September 2022
The most anticipated event in crypto markets right now is the Ethereum Merge, whereby the blockchain consensus layer transitions from proof-of-work (POW) to proof-of-stake (POS). This effort was initiated as early as December 2020, and the upgrade is finally due on September 6th, 2022.
Although this significant event will greatly reduce the energy consumption of maintaining the Ethereum network, much-heralded new features such as cheaper transaction fees and faster transaction times are yet to arrive. This Merge is simply a Layer 1 (consensus mechanism) transition, while reduced transaction fees and greater speed are solutions on Layer 2, which are separate blockchain networks aiming to improve Ethereum functions.
The Ethereum Foundation published a guide to the upcoming Merge and clarified many of the widespread misconceptions in the crypto community. While we are excited about the technological upgrade of this popular blockchain, from an investor’s perspective, it is wise to recognize that Ethereum is still a work-in-progress project that will be subject to many uncertainties. Pricing disruptions, a potential hard fork, and high volatility should be anticipated during and after the Merge. As we witness more utilities being created and more end users participating in the Ethereum network, we should note that these positive developments are happening over a long period and are not part of a single event.
Christian Hsieh
CEO, Tokenomy
Rare signal hints that the Bitcoin price is bottoming out. The Bitcoin mining difficulty ribbon, comprising short- and long-duration simple moving averages of mining difficulty, has compressed for the first time in over a year, indicating miner capitulation. The previous bear markets, including that seen in 2014, ended with ribbon compression, which means that the hash rate is starting to come offline, usually due to stress in miner incomes. Typically, these inversions occur in late-stage bear markets.
Evidence shows that institutional adoption of crypto is on the rise. According to Glassnode, around 63% of the current on-chain volume on Bitcoin comes from transfers of over $10 million. In addition, over 85% of Ethereum’s supply is held by entities with 100 ETH or more.This number has been steadily growing since towards the end of 2020 and suggests an increased role for big institutional players in the space.
Forty of the world’s largest companies invested about $6 billion in blockchain companies between September 2021 and June 2022, according to a study by Blockdata that looked at the investment activity of the biggest 100 public companies by market cap. Blockdata used the size of the funding rounds as a proxy for the total investment amount. The study highlights the mainstream acceptance of blockchain technology. BlackRock (BLK), the world’s largest asset manager, took part in rounds valued at $1.2 billion, and Morgan Stanley (MS) participated in $1.1 billion of fundraising activity.
US Treasury enacted sanctions against Tornado Cash and related smart contract addresses, placing them on the Specially Designated Nationals and Blocked Persons (SDN) list. US persons and entities are prohibited from interacting with the Tornado Cash blockchain. Penalties for willful noncompliance can range from fines of $50,000-$10 million and 10-30 years imprisonment. In response, stablecoin Circle, programming depository vault Github, and Web3 development platforms Alchemy and Infura.io blacklisted the company, barring access to its services. Dutch authorities also announced the arrest of a developer on 12th August.
The Federal Deposit Insurance Corporation (FDIC) issued cease and desist letters to five companies, including FTX US, alleged to have made crypto-related false or misleading representations about deposit insurance. The other companies are Cryptonews.com, Cryptosec.info, SmartAsset.com, and FDICCrypto.com.
South Korean authorities have identified 16 unauthorized crypto exchanges that are operating in Korea without registering with the proper authorities, according to a press release issued by the country’s Financial Services Commission (FSC). These companies are KuCoin, MEXC, Phemex, XT.com, Bitrue, ZB.com, Bitglobal, CoinW, CoinEX, AAX, ZoomEX, Poloniex, BTCEX, BTCC, DigiFinex, and Pionex. Meanwhile, seven large traditional brokerages in South Korea have started laying the groundwork for their own crypto exchanges to launch in the first half of 2023.
South Korea plans to tax crypto airdrops. According to the Ministry of Strategy and Finance, the free transfer of assets is a “gift” under the Inheritance and Gift Tax Act, and the receiver will have to file a tax return within 3 months and is subject to a gift tax of 10-50%. The country also plans to tax crypto capital gains by 2025, at a rate of 20% on annual gains above 2.5 million KRW ($1,860).
