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Its Been a Boring Week for Bitcoin and Ethereum Prices. Dont Expect It to Stay That Way, Experts Say – NextAdvisor
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Bitcoin and ethereum have been boring lately.
Considering 15% daily swings are the norm in the crypto market, prices havent moved much in the last few days, with bitcoin holding steady near the $19,000 to $20,000 range and ethereum floating around $1,100. The two largest cryptocurrencies seem to be hovering around their current price levels with no clear direction in sight.
At this point, $19,000 to $20,000 is quite simply prior highs from the last major bull market in 2017, says Stphane Ouellette, CFA and founder of FRNT Financial, an institutional capital markets and advisory platform focused on digital assets. In other words, its difficult to predict what happens next and when. The bitcoin and ethereum futures curves are completely flat, implying that the market is also entirely uncertain of future direction, he says.
Still, the crypto market remains under intense pressure, with the possibility looming of another downturn. How low bitcoin goes in the coming weeks or months will depend on whether the stock market made a bottom and if no major crypto company falls into liquidation, according to Edward Moya, a senior market analyst at OANDA, a brokerage firm.
A plethora of bearish crypto headlines continues to drag down bitcoin below key technical levels. Sentiment will take some time to improve, especially after many anticipated crypto deals are falling apart, says Moya, referring to crypto exchange eToro abandoning a deal to go public via SPAC merger, while many troubled companies like BlockFi and Voyager are scrambling for deals to stay afloat.
Bitcoin on Wednesday was up nearly 2.5% in the last 24 hours, trading near $20,000. Ethereums price held steady near $1,100, up 3% in the last 24 hours. Though the two largest cryptos have experienced a small rebound in the last day, experts say were not out of the danger zone yet.
Bitcoin and ethereum have lost more than two-thirds of their value since last November, and experts predict crypto prices could drop even further now that bitcoins price has dipped below $20,000 several times in recent weeks. On top of that, investors are still feeling uncertainty about the current economic conditions like surging inflation, a potential recession in the U.S., rising interest rates, and a shaky stock market.
Bitcoin is stuck in its current trading range because of the nervousness of market participants, says Joshua Fernando, CEO of eCarbon. They have seen wild fluctuations in the past few months that have devastated the market, so it is reasonable that they are now trading cautiously.
Martin Hiesboeck, head of blockchain and crypto research at Uphold, says bitcoin is not moving much below or above the $20,000 level because of lack of stimuli.
There is no doubt that the market is waiting for macroeconomic news and less tension in geopolitical matters with the war in Ukraine, the specter of inflation, and possible recession being by far the biggest worries, he says.
So, what should crypto investors do in light of this? Nothing, experts say. If youve invested in crypto for the long-term using a buy-and-hold strategy, price swings are to be expected and big dips are nothing to be overly worried about.
Experts recommend keeping your cryptocurrency investments to under 5% of your portfolio, as long as your crypto investments dont stand in the way of your other financial goals. Always prioritize saving for an emergency, paying off high-interest debt, and contributing to a traditional retirement plan before ever investing in crypto. If youre a good spot financially and ready to enter the market, experts say now may be a good time to buy bitcoin or ethereum while prices are low, keeping in mind that prices could fall down more.
Perhaps like equities, investors just got a little carried away in the buy everything frenzy of 2021 and are sitting on the sidelines waiting for signs that equilibrium has been reestablished, and the bull market is back on, says Fernando.
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Its Been a Boring Week for Bitcoin and Ethereum Prices. Dont Expect It to Stay That Way, Experts Say - NextAdvisor
Bitcoin-friendly Prspera hits back at controversy in The Guardian – Cointelegraph
The leadership of the crypto-friendly charter city of Prspera in Honduras has hit back at reports it is facing a backlash from residents of the neighboring community of Crawfish Rock over its expansion plans.
A July 5 article from The Guardian reported the special economic zone, touted as an island paradise with low taxes/fiscal responsibility, luxury homes and crypto-friendly regulation has seen pushback from some residents of the Crawfish Rock community.
Some residents are reportedly concerned about being displaced from their homes due to Prsperas potential expansion plans, with the article describing the projects headquarters as sitting amid a landscape scarred by a bulldozer and deep holes dug for the foundation of the next phase of construction.
