Digital Assets Offer a Potential Path Forward on Societal Issues

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Last winter, Texans faced a disaster. Hundreds of people died after the power grid failed to withstand a deep freeze. Governor Abbott took heat for the state’s power situation, and it appears he believes that he’s found a solution.

The theory is that more Bitcoin mining would encourage more electricity providers – that the energy demand would allow providers to make a business case for creating additional power plants.

Additionally, during times of extreme need – such as during the deep freeze – Bitcoin miners could shut down their operations in order to allow more bandwidth for heating homes. Two mining operations have already volunteered to make such adjustments for the public welfare.

Right now, there is some back-and-forth on how such operational shutdowns should occur, and some policy experts have said that such shutdowns need to be by government mandate. But putting aside the details of how such a partnership could be negotiated, it is important to say – yes, it should occur.

The industry, which has long been the subject of scrutiny for its energy usage, needs to enhance community appeal. Blockchain technologies have enormous potential. They will categorically change the way we interact with our financial system – and places like China and Iceland have already instituted limits on mining.

What we need is to show that this industry, with enormous potential to create a public good, can work hand-in-hand to help enhance the world in which we all want to live. A partnership with the state of Texas to enhance the electric grid is a win-win for all involved.

Lee Bratcher, president of the Texas Blockchain Council, has been quoted as saying,

“[I]t’s really a healthy dynamic that brings tax revenue, brings job creation and also is a grid strengthening mechanism.”

And Texas makes sense as a place to begin building that community-first mindset. The Texas Blockchain Council notes that the state is home to twenty-seven mining operations, and the state made it easier to utilize digital assets as collateral for loans. For his part, the governor established the Work Group on Blockchain Matters.

At a blockchain conference, Ted Cruz, senator of Texas, said,

“In five years, I expect to see a dramatically different terrain, with Bitcoin mining playing a significant role as strengthening and hardening the resiliency of the grid.”

The Texas Blockchain Council anticipates that by 2024 an additional five gigawatts of electricity will be required for mining operations in Texas. Abbott is banking on more consumption making the electric grid more stable. And given that blockchain isn’t going away, it is time to look at exactly how the industry can co-exist with society in a way that not only does no harm but also enhances the quality of life.

We know that the industry will bring good high-paying jobs. We also know that CBDCs will help bring the world’s unbanked population into our financial system. Blockchain technology could be the key to solving a host of global supply chain issues, including limiting unnecessary deaths by cutting down on counterfeit pharmaceuticals.

Those are just a few of the infinite possibilities. The industry must come together to show our local communities that we’re not just good for society  but that we’re good neighbors too.


Richard Gardner is the CEO of Modulus. He has been a globally recognized subject matter expert for more than two decades, offering complex insight and analysis on cryptocurrency, cybersecurity, financial technology, surveillance technology, blockchain technologies and general management best practices.

 

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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Long-Time Blockchain Advocate Congressman Tom Emmer Takes Aim at CBDC Bill

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Minnesota Congressman Tom Emmer, former co-chair of the bipartisan Congressional Blockchain Caucus, made rumblings this past month over the Fed’s role of issuing a CBDC.

He introduced a bill that would prohibit the institution from issuing digital currency directly to individuals, noting that,

“[A]s other countries like China develop CBDCs that fundamentally omit the benefits and protections of cash, it is more important than ever to ensure the United States’ digital currency policy protects financial privacy, maintains the dollar’s dominance and cultivates innovation.

CBDCs that fail to adhere to these three basic principles could enable an entity like the Federal Reserve to mobilize itself into a retail bank, collect personally identifiable information on users and track their transactions indefinitely. Not only would this CBDC model centralize Americans’ financial information, leaving it vulnerable to attack, but it could also be used as a surveillance tool that Americans should never tolerate from their own government.”

At issue is the ability of the Fed to offer retail bank accounts – something that is well outside of its current purview. A direct-to-consumer CBDC would be, in Emmer’s view, akin to such retail banking duties.

He argued,

“Any CBDC implemented by the Fed must be open, permissionless and private. This means that any digital dollar must be accessible to all, transact on a blockchain that is transparent to all and maintain the privacy elements of cash.”

Emmer notes that the United States must lead on the issue of CBDCs in order to “maintain the dollar’s status as the world’s reserve currency in a digital age,” but that at the same time, the country must aim to encourage innovation in the profit sector rather than compete against it.

Congressman Emmer is known for his thoughtful approach to digital currencies, and as the country prepares itself to discuss CBDCs in earnest, those making decisions would be wise to consult with him on the best way to bring about our digital future. In addition to the debate on CBDCs, the time has come and gone for a more standardized set of rules for digital assets of all stripes.

Many believe that regulators will begin developing such a rulebook for cryptocurrencies and stablecoins, as well as exchanges. During this time, it is critical that they continue to look at the custody situation as well, as it is an area that would also benefit from a more standardized set of expectations and regulations.

However, during all of this, we are in the midst of an election year. Elections have a way of politicizing issues that are – or should be – decidedly apolitical. The bipartisan nature of the Congressional Blockchain Caucus should prove that the blockchain economy is one item that transcends Republican and Democrat.

Politically diverse areas, including bright red Texas and bright blue New York City, have leaders grappling to show innovators that they understand the gravity of the situation while offering havens for startups and other businesses even tangentially related to cryptocurrency and the budding digital assets space.

Now is not the time to politicize the technology which has and will continue to fundamentally alter the state of the industry. The concerns that Tom Emmer has remain in line with the spirit of the birth of the cryptocurrency movement. As we consider how to move forward, his words should remain with us.


Richard Gardner is the CEO of Modulus. He has been a globally recognized subject matter expert for more than two decades, offering complex insight and analysis on cryptocurrency, cybersecurity, financial technology, surveillance technology, blockchain technologies and general management best practices.

 

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
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Florida Governor DeSantis Shows Resolve in Bet on Digital Assets

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Florida Governor Ron DeSantis isn’t fazed by the recent volatility in cryptocurrency, which is widely aligned with a broader dip across markets. From the uncertainty around Covid-19 and the budding situation in Ukraine, the markets have been undeniably affected.

But the southern governor continued to press onward, supporting a pilot program that would allow Florida businesses to pay state fees in cryptocurrency. His budget recommendations last month included $200,000 for DFS to run such a pilot program.