Thailand’s oldest bank, Siam Commercial Bank (SCB), is abandoning its $500 million deal to acquire Thailand crypto exchange Bitkub, according to a press release. SCB said the crypto startup needed time to fix regulatory issues. The bank planned to invest $500 million in acquiring 51% of Bitkub to build its digital strategy.
Coinbase is partnering with BlackRock, the world’s largest asset manager, to provide institutional clients of Aladdin®, BlackRock’s end-to-end investment management platform, with direct access to crypto, starting with Bitcoin. News sent the stock (COIN) rallying +44%, reaching as high as $116.30/share in pre-market trading before settling at $88.85/share (+10% on the day of the announcement).
Investment brokerage Charles Schwab has launched its first crypto-related ETF. The asset manager announced that the fund would track the Schwab Crypto Thematic Index. This new fund will expose investors to companies that may benefit from developing or growing the use of cryptocurrencies and digital assets.
Consumer brands, including Nike and Gucci, have made $260 million from NFT sales. As first reported by NFTGators using data from Dune Analytics, Nike tops the list, having made $180 million in revenue. NFTs provide a new channel for brands to engage with their customers and a new source of revenue (from NFT launch proceeds and royalties). Companies such as Nike and Adidas also plan to expand their NFT ambitions to the Metaverse.
Hackers stole nearly $200 million in cryptocurrency after the Nomad crypto bridge protocol was breached. Blockchain security group CertiK said Nomad lost around $190 million in the hack due to a flawed upgrade. Nomad said that the company was “working around the clock to address the situation and have notified law enforcement and retained leading firms for blockchain intelligence and forensics.”
Brevan Howard Asset Management’s digital-assets-focused vehicle has raised more than $1 billion from institutional investors. BH Digital, the crypto and digital asset arm of Brevan Howard, has lost less than 5% through the end of June with its Brevan Howard Digital Asset Multi-Strategy Fund. This performance comes despite the crypto winter, the collapse of the Luna stablecoin, and the general decline in cryptocurrency prices.
Companies allowing their employees to allocate a portion of their paychecks to Bitcoin report a wide range of adoption rates as crypto market volatility persists. After NYDIG, a Bitcoin-focused financial services company, launched its Bitcoin Savings Plan, they found the average amount workers put into Bitcoin was $75 per paycheck.
More crypto companies fail. Hodlnaut, a Singapore-based crypto lender, announced that it was freezing withdrawals, token swaps, and deposits due to an uncertain economy. Hong Kong-based crypto exchange Hotbit suspended trading, deposit, withdrawal, and funding functions amid criminal investigations. Nuri, one of Germany’s largest crypto exchanges, filed for insolvency amid turbulent market conditions. According to the company’s statement, the insolvency proceedings will not affect any deposits, cryptocurrency funds, or investments.
MakerDAO is considering abandoning its USD peg in reaction to the US Treasury sanctions on Tornado Cash. The move would allow any protocol to be sanctioned and explores the idea of de-pegging its stablecoin DAI and relying largely on ETH. This could see DAI eliminating all of its USD Coin (USDC) exposure, which constitutes around 32% of its collateral.
- A deep dive into DeFi – Uncovering DeFi Fundamentals: Decentralized Exchanges, by Binance research.
- What does the future hold for crypto exchanges? A joint report by Boston Consulting Group, Bitget, and Foresight Ventures.
- The Ethereum Foundation published a detailed technical paper outlining the upcoming Merge – a consensus layer transition from the proof-of-work to the proof-of-stake mechanism, including the top 8 misconceptions.
- The State of Central Bank Digital Currencies – an insightful infographic from VisualCapitalist detailing each central bank’s digital currency effort.
- Amazon’s #1 Best Seller in political philosophy is The Network State: How to Start a New Country, by Balaji S. Srinivasan, the former CTO of Coinbase and General Partner at Andreessen Horowitz. Read it for free here!
- Dual Currency Deposit is an excellent tool for short-term speculators when price volatility is high! Earn enhanced returns on BTC, ETH, and USDT deposits.
- Tokenomy Loan is live! Pledge your crypto assets to borrow IDK in just a few clicks!
If you want to continue receiving Crypto Investor Briefing, please click here to subscribe.
Crypto Investor Briefing is a Tokenomy newsletter—the content is for informational purposes only. You should not construe any such information or material as legal, tax, investment, or financial advice.
