Friday, 16 September 2022

Market Summary

Market Summary 16 September 2022

Bitcoin Price: US$19,701.88 (-2.59%)
Ethereum Price: US$ 1,472.75 (-10.11%) 


With The Merge In The Rear View, What’s Next?

  • As we cautioned last week, the August 2022 CPI print on September 13th would likely prove to be a volatile event for asset markets in either direction. As it turned out, August CPI rose to 8.3%, coming in much worse than many people have been expecting. This resulted in a violent sell-off across asset markets, with crypto being no exception.
  • Headline CPI surprised market expectations with an increase while many were expecting a decline. Core CPI numbers also doubled what many economic forecasters had been expecting.
  • Another warning sign appeared in rental inflation and services, as both accelerated to posting their largest monthly increase to date.
  • An area where many were expecting to see substantial declines in inflation was used vehicles. Again, defying market expectations, used vehicle inflation barely edged lower at all.
  • In the past, we have mentioned that high inflation tends to be sticky, We are seeing that dynamic beginning to play out over the last several months.
  • Perhaps more important than the CPI print was the market’s repricing of the September FOMC Rate Hike expectations. One day prior to the August 2022 CPI print, the market was pricing in a 94% chance probability of a 75bps rate hike in September. In the moments after the CPI print, the market repriced these odds to a nearly 100% chance of a 75bps rate hike, while giving an 18% chance of an outsized 100bps rate hike, something the market has not yet done this rate hiking cycle.
  • After years of delays and debates, the most anticipated developmental upgrade for Ethereum is finally here. Earlier today, Ethereum successfully transitioned from Proof-of-Work (POW) to Proof-of-Stake (POS) consensus, setting forth a new era for Ethereum and the wider crypto ecosystem. The transition to POS will make Ethereum more energy efficient (with estimates up to 99.95%), positively impact ETH issuance/inflation, and lay down the groundwork for improving scalability via sharding in the future. The Merge underscores arguably the largest milestone from the original ETH roadmap, as research on it began even before Ethereum launched.
  • Instead of transitioning Ethereum to POS in one large and potentially dangerous upgrade, ETH developers decided to split the process into two. The first step was the launch of the ETH beacon chain in Dec 2020. This allowed for the creation of a separate, parallel POS chain that could be tested in production without having a direct impact on the already existing POW network (which secured billions of dollars of economic activity). Another important reason for the launch of the beacon chain beforehand was to allow the amount of staked ETH to grow to levels high enough to sufficiently secure the network at the time of the merge.
  • As of today, there are ~13.7 million ETH (over $20B worth) deposited in the staking contract, with Lido managing the largest percent share of 30%. The 13.7 million ETH staked, account for nearly 12% of the circulating supply of Ether and have acted as a supply sink since the launch of the Beacon chain in late 2020. Roughly 800k ETH have been minted through PoS validation since the Beacon chain launched. However, the ETH-issued pre-merge and the ETH-issued post Merge won’t be unlocked for stakers until validator withdrawals are enabled. This is expected to take place between 6-12 months from now.
  • ETH issuance will drastically reduce. PoW mining will cease to exist, along with the 13,000 ETH distributed to miners on the execution layer. On the flip side, ETH produced by stakers will remain unchanged at 1,600 per day. This is why many have coined this event the “triple halvening”, as the estimated issuance of ETH will reduce by nearly 90%, from 14,600 down to 1,600 per day. In turn, this brings the projected annual inflation rate of newly minted ETH down to less than 1%. And if we include the fees burned (implemented through the London upgrade in August 2021), projections indicate that ETH will become net deflationary moving forward.


FTX Is in the Lead to Buy Crypto Lender Voyager Digital’s Assets Out of Bankruptcy: Source

  • Exchange giant FTX is in the lead to buy the assets of Voyager Digital, the cryptocurrency lender whose bankruptcy filing deepened this year’s industry crisis, but higher offers could still come in in the days ahead, according to a person familiar with the matter.
  • An auction was held this week through bankruptcy court for Voyager’s assets. At the final stage it was a battle between billionaire Sam Bankman-Fried’s FTX exchange and Wave Financial, a digital-asset investment firm, according to the person.
  • FTX’s bid was higher, the person added. It’s unclear how much FTX agreed to pay.
  • FTX didn’t immediately respond to a request for comment. A Wave representative declined to comment.


