#mdj is a weekly journal covering developments within the global digital assets industry.
EXECUTIVE SUMMARY
BTC stayed "steady" relatively speaking, even though Nasdaq 100 and S&P 500 ended the week down 3%-4%. BTC remained resilient as it ended the week unchanged. ETH saw 8% gains on Monday which allowed it to regain the $1,500 price level. Among Alternative Coins, Cardano rallied 11.6% as the official date for Cardano’s Vasil upgrade was confirmed for end of September. Polkadot gained 7% and Polygon gained 10.8% as it rallied along with ETH. (read more in Weekly Market Action)
Last seen in Jan 2022, Bitcoin difficulty jumped 9% and expected to rise even more in winter. Boom & bust of bitcoin mining gold rush with US, Paraguay, Kazakhstan and Armenia vying to attract miners. ETH “flippens” BTC in terms of derivatives open interest. Ethereum miners made $756M in August in last full month of mining as Ethereum transitions to PoS in September. (read more in Digital Assets Macro News)
Speculations around Tether’s reserve accounting continues. MakerDAO co-founder proposes timeline for de-pegging the DAI stablecoin from USD. (read more in Stablecoins)
De-fi lending protocol - Compound - discovers bug in its price feed & freezes cETH. MarketGrowth in Optimism L2 chain is inorganic, led by incentives says Messari. Layoffs at crypto firms continue. (read more in Digital Assets Company News & Updates)
Gaming firm - Limit Break raised $200M. Lightnet secured $50M in commitments. Animoca Brands valuation reached $5.9B with $100M raise from Temasek. GOTO in Indonesia paid $8.38M for exchanger licence. Two crypto funds aims to raise upwards of $677M. (read more in Mergers, Acquisitions & Partnerships)
South Korea steps up regulatory activity and prepares to roll Metaverse Industry Promotion Act. Meanwhile, Singapore is planning to restrict retail access to crypto by limiting credit facilities and leverage for retail investors. (read more in Digital Assets Regulatory Update)
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WEEKLY MARKET ACTION
BTC ended the week with no change in price as it largely traded between $19,600 and $20,400. BTC had a VRVP price of $19,822 over the past week.
The price action over the week also seemed to defy the positive correlation trend that has been seen between BTC and US Equities over the past year. Although NDX and SPX ended the week down 3%-4%, BTC remained resilient as it ended the week unchanged.
ETH saw 8% gains on Monday which allowed it to regain the $1,500 price level. After Monday, ETH remained range bound between $1,500 and $1,600 with a VRVP price of $1,578.
TOP CRYPTO ASSETS PERFORMANCE
The past week saw BTC, BNB, XRP, Dogecoin and Solana remain largely unchanged in price. ETH gained 7.8% as it regained the $1,500 level.
Cardano rallied 11.6% as the official date for Cardano’s Vasil upgrade was confirmed for End of September. Polkadot gained 7% and Polygon gained 10.8% as it rallied along with ETH.
STABLECOINS MARKET CAPITALISATION
The past week saw outflows from TrueUSD as its circulation reduced -3.5%. BUSD circulation increased 1.51%, this generally indicates higher trading interest.
CRYPTO AND EQUITY MARKET SENTIMENTS
F&G Indexes for US Equities largely decreased over the past week, while BTC and ETH indicators stayed at the same level as last Monday. The better sentiment in crypto markets is also reflected in the price action.
KEY HIGHLIGHTS IN DIGITAL ASSETS INDUSTRY MACRO NEWS
Bitcoin mining difficulty rises most since January
Bitcoin mining difficulty jumps 9% in biggest increase since January, expected to edge higher in winter. Mining difficulty is a measure of the computing power required to mine a block of bitcoin. Difficulty scales dynamically as more and more hash rate is added to the network to keep the network secure and stable.
Mining difficulty saw an increase of 9.26% on Wednesday as rig operators in Texas started to restart their operations with the heat wave in Texas subsiding.
The difficulty stands at 30.98T and is expected to edge higher in the coming months as mining activity generally increases in the winter.
Source: The Block
Boom and bust of bitcoin mining gold rush
Migration of bitcoin mining operations to Texas has slowed as Coindesk reports that the Electric Reliability Council of Texas, or Ercot, has slowed issuance of new permits for miners to connect to the grid as the state tries to balance the supply and demand of electricity.
