyber security expert Anthony Sassano and the founder of the Tron Justin Sun. The reasons for blocking accounts were cited as unknown spam mailings sending 0.1 ETH from one of the Tornado Cash deposits.

All these sanctions together with the support from DeFi projects raise many questions, including whether governments can sanction open-source software and sanction individuals who used it. But the major fact is clear – the decentralization and apartness of cryptocurrency projects is a myth while regulatory risks are extremely high.

Bitcoin continues to rebound following the Nasdaq 100 index which has posted new highs not seen since May. A temporary break of the digital asset’s  downside trend occurred as forced sales from distressed project like 3AC, NEXO and other insolvencies have ceased. Consumer prices in the United States slowed down in July and this eased pressure on risky assets, including stocks and cryptos.

Market wisdom says you should never try to outperform the Federal Reserve (Fed). When the monetary watchdog raises interest rates it is better to switch on the defense mode, while in cases when rates are lowered, more aggressive tactics should be used. The Fed is withdrawing liquidity from the market now and is raising interest rates to slow down lending and decrease money supply. However, this cannot last long as the U.S. public debt is at 125% of the GDP. Nobody can ignore this fact, not even the Fed.

So, there are only a few ways to deal with it: raise taxes and cut spending, or to devalue the Dollar, which is less painful for the economy. So, any asset that could provide shelter from the U.S. Dollar depreciation would be in great demand. Bitcoin may have chances to become one of these assets in time.