From his perspective, Miami has opened the door to being a haven for digital assets under Mayor Suarez.

During a recent news conference announcing his recommended budget, DeSantis said,

“A lot of people have flocked to South Florida over this issue, and so our view at the state government is [that] this is something we welcome, and we want to make sure the state government is crypto-friendly.”

His spokesperson doubled down in an email after the recent dip, adding,

“We always want Florida to be ahead of the curve, and we see the potential for cryptocurrency adoption, so it makes sense to offer the option to pay state fees in cryptocurrency – regardless of how much it fluctuates in an arbitrary time period.”

While some noted that the volatility of Bitcoin could mean that the state had less spending power after a dip, the inverse is also true. Cryptocurrencies that were held during an upswing would allow for increased spending power. The governor’s office had a solid answer in relation to the recent movement.

In an email, DeSantis’ spokesperson wrote,

“Bitcoin and other cryptocurrencies are still relatively new and not widely adopted yet. They are still in the price discovery phase, meaning that prices will continue to fluctuate as investors, regulators and users around the world influence supply-and-demand dynamics.

Every day, more people around the world start buying and using cryptocurrencies. The more people own and trade an asset, including a cryptocurrency, the higher its market cap goes. The higher an asset’s market cap, the more difficult it becomes for any one investor to move the asset price. So as a general rule – the wider the adoption of cryptocurrencies, the less volatile their prices will become over time.”

It is a common-sense enough statement, but in a world where the government doesn’t always have the keenest understanding of the blockchain industry – or even of business in general – one should feel some cheery optimism that the governor of one of the largest states isn’t afraid to stand his ground.

The question should be simple – is the technology good? If the answer is yes, then the asset’s short-term volatility isn’t remarkable. Just as one wouldn’t judge the long-term potential of blue-chip stock based on a down month of the market generally.

That makes sense to many investors in digital assets, and most folks reading this column know that cryptocurrencies and digital assets are here to stay, as is blockchain technology. However, politicians aren’t always moved by the same common sense as the rest of us. Instead, they are often moved by politics – especially in an election year.

It would be easy to jettison this pilot program as Bitcoin saw a price reduction. Budgets change often throughout the process. But in Florida, that’s not what happened. Governor DeSantis stood his ground. And that’s a boon for digital assets.


Richard Gardner is the CEO of Modulus. He has been a globally recognized subject matter expert for more than two decades, offering complex insight and analysis on cryptocurrency, cybersecurity, financial technology, surveillance technology, blockchain technologies and general management best practices.

 

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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Crypto Index Tracker – Big Jump in Metaverse Index

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Broader risk markets, including tech stocks, have bounced recently as markets appear to have priced a hawkish Fed. But the spillover to crypto markets has not been uniform.

Bitcoin has jumped five percent over the past week, but our metaverse index is the standout performer with a 21% surge (see charts one and two). Meanwhile, our overall smart contract platform index is up seven percent on the week. Finally, our DeFi index is up the least at four percent.

In terms of the breakdown within each index,

  • Smart contract platform index – Cardano (ADA) is down the most at 1.4%, and Avalanche (AVAX) is up the most at 11.2%. Ethereum is up 9.9% on the week.
  • DeFi index – PancakeSwap (CAKE) is down the most at 3.8%, and Maker (MKR) is up the most at 11.5%.
  • Metaverse index – Mostly large gains across the board. The Sandbox (SAND) and Decentraland (MANA) are up the most at 36.2% and 35.4%, respectively. Axie Infinity (AXS) is up the least at 2.4%.
  • Bitcoin index – This is up 4.8% on the week.

What are in the four indices?

Here are the indices in more detail.

  • Bitcoin – The OG of crypto markets deserves its own category and is in many ways the true benchmark for any other crypto market.
  • Smart contract platforms – After Bitcoin, the big innovation was to have blockchains that were more programmable. These could host smart contracts or decentralized applications and have allowed the emergence of the metaverse and DeFi. Ethereum (ETH) is the most popular version of a smart contract platform. But we also include rivals Solana (SOL), Cardano (ADA) and Avalanche (AVAX). We also include Polkadot (DOT), which allows interoperability between blockchains and the use of smart contracts via parachains.
  • Metaverse – Coins associated with the creation of a virtual space/digital world on the internet using a combination of augmented reality, virtual reality and social networks. One of the largest is this space is Axie Infinity (AXS), which is a play-to-earn gaming platform. Another is Decentraland (MANA), which is a virtual world that allows ownership of land among other things. The three other coins we include are The Sandbox (SAND), Enjin Coin (CNJ) and Gala (GALA).
  • Decentralized Finance (DeFi) – Financial services built on top of blockchain networks with no central intermediaries. This can be a very broad category, so we narrow this down to platforms that focus on lending and borrowing or to yield farming. The five coins we have selected are Aave (AAVE), Maker (MKR), Compound (COMP), Uniswap (UNI) and PancakeSwap (CAKE).

Disclaimer

The commentary contained in the above article does not constitute an offer or a solicitation or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.


Bilal Hafeez is the CEO and editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank and Nomura – where he had various ‘global head’ roles and did FX, rates and cross-markets research.

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.



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Cryptocurrencies Surge Despite the Federal Reserve Thinking of Three Hikes in 2022

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Last month as the Federal Reserve indicated that it might hike interest rates three times in 2022, the prices of major cryptocurrencies spiked. The prices of Bitcoin jumped from $47,800 to $49,000 after the announcement by the Federal Reserve.

Similarly, Ethereum prices rose from $3,810 to $3,922 following the Fed’s decision. As the Fed signaled that it would stop its Covid-19 era bond purchases this year in March, the prices of global shares also witnessed an increase.

The announcement marked the end of the policies executed by the Fed at the start of the pandemic. The new economic projections suggest that inflation will be 2.6% this year (compared to 2.2% projected last September), and the unemployment rate will be 3.5%.

Increasing short-term rates supported the US dollar against the euro and yen, where the monetary policy is expected to fall behind. The dollar’s value increased by 0.15% against the euro, which went down by 0.11% to $1.1245.

On the other hand, the prices of spot gold dropped by 0.3% to $1,764.91 due to the increase in cash rates. The US S&P 500 stock index was trading up by 0.4% in just 10 minutes of the Fed’s meeting. Morgan Stanley Capital International (MSCI) stocks increased by 0.10%, and the pan-European STOXX index surged by 0.26% after the Fed’s announcement.