Its another salvo against the Bitcoin-loving city, which has been battling with the Honduras government after it repealed a Zones for Employment and Economic Development (ZEDEs) legislation in April, which was a key piece of legislation that would allow it to operate as a self-governed fully autonomous zone.
A lengthy Twitter thread from Prspera and articleby general counsel Nick Dranias on July 6 however, claimed that articles such as the one from The Guardian as just another example of a barrage of lies and misinformation from the mainstream media.
Drani outlines three key myths allegedly being disseminated by mainstream media including:
Myth #1: The Prspera team did not adequately socialize the project prior to launch.
Myth #2: Prspera is an ideological/crypto/libertarian project.
Myth #3: In Honduras, the Prspera ZEDE expropriated land from locals.
A Prspera representative told Cointelegraph that in general, the community response has been positive bar a select few:
Prspera Global also claims on Twitter that the supposed bulldozer scraped lands are construction sites for environmentally friendly low-cost housing available to any islanders, with the building jobs serving as a source of employment for the local community.
Prspera has been locked in a legal standoff with the government since President Castro repealed the ZEDE law in April, which would give the project 12 months to register under a different framework such as a Free Zone which would offer tax cuts but not allow self governance.
At the start of June, Prspera submitted a request for government consultations under the Investment Chapter of the Dominican RepublicCentral AmericaUnited States Free Trade Agreement (CAFTA-DR), in a bid to maintain its ZEDE status under the legal terms of the initial agreement.
Related: Bitcoin exchange outflows surge as 'not your keys, not your crypto' comes back into fashion
Honduras Prspera Inc. has remained staunch that its registration as a ZEDE has a valid legal stability for at least another 50 years due to the legal framework of the agreement it signed with the government back in 2017. In a June 4 blog post, the firm noted that:
The company stated it hopes to avoid an international investor-state arbitration and hopes that the government will act in good faith to the initial ZEDE agreement. The firm plans to invest hundreds of millions of dollars more in the coming years, and In April, Honduras Prspera Inc. raised $60 million to invest in the project despite the ZEDE repeal.
The representative added that the government is yet to formally respond to our request for official consultation.
Prspera is a privately-managed settlement in Honduras managed byHonduras Prspera Inc. The initial size of the Prspera Village is 58 acres and contains areas for its headquarters, housing, and areas for businesses to set up shop. Its size can grow over time if local landowners agree to integrate their properties into the ZEDE territory.
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Bitcoin-friendly Prspera hits back at controversy in The Guardian - Cointelegraph
Will Marathon Digital Join Other Miners In Selling Bitcoin? CEO Weighs In – Bitcoin Magazine
Bitcoin miners have historically sold BTC as they produced it to cover operating costs. But over the past couple of years a HODL strategy has permeated the industry as participants have opted to pay off expenses with debt instead.
Miners racked up much bitcoin- and equipment-backed financing to raise a combined $4 billion in capital for daily expenditures as bids to keep increasing bitcoin treasuries rose in the industry.
While that strategy worked fine during the 2020-2021 bull market, when the bitcoin price was increasing and capital was easier to raise, over-leveraged miners have come under extreme pressure this quarter as the cryptocurrency lost over 70% of its U.S. dollar value.
Consequently, with current macroeconomic conditions impairing companies abilities to raise capital and a bleeding bitcoin price, many public miners saw themselves with no other option than to give up on their HODL mentality.
In May, most public miners started selling considerable amounts of bitcoin to pay off debt or recurring costs, and the trend has apparently not died off. While some have sold only periodically their mined BTC since then, others have opted to part ways with some of the coins they had put in the balance sheet in previous months.
In June, Riot Blockchain sold 300 BTC, while CleanSpark sold 328. Core Scientific, however, went a bit further and dumped 78.6% of its bitcoin holdings for $167 million, which it said were primarily used for payments for ASIC servers, capital investments in additional data center capacity and scheduled repayment of debt. The firm added that it will continue to sell self-mined bitcoins to pay operating expenses, fund growth, retire debt and maintain liquidity. Bitfarms also sold a considerable chunk of its holdings over 3,000 BTC last month. Meanwhile, Marathon Digital Holdings and HUT 8 remain depositing monthly bitcoin production into custody.