In related news, President of Paraguay vetoed a bill that would regulate mining and trade of Bitcoin in the country a few months after interest peaked into setting up Paraguay as a mining hub. These developments come after Kazakhstan invited and eventually exiled miners from the country.
Further, with 62% of the bitcoin network zero-emission a trend can be seen with a shift towards using renewables for mining Bitcoin, finding a location with the appropriate mix of energy sources poses another challenge for miners. Now Armenia, a country with 60% of the electricity supply from renewable sources, is trying to attract mining operations to their country. Will the gold rush be different this time?
Sources: Coin Desk (Texas), Crypto Slate, Coin Desk (Paraguay) and Coin Telegraph
ETH “flippens” BTC in terms of derivatives open interest (OI)
Flippening refers to the event when the Ethereum market cap would become higher than Bitcoin’s, although the flippening remains unlikely right now with BTC’s marketcap nearly double that of ETH, there is a metric in which ETH has exceeded BTC.
The Open Interest for Ethereum options and investment products has shown higher interest towards ETH than BTC as investors pile in on bets for the Ethereum upgrade due in September. BTC Options OI stands at $4.7B while ETH Options OI is $7.13B as of 5th September.
ETH investment products have also seen greater interest as Grayscale’s GBTC saw 24% drop in volume in August while their GETH saw a 23% increase during the same.
Sources: The Block, Coin Telegraph
Ethereum miners made $756M in August which will be the last full month of mining as Ethereum transitions to Proof of Stake in September
This brings the second largest cryptocurrency mining industry to a crossroads. Some miners have proposed a PoW fork of the network while others, such as Ethermine (the largest Ethereum mining pool), have announced support for Ethereum’s transition.
Although there is large speculation on the possibility of a fork, data from Paradigm suggests that the forked token may be worth a mere 1.5% of ETH’s price.
Notably, ETH miner balances have shot up recently indicating that miners are opting to hold more of their mined tokens heading into the merge.
Sources: Coin Telegraph, The Block, Coin Desk
Southeast Asia Emerging as Crypto Hub
A new report by Whitestar Capital stated that the region had seen $1B in VC investment this year and with over 600 blockchain companies headquartered there, the region remains well positioned to emerge as a web3 hub.
Increasing adoption rates in the region are led by large unbanked and underbanked populations, making the demographics of the region an ideal product market fit for cryptocurrencies.
Source: TechCrunch
KEY DEVELOPMENTS IN STABLE COINS
Leading stablecoin’s reserve attestations remain unstable
Speculations around Tether’s reserve accounting continues as a WSJ report stated that Tether had a cushion of just 0.3% ($191M) and a fall in asset value greater than this could plunge the organization into insolvency.
Tether has disputed the report and stated their ongoing efforts to reduce their exposure to riskier asset classes.
The uncertainty and controversy around Tether’s reserve has been ongoing with Tether even being fined by the CFTC for not maintaining sufficient reserves last year.
Tether has recently stepped up their asset reporting by signing on BDO Italia for conducting independent attestations. However, a full audit into the firm’s books is still awaited and according to the WSJ it remains “months away”.
Sources: WSJ, Block Works, Coin Desk
Timeline for de-pegging of DAI stablecoin from USD
MakerDAO co-founder proposes timeline for de-pegging the DAI stablecoin from USD. DAI is a crypto-collateralized stablecoin that is minted when users lend over-collateralized crypto assets to DeFi platform, Oasis.
DAI has become the largest crypto-collateralized stablecoin with over $4B in marketcap. However, after recent controversy regarding the sanctioning of Tornado Cash and the subsequent freezing of associated USDC by Circle, MakerDAO finds itself at a crossroads with respect to decentralization.
DAI is currently 60% collateralized by the USDC stablecoin and with risks of regulatory crackdown and freezing of funds, MakerDAO is considering intentionally de-pegging the DAI token from the USD in order to reduce its susceptibility to be controlled by governments and centralized organizations.
Co-founder, Rune, has proposed a 3-year period of ETH accumulation by the organization after which the token will reassess the amount of RWA exposure they will allow to back DAI.
Sources: Coin Telegraph, Blockworks
TOP DIGITAL ASSETS COMPANY NEWS AND UPDATES
Growth in Optimism L2 chain is inorganic, led by incentives says Messari
Incentives have fueled inorganic growth of Optimism writes Messari, two days before 1inch announces OP token airdrop.
