32Sure, Crypto Is Crashing… So, What Else is New?

Crypto Weekly

Sure, Crypto Is Crashing… So, What Else is New?

Crypto Weekly

The crypto market behaves like the stock market, but the faithful say it's not a reason to abandon it. "Grab your convictions and stick with them." That advice, offered Tuesday by the hosts of the popular cryptocurrency podcast, Bankless, Ryan Sean Adams and David Hoffman, captures the mindset prevalent in crypto circles these days.

The crypto market is in trouble. Since the beginning of the week, Bitcoin prices have dropped by over 29 percent, Ethereum by 38 percent, and essentially every other cryptocurrency has followed suit. By November 2021, when the rise of crypto, and Web3, looked irresistible, the value of the cryptocurrency market had fallen by about 70 percent since its peak.

Stablecoin Tether, which was set up to maintain parity with the US dollar, and was rumored to be backed by US dollar reserves (although there are questions regarding the composition of those reserves), has lost its peg and currently trades for 99 cents a unit. Crypto companies, beginning with exchange Coinbase, have announced massive layoffs. Celsius has become the latest victim of the crypto crunch after it has invested $475 million of its customers' money in a synthetic asset that can theoretically be converted to the leading cryptocurrency, Ethereum, in the future. This comes after the meltdown of stablecoin Terra Luna last month, which sent shockwaves throughout the industry. A 3.5 percent drop in the S&P 500 index and a 4.2 percent decline in the Nasdaq was reported on Monday.

You may want to freak out if you're among the 16 percent of Americans who bought cryptocurrency in the past two years. However, among crypto heavyweights, the general reaction to this drop is zen to blasé. On Bankless' Twitter account, a meme shows a noose-wearing James Franco at the gallows — standing in for crypto holders who survived the 2018 crypto crash — asking two weeping crypto holders from 2022 if it is their "first time" there. Crypto skeptics on Twitter shared a meme that compares selfassured crypto investors to a dog sipping coffee in a burning shack. Despite flames threatening to consume it, the dog says, "It's fine." As long as blockchain adoption, user expansion, and real-world use cases thrive, Justin Sun, Grenada's ambassador to the World Trade Organization, believes the industry isn't heading down. Currently, the market is flooded with FUD [fear, uncertainty, and doubt]; the crash of [Terra Luna] and recent insolvency issues of some DeFi platforms and funds are not helping at all. However, I believe in rational expectations and the market's ability to correct itself. Cycles always occur, and we are at the beginning of the current one."

The chief technical officer of Tether, Paolo Ardoino, recently said that there is a silver lining in the crisis, at least when it comes to Bitcoin. Ardoino says that, “Bitcoin might be able to hold its own against the rest of the altcoins for a while longer. Bitcoin went down 60 percent, but the rest of the altcoins fell much farther. Therefore, Bitcoin has proven to be more resilient." "We may see bitcoin rally in the next few months," he says.

Cryptocurrencies - assets routinely touted as hedges against inflation and the whims of the financial system - are behaving like stocks. Bitcoin's troubles are similar to Netflix's recent woes, when the stock tanked by 40 percent in a single day in April, following disappointing subscriber numbers.

According to Jamie Burke, CEO of crypto venture fund Outlier Ventures, crypto has behaved just like a stock, and the two are moving hand in hand because the lines between them have blurred. A lot of new money has poured into stocktrading platform Robinhood due to crypto's vertiginous price peaks and feverish hype. Burke says that "digital assets began to have a macro-environmental effect." "Many money entered the financial system: They used it to speculate, so crypto benefited from that. However, digital assets can be negatively affected when the wider macro environment changes."

According to him, crypto may enjoy more extreme highs on good news and extreme lows on bad news. If Russia declares peace, crypto may go up. Cryptocurrency has never been a hedge against inflation-or against anything. The financial ecosystem would eventually incorporate it into itself.

Cryptocurrency is now used as one of many possible "risk-on" assets, according to the chief strategy officer of consultancy BitOoda. Individuals seeking safe havens for their capital, and investors who have already invested in high-risk technology companies, will naturally take notice of Bitcoin and other crypto-assets.

Doctor says interest rates near zero led the market to say, "let's take a risk, it's okay." “Now that rates are rising and inflation is biting, crypto is the first thing people ditch from their portfolio,” he says. And the market's answer is, "no." A general macro economic downturn and stock

Crypto Weekly

market turmoil can only explain so much of cryptocurrencies' decline.

One example of self-inflicted pain is the breakdown of Terra Luna, an "algorithmic stablecoin," whose value was also supposedly pegged to the dollar, and lost nearly 99 percent of its value in May, destroyed 42 billion dollars of investor funds, according to Elliptic, a cryptocurrency forensics company.

Terra's dollar parity relied on economic incentives and code. Terra declined when people began cashing out. Celsius, which had a significant stake in Terra, is experiencing liquidity problems and suspending withdrawals over the weekend. The developer, Do Kwon, did not respond to inquiries. Celsius executives have not responded to emails, texts, or voicemails.