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Marathon has been able to keep holding its bitcoin so far partly because of its operations structure. Contrary to some other big miners, the firm doesnt seek to vertically integrate; rather, it outsources most of its operations while retaining ownership of its miners, which incurs costs only when the machines are online and hashing.
I dont have to worry about land leases, buying transformers, buying containers, building buildings, paying deposits to the energy providers, et cetera. What we do is we contract with a hosting provider with a fixed price, Marathon CEO Fred Thiel told Bitcoin Magazine.
So our model means that in times like this, we can literally just sit on our miners and, if we have to, operate at a very low cost, he continued. Because were not having to prefund these big CapEx [capital expense] investments. So it gives us an advantage in this current market situation.
While this lean structure has allowed Marathon, which is the largest bitcoin holder among public bitcoin miners, to forgo selling bitcoin thus far, the company could soon start selling some of its produced BTC, Thiel suggested.
The executive explained that while the company currently is one of the very few miners who havent sold bitcoin amid a broader market slump, future market conditions might lead to a change in the companys strategy.
If bitcoin remains at these levels, it could be prudent for us to at least sell bitcoin as were mining it, enough to cover the current expenses, Thiel said. Were currently not looking at necessarily selling our stockpile of bitcoin, but again, if it makes sense for us to do that from a capital perspective, then we would.
Thiel highlighted that different price action by bitcoin will incur different actions from Marathon as the company seeks to navigate the current market; the executive hinted at three possible scenarios.
If the situation remains status quo with the bitcoin price bouncing between $18,000 and $22,000, theres one strategy. If bitcoin drops below that, theres another strategy. And if bitcoin goes above that, theres a third strategy, Thield said, declining to provide more details.
I prefer just not to go deeper than say that there may come conditions where we would sell the bitcoin as we mine it to cover operating expenses, and there may come a point where we would sell some of our stockpiling to cover CapEx if we needed to.
While a sustained period of time in current levels could require Marathon to sell its monthly production, as Thiel explained, the firm would only be pressured to sell its accumulated BTC and risk losing its status as the largest public miner bitcoin holder if price began ticking lower. On the other hand, a rally would allow Marathons HODL strategy to remain intact.
Its just my personal belief that bitcoin is gonna grind along at these levels until something changes in the macro environment and people are willing to invest in risk-on assets again, Thiel theoreticized.
And that may come in the latter part of this year or next year, who knows at this point? Its really going to be very dependent on the Federal Reserve and the degree to which we enter into recession and the economy, right?
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Will Marathon Digital Join Other Miners In Selling Bitcoin? CEO Weighs In - Bitcoin Magazine
SEC Still Against Spot-based Bitcoin ETFs. Is There A Light At The End Of The Tunnel? – NewsBTC
With the approvals of futures bitcoin ETFs, firms have taken it one step further and have applied with the Securities and Exchanges Commission (SEC) for spot-based bitcoin ETFs. However, unlike their futures and short counterparts, the spot ETFs have not found favor in the eyes of the regulatory watchdog. And as more spot-based bitcoin ETF applications are declined by the SEC, questions have arisen about whether the market will see one anytime soon.
Over the last month, anticipation had built up regarding spot-based Bitcoin ETF filings by both Grayscale and Bitwise. Grayscale had filed its application last year, with the SEC postponing its decision multiple times, but the firm had remained steadfast in its resolve to try to get approval for a spot bitcoin ETF. The final decision had come last week and it was indeed negative as experts had forecasted.
Grayscale had received a rejection on its application but it was not the only one. Bitwise had also made a filing for a spot BTC ETF and the SEC had also put a stamp of rejection on it too. The latter had filed to convert its popular Grayscale Bitcoin Trust (GBTC) to a spot-based ETF. The fund which has $12.35 billion is the largest bitcoin trust and is looking to move to the next level.
Related Reading |Mounting Support For Bitcoin At $19,000 As Market Ushers In A New Week
At the rejection, Grayscale had swiftly filed a lawsuit against the SEC alleging that the regulatory body has no reason to actually deny its application. Michael Sonnenshein, CEO of Grayscale, lamented the fact that the SEC had green-lighted four futures bitcoin ETFs in less than one year but had refused to approve any spot-based BTC ETF, accusing them of acting arbitrary and capricious.