The Fed’s announcement came in the light of inflationary developments and labor market improvements. The Federal Reserve decided on reducing its monthly net purchases of Treasury securities by $20 million and agency mortgage-backed securities by $10 million. The chair of the Fed meeting, Jerome Powell, said that inflation is running above the two-percent goal and will continue to be the same in the next year.

Powell said that the Fed is committed to price stability and will use the tools at its disposal to prevent inflation from being entrenched in the US economy. Powell also indicated that cryptocurrencies are not a threat to the financial ecosystem from a financial stability perspective.

Suggesting investors to be well-aware of cryptocurrencies they are investing in, he mentioned that cryptos are a risky investment class because they are not backed by anything. The Fed’s decision to taper follows the Central Bank’s earlier commitment to maintaining an “accommodative stance on monetary policy.”

Crypto hikes of 2021

2021 was a big year for cryptocurrencies. Major cryptocurrencies like Bitcoin and Ethereum hit an all-time high. Some of the major crypto highs and lows of 2021 are discussed below.

Elon Musk’s tweets

Elon Musk, the CEO of Tesla, is quite interested in cryptocurrencies. He is active on Twitter to shake the crypto markets with the power of his tweets. In February, he tweeted “Doge,” followed by “Dogecoin is people’s crypto.” These tweets combined increased the value of the popular Dogecoin – inspired by the meme of Shiba Inu dog – by 60%. This led people to invest heavily in this meme coin. So much so that it became one of the top 10 performing cryptocurrencies of the year.

China announced its national digital currency

In 2021, China began the first trials of its digital currency that it has been working on since 2014. Since coins and cash are expensive to produce and more difficult to use, digital currencies will alleviate systemic risks in the country’s payment systems. Besides that, a national digital currency will take control of the largely unregulated crypto space dominated by Bitcoin.

Coinbase went public

In April 2021, Coinbase, the world’s largest crypto trading platform, went public. For some investors, this move legitimized the crypto trading platform, making it more attractive. It was a massive success as the company’s direct listing reference went from $250 to $328 the same day, increasing its value of $86 billion.

Bitcoin fell below $30,000

After an all-time high of $64,000 in April, the prices of Bitcoin went viciously down in the following months. By July, the prices of Bitcoin fell below $30,000 – thus making a loss of more than 50% in just a couple of months. The reduction in investors’ risk appetite, crackdown on a New Jersey crypto services firm and stock market sell-off were cited as reasons for the downfall of crypto prices.

Bitcoin became legal tender in El Salvador

In September 2021, the government of El Salvador announced that it would accept Bitcoin as a legal tender. It became the first country to do so. Experts and crypto advocates project that more countries will accept Bitcoin as legal tender in 2022. It depends on how smoothly Bitcoin adoption in El Salvador works.

China bans crypto mining and transactions

Weeks after El Salvador made Bitcoin a legal tender, China banned all crypto mining operations and transactions at the end of September 2021. This ban was essential to reduce Bitcoin’s carbon footprint and lead to the mainstream adoption of China’s digital currency. This decision led to the mass exodus of Bitcoin miners from China to the US.

First Bitcoin ETF goes public

The US Securities and Exchange Commission allowed Bitcoin Strategy ETF to go public in October 2021. This was the first time Bitcoin futures started trading publicly. Even though investors cannot directly invest in Bitcoin, they can learn about the volatility of the asset by investing in Bitcoin futures.

Bitcoin hits record high

In November, the combination of the fear of inflation and stock market energy. In April, the investors who bought Bitcoin saw a return of about 130% in just a few months. The market capitalization of cryptocurrencies also reached about $3 billion in November.

Thus, we see that the prices of cryptocurrencies are volatile and susceptible to market fluctuations. However, it has not dissuaded investors from investing in cryptocurrencies – instead, they are even more bullish about crypto market growth.


Ian Kane is the co-founder of Unbanked, a global fintech platform built on blockchain. Kane has worked in technology and digital media for over 10 years, with a heavy focus on business development, sales and strategy. His diverse professional background enables him to bring unique insight and experience to every challenge he takes on.

 

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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Crypto Index Tracker – Metaverse Suffers Most in Crypto Quake

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Despite some stabilization over the past 24 hours, crypto markets are down meaningfully over the past week. This has come in the context of weak tech stocks and nervousness over Fed hikes. But there has been some divergence across crypto markets.

Bitcoin has been one of the more resilient coins and is down ‘only’ 14% at $36,000 (charts one and two). Ethereum has underperformed Bitcoin but other crypto markets have performed even worse. Our DeFi and smart contract indexes are down 28% each, while the metaverse index is down a whopping 33% on the week.

In terms of the breakdown within each index,

  • Smart contract platform index – All coins are down on the week. Cardano (ADA) has dropped the most at 35.1% followed by Solana (SOL) at 34.4%. Ethereum is down 24.5%.
  • DeFi index – All coins are also down on the week. Uniswap (UNI) fell the most at 36.1% followed by Aave (AAVE) at 33.4%.
  • Metaverse index – Large declines across the board. Gala (GALA) is currently down the most at a staggering 40% followed by The Sandbox (SAND) at 35.4%.
  • Bitcoin index – This is down the least at 14.1% on the week.

What are in the four indices?

Here are the indices in more detail.

  • Bitcoin – The OG of crypto markets deserves its own category and is in many ways the true benchmark for any other crypto market.
  • Smart contract platforms – After Bitcoin, the big innovation was to have blockchains that were more programmable. These could host smart contracts or decentralized applications and have allowed the emergence of the metaverse and DeFi. Ethereum (ETH) is the most popular version of a smart contract platform. But we also include rivals Solana (SOL), Cardano (ADA) and Avalanche (AVAX). We also include Polkadot (DOT), which allows interoperability between blockchains and the use of smart contracts via parachains.
  • Metaverse – Coins associated with the creation of a virtual space/digital world on the internet using a combination of augmented reality, virtual reality and social networks. One of the largest is this space is Axie Infinity (AXS), which is a play-to-earn gaming platform. Another is Decentraland (MANA), which is a virtual world that allows ownership of land among other things. The three other coins we include are The Sandbox (SAND), Enjin Coin (CNJ) and Gala (GALA).
  • Decentralized Finance (DeFi) – Financial services built on top of blockchain networks with no central intermediaries. This can be a very broad category, so we narrow this down to platforms that focus on lending and borrowing or to yield farming. The five coins we have selected are Aave (AAVE), Maker (MKR), Compound (COMP), Uniswap (UNI) and PancakeSwap (CAKE).

