The Digital Asset Landscape September 2021

So, just what are Bitcoin whales doing lately? These holders of huge quantities of Bitcoin (BTC) are continuing to buy the asset even as the crypto markets saw a recent dip, data from several sources shows. Most analysts believe it is just such investment behavior that precedes bull runs, hinting that another skyrocketing ascent may be in the cards for crypto over the next few months. Known as ‘whales’ in financial circles; these financial titans hold over $50 billion worth of BTC, and they increased their holdings throughout June, July, and August, as per a recent report. Data from on-chain analytics firm Chainalysis shows ‘whales’ accounted for over $10 billion worth of Bitcoin purchases from late June to late August, and some of that came from the business analytics firm MicroStrategy, which, starting last year, has accumulated billions of dollars’ worth of Bitcoin as part of its treasury assets. The report found that the last time such large-scale accumulation of BTC occurred, had been during the run-up to Bitcoin’s all-time high of $64,000, which it hit in mid-April 2021. At that time, the asset reached a market cap of over $1 trillion, before crashing to as low as $28,000 in the months afterward. Bitcoin has since recovered, and it had even crossed back over the support/resistance level of $50,000 early last week. This came just before falling by $3,000 in the middle of last week. Market analysts are unfazed regardless of the moves.

Alexandra Clark, a sales trader at UK digital asset broker GlobalBlock, stated, “Support is nearby according to technical charts.” She then added: “Bitcoin’s simple and exponential moving averages give strong buy signals… Not only that but MicroStrategy continues to grow its Bitcoin portfolio – this support could stabilize the pullback and maintain the breakout move above $45,000.” Daniela Hathorn, a market analyst at foreign exchange firm DailyFX, shared her sentiment: “The positive trend isn’t in any trouble as long as Bitcoin stays above its 200-day moving average at $45,750.” She added that a ‘key challenge’ for buyers was to make it through the $55,000 price level. Meanwhile, while the sentiment remains bullish, Bitcoin certainly can test your resilience as it can sometimes put-up notable drops of two or three thousand dollars during the middle of the night. This shows why the asset remains one of the most volatile financial instruments and it tests many new investors.

According to a filing to the US Securities and Exchange Commission (SEC) published on August 30th, Texas-based investment management firm US Global Investors purchased significant exposure to Bitcoin by investing in Grayscale funds. The company added over $566,000 worth of Grayscale Bitcoin Trust shares (GBTC) to three out of eight of its mutual funds. The SEC filings show that the company invested $302,899 GBTC in its Gold and Precious Metals Fund, $222,532 in its World Precious Minerals Fund, and $40,958 in its Global Resources Fund. Its total BTC exposure now represents 0.19% of the net assets in the Gold and Precious Metals Fund and the World Precious Minerals Fund, and interestingly, the company has classified its position in GBTC as common equity, according to the filing. This move has come as a surprise to many in the crypto industry, as US Global Investors has typically invested in gold, minerals, precious metals, petroleum, and other natural resources. Notably, Frank Holmes, the CEO and chief investment officer of US Global Investors, serves also as the executive chairman of HIVE Blockchain Technologies. HIVE is a publicly listed cryptocurrency mining company based in Vancouver, Canada.

Both US Global Investors and Holmes personally made a strategic investment in HIVE far back in 2017, after which Holmes was appointed interim CEO. Of course, Peter Schiff, the CEO of Euro Pacific Capital and a known Bitcoin critic, was among the few who didn’t see the company’s move as extremely bullish for the industry. He noted that Holmes’s position isn’t indicative of a greater shift in the way equity managers view cryptocurrencies or Bitcoin. Just more FUD? US Global Investors is not the first major equity manager to gain exposure to Bitcoin through Grayscale. American multinational investment bank Morgan Stanley has been investing in the Grayscale Bitcoin Trust (GBTC) and holds over $36 million worth of GBTC shares. With just over 928,000 shares held, Morgan’s Insight Fund has exposure to 870 BTC. In August, CryptoSlate reported that a division of Chicago’s First Midwest Bank increased its exposure to Bitcoin based on a July filing with the SEC showing that the bank reported holding 29,498 GBTC shares as of June 30th.