However, the SEC has said that the rejection was due to fears about market manipulations in the bitcoin spot markets, the role that the stablecoin Tether will play in this, and the overall lack of regulated exchanges and surveillance in the bitcoin market.
Bitwise on the other hand has not made any move following the rejection and seems to be taking this one on the chin.
With the rejection, the reality of a spot-based bitcoin ETF coming to the market has been pushed back once more. Given the time frame that it took for the SEC to make a decision on these ETFs, it is expected that filing and getting a decision on another spot-based ETF could take almost two years or about 18 months. This means that it is unlikely that the market will see a spot-based BTC ETF this year contrary to what was forecasted by market analysts in 2021.
Nevertheless, Grayscale has not backed down on its mission to turn the GBTC into a spot-based ETF. The lawsuit is still in its early stages but the CEO has expressed hope that they would receive a decision in the next year.
Related Reading |Institutional Investors Remain Bearish As Short Bitcoin Sees Record Inflows
Grayscales GBTC still continues to trade at a heavy discount and the firms annual management fee is firmly at 2%. This means that if its filing to convert to a spot-based ETF is not approved in the next two decades and fails to remain close-ended, it would be unable to justify the discount at which it is currently trading. However, with the firms drive to gain approval from the SEC, it is not a stretch to think that it would get it in the next 20 years.
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SEC Still Against Spot-based Bitcoin ETFs. Is There A Light At The End Of The Tunnel? - NewsBTC
Analyst Predicts Rallies for Two of Ethereums Biggest Rivals, Says Bitcoin Could Bounce Harder Than Trad… – The Daily Hodl
A popular analyst is predicting if and when three cryptos can break out of the lingering market downtrend to achieve a short-term rally.
Pseudonymous crypto trader Altcoin Sherpa tells his 180,000 Twitter followers hes not encouraged by altcoins on their one-hour to daily high time frame [HTF] charts but thinks there could be temporary upside potential for certain projects.
Sherpa thinks both Cosmos (ATOM) and layer-1 scaling solution NEAR Protocol (NEAR) can do well.
The HTF market structure is still incredibly bearish for many altcoins but if we see a bit more chop/grinding + these bottom type of patterns playing out, I think well see a short-term move up.
Some potential double bottoms/[cup and handle]/etc. type of charts out there for now.
At time of writing, Cosmos is up by 4.33% over the last 24 hours and trading for $9.06.
Next Altcoin Sherpa provides a look at Ethereum (ETH) competitor NEAR.
NEAR Protocol is down just shy of 2% on the day with an asking price of $3.44.
Moving on to the largest crypto asset by market cap Bitcoin (BTC), Altcoin Sherpa says that despite Bitcoins six-month-plus downward trajectory, he foresees another BTC rally mirroring its rise in late March and early April.
Every single consolidation has resulted in a breakdown on high-time-frame charts. Is this time going to be the same?
Theres going to be another bear-market rally similar to March/April 2022; I dont know when/where itll happen though (or how high).
The analyst then tells his 10,300 YouTube subscribers he thinks its possible Bitcoin could rally as high as $30,000 during the next upswing.
Youre really looking for potentially a bear market rally where price is going to potentially rally harder than you think.
It could look like a move all the way up to $30,000. I dont know if it has the strength to get up there, but it is a scenario that Im viewing.
Altcoin Sherpa concludes his remarks by pinpointing $12,000 as a potential bear cycle low for Bitcoin, before adding that BTCs price might ultimately be determined by the equities markets rather than its merits or demand alone.
This last kind of bearish retest that we saw in late March, that was kind of the last real bearish retest that we saw. Everything else has just been consolidation, breakdown, consolidation, breakdown. Now were at consolidation.
We certainly could just see another breakdown to $12,000 or wherever. But there is going to be another bear market rally, I dont know what its going to look like or how strong its going to be, but as I said its really going to largely depend on equities, in my opinion.
Thats really just the nature of it, unfortunately.
Bitcoin is currently up by 2.12% over the last 24 hours and changing hands for $20,400.
