WEEKLY CRYPTO MARKET WRAP — 11 SEPTEMBER 2022

MARKET UPDATE

After the poor run during the last 2 weeks global markets did manage to post some gains for the week and so did the broader crypto market. All major cryptocurrencies like Bitcoin, Ethereum, Solana and Polkadot posted good gains over the week.

A point to notice is that Ethereum has performed better than Bitcoin the last couple of weeks — which could probably be due to the upcoming merge next week. “Flippening” — an event in which Ethereum’s market cap eclipses Bitcoin’s — may have not happened as of yet as the ETH:BTC ratio hit 0.08514 Bitcoin per 1 Ethereum, which is the highest level the pair has been trading this year. Does this mean that the benefits of the merge has already been factored into the price of ETH is a question only time will tell.

With the new move from PoW to PoS, there is speculation that the move will build pressure on Bitcoin to adopt a more energy efficient model.

BITCOIN IMPACT POST ETH MERGE

With the upcoming ETH merge to a cleaner, energy efficient model; Bitcoin will face some pressure as regulators will begin also push for a more efficient option. There is a lot of speculation that upcoming
Ethereum merge will likely intensify attention from environmentalists who decry Bitcoin’s energy consumption. On the back of recent energy crisis due to Russia cutting off energy supplies to Europe there
could be more pressure and miners could face a tough time ahead as government will want to reduce energy consumption as well as the cost of energy expected to surge with the growing shortage and winter
approaching.

The White House today suggested that U.S. lawmakers and regulators could soon crack down on cryptocurrency mining because of its large carbon footprint. Mandated by President Biden in an executive
order in March, the White House Office of Science and Technology Policy said crypto miners should reduce greenhouse gas emissions, with help from the Environmental Protection Agency (EPA), the Department of Energy (DOE), and other federal agencies.

The U.S. has become a Bitcoin mining hotspot this after China cracked down on the industry. Mining
operations flocked to North America which led to the U.S. share of global mining from Bitcoin rise from 3.5% in 2020 to 38% now.

FUTURE OF ETHEREUM MINERS

There exists two different types of miners GPU miners and the ASIC miners. ASIC mining machines are intended to mine a single cryptocurrency, such as Bitcoin or Litecoin. GPU mining is the process of mining cryptocurrencies using a GPU, such as those manufactured by NVIDIA or AMD and are not limited to a specific cryptocurrency.

The obvious advantages of GPU mining are that the hardware is far less expensive than that required for ASIC mining, and the power consumption is considerably lower. However, because GPUs have other uses in gaming and computer display, they are significantly less efficient at mining bitcoins than ASIC miners. ASIC mining machines ae far more superior with high processing and hash rates which makes them
efficient and high ROI compared to GPU.

With the merge coming up Ethereum miners using GPU’s have an exist strategy to mine on other platforms like Bitcoin; however, ASIC miners will have a difficult road ahead as the hardware will be rendered
useless. HIVE a large mining company that generates roughly $350k revenue from operations in mining Bitcoin and Ethereum is looking at diversifying post the merge. HIVE uses GPU mining devices and hence
will be able to diversify without the need for much capital expenditure. The company is exploring mining of Litecoin, Monero, Dogecoin and other, with beta testing already in progress.

Miners having large assets of ETH from mining operations are also speculating a price movement in the price of ETH post the merge and are hence holding on to their assets.

TROUBLE FOR MINING POOL PLATFORM — POOLIN
Liquidity issues continues to haunt the industry with the lending platforms to be hit first, then the exchanges — Could mining pools be the next to go insolvent?

That’s what has Bitcoiners concerned after Poolin — a Beijing-based Bitcoin mining pool that’s responsible for 10% of the overall Bitcoin network hash rate — announced a freeze on user withdrawals on Monday.

Mining pools are groups of miners that unite their efforts around one network node to mine as much Bitcoin as possible. The miners then share the spoils — but only if the pool operator has the will and means
to distribute them.

It is unclear on the reason for the freeze on withdrawals as mining pools distribute earned revenue to the participants based on the actual revenue earned after deducting their fees. However, there is speculation the drop in revenue expected post the merge could cause liquidity issues for payments.

LAUNCH OF DAMM — COULD THIS REVOLUTIONIZE THE LENDING SPACE
dAMM is an institutional lending platform for any token with algorithmically determined interest rates. Token issuers with a liquidity pool on dAMM Finance’s platform, market makers, and investors can borrow on the platform to provide liquidity and trade across all centralized and decentralized trading venues.

The current market scenario is one with lack of transparency and stability after the multiple collapses of larger lending first at the start of the crypto meltdown few months ago. For the last five years in crypto, there hasn’t been a single market maker default on a public platform or an institutional lending platform. Hence dAMM aims to provide a no-fee decentralized borrowing and lending platform for non-stable crypto assets that’s both capital efficient and accessible for multiple token issues. This will be done by enabling institutions to borrow and lend as many tokens as possible in contrast to heavily popular lending of stable coins only. Secondly, dAMM will only be lending to market neutral market makers unlike directional trading firms like 2 Arrows Capital.

To ensure that lenders on dAMM know who their counterparties are, the platform ensures that all addresses are labelled and subject to know-your-customer (KYC) and know-your-business (KYB) checks. Details of every transaction and movement of funds will also be shared with lenders. This provides lenders with insight into what strategies market makers are pursuing; whether they’re moving funds to exchanges, performing yield farming or centralized to decentralized arbitrage strategies.

Tylden D’Souza| NEST®

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