Tuesday, 19 July 2022

Market Summary

Market Summary 19 July 2022

Bitcoin Price: US$ 22,432.58  (+7.86%)
Ethereum Price: US$ 1,581.04 (+18.11%) 


BTC Production Cost, Bitcoin as Inflation Hedge, and Fuel Deep Dive

  • Over the past 5 years, the electrical expenditure to mine 1 BTC has consistently represented a price floor for Bitcoin. Indeed, BTC price has only matched the electrical cost of production (excluding all other costs of mining) 3 times within the past 5 years: in Dec-2018, Mar-2020, and most recently, in Jun-2022.
  • Currently, the estimated electrical cost of production stands at just over $16k, with the estimated total cost of production hovering around $26.6k. These estimates and the historical data depicted in the chart above are based on calculations proposed by Capriole Investments Ltd.
  • Although most studies use data from the Cambridge Bitcoin Electricity Consumption Index (CBECI), estimates for the cost of production vary across the industry, depending on how other inputs are utilized. Last week, JP Morgan released their updated electrical cost of production estimate to $13k, which they attributed to more power-efficient miners hitting the market.
  • Despite these variations, what remains clear is that the profitability of Bitcoin miners remains a challenging environment. Since Jun-2022, the Bitcoin network has experienced a 17% decline in hash rate, the largest monthly decrease since Jun-2021.
  • Is Fuel The Best Modular Execution Layer? You may have heard the Fuel pitch; the fastest modular execution layer ever. Bold claim. Unfortunately, as the Fuel chain is not live yet, we can’t put this claim to the test. Besides, that would take away the fun part anyway. Instead, in this post, we stress-test this promise by diving into Fuel’s design.
  • First, it’s worth noting what is meant by modular execution. A core pillar of modular execution layers is to be verifiable. This can be done through the use of fraud or validity proofs. Fuel’s current execution is designed to be fraud provable by the EVM, making it suitable to be run as a rollup on Ethereum. However, modular execution layers encompass a broader definition than rollups as they don’t subscribe to any particular data availability, consensus, or settlement configuration. As such, we can see Fuel getting deployed as a rollup, celestium, or even a side-chain / L1.
  • The biggest differentiator of Fuel from today’s optimistic rollups is that it runs a brand new VM architecture coined FuelVM with its toolchain and language. FuelVM carries traits from WASM, EVM, and Solana’s SeaLevel. Potentially the most striking aspect of FuelVM is that it executes over a UTXO-based data model.


FTX CEO: Blockchain can make social media interoperable

  • While critics cast doubts on some of blockchain’s use cases during this crypto winter, one of the most prominent community figures has laid out some points that cement blockchain’s position as a disruptive technology.
  • On Twitter, Sam Bankman-Fried, CEO of crypto exchange FTX, highlighted use cases for blockchain and explained how some industries could benefit from integrating the tech. According to Bankman-Fried, blockchain technology can simplify payments, solve stock market flaws and revolutionize social media.
  • Bankman-Fried said that there are many issues surrounding cross-border payments and laid out several examples that highlighted long waiting times and intermediaries that make the fees higher and often add uncertainty to transactions.
  • According to him, blockchain solves this long-standing issue in finance by replacing the lengthy traditional process with a simple three-step process where the sender creates a wallet, the receiver creates a wallet, and the balance is sent. Bankman-Fried argued that this eliminates the waiting time, replaces the fee structure and solves the uncertainty factor.
  • The FTX CEO also pointed out that blockchain can change the entire stock trading process, which has its fair share of flaws. He highlighted the issues exposed by the infamous GameStop short-squeeze, where retailers shut down because of settlement risks, and said that tokenizing stocks is the answer.


Bitcoin per transaction cost goes down every four years — Coincidence?

  • Diving deep into the thirteen-year-old Bitcoin (BTC) ecosystem makes one come across interesting patterns powered organically by investor sentiment and market conditions. With BTC’s per transaction cost coming down to $56.846 on Thursday, the ecosystem unveiled a cycle wherein the per transaction costs invariably fall every four years.
  • The cost per Bitcoin transaction is calculated by dividing miners’ revenue by the number of transactions, thus implying an unpredictive trend — however, data from Blockchain.com reveals a pattern many would find satisfying.
  • The cost per transaction dropped over 81% in July 2022 from its all-time high of $300.331 in May 2021, factored by a combination of a prolonged bear market and fewer on-chain transactions due to regulatory hurdles imposed on the general investors. 
  • However, the rise and fall of the cost per transaction is a pattern seen every four years. Ever since its launch in 2009, Bitcoin’s cost per transaction went through its rollercoaster cycle three times — in 2014, 2018 and 2022.
  • If history were to repeat itself regardless of market conditions, the cost per transaction would overshadow the current all-time high by 2026, which would be accompanied by an eventual downfall around the $50 range.
  • Overall, miners’ revenue has also seen a significant reduction throughout the year 2022, with July marking the month of lowest income from Bitcoin mining in over two years.