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Analyst Predicts Rallies for Two of Ethereums Biggest Rivals, Says Bitcoin Could Bounce Harder Than Trad... - The Daily Hodl
Will Bitcoin ever go back to $60K? Here is what experts say. – Cryptopolitan
Bitcoin has seen its place as the leading coin of the global crypto market as its market dominance has remained more than 40%. It was the first coin that began the era of cryptocurrencies and was followed by names like Ethereum, Binance Coin, etc. It has seen several rallies since its advent and has fluctuated in value.
The recent changes have proved detrimental to its price as it saw a free-fall from its all-time high. These changes have disappointed some investors who were expecting it to rise further. While others have referred to it as the price correction, which was necessary because of the mad influx of funds. According to the latter group, it will bring sanity to the investors, and only those who understand the market will remain.
Here is a brief overview of the current situation of Bitcoin and whether it will be able to revive its value.
Bitcoin started with a value of less than a fraction of a penny, and then it saw its rise. For the first time, its price rose to $0.09 in 2010, and since then, it has continued staggering growth. It was initially developed as a hedge against inflation, to conduct transactions, and use for storage of value. These functions continued to enhance, and later it drew the attention of economists, financial experts, and corporate groups leading to its speedy rise.
It was in May 2017 when Bitcoin price rose to $20K, but then it fell to $10K in June 2019. The fluctuations continued and rose to $29K in December 2020. Later, the value continued to rise, and the result was the ATH in November 2021, when its price rose to $68,991. The following months proved the worst for Bitcoin as it saw a continuous decline, whereas its price has been lurching in the $20K range in July 2022.
There are various reasons for the fall of Bitcoin, including bearish global markets, an increase in US inflation rates, the Russia-Ukraine war, crypto hacks, scams, etc. These have resulted in decreased trust in the market because of increased losses.
There have been different views about the revival or further decline of Bitcoin. There are two groups; one is against investment in Bitcoin, while the other sees Bitcoin as the future of modern decentralized finance. They have debated the future of Bitcoin and tried to convince their followers.
Robert Kiyosaki, a renowned author, has continuously talked about the fall of Bitcoin to $1,100. He has predicted that the fall of Bitcoin will continue as there is no future for it. Dan Roseman from Coinality.com has criticized how Bitcoin works and sees its reliable future if the mining process is altered. It can save the losses borne due to volatility and will bring the market stability.
Ian Balina, founder and head of Token Metrics, says that Bitcoin can cross $100K and will even touch $150K. According to her, it is a new emerging asset going through a correction phase and will soon turn bullish. Though macroeconomic factors have also affected its price value, it will likely improve in the coming months.
Financial institutions like J. P. Morgan and Bloomberg predict its price will exceed $100K. So, the investors await the change in its value as it is currently lingering at lows.
There is currently a bearish situation ongoing for BTC. These changes have deprived it of more than half of its value. Its all-time high now seems a tale from the past. Experts are divided about whether it will see improvement in the upcoming months or further lose value. The indicators suggest that it is improving, but changes on the ground will determine it. Investors and experts are positive about this coin as it is seen as the future of DeFi.
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Will Bitcoin ever go back to $60K? Here is what experts say. - Cryptopolitan
‘Wolf Of Wall Street’ Advises On Bitcoin Crash And Best Time To Get Into Ultra-Low Cap Crypto – Benzinga
Jordan Belfort, the former stockbroker known as The Wolf of Wall Street, shared his views onBitcoinsBTC/USD 70% drawdown and the state of the cryptocurrency market.
What Happened:In a recent interview with Yahoo FinancesThe Crypto Mile, Belfort said Bitcoin was far from being a hedge against inflation in its current state.
"There is no real institutional ownership in Bitcoin. For instance, you don't have a teacher's pension fund owning Bitcoin for a ten-year hedge," he said.
When it comes to cryptocurrency, Belfort said he has two strategies for investing. One is to bet on the long-term fundamentals of a promising project, while the other is to gamble on ultra-low cap coins early on.
You get a hold of one of those things at the right time, you could make just massive, massive money, said Belfort.
But on the flip side, youre playing in someone elses playground.
According to Belfort, there is no amount of research that an individual can do to protect themselves from these ultra-low cap investments except getting in really, really early.