Disclaimer

The commentary contained in the above article does not constitute an offer or a solicitation or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.


Bilal Hafeez is the CEO and editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank and Nomura – where he had various ‘global head’ roles and did FX, rates and cross-markets research.

 

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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Deep Dive – How Crypto Impacts Global Equity Prices

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Bitcoin and Ethereum are now ranked among the world’s top 20 traded assets. And their market caps exceed some of its largest companies. Their growth during the pandemic reflects a significant rise in the popularity of and participation in the crypto ecosystem. But with all the crypto mania, how are these decentralized markets influencing traditional ones? The key is in the correlations, according to a new IMF working paper.

  • A new IMF working paper explores the connection between crypto and equity markets following a twentyfold increase in the market cap of decentralized assets during the pandemic.
  • They find fluctuations in the daily returns of Bitcoin and Tether can explain a sixth of the variation in daily S&P500 returns, up from just one-percent pre-pandemic.
  • Combined, volatility in the two crypto assets can also explain a fifth of the daily price action in EM equity markets.

Until at least the first half of the pandemic, many thought Bitcoin’s scarcity would help it become an inflation-hedging asset. But opinions changed when inflation started rising in May 2021. Bitcoin was turning out to be another play on risk markets – it was most correlated with US and Chinese equities. It is this connection with equity markets that the IMF paper considers because that is where the $3 trillion crypto market will probably have the largest influence. The paper finds the following.

  • The correlation between Bitcoin price volatility and volatility in the S&P500 rose over fourfold from pre- to post-pandemic.
  • Bitcoin is now responsible for 17% of the daily volatility in US equity prices.
  • Crypto assets are also increasingly connected with EM equities.
  • Bitcoin and Tether can explain almost 20% of the fluctuations in daily MSCI emerging market (EM) prices. For comparison, the S&P500 explains 30%.

Simple correlations

Since the start of the pandemic, the correlations between cryptos and equities have skyrocketed. The intra-day price volatility of two major crypto assets – Bitcoin and Ethereum – is now about four to eight times more correlated with the volatility of the main US equity market indices (the S&P 500, Nasdaq and Russell 2000) versus 2017-19 (chart one). A similar pattern holds for the correlation with equity markets in emerging market economies, captured by the MSCI EM index.

Intra-day returns have also become more correlated – though the increase has been particularly pronounced for Bitcoin (chart two). While the correlation between Tether and equities also strengthened, it turned negative during the pandemic – implying people used it as a risk diversification asset in that period.

The rise in correlations between crypto assets and equities has been much bigger than for other key asset classes, such as the 10-year US Treasury ETF, gold and selected currencies (the euro, renminbi and US dollar).

However, the correlation between Bitcoin returns and high-yield bonds (HY CDX) and investment-grade bonds (IG CDX) has strengthened notably – as tends to be the case for risky asset classes. Meanwhile, the reverse holds for Tether, again implying risk diversification (chart three).

More complex correlations

To formally measure crypto’s link to asset markets, the authors run a VAR model to capture bi-directional correlations. They call these correlations ‘spillovers.’ Again, they analyze daily returns and volatility to gauge the extent of portfolio connection and diversification strategies across asset classes over time.

Like the simple correlations, spillovers have also increased during the pandemic – that is, from crypto to equity prices and vice versa. For example, volatility in Bitcoin prices now explains 17% of the volatility in the S&P500 (chart four). But volatility in S&P500 prices also now explains 15% of the volatility in Bitcoin prices. This shows a strengthening bi-directional correlation – so, increased spillovers.

Also, the connection between Bitcoin and Tether increased since the start of the pandemic. Volatility in Bitcoin prices explains over a quarter of Tether price volatility. In the other direction, Tether only has a limited impact on Bitcoin’s volatility (12%). It can also only explain six-percent of the volatility in the S&P500.

Return spillovers also increased during the pandemic. The patterns are broadly similar to the volatility spillovers but smaller. The most striking result is that daily returns in Bitcoin and Tether combined explain a sixth of the variation in daily S&P500 returns. They also explain 15% of the variation in Russell 2000 returns. This is remarkable given their contributions were almost non-existent before the pandemic, and it shows just how much crypto assets influence equity markets.

The growing connection between cryptos and equities extends beyond the US. Bitcoin explains 14% of the volatility in the MSCI EM index during 2020-21 and eight-percent of its returns variation. These are up 12pp and 7.5pp from pre-pandemic, respectively. Combined with Tether, the two crypto assets explain almost 20% of the daily price action in the MSCI EM index (chart six). Comparatively, the S&P500 explains 30% of the daily MSCI EM price volatility.

To finish, the authors examine these spillovers in periods of market stress. Generally, the spillovers are larger when market volatility is high. For example, the March 2020 market collapse led to a pronounced and relatively extended rise in bi-directional volatility spillovers between crypto and equity markets.

Bottom line

The pandemic’s macroeconomic implications have been huge. They have altered decade-long trends in labor markets, goods and services, consumption habits, inflation and more.

As this paper shows, the pandemic also appears to have accelerated the integration of decentralized markets into centralized ones. As such, investors, regulators and policymakers can no longer trivialize the importance of crypto within the global macro landscape. Events in crypto are now also events in equity markets and vice versa – the speed at which this has changed is astonishing.

Disclaimer

The commentary contained in the above article does not constitute an offer or a solicitation or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.


Sam van de Schootbrugge is a macro research analyst at Macro Hive, currently completing his PhD in international finance. He has a master’s degree in economic research from the University of Cambridge and has worked in research roles for over three years in both the public and private sector.

 

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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Behind the Scenes of Kazakhstan’s Political Crisis – Can Crypto Mining Survive There?

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Kazakhstan has been in the crypto news a lot lately. On the surface, we know that it’s a Central Asian nation with low-cost electricity that became the world’s second-largest center for cryptocurrency mining after China’s crackdown on crypto.

