Ethereum Blockchain- No Vacancy
Buterin told the Toronto Star that “the Ethereum blockchain is almost full”, and warned that a big organisation joining would only make it fuller and push fees higher. His proposed fix was to move away from every computer verifying every transaction, so each node would check only a small share of activity. He said this could reduce transaction costs by a factor of over 100, with only a modest sacrifice in security.
BITCOIN POSITIVE ON MONETARY POLICY
Cointelegraph reported this week that “Bitcoin simply existing positively impacts Monetary Policy”. The article was based around a paper written earlier this month by Max Raskin (New York University), Fahad Saleh (McGill University) and David Yermack (New York University) and can be found here. If you have time I recommend having a read. The paper focuses on the fact that cryptocurrency does not have to replace the dollar but instead the very existence of them act as a function for checking both fiscal and regulatory policy. These benefits could be summed up in three categories as listed below:
“First, citizens secure welfare gains from the existence of cryptocurrencies because they offer diversification; moreover, private digital currencies serve as competition for local investment and thus restrain monetary policy, thereby generating lower inflation.
Second, the authors argue that cryptocurrencies encourage local investment and serve as a complement — not as a substitute — for that investment. In offering an alternative to local fiat, they discipline monetary policy — again reducing inflation — leading to higher returns from investment and thus more investment overall.
The paper, How Do Private Digital Currencies Affect Government Policy, by Max Raskin of New York University, Fahad Saleh of McGill University and David Yermack of NYU Stern, was released in 2019 as NBER Working Paper 26219 and later published in the Journal of Financial Stability. Cointelegraph summarised it as Bitcoin positively affecting monetary policy simply by existing. The authors set out three benefits. First, citizens gain from diversification, and private digital currencies restrain monetary policy and lower inflation by competing with local investment. Second, they encourage local investment as a complement to it, disciplining policy and lifting returns. Third, governments benefit because higher local investment widens the tax base.
Third, the government itself gains from permitting the use of cryptocurrencies within the local economy, given that it extracts revenue through taxation and thus benefits from the higher levels of local investment.”
TECHNICAL ANALYSIS
This week was a relatively slow week for crypto traders who love their volatility. BTC danced around the 10k USD mark constantly coming above and below it but failing to show any clear signs of strength or weakness.
BTC is still in an upward trend and we are coming to the end of the pennant which was discussed in last weeks post. This usually signals a break out to the upside.
Keep an eye on the key support line at 9100 USD, if we break this on the down side we could see a big correction in BTC price. Outside of the support line, the 50 MA line continues to trade higher than the 200MA line, however it looks to be flattening out. Keep and eye on the 50MA line in case it starts to approach the 200MA for a death cross.
BINANCE LENDING – BNB, USDT & ETC
Binance has announced two initial lending platforms that look to be going live on the 28th of August 2019. The first round will be open for 200,000 Binance (BNB) tokens and 10,000,000 USDT, the returns are said to be 15% and 10% annualised over 14 days respectively. In future Ethereum Classic (ETC) lending looks like it will be the third option added. This provides some insight into the 35%+ gains ETC experienced over the last week, insiders clearly aware of this pending announcement.
The annualised rates were 15 per cent for BNB, 10 per cent for USDT and 7 per cent for Ethereum Classic, with allocations capped and offered first come first served. Contrary to early speculation that Ethereum Classic would be added later, it was part of the first phase from the start. Binance used the borrowed coins to support its margin trading business, where borrowers pay far higher interest than lenders earn, so the spread favours the exchange.
Binance will take these coins to use against its margin trading business, given “Binance’s recently-launched margin trading business charges users who borrow BNB and USDT an annualized interest of as much as 109 percent and 10.0375 percent, respectively.” Be aware that while the returns on your personal BNB tokens are quite competitive in the normal investment market at 15%, Binance are most likely making upwards of 100% on these tokens. Not a bad business structure if you ask me!
BINANCE TO LAUNCH GLOBAL STABLECOIN PLATFORM
Partnering with ICE Futures US and ICE Clear US, and cleared by the CFTC through self certification, Bakkt offered daily and monthly physically delivered Bitcoin futures backed by USD 125 million in insurance. Its chief executive at launch was Kelly Loeffler. The appeal was legitimacy. Pension funds, large institutions and high net worth investors could take positions in a federally regulated venue. Unlike the cash settled contracts introduced on the CME in 2017, Bakkt required real Bitcoin to change hands, which many expected to tighten supply and support the price.