Whats going to end up happening is, its going to take its ride up, and then when it gets to the top, people are going to dump it.
In his view, all cryptocurrencies have the same predictable cycle and never recover once they fall from their peak prices. The best time to get into these assets, according to Belfort, is before they begin trading on centralized exchanges likeCoinbase Global IncCOIN, and when they are still on decentralized exchanges, or better still, a crypto launch pad.
Price Action:At press time, Bitcoin was trading at $20,228, up just 0.04% over 24 hours, as per data fromBenzinga Pro.
Photo viaseeshooteatrepeaton Shutterstock
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'Wolf Of Wall Street' Advises On Bitcoin Crash And Best Time To Get Into Ultra-Low Cap Crypto - Benzinga
Value Locked in Defi Slips to $74 Billion, Top Smart Contract Tokens Down Over 70% This Year Defi Bitcoin News – Bitcoin News
Decentralized finance (defi) has been hit hard by the recent crypto market rout as the total value locked (TVL) across 118 different blockchains has slipped below the $100 billion mark to todays $74.27 billion. The TVL in defi today is down more than 70% from its December 2, 2021, all-time high (ATH) at $253.91 billion. Moreover, since December 2021, the top smart contract platform tokens have lost 70% in value against the U.S. dollar as well, sliding from $823 billion to todays $245 billion.
While a great number of cryptocurrencies including the leading crypto asset in terms of market valuation, bitcoin (BTC), slid significantly in value, smart contract platform tokens and decentralized finance (defi), in general, suffered a great deal.
While Terras LUNA and UST fallout primed the flames, issues with Celsius, Three Arrows Capital (3AC), and the lack of trust in algorithmic stablecoins have continued to keep defi fires roaring. Six days ago, Bitcoin.com reported on how defi and smart contract coins got slammed by significant blows and at the time, there was still $104 billion in value locked into a myriad of defi protocols.
Today, the total value locked (TVL) in defi is $74.27 billion, down 70.74% since the all-time high 197 days ago on December 2, 2021. The defi protocol Makerdao dominates the pack with 10.43% in terms of the applications TVL of $7.75 billion out of the $74.27 billion.
During the past 24 hours, the entire TVL across 118 different blockchain networks dropped by 6.03%. Makerdaos TVL shed 15.19% during the past seven days and the second-largest protocol in terms of TVL size Aave lost over 40% last week.
Today, ethereum commands the largest TVL size out of all the blockchains with $47.33 billion or 64.18% of the aggregate locked. The second-largest defi blockchain as far as TVL size is concerned is Binance Smart Chain (BSC) with $6.06 billion or 8.22% of the $74.27 billion locked in defi today.
Tron is the third-largest blockchain network in terms of TVL size with 3.99 billion or 5.42% of the aggregate locked across the 118 chains. Furthermore, the total value locked in cross-chain bridges from Ethereum has dropped more than 60% during the past month, according to Dune Analytics metrics.
The tokens often leveraged in defi, smart contract platform coins have also shed more than 70% since December. At that time, the market capitalization of all the smart contract platform tokens was $823 billion and today it is hovering just above $245 billion.
Ethereum (ETH) is the leading smart contract platform token as it commands $131.50 billion of the $245 billion. ETH is down 39.3% over the last seven days and most smart contract tokens have seen considerable losses during the past week.
Avalanche (AVAX) shed 34%, binance coin (BNB) lost 25%, cardano (ADA) dropped by 22.5%, polkadot (DOT) slid by 20.7%, and solana (SOL) lost 22.3% in seven days. One of the only smart contract coins not down this past week is chia (XCH) as it is up by 1.2% against the U.S. dollar.
What do you think about the value locked in defi slipping to fresh lows and the losses smart contract platform tokens have seen during the last year? Let us know what you think about this subject in the comments section below.
Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 5,000 articles for Bitcoin.com News about the disruptive protocols emerging today.
Image Credits: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
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Value Locked in Defi Slips to $74 Billion, Top Smart Contract Tokens Down Over 70% This Year Defi Bitcoin News - Bitcoin News
Opinion | Wonking Out: Wasnt Bitcoin Supposed to Be a Hedge Against Inflation? – The New York Times
Theres a financial joke, whose origin I dont know, that has been making the rounds lately. It goes like this: If inflation continues at current rates, the purchasing power of wealth held in dollars will be cut in half over the next eight years. But cryptocurrencies can beat that: They can lose half their value in just a few months.