Kazakhstan recently experienced violent clashes between protesters, police and soldiers, which resulted in an internet blackout that caused difficulties to normal crypto mining operations. The crypto community feared it would have a drastic impact on global crypto markets.

But what’s going on behind the scenes? What exactly is the cause of this crisis? What are its likely outcomes? And what are the potential prospects for crypto in that country? Find out here.

Background of the country

Kazakhstan is an ex-Soviet country the size of Western Europe with considerable mineral resources and economic potential. Its varied terrain ranges from the mountainous, densely populated regions of the east to the thinly populated, natural resource-rich plains of the west, and from the industrialized north, with a Siberian climate and landscape, to the dry steppes of the center and the fertile south.

Kazakhstan comprises an area of 2.7 million square kilometers and has one of the lowest population densities in the world with 19.1 million people. Kazakhs dominate the country in terms of ethnicity, with Russians making up just over a quarter of the population and smaller minorities making up the rest.

Islam is experiencing a revival in Kazakhstan after being suppressed under Soviet rule when about two million Russians immigrated there during the campaign to develop virgin territories. Since the collapse of the Soviet Union in 1991, oil sector investment has been the driving force behind the country’s rapid economic growth.

Here’s what happened

Kazakhstan had been a highly advanced autocracy under its former president Nursultan Nazarbayev for three decades after gaining independence from the Soviet Union.

Nazarbayev appointed Kassym-Jomart Tokayev as his successor in 2019. He implemented a controlled transfer of power while retaining control over the security council until protests over fuel prices that started on January 2, 2022, turned into the biggest confrontation over the country’s direction since the collapse of the Soviet Union.

Tokayev sacked the prime minister and other government officials in response to the uproar and reinstated the gas subsidies.

In a shocking move, the president also dismissed his predecessor Nursultan Nazarbayev from his position as chair of the national security council, which had given him authority over the country’s strategic policy as well as the right to veto most of Tokayev’s decisions.

The protests, however, continued unabated. Therefore, Tokayev appealed for help from the Collective Security Treaty Organization (CSTO), a Russia-led security alliance. A contingent of 2,500 peacekeeping soldiers arrived in the country within hours. It was the organization’s first mission since its creation in 2002.

Kazakhstan authorities banned foreign journalists from entering the country during the unrest and implemented a nationwide internet blackout that curbed information flow to the outside world.

During the clashes, more than 160 people were reported dead, including law enforcement officers. A crackdown on the riots led to the arrest of almost 10,000 people.

Tokayev’s narrative on January 7 appeared to be that terrorist gangs exploited the unrest with an apparent intent to seize power with the help of foreign support and that CSTO troops only defended critical infrastructure, without intervening to suppress the uprising.

Since the unrest was quelled, all CSTO troops have left Kazakhstan, Russian ambassador to Kazakhstan Aleksei Borodavkin said on January 19.

Who stands behind the uprising?

In an attempt to ease discontent, President Tokayev reversed the gas price increase and sacked the entire government. Then why didn’t that help stop the unrest? One of the reasons is that people in Kazakhstan are highly dissatisfied with how wealth is distributed in their resource-rich country.

What can appease an angry mob? As soon as dissent overtook the region there wasn’t much Tokayev could do to make people feel happy and go home. They wanted a total change to the regime.

Kazakhstan has some of the world’s largest oil reserves and is the world’s largest uranium producer. However, the nation’s wealth is confined to an elite group associated with the family of the president, and most Kazakhs don’t benefit from natural resource exploitation.

The writing was probably on the wall for Tokayev. Back in 2019, mass protests brought down Nazarbayev, so these protests could have had the same effect. To avoid this, he brought in the big dogs (CSTO). For now, it appears that President Tokayev is the biggest winner of the current crisis.

Moreover, insiders say tensions were growing between the two leaders’ offices. Over time, Tokayev’s power and control over the national bureaucracy grew. Since the beginning of the Covid-19 pandemic, Nazarbayev has rarely appeared in public and was visibly fatigued. The current protests have given Tokayev a chance to undermine the basis of the dual power system.

As a way of distancing himself from Nazarbayev, Tokayev said that discontent with income inequality among the people was justified and that associates of Nazarbayev should share their wealth. The president talked about initiatives to reduce the wealth gap and eliminate irregularities in state procurements and business relationships with Nazarbayev associates.

According to another view, it was Nazarbaev who orchestrated the unrest in order to overthrow Tokayev and hand the presidency to his daughter.

Akezhan Kazhegeldin, an exiled opposition leader, revealed to Euronews that Nazarbayev’s allies paid radicals to turn peaceful protests violent.

Kazhegeldin said,

“[Their] aim was very simple. They tried to regain power, to get back into office, dismiss Tokayev and call a new election – and probably they believed that some of them were going to be elected.”

Since the crisis began, Nazarbayev has been out of the spotlight, with rumor mills churning and speculation rampant that the enormously wealthy ex-president fled the country with a large part of his family.

Why does this matter to crypto?

Kazakhstan is a major Bitcoin player. After China clamped down on cryptocurrency mining last year, the nation became the second-largest Bitcoin mining hub, according to a report from the Cambridge Centre for Alternative Finance. Kazakhstan contributed 18.1% to the global hash rate as of August 2021.

BTC.com data cited in The Guardian article shows that hash rates for major Bitcoin mining pools declined 14% during the protests, emphasizing how important Kazakhstan is to the Bitcoin ecosystem. Bitcoin price plunged too, hitting below $43,000 in one of those days.

Meanwhile, the negative environmental impacts of Bitcoin mining have been a continuous concern in many countries – and Kazakhstan is no exception. More than 70% of Kazakhstan’s electricity is produced by burning coal, making it the largest emitter of carbon dioxide in Central Asia.

Kazakhstan’s government announced last year that it would crack down on unregistered miners whose consumption is estimated to be twice that of registered ones.

For as long as Tokayev remains president, he will likely stick with his previous course of favoring Bitcoin miners and seeking alternative energy sources for them. Thus, the president announced plans for a nuclear power plant, a logical decision given that it is the world’s biggest uranium producer.

However, the country has a history of nuclear disasters, so many people are wary of this idea. As a result, the president must strike a balance between satisfying his country’s people so they don’t rebel again and allowing the booming crypto sector to flourish in Kazakhstan.