Crypto recaptures $1 trillion market cap: BTC hits $22K, ETH ‘Giga mooning’

  • Bye-bye, Monday blues, hello bullish news — the total crypto market capitalization has retaken the $1 trillion level. The crypto market cap is now almost as valuable as all the silver on the planet.
  • A price pump for Bitcoin (BTC) brought the world’s most decentralized cryptocurrency into the $22,500 range, while Ethereum (ETH) enjoyed a double-digit “Giga pump” to kiss the $1,500 mark. Their combined efforts have culminated in a 4.8% pump to the entire crypto market, lifting it to a recent high of $1.02 trillion.
  • Bitcoin reclaimed the meme-worthy target of $420 billion in market cap, while Ethereum is sitting pretty at a total market cap of $180 billion, having added more than $20 billion in the past 24 hours. As per the below graph, the last time that the crypto market crossed the $1 trillion level was on June 13.


‘Token will defeat cryptocurrency’: Russia debuts palladium-backed stablecoin

  • The Russian government-backed tokenization platform Atomyze has issued its first digital asset backed by palladium in collaboration with the local bank Rosbank.
  • Rosbank officially announced on Monday that it became the first partner of the Russian blockchain firm Atomyze, acting as an investor in Russia’s first digital asset deal with palladium.
  • According to the announcement, the newly issued digital asset is the first digital financial asset (DFA) issued through Atomyze. The platform obtained registration from the Bank of Russia in February 2022, becoming the country’s first legal digital asset manager.
  • Both Atomyze and Rosbank are backed by Interros, a Russian conglomerate and investment firm co-founded by sanctioned oligarch Vladimir Potanin. The CEO of the Russian nickel and palladium mining and smelting company Nornickel originally announced plans to tokenize palladium back in 2019 through a Switzerland-based palladium fund.
  • According to an announcement by Interros, Atomyze will serve as a key element of Interros’ digital ecosystem including Potanin’s recently acquired private bank Tinkoff, software engineering firm Reksoft and Rosbank.


3AC liquidators seek time, access to headquarters as Genesis, Algorand ties are untangled

  • The liquidators of failed crypto hedge fund Three Arrows Capital (3AC) have filed an application in the High Court of Singapore for a stay on claims against 3AC and access to the company’s Singapore headquarters. The liquidators said in the 1,157-page document that a court decision is needed in light of the number legal proceedings that may arise in the near future and the “virtual radio silence from the management/directors of the Company.”
  • According to the July 9 application, the Singapore office may contain cold wallets or information on how to access 3AC trading accounts, which the liquidators want to access before any of it is removed or destroyed. The application lists previous unsuccessful efforts to obtain information from company directors Su Zhu and Kyle Davies and their representatives.
  • Details of 3AC’s financial woes continue to emerge. According to The Street, 3AC’s biggest creditor, trader Genesis Asia Pacific, a subsidiary of Digital Currency Group, loaned 3AC $2.36 billion.
  • That is a far greater sum than previously reported. It was already known that the loan had an 80% margin and Genesis began selling off collateral immediately when 3AC missed a margin call.
  • Algorand also appeared on the list of 3AC creditors.


Data points to a Bitcoin bottom, but one metric warns of a final drop to $14K

  • “When will it end?” is the question that is on the mind of investors who have endured the current crypto winter and witnessed the demise of multiple protocols and investment funds over the past few months.
  • This week, Bitcoin (BTC) once again finds itself testing resistance at its 200-week moving average and the real challenge is whether it can push higher in the face of multiple headwinds or if the price will trend down back into the range it has been trapped in since early June.
  • According to the most recent newsletter from on-chain market intelligence firm Glassnode, “duration” is the main difference between the current bear market and previous cycles and many on-chain metrics are now comparable to these historical drawdowns.
  • One metric that has proven to be a reliable indicator of bear market bottoms is realized price, which is the value of all Bitcoin at the price they were bought divided by the number of BTC in circulation.
  • “The average time spent below the Realized Price is 197-days, compared to the current market with just 35-days on the clock.”
  • One final metric that suggests capitulation has already occurred is the Adjusted Spent Output Profit Ratio (aSPOR), which compares the value of outputs at the time they are spent to when they were created.

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