Haha. But crypto enthusiasts have indeed marketed their products as an inflation hedge. Coinbase, the biggest United States crypto exchange, declares that cryptocurrencies are appealing because theyre more resistant to inflation than fiat currencies like the U.S. dollar. This is, not incidentally, the same argument people used to make for holding gold.
But a funny thing happened as fears of inflation grew, as seen in this chart showing Bitcoins price in U.S. dollars over the past year:
So why have crypto prices crashed at exactly the moment inflation has taken off? To some extent it may be a coincidence: If you believe, as I do, that crypto is to a large extent a Ponzi scheme, this may just happen to be the moment when the scheme has run out of new suckers.
But theres also a more fundamental issue: People who touted cryptocurrencies as a hedge against fiat-currency inflation sort of a digital equivalent of gold fundamentally misunderstood how fiat currency systems work, and also, for what its worth, misunderstand what has historically driven the price of gold. It was, in fact, predictable that an upsurge in inflation would drive the price of Bitcoin down although maybe not that it would produce such an epic crash.
The key point to understand is that while the dollar is indeed a fiat currency that is, the authorities can issue more dollars at will, without the need to back those additional dollars with some kind of collateral America isnt Venezuela or the Weimar Republic, a nation that prints money to pay the governments bills. Our money supply is a policy tool used by the Federal Reserve to help keep prices fairly stable actually, rising around 2 percent a year while avoiding recessions. Sometimes the Fed gets it wrong, as it did over the past year, when it (and I) failed to see the inflation surge coming. But when it does, it tries to correct the mistake.
What this means, in turn, is that an inflationary outbreak doesnt presage a spiral of ever-rising prices, which you can avoid by buying crypto. On the contrary, markets believe that the Fed will do whatever it takes to bring inflation back down to normal levels: The five-year, five-year forward inflation expectation rate, a measure derived from spreads between regular U.S. bonds and bonds indexed to the Consumer Price Index, has barely moved through this whole episode:
And saying that the Fed will do whatever it takes means that it will raise interest rates until there are clear signs that inflation is cooling off. The Fed only has direct control over short-term rates, but long-term rates have already soared in anticipation of continued Fed tightening:
What does this mean for crypto? Well, the rate of return investors can get by buying bonds is up, which makes buying other assets, like stocks and, yes, cryptocurrency less attractive. So cryptocurrency isnt a hedge against inflation, its the opposite: When inflation goes up, the Fed responds by raising interest rates, which makes cryptocurrencies go down.
The thing is, we should have learned all about this from what happened to gold after the 2008 financial crisis. Gold prices soared, which quite a few people saw as a harbinger of runaway inflation:
But the expected inflation never came. What was happening instead was that the Fed reacted to persistent economic weakness by keeping interest rates low, and low returns on bonds pushed people to invest in other things, including gold. Whatever purpose holding gold serves something that, to be honest, remains somewhat mysterious one thing gold definitely isnt is an inflation hedge. And the same is true for cryptocurrency.
So another crypto myth bites the dust. And its hard to avoid wondering what myths are left.
Recently the legendary short-seller Jim Chanos gave Bloomberg a wide-ranging interview in which, speaking of cryptocurrency, he pointed out that a lot of the concepts behind its adoption early on have proven to basically be, you know, not there or wanting. You know, it was going to be a replacement currency. Well, no, its not. Well, its going to be a diversifying asset. Well, no, it hasnt been. And now we know it isnt an inflation hedge either.
Chanos went on to call crypto a predatory junkyard. Well, I wouldnt go that far. Actually, on second thought, I would.
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Opinion | Wonking Out: Wasnt Bitcoin Supposed to Be a Hedge Against Inflation? - The New York Times
Resistance is futile! 3 reasons why Bitcoin mining will never go away – Cointelegraph
In the summer of 2021, the Chinese government banned Bitcoin (BTC) mining and cited the typical concerns of harmful environmental effects and money laundering. Now, the Chinese government is working toward establishing its own digital yuan currency. This raises the question as to whether the original reasoning was merely a Trojan horse.