Ethereum Already Showing Signs of Increased Centralization

  • In the hours following Ethereum long-awaited Merge on Thursday, over 40% of the network’s blocks were added by just two entities: Coinbase and Lido.
  • The shift from proof-of-work (PoW) to proof-of-stake (PoS) was framed by developers as a way to defeat centralization on the second-largest blockchain network by making it harder for individual entities to tamper with the Ethereum ledger. But early signs of network consolidation have raised concerns that those hopes may not come to pass.
  • “Out of the last 1,000 blocks, 420 have been built by just Lido and Coinbase,” Martin Köppelmann, co-founder of Gnosis, an Ethereum infrastructure firm, wrote in a tweet.
  • In his thread, Köppelmann mentioned that just seven players own more than two-thirds of the stake on Ethereum’s proof-of-stake network – the key measure of network power under the new miner-free system. Lido, a kind of community-led staking collective, and Coinbase, the world’s third-largest crypto exchange, own 27.5% and 14.5% of the network’s stake, respectively.


Ethereum Miners Are Quickly Dying Less Than 24 Hours After the Merge

  • Ethereum miners are finding it increasingly hard to make money after the Merge as too many of them are switching to alternative coins, crushing mining profitability.
  • Earlier Thursday, Ethereum, which is the world’s second-largest blockchain network, switched its consensus algorithm to proof-of-stake from proof-of-work in order to boost efficiency and lower energy consumption. However, the software update – dubbed the Merge – also meant that miners were no longer needed to secure the network, and so rig operators moved their machines to other PoW blockchains.
  • “Graphics processing units (GPU) mining is dead less than 24 hours after the Merge,” tweeted Ben Gagnon, chief mining officer at bitcoin miner Bitfarms (BITF). The three largest GPU chains have very low profits, and “the only coins showing profit have no market cap or liquidity,” he added.
  • The hashrate, or computing power, used to mine PoW altcoins like ethereum classic (ETC) and ravencoin (RVN) doubled in the hours after the Merge took place. Alongside a rising hashrate, however, is rising difficulty, meaning miners are less likely to successfully mine a block and reap the block reward.


SEC’s Gensler Signals Extra Scrutiny for Proof-of-Stake Cryptocurrencies: Report

  • U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler on Thursday said that staked cryptocurrencies may be subject to federal securities regulations, repeating a pro-oversight stance in the wake of Ethereum’s transition to just such a method.
  • According to the Wall Street Journal, Gensler said that proof-of-stake (PoS) blockchains, which generate new coins for inventors who pool their holdings, take on investment contract-like attributes that could bring them under his agency’s purview. He said he wasn’t talking about a specific coin, according to the Journal.


Vitalik Buterin Says Ethereum Merge Cut Global Energy Usage by 0.2%, One of Biggest Decarbonization Events Ever

  • The Ethereum Merge lowered the world’s energy consumption by 0.2%, according to the blockchain’s co-founder Vitalik Buterin, marking what may be one of the single biggest decarbonization efforts in history.
  • The overhaul cut Ethereum’s energy use by 99.988% and carbon-dioxide emissions by 99.992%. The decrease means the network now spews out less carbon dioxide (CO2) than a few hundred U.S. households do during a full year of electricity use, according to a new report from the Crypto Carbon Ratings Institute (CCRI).
  • “We’re delighted to have commissioned this report from CCRI, which substaniates the Ethereum Merge’s impact as likely the biggest decarbonization effort of any industry in history,” ConsenSys founder Jospeh Lubin, who also co-founded Ethereum, said in a statement.


‘Green ETH’ narrative to drive investment and adoption, says pundits

  • The shedding of Ethereum’s energy-intensive proof-of-work (PoW) system is expected to see Ether (ETH) “flow into the institutional world,” according to a number of fund managers and co-founders.
  • On Sept. 15, Ethereum officially transitioned to a proof-of-stake (PoS) consensus mechanism, which is expected to cut energy consumption used by the network by 99.95%, according to the Ethereum Foundation.
  • The upgrade effectively ended the need for the Ethereum network to rely on miners and energy-guzzling mining hardware to validate transactions and build new blocks, as these functions are now replaced by validators who “stake” their ETH.

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