US LAWMAKERS HEAD TO SWITZERLAND IN SEARCH OF ANSWERS
Six US lawmakers will head to Switzerland to understand more about how the country has legislated cryptocurrencies. Whilst the US will be seeking broad answers and understandings on the countries legislation’s, the main focus for the trip will be to understand just how Facebook’s Libra coin will operate legally out of Switzerland and the possible cross border effects it may have on the US.
I think its worth taking a minute to consider how disruptive the Facebook Libra coin has been to the USA, congressional hearings and now deep research into Swiss law, if you compare this to the Binance initiative and how they are approaching the situation, offering up the solutions in the form of a platform that will look to work with governments from the get go, it lends you to thinking that these stable-coins are inevitable, there is clearly a demand and interest for them, its really just a matter of how and when really.
THINK TWICE BEFORE MINING IN THE SERVER ROOM
If you haven’t thought about it at least once, you’re probably not a miner, but most of us have though about hiding our mining rigs in the server room at work, free AC, electricity and internet. Nuclear power plant workers in the Ukraine had just this idea earlier this year when they setup GPU mining rigs within the administration and protective barracks of the state nuclear power plant. It’s unknown how they were caught but I dare say the multiple new internet connections at the plant may have given them away. Perhaps a new perk for employees could be free power for a month if you win employee of the quarter…
This hasn’t been the first time either, Russia, the Australian Bureau of Meterology and Romania all have reported employees mining at government sites. I wonder if government run facilities could benefit from large mining farm setups? Power plants such as the one in Ukraine and solar farms across the world generally experience large spikes in unusable or commonly referred to as “grounded” energy that is just wasted every day as the network demand isn’t there for it, surely instead of grounding this it could be used to secure a digital future for that country?
BITMAIN EXPANDING
It has been reported that Bitmain has placed an order for 600,000 new 7nm chips, these are the chips Bitmain uses in its Bitcoin miners. “Based on this calculation, after half a year, Bitmain’s total network computing power will skyrocket by about 50%, the publication notes, adding Bitmain’s valuation will subsequently top $12 billion”.
Keeping in mind that the Bitcoin halving is due next year, if we were to keep all things consistent and Bitmain’s total hashrate did increase 50%, and you factor in a bitcoin halving, the price of Bitcoin would need to considerably increase to ensure all of this new hardware, and the existing network stayed profitable. The network hashrate already hit a new time high this year, meaning the most secure its ever been, it looks inevitable that this security will jump hugely early next year, along with Bitcoins price.
In August 2019, Coinbase chief executive Brian Armstrong wrote on Twitter that whether institutions would adopt crypto had been an open question a year earlier, and that the answer was now clear, with USD 200 to 400 million a week arriving from institutional customers. The comment followed Coinbase’s USD 55 million acquisition of Xapo’s institutional custody arm, which lifted its assets under custody past USD 7 billion across more than 120 clients. Grayscale was already absorbing more new Bitcoin than the network was issuing each week.
Bottom line: This institutional thesis proved correct. US spot Bitcoin ETFs launched in January 2024, and by 2026 Coinbase reported custody of more than 80 per cent of US spot Bitcoin and Ethereum ETF assets.
FEAR & GREED
Alternative.me Fear and Greed index has been somewhat boring lately, floating in and around the 30-40 range, with most investors seemingly on the side of fear. While we sit in this consolidation range of $10k USD a dollar cost average approach should still be followed. Keep a strong eye on when and if the monthly close for Bitcoin ever reaches above $14k USD, this would signal an extremely bullish event as it would be the first of its kind.
The fundamentals and the reason everyone invested in this space initially haven’t changed, and every day that passes new advancements push the cryptocurrency space forward. If you are a believer that Bitcoin will breach it’s all time high of $20k USD in the future, now is a perfect time to top up. Do not get bored and sell because you haven’t seen 20-30% gains in a week. The longer Bitcoin as an asset exists for the more “normal” its movements will be. They will still be incredible compared to your gold and indices markets, but will slow compared to those of years passed.
Conclusion:
The events of 2019 showed a market maturing fast, from Ethereum’s scaling limits to regulators circling stablecoins and Bitmain gearing up for the halving. The through line was that scarcity and cheap energy reward those who keep producing and holding Bitcoin through the cycle, and the years since have proved the point.
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Author: Julian Carruthers
Not financial or investment advice, always do your own research.