This ban could easily have been a huge blow to Bitcoins momentum. After all, close to 75% of all Bitcoin mining had been conducted in China by late 2019, according to Cambridge Alternative Finance Benchmarks. If the network teetered under the weight of Chinas nationwide ban, other governments might have begun to think that Bitcoin could be defeated after all.
For a brief period, the ban worked as intended by the end of June 2021, the Bitcoin networks hash rate had dropped to 57.47 exahashes per second (EH/s), down by a few multiples. However, the hash rate rebounded to 193.64 EH/s by December 2021 and by February 2022, it reached an all-time high of 248.11 EH/s.
The entire ordeal was a test that Bitcoin passed with flying colors: Banning Bitcoin mining proved as effective as the Prohibition era was at killing drinking culture in the United States.
In early 2022, the obvious explanation for the hash rate recovery was that miners who had set up shop in China had simply fled to the Western Hemisphere. There was plenty of evidence that seemed to support this hypothesis primarily that the United States share of the global hash rate exploded from 4.1% in late 2019 to 35.4% in August 2021.
However, the so-called great migration may not have been the only unintended consequence of Chinas ban. As of May 2022, miners in China accounted for 22% of the global hash rate a figure that is not as dominant as before, but no small slice of the pie, either.
As the Cambridge Centre for Alternative Finance reports:
Indeed, its likely that there is now a massive black market of Bitcoin mining in China.
Try as they might, one of the most authoritarian regimes on the planet cannot prevent its citizens from mining Bitcoin. In economic terms, the potential benefits to the China-based miners outweigh the costs associated with getting caught red-handed.
Despite the concern and skepticism that experts broadcast about Bitcoin, miners in China value the activity so much that theyre willing to risk breaking the law to get their hands on the future global reserve asset.
Despite Chinas black market surge, there is no doubt that the United States economy benefited from Chinas ban. Just outside Kearney, Nebraska, a company called Compute North runs one of the United States largest data centers for cryptocurrency mining. Around the time of Chinas ban, the company received a deluge of calls from operations that were trying to move their mining equipment from China into the United States.
Compute North welcomed its new partners with open arms. We doubled in size, said their lead technician. We were busy nonstop for the whole summer. [...] And theres just continuing more and more demand all the time.
Other towns, such as Rockdale, Texas, and Massena, New York, are also witnessing growth in their cryptocurrency mining ecosystems.
All of this migration could cause a vicious cycle for China and a virtuous cycle for the United States, which means that all sorts of other Bitcoin-related opportunities shift from China to the United States as well. Lamont Black, finance professor at DePaul University, believes that the recent influx of Bitcoin mining into America could bolster the countrys broader blockchain economy.
And that logic works both ways to the extent that Bitcoin miners are leaving China, then ancillary Bitcoin activities will travel along with them.
Although fleeing miners considered countries other than the United States, it seems that miners prefer America because of its relatively robust respect for property rights. One miner migrating from China said, Maybe the governments [of countries such as Russia or Kazakhstan] are not only shutting down the operation, but they also take [...] all your machines. You might lose everything, so the United States is a safe choice.
This black market phenomenon should be a lesson to Western politicians: If the Chinese government cant ban Bitcoin mining out of existence, neither can you.
As the United States forges ahead in studying the regulatory implications of the industry, traditional financial institutions are closely monitoring its movements. Retail and institutional investors are also paying close attention to the market swings as they battle inflation at home. At this point, trying to put the toothpaste back in the tube is nothing but a waste of energy. Bitcoin mining is not going away.
The United States and other world leaders must learn from the mistakes of others so that they dont have to repeat them. China wasted its efforts so that others dont have to.
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William Szamosszegi is the CEO and founder of Sazmining, the worlds first clean energy Bitcoin mining platform for retail customers. He is also the host of the Sazmining podcast and as a Bitcoin evangelist, Will is committed to improving humanitys relationship with time, money and energy. Will is the recipient of Bucknells venture grant, a finalist in SXSWs Digital Entrepreneurship Tournament, a Forbes Fellow and a regular speaker at Bitcoin mining conferences.
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Resistance is futile! 3 reasons why Bitcoin mining will never go away - Cointelegraph