Crypto Corner: From the Observatory - Mine Digital
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Crypto Corner: From the Observatory

July 13, 2021 • 
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Crypto Corner

Market Recap

June was a busy month in the cryptocurrency market, but you wouldn’t have been able to tell by looking at the charts. Price-wise, Bitcoin and Ethereum have been range-bound between $30,000 – $40,000 and $1700 – $2600, putting in a number of bull and bear traps throughout the month. As of this writing, prices have gravitated towards the middle of the range and although it feels to us as if there will be a resolution to this sideways action relatively soon, it’s anyone’s guess as to which way next and it may be driven by cues taken from the broader traditional markets (e.g., Equities, Bonds & the USD). Despite the relatively lackluster performance in the “blue-chips,” the DeFi sector bucked the trend with a huge outperformance. Granted, the sector had been disproportionately cooling off after a massive run prior, it does show where investors are looking when the market is searching for clarity. 

There are a number of forces tugging investor sentiment to and fro which we will outline more closely. Perhaps the most important for short-term prices are regulatory pressures arising from China and key regulatory bodies such as the FCA in the UK and the CTFC in the USA. In general, regulation is a double-edged sword. Regulation that provides more robustness and confidence in the market structure, especially with regard to consumer protection, is clearly a positive. However, the short-term pain that arises from the uncertainty (how far will the regulation go?) can cause sudden and unforeseen impacts on price as market participants digest and reposition. 

The biggest news this month was China’s absolute crackdown on cryptocurrency trading and mining resulting in a mass migration of mining equipment and a halving in Bitcoin’s hash rate to levels not seen since over a year ago. Some see the mass exodus of Chinese miners as a positive, noting that their dominant influence on mining was a potential black swan waiting to happen. Others suggest that it was just the regime’s heavy hand preparing the country for the introduction of the digital Yuan. Whatever the case may be, it will be interesting to watch where the miners go. China also followed through with its threat against companies engaged in providing services to the cryptocurrency industry with them ordering a shutdown of a software provider suspected of supporting cryptocurrency transactions. It has become quite clear that China doesn’t like the idea of a global, decentralized public ledger (unless it’s theirs). Their loss! The good news is, this may be the last of the “China FUD” we ever have to endure. 

Binance has also been in the headlines recently, undergoing a flurry of de-banking (Barclays, Silvergate, Santander, and even the European payment rail SEPA) and regulatory scrutiny. If you do have funds on Binance, caution would be advised as it appears the exchange is in for a difficult time ahead. We won’t read into it too much, but it is interesting that their CFO Wei Zhou recently resigned as well.

Now on to the good news (of which there is plenty)! Last month saw El Salvador officially announce Bitcoin as legal tender. Their plan involves utilizing the wallet infrastructure hosted by Strike and Bitcoin’s Lightning Network 2nd layer solution. The president even went so far as to hint at mining Bitcoin with excess energy generated from their deep geothermal plants (although this was said off-the-cuff). It will be the most interesting experiment ever undertaken with regard to the real-world adoption of Bitcoin and we hope that everything works out for them. Neighboring countries have been watching closely with Paraguay mirroring the movement and Mexican lawmakers announcing that they too are going to take steps at introducing laws to make the country more cryptocurrency-friendly. 

Traditional corporates are champing at the bit to get exposure to cryptocurrency and maybe none more so than German funds, with a law recently passing in Germany, called “The New Fund Location Act (Fondsstandortgesetz) which allows 4,000 existing special funds (as well as new special funds) to invest up to 20% on cryptocurrencies. This equates to as much as €350 billion that can enter the market (Bitcoin’s market cap €536 billion for reference). Interestingly, as this law was an implementation of a European Union directive, this may indicate that it could eventually go Europe-wide. We also saw Michael Saylor’s MicroStrategy offer up to $1bn in common equity to purchase more BTC (previously they had raised funds via secured & unsecured debt offerings to do this) so it appears nothing will stop the Bitcoin bull on his warpath to own all the Bitcoins in the world (he currently owns 105,085 as of June 26th). 

On the tech side, Ethereum is set to undergo perhaps the most exciting upgrade in some time around August 4th known as the London upgrade. This upgrade is set to make gas prices (transaction fees) more predictable and as an added bonus, will see some of the transaction fees per block burned which will have a deflationary effect on the supply of ETH over time. This effect could be compounded by the Proof-of-Stake upgrade set to be implemented in 2022. 

In other news:

  • Cathie Wood’s Ark Invest to create a bitcoin ETF under the symbol ‘ARKB’
  • Goldman Sachs plans to offer ether futures, options to its clients
  • The growth of new users on BTC reached an all-time highs with “over 50,000 new entities coming on-chain a day” 
  • The Greyscale Bitcoin Trust is set to unlock 16,240 BTC on July 18 and be made available for institutional investors
  • The Bitcoin mining electricity mix increased to 56% sustainable in Q2 2021 according to a report published by the “Bitcoin Mining Council” spurring hopes Tesla may reconsider accepting Bitcoin for payments
  • A16z announces a new $2.2 billion fund to invest in crypto networks, founders and teams building in the
    Square announces it will be building a mainstream non-custodial cryptocurrency hardware wallet
  • Synthetix announce the launch of its platform on Optimism
  • Compound finance announces “Compound Treasury”
  • Mark Cuban gets “rug pulled” in the spectacular collapse of the cryptocurrency project Titan (IronFinance), an “algorithmic stablecoin”
  • Digital currency company Circle to go public via SPAC at $4.5 billion valuation
  • A survey of 100 hedge fund chief financial officers globally, conducted by fund administrator Intertrust, found that executives expect to hold an average of 7.2 per cent of their assets in cryptocurrencies in five years’ time (could equate to a total of about $312bn of cryptoassets)
  • Tom Brady enters the cryptocurrency space by having taken an equity stake in crypto firm FTX
  • Tether Corp (USDT) reported to be in the top 10 biggest holders of commercial paper in the world, according to JPMorgan, comparing them with traditional money-market funds but without any regulation.
  • South Korean crypto exchanges banned from handling coins they issued themselves
  • UK court awards self proclaimed Bitcoin creator Dr Craig Wright default judgment in Bitcoin copyright infringement claim
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