The government’s plan to uproot unregistered mining activity and improve the regulation of the country’s crypto mining sector is seen as a way to bring more stability and clarity to the industry in the country. However, Bitcoin miners fear the political crisis may keep the government from taking action.

Despite the uprising and the common power outages miners have experienced since arriving in Kazakhstan, miners fear that it might not be worth leaving the country. To bring the devices to the United States, for example, would take weeks, and they could actually be damaged during the shipping process.

Thus, crypto mining companies will look to stay in Kazakhstan, possibly contributing to the country achieving the required levels of power generation. A number of these firms already expressed an interest in investing in upcoming energy projects like wind power and hydropower stations. Ultimately, it comes down to the government that seems quite interested in seeing a crypto industry grow in Kazakhstan once it settles its internal political crisis.


Mike Ermolaev is the head of PR at ChangeNOW and an expert author at CoinTelegraph, Investing.com, FXStreet, Benzinga and others. He has been working in crypto PR since 2018, being CCO at several prominent crypto entities and co-founder of his own communications agency before joining ChangeNOW’s team.

 

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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Crypto Markets Continue To Grow Despite a Global Pandemic

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Crypto markets continue to grow despite Covid-19 and governments trying to destroy them – but how?

Cryptocurrencies were seen as magic internet money for a great period of time. In fact, this attitude toward crypto has been in place for a longer period than the attitude that they’re lucrative investment vehicles. Born out of chaos and disdain for the heavily manipulated financial world, Bitcoin and distributed ledger technology (DLT) is seeking to change the way the cogs turn in the financial world.

But how are crypto markets managing to persistently outperform the global financial markets, despite a global pandemic? Millions of people were furloughed, millions made redundant and millions of people dead. How is this landscape perfect for an emerging financial system destined to revolutionize the world? Is now the best time to join the blockchain movement, and what are the best practices for it if you are part of a crypto project?

It’s simple, really. Evolution and adaptation.

Perhaps it’s best to compare cryptocurrencies, DLT and blockchain to the history of planet Earth. You see, there are countless parallels between the two, and in the grand scheme of things, the evolution of the financial world is virtually the same.

The Paleozoic period

In the history of the Earth, the Paleozoic period was when land plants, mosses and liverworts began to appear on Earth. This was 252 million years ago at the closest part. During this time, life on Earth was still mostly tiny insects. If we compare this to the Bitcoin lifecycle, this was its launch in 2008. There were incredibly few users, and nobody took it seriously. Nothing could survive in the crypto world, and adoption was virtually zero. Many that stumbled across Bitcoin during this period branded it as junk and useless, which in all fairness, it was at the time.

Just like those plants from 252 million years ago refused to give up and die, Bitcoin continued to grow and defy all odds. It took until July 2010 for Bitcoin to be given some form of dollar value, where it traded between $0.0008 and $0.08 per coin. Once this happened, it sparked the next phase of its life – the Mesozoic period.

The Mesozoic period

The Mesozoic period takes us from 252 million years ago to 66 million years ago. This is where those insects and plants from before evolved and grew into entire ecosystems and multiple species, giving Earth some of the most dangerous and ferocious predators that it has seen to date. The same thing happened to Bitcoin and the cryptocurrency world between 2010 and early 2017.

This is the period where we saw developers from all around the world take the Bitcoin code and technology to create their own cryptocurrencies. Countless cryptocurrencies were born, and Bitcoin continued to gain momentum and grow its user base as well as its global adoption. This was still a relatively small amount compared to where it is today, but these slowly laid foundations are the reason that Bitcoin and the cryptocurrency world is where it is today.

During this era, we saw second-generation blockchains start to become an idea, meaning that blockchain was about to get more use cases, and faster. Until now, waiting 10 minutes for a transaction to get processed was incredibly fast. But as more and more users began making Bitcoin transactions, this time got slower and slower.

Bitcoin was prolifically used on the dark web as the currency of choice to buy drugs, guns, human organs, pay for murders and much more. This is where Bitcoin’s name began to get muddied and associated with criminals – but much in the same way that the Tyrannosaurus rex got a bad rep for being a ferocious murderer.

The reality is that both were apex predators doing what they were designed to do perfectly. In the case of Bitcoin, it was to act as a currency used for making payments with no restrictions or boundaries of governing bodies to say what you can or cannot spend your money on. For the T-Rex, it was the ability to hunt and eat anything it desired. Two well-oiled machines doing their job perfectly.

Thanks to this perfect design, Bitcoin and cryptocurrencies became infamous, rising in value from $0.08 to just over $1,000. Along the way, Bitcoin became the talk of the town, feared by the banks and continuously targeted by the traditional financial system. A massive campaign of misinformation was launched against cryptocurrency, designed to drive fear into the hearts of mere mortals who were not part of the upper echelons.

But they did not need this in order to remain in control, as during this period, Bitcoin and other cryptocurrencies were not user-friendly – meaning there was a huge barrier to entry. Instead, these campaigns designed to smite Bitcoin and its fledgling competitors only created more awareness of the burgeoning industry and helped with its adoption. People could smell the fear and were drawn to it, knowing that if these large institutions are scared, then it must be good.

As a result, toward the latter stages of the Mesozoic period, there were dozens of cryptocurrency exchanges and crypto wallets popping up. These became simpler to use and safer, giving the entire human race a quick, easy and safe way to get their hands on this magical internet money that the banks fear and has already made so many people wealthy beyond their wildest dreams. This evolution laid the foundations for what was arguably the biggest event in Bitcoin and cryptocurrency’s life – much in the way that the Chicxulub meteor laid the foundations for the future of planet Earth.

The Cenozoic period

Then we arrive at the Cenozoic period. During this period of Earth’s life, apes began to emerge, and we saw humans evolve. Every human civilization, from the cavemen, to us right now in the 21st century is here. This period only spans 66 million years but sees more evolution and changes than the previous 4.5 billion years. The same is true with the world of cryptocurrency and blockchain.

More has happened in the four years since 2017 than in the rest of the history of the industry. We’ve seen second-generation blockchains go from ideas to fully functioning networks. We’ve also seen third-generation blockchains launch and go live. All of this is built on the rich foundation and slow evolution that Bitcoin and the cryptocurrency world has gone through.

But what has any of this got to do with the global pandemic and the fact that cryptocurrency use is higher than ever before?