Messari reported that the growth of L2 network Optimism was inorganic and fueled largely by incentives in the ecosystem, unlike competitor Arbitrum which has seen growth despite any incentives for using its network.
Two days after the report, 1inch announced that they would be airdropping 300k OP tokens to users of 1inch that were using Optimism.
Airdrops have been a common marketing tactic for Optimism, they even launched their own airdrop in June which faced several issues.
Sources: Cryptoslate, The Block
Compound Discovers Bug in Price Feed, Freezes cETH Market
DeFi Lending protocol, Compound, discovered a bug in a recent governance proposal that passed. The bug is linked to the price feeds showing incorrect data.
Compound has frozen the cETH market as a result and a new governance proposal will be deployed after a 7-day cooldown period.
This brings to the forefront discussions over cool-down periods on DeFi platforms. Although cooldown periods can offer enhanced security by adding a time delay for withdrawals and proposals, they come with their own set of issues including delays and friction for users.
Source: Cryptoslate
Layoffs at Crypto Firms not over yet
June & July saw a large number of crypto firms go under with many others announcing cutbacks & layoffs in the hope of increasing runway to contend with crypto winter.
August saw fewer such announcements indicating that the worst may have passed as the industry returned to stability.
However, last week saw a new round of layoffs and cutbacks as Dubai based Rain Financial announced layoffs for hundreds of employees amid cutbacks. Another round of layoffs was also announced at Brazilian crypto unicorn 2TM.
Meanwhile tech firm, Snap, reported that it is disbanding its web3 team amid mass layoffs at the firm.
Sources: Coindesk (2TM), Bloomberg, Coindesk (Snap)
MERGERS, ACQUISITIONS & PARTNERSHIPS IN DIGITAL ASSETS
In M&A news from the week, several large funding rounds for crypto firms were announced:
Mobile game developer Limit Break raised $200M across two rounds to develop a Free-to-Play MMO while integrating NFTs in the gaming model. The funding was led by Josh Buckley (Mino Games), Paradigm, and Standard Crypto with FTX, Coinbase, and Positive Sum also participating.
Lightnet secured $50M in commitments to build a blockchain ledger-based global remittance service with partner company Velo Labs. The capital commitment was backed by LDA Capital.
Animoca Brands grabs additional $100M in funding from Temasek. Animoca added onto their January funding round ($360M) by announcing additional funding of $100M from Singapore state investor, Temasek. Animoca’s valuation reached $5.9B after the new funding.
GoTo Gojek Tokopedia, Indonesia’s largest tech firm, acquired local crypto exchange Kripto Maksima Koin marking its entry into the digital asset space. GOTO paid $8.38M for the acquisition.
Additionally two crypto investment funds were also announced:
DBA Crypto, formed by executives from Genesis and Galaxy Digital hopes to raise $500M.
Seven Seven Six, VC Firms led by Reddit co-founder plans on raising $177M for a fund that will invest in early-stage web3 startups.
DIGITAL ASSETS REGULATORY UPDATES
South Korea steps up crypto regulatory activity
South Korea is preparing to the Metaverse Industry Promotion Act to deliberate on policies promoting Metaverse development in the country.
South Korea also stepped up regulation of the crypto industry beginning with investigations into illegal foreign exchange transactions facilitated using crypto.
Illegal transactions were identified to the tune of $2-$6.5B most likely linked to traders trying to extract “Kimchi Premiums” from the country.
A report by Bloomberg showed that nearly 75% of the illegal forex transactions in the country were related to cryptocurrencies. Last week, police arrested 16 individuals with links into illegal transactions.
Overall, South Korea has had a mixed reaction to cryptocurrencies.
After initially supporting the industry enthusiastically, euphoria in the country scaled back after the collapse of Terra Luna. Still, the government hopes to foster blockchain and metaverse talent in the country while implementing proper safety blocks.
Sources: CoinTelegraph, CoinTelegraph (Metaverse), Coindesk
Singapore is planning to restrict retail access to crypto by limiting credit facilities and leverage for retail investors
They are also ideating customer suitability tests. Singapore, like South Korea, had been attempting to bolster itself as a crypto hub but with the collapse of Terra Luna and subsequent credit crisis involving firms based in the country.
Singapore’s government has become wary of loose regulations. Monetary Authority of Singapore’s (MAS) head did note that a crypto ban was unlikely to work given the borderless nature of crypto.
Source: Blockworks, MAS’s Mr Ravi Menon’s Speech
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