In other words, during the past couple of years, when an awash in cash markets looked for new investments, schemes that had tenuous economic fundamentals attracted investment, until the tide turned. The downturn cannot be attributed solely to Terra Luna and Celsius, since the downturn is a problem facing the entire industry. Even at face value, several major crypto players partnered with ventures that were peddling dubious products in the absence of regulation.

A creator of Circle—a stablecoin company licensed to transmit money in 46 US states— is scathing in his criticism. "Do exchanges have any responsibility? Customers will put it on themselves,” he says. "That's not true. The shelf is their responsibility. Would you put baby formula next to rat poison?”

CZ Zhao, CEO of Binance, disagrees. "I don't know," he tells me after a week after the Terra Luna meltdown. "I mean, Netflix dropped on Nasdaq." “Why don't we have a stock exchange?” According to him, he never saw any "intentional scamming behavior" on the part of the Terra Luna team, and he continues to believe in algorithmic stablecoins. Binance invested $3 million in the project in 2018. “The currency we use today hasn't lasted more than 300 centuries," CZ says. Terra luna lasted just over three years at the most.

Many observers hope the current market collapse will teach people valuable lessons about who to trust and who not to trust. Additionally, it may be able to rid the industry of frothier, weaker projects.

According to Kristin Smith, executive director of cryptocurrency lobbying group the Blockchain Association, such down markets are good for crypto because they're humbling. "Ultimately, this is going to lead to everyone being stronger and better.” “Furthermore,” she adds, “regulators are taking note, and they'll be more aggressive now that they know what can go wrong.”

Cuckoo crypto finance is not necessarily over, Ardoino says. "People are stupid. It's not just in crypto: People go long and short on futures all the time, not just in crypto. You can only teach people so much."  E

Crypto Weekly

Talk to a Bitcoin Miner About Crypto Winter This Year

Crypto Weekly

In the wake of falling cryptocurrency prices and skyrocketing energy prices, Bitcoin miners are taking their foot off the pedal. Blockchain.com reports that the Bitcoin hash rate–a measure of how much computing power is being used to hash out new coins–has fallen 5.4% since June 12, the day Bitcoin's price fell below $25,000.

In the meantime, the price of graphics processors, which are needed to create new Bitcoins, dropped an average of 15% in May, according to Tom's Hardware, indicating miners are dumping their chips.

It appears that some miners have given up on the Bitcoin mining business, finding the enormous energy costs for such a small reward no longer worth it. The decline in hash rate, and increased availability of GPUs, indicate that miners may be throwing in the towel. Crypto market analyst Yuya Hasegawa said in a note on Friday that, “supply and demand have not been in favor of the price this year.”

Bitcoin mining has become much more competitive in the past few months, with the Bitcoin hash rate reaching an all-time high on June 12. As more people mine Bitcoin, it becomes more difficult and requires more energy to do so.

As difficulty peaks, the price of the coin plummets. According to Hasegawa, to get out of this situation, either the difficulty must drop or the price must rise substantially. According to him, “If the current situation continues, miners will likely sell their Bitcoins when the price recovers, which will slow down the pace of price recovery, and could put Bitcoin in a range-bound situation.”

Is this the beginning of a new hash-crash? The share prices of listed miners Marathon and Hut 8 Mining both fell 41% over the past month, while total revenue to miners fell to its lowest level in nearly a year, according to Blockchain.com. Alexander Neumueller, project leader at Cambridge Centre for Alternative Finance, says being in the mining business at present is not fun.

Due to the steep drop in Bitcoin prices, revenues have fallen sharply. Despite a rally on Thursday night, Bitcoin's value has been creeping toward $20,000 since the start of the week. Over 70% of its value has been lost since November 2021, and its total market value has declined from $3.2 trillion yesterday, to just below $1 trillion now. While Bitcoin prices have plummeted, energy prices are on the rise, and this means that miners are now facing the pain from several directions: higher costs and less revenue per Bitcoin mined. Kazakh miner Didar Bekbaouov, the cofounder of mining company Xive, told the Financial Times he stopped mining Bitcoin once it dropped under $25k.The company has been preparing for this day and has accumulated storage of "unencumbered Bitcoins," which it will be able to deploy for acquisitions on this day, according to Hut 8, which stated that its only seasonality is related to electricity prices based upon volatility in natural gas prices. “Many companies acted on impulse during the height of the market, and may find they are stretched and underfunded in the coming months," explained Jaime Leverton, chief executive of Hut 8

Mining Crypto in an Energy Crisis

Mining Bitcoin may become increasingly difficult, as countries like Germany ask their citizens to conserve energy due to rising gas prices. Meanwhile, the cost of mining an alternative currency like Bitcoinan estimated 15GW of electricity each day, based on research from Cambridge Centre for Alternative Finance-has some wondering whether it is really necessary.

In a report issued a bit earlier in the month, Riksbank called for a ban on Bitcoin, citing the fact that, "some mining of crypto assets has recently been established in northern Sweden, where it consumes as much electricity as 200,000 households."  E