This goes to show that Bitcoin and other cryptocurrencies aren’t just a fad. Instead, it’s technology steeped in history, and it’s gone through a colossal evolution, just like the planet has. Bitcoin and other cryptocurrencies are no longer only good for use on the dark web.

Today, these cryptocurrencies have just as much utility as the dollar, pound, yen or euro. Services have evolved that allow us to store our cryptocurrencies in wallets and spend them at any merchant in the world using a debit card. This period of evolution has enabled cryptocurrencies to merge with the existing financial networks, improving them at every twist and turn.

Crypto being put to full use

The fact that you can now send money anywhere on the globe in a matter of seconds for a fee that’s a fraction of a cent is incredible. Before blockchain, this would take days and cost you a small fortune. The world of DeFi is here, and it’s allowing people to take out loans that they can afford with the click of a button. No longer do you have to apply and wait six months only to get rejected because the bank thinks you’re too risky. Financial freedom is here – and it’s all thanks to Bitcoin.

Virtually all of the biggest and best companies in each industry are now all using cryptocurrency and blockchain in some part of their business model. Whether it’s Telsa storing $1.5 billion of its balance sheet in Bitcoin to hedge against inflation in the USA, Bank of America using blockchain technology to power cross-border payments and settlements or El Salvador making Bitcoin its national currency, this is all incredible progress that shows Bitcoin and other cryptocurrencies are here to stay.

Cryptocurrencies have more purpose and utility than ever before, so it’s not shocking in the slightest that this burgeoning industry is still growing. In fact, the global pandemic has actually been beneficial for Bitcoin, cryptocurrency, blockchain and DLT. It has given people more time to learn and get educated on the subject of this emerging technology and its potential. We’ve also seen governments and private companies turn to blockchain technology to power vaccine certificate authentication. All of this is unprecedented.

The new norm courtesy of blockchain

As a result, this raised awareness and use for cryptocurrency increases the demand for it. Anyone that studied high school economics can tell you that increased demand means reduced supply, which leads to an increase in price. So, the fact that we’re now entering the longest bull run in cryptocurrency history is not surprising in the least. It also stands to reason that this is the new norm, and these price levels could be called ‘bearish.’ The more and more that companies integrate with cryptocurrency, the higher the prices are going to go.

And sure, crypto markets are still constantly abused by those with the largest bags. But this also applies to the traditional financial world. There will always be pump and dump groups looking to artificially inflate the price of a currency to boost their profits. Just look at how JP Morgan got caught doing this with precious metals. If these schemes are to truly be abolished from society, blockchain is our best chance at making it happen. The big cryptocurrencies that power the most popular and most useful blockchains will remain relatively impervious from these groups. But the smaller altcoins that have very little utility and purpose will become a hive for this activity.

As the education about cryptocurrency increases, fewer people will retain the herd mentality when it comes to investing. This will then reduce the negative impact that these pump and dump groups have over the wider user base of crypto.

This is without a doubt the best time for companies and services to begin their move into the crypto world. It’s easy enough to take a traditional business and incorporate cryptocurrency and blockchain, as well as gaining new customers from the crypto niche. There are specialist crypto ad networks designed to help you with reaching this new customer base, and they arguably deliver better results than traditional ad networks.

The global pandemic hits

Covid-19 swept the globe, forever changing the world as we know it. Brick and mortar businesses suffered the most from this, with online behemoths quickly adapting and thriving. Governments mandate when we can venture outside, control our freedom and restrict our human rights, all in the name of ‘doing our part.’ But the reality is that these measures designed to keep us safe have actually made the general population resent the institution more than ever before.

As a result, demand for freedom is at an all-time high. Politicians are continuously destroying their countries, running up more debt than is humanly imaginable, embezzling trillions worth of taxpayer money and killing anyone that gets in their way. People are fed up with suffering and staring down the barrel of inflation that will cripple their personal finances beyond repair. The solution? A new financial system.

Bitcoin and cryptocurrency finally give people control of their own money. Whether you want to spend it on a car, at a casino, on drugs or save it, that choice is finally yours. In fact, during the pandemic, Bitcoin casinos have seen player numbers increase at a faster rate than ever before. Why? Governments are making it harder and harder for people to enjoy fiat-based casinos by imposing strict controls and regulations. You can argue that these measures are in place to prevent addiction, but at the end of the day it’s taking away your choice and right. Cryptocurrency allows you to take back that control and do what you please.

As businesses suffer from this outflow of money from traditional services to cryptocurrency-based services, stock markets continue to take a battering. In a bid to prevent getting swept up in that impending chaos, more and more investors are pulling funds and reallocating them to assets from the blockchain and cryptocurrency world. Not only are investors favoring crypto over forex but they’re also betting big on firms using blockchain technology.

Bitcoin and the crypto space have already fended off the worst that the traditional finance world can throw at it, adapting and evolving in the process. This proves that crypto has what it takes to adapt to a world with Covid-19 measures in place and continue to thrive. It’s a fast-paced and adaptive industry that can take on anything the world throws at it.

The future for cryptocurrency

This global pandemic has legitimized cryptocurrency as a real industry  not just as magic internet money that criminals use on the dark web. You can pay for your coffee using crypto. You can pay your taxes with crypto. Cryptocurrency is the future, and as it continues to evolve, we’re going to see its adoption skyrocket. Right now we’re at the tip of the iceberg. The future of blockchain and cryptocurrency is going to be incredible. It’s going to change everything. Businesses that continue to fight it and resist will end up vanishing, while those that adapt will thrive in this new phase of human existence.

Cryptocurrency is getting to the point where it’s poised to take over as the reserve currency for the world, but which currency will claim the throne is yet to be seen. It’s likely that we’ll see a new government-backed cryptocurrency emerge and fill this role. Blockchains like Ethereum, Solana and Binance Smart Chain are powering this current phase of evolution, and it’s exciting to see where this will lead us. Soon we’ll see fourth-generation blockchains that are faster, cheaper, more eco-friendly and can do so much more than we can currently imagine to be possible.

The only question is – will you be adapting to this new way of life or fighting it?


Gary Blaisdell is one of the most interesting personalities in the current journalistic field. Most of his works, you can see in various journals and newspapers like The Times and others. He has created several blogs and cooperated with one of the most significant publishing houses.

 

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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DeFi – Reflections on 2021 and the Road Ahead

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It’s fair to say that crypto has brought us many surprises over the last year. Many expected DeFi to go mainstream in 2021, and while major corporations and institutions started to take an interest in Ethereum and the DeFi ecosystem running on top of it, there’s little doubt that NFTs stole the spotlight.

In fact, while NFTs pervaded mainstream culture for the first time, many of the earliest DeFi protocols stalled and entered their own bear market even as other crypto assets soared to record highs. One factor behind this might be the rising gas fees on Ethereum, as well as traders seeking exposure to ETH over application-level governance tokens. Nonetheless, while many DeFi tokens traded sideways, the total value locked in the industry surpassed $100 billion on Ethereum and $250 billion across the broader ecosystem.

Arguably, the most notable DeFi development of the year was the explosion of activity on alternative layer one networks such as Solana, Avalanche and Terra. These networks have shown strength against Ethereum and proved that crypto is heading toward a multi-chain future featuring several smart contract platforms. As we head into 2022, other smart contract networks such as Fantom and NEAR have also started to see traction.

Alternative layer one platforms have often used generous incentives and liquidity mining rewards to attract builders and users. However, the real test of their viability will come if the market experiences another serious downturn. Many new bridges and networks are offering compatibility with the Ethereum virtual machine, so we expect to see another explosion of DeFi activity across multiple networks this year.

The Curve wars and DeFi 2.0

DeFi is currently in the midst of a transformational shift as a result of the so-called ‘Curve wars’ involving the DeFi ecosystem and one of the earliest and most used protocols, Curve Finance. In DeFi, liquidity is everything, and the Curve wars are proving this while showcasing the power of composability.

For several months now, the Curve wars have seen protocols such as Yearn Finance and Convex Finance competing for attention by offering generous rewards to users who stake Curve’s CRV token in their protocols. When users lock up CRV in Curve, they receive veCRV. Holding veCRV gives them voting power according to how long they lock their tokens for. This is powerful because voters can make decisions on the number of rewards allocated to each pool on Curve.

Several protocols are ramping up the competition for liquidity, buying as many CRV tokens as possible, and giving rewards to those who stake them. Liquidity is everything in DeFi, and projects have realized that they must incentivize users to stick with them by offering high rewards. Convex now holds 47% of the supply of veCRV.

The Curve wars have intensified recently amid growing interest in the DeFi 2.0 movement. Other newer protocols such as Dopex Finance, Tokemak and Olympus DAO have also emerged, offering a variety of unique ways to capture and keep liquidity. In 2022, the Curve wars and the unexpected burst of innovation in DeFi 2.0 projects look set to define – and possibly transform – the DeFi ecosystem.

Where do DeFi blue chips on Ethereum stand?

We expect alternative layer one networks and DeFi 2.0 to continue their growth trajectories in 2022. This presents questions about the position DeFi blue chips like Compound, Uniswap and Maker – DeFi 1.0 classics that launched on Ethereum – find themselves in. Most blue chip tokens are currently down over 50% off their highs, and there are many potential reasons for this. For one, most newer crypto users are priced out of DeFi on Ethereum due to its high gas fees. For ‘degens,’ the lucrative yields offered in DeFi 2.0 have meant the blue chips falling out of vogue. And the market is experiencing a general decline, with most major assets also way down from their highs.

DeFi also suffered this past year due to the rise in hacks and major exploits. As a recent Chainalysis report revealed, crypto crime revenue totaled $14 billion in 2021 – almost all of it coming from the DeFi space. Ethereum and EVM-compatible chains such as Polygon and Binance Smart Chain hosted some of the year’s most impactful hacks. This signals that the industry needs to start building a culture of using insurance and smart contract auditors.

2021 has proved that the market believes in a multi-chain future. However, the reality is that holding assets across multiple networks presents challenges for even the most experienced crypto users. Bridges can be clunky and carry security risks, as proven by the vast number of attacks on bridges. And as Vitalik Buterin has pointed out, bridges carry increasing security weaknesses as they increase in prominence. Cross-chain interactions are still difficult across networks like Solana, Ethereum and other EVM chains, which should leave space for ‘layer zero’ interoperability-focused chains like Cosmos and Polkadot to thrive.

Key trends for 2022

A major development for DeFi in 2022 will be the emergence of layer two solutions like ZK-Rollups. Growing adoption could kickstart a repeat of 2020’s ‘DeFi summer,’ when traders flocked to Ethereum protocols to farm yields on their assets for the first time. We believe layer twos will see widespread use in 2022 – but DeFi is also likely to flourish on other networks. It will be interesting to see how the growth of DAOs impacts the space as finance becomes increasingly decentralized, given the core value proposition of DeFi is censorship resistance derived from its decentralization. Only time will tell, but one thing is for sure – DeFi is here to stay, and it should continue to grow fast.

While cross-chain interoperability still feels somewhat far, there is a gap in the market for protocols and projects that intend to bring the vision of a multi-chain world closer to reality. In the meantime, the DeFi ecosystem largely exists within Ethereum and other smaller segregated networks.

We also expect to see innovation explode at the front end this year. If 2021 was the year of mainstream NFT adoption, teams should now be focusing on onboarding new adopters into the abundance of opportunities in DeFi. The most successful applications among new adopters will focus on creating fast, seamless and low-cost use cases that make using the technology feel simple. Last year showed us that, while the interest in crypto is here to stay, there are still many rails that will need to be built before we are ready for mass adoption.

Summing up

2021 was a year to promote and onboard newcomers. In 2022, we need to continue this trend while making sure that those freshly hitting the industry succeed (at whatever level) in their goals within it. In terms of an adoption curve – pun intended – we may have seen the very beginning of visionaries (rather than hardcore nerds and gold-rushers) entering the industry.

We are now faced with the task of proving blockchain-based technology and systems are superior in practice, not just in theory. Only through better, objective results will we manage to attract the pragmatists and convince the skeptics of the world.


Brian Pasfield is the CTO at Fringe Finance with almost 10 years of expertise in blockchain, cryptocurrency, fintech and DeFi. He has delivered technically-complex projects that have leveraged his engineering background and keen understanding of the industry trends and philosophies. Brian has also worked with industry blockchain bodies to lobby for legislation and government policy changes.

 

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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