How can Dogecoin evolve? With DOGE struggling to recapture its previous form from earlier on in the year, if Ethereum co-founder Vitalik Buterin had his way, Dogecoin could be ready for an overhaul that would see a major step forward in its evolution. It is likely that his proposal could go some way to reigniting interest in the controversial meme token. As a “Twitter experiment,” Buterin posted a tweet requesting people he follows ask him anything – either crypto, or non-crypto related questions. The CEO of Three Arrows Capital, Su Zhu, responded by quizzing Buterin on his Dogecoin/Ethereum integration ideas. The response? Not surprisingly, similar to what Ethereum is trying to accomplish with ETH 2.0, Buterin suggested Dogecoin change its consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS). He added that, by using Ethereum code, developers wouldn’t need to start from scratch in order to accomplish this feat. “Personally, I hope that Doge can switch to PoS soon, perhaps using Ethereum code,” Buterin tweeted. PoS vs. PoW is a hotly contested topic, and advocates for each side maintain that their way shows superiority. Simply put, PoS offers more scalability and throughput, and yet since PoW networks are fully decentralized and have high hash rates, meaning they are strongly miner supported, the PoW network is said to be more secure.

However, environmental concerns seems to be the decisive factor in current times, and this sentiment favors PoS over PoW networks. Critics of PoW believe that its high electrical consumption, along with its use of polluting power sources, make it unsustainable in the long term. Dogecoin detractors point out the protocol’s inflationary supply, questioning how a token with infinite supply can hope to have any value. DOGE was initially launched with a 100 billion fixed token supply. However, in order to promote its use as a tipping mechanism while also discouraging hodling, the Dogecoin developers removed this limit and, currently, $5 billion of DOGE are added to the supply each year. Buterin mentioned that he is in favor of keeping the inflationary issuance. Rather than entering into the token supply, however, he suggests channeling the funds into a decentralized autonomous organization (DAO) that “funds global public goods.” This, Buterin said, is in keeping with Dogecoin’s “wholesome ethos.”

He then went on to add, “I also hope they don’t cancel the 5b/year annual PoW issuance, instead they put it in some kind of DAO that funds global public goods. Would fit well with dogecoin’s non-greedy wholesome ethos.” Interestingly, as Dogecoin was spiking higher earlier in the year, its co-founder Billy Markus resurfaced to post an open letter on Reddit explaining why he disappeared and what he wants for DOGE going forward. In his open letter, Markus wrote that it’s his hope that Dogecoin can be a force for good.

Data from multiple sources show that after last month’s Ethereum Improvement Proposal (EIP)-1559, half a billion dollars’ worth of Ethereum (ETH) have now been ‘burned.’ The EIP-1559 is an upgrade designed to improve pricing mechanisms by including a fixed-per-block network fee that is burned. ETH, the world’s second-largest cryptocurrency after Bitcoin by market cap, went live last month and has performed as expected so far. As per data from onchain tracker Etherchain, over 177076.1 ETH has been burned in under four weeks since EIP-1559 went live. This amounts to over $675 million at current prices, but still accounts for less than 1% of Ethereum’s 117 million circulating supply. Between five to seven ETH are burned every minute ($21,000 to $27,000), with a block utilization of 50.9%. A snapshot of past blocks shows an average of 1 ETH is burned each block. Miners, on the other hand, earn over 2 ETH ($7,800) on average for each block they mine. How does EIP-1559 help? For one, it makes fees more predictable for users. After the upgrade yesterday, a ‘base transaction fee’ is now charged to users, and it is algorithmically determined by how busy the network is. Users then ‘tip’ miners to have their own transactions processed quicker.

The miners themselves will only receive the tips, and then the ‘base fee’ amount will be ‘burned’ out of supply forever. In terms of the market effect, this means there’s now fewer ETH available on the market daily, which should, in turn, make the asset even more valuable to holders and investors. And the market seems to enjoy hearing this narrative: Ethereum has risen over 50% in the past month and 21% in the past week alone, running to a $445 billion market cap as of late last week. Some crypto traders are betting on a price target as high as $10,000 per ETH this year—providing it with a market cap of over a trillion dollars if that were to happen.

Alexander Lukashenko, the President of Belarus, has urged citizens to mine cryptocurrencies instead of moving abroad to pursue low-paying farming jobs. Speaking at the opening of the Petrikovsky Mining and Processing Plant on August 27th, Lukashenko said that the country had ample energy resources just waiting to be put to good use. He referred to the country’s numerous abandoned industrial sites, and these included both electric and nuclear power plants. According to a report from the Russian media site RBC, Lukashenko addressed the rising number of people who are moving abroad in order to look for seasonal jobs, saying that nobody was waiting for Belarusians with open arms. He went on to explain that if a country was willing to accept the huge influx of migrants, it would only be for low-paying farming jobs in other Eastern European countries such as Poland. He added that there were a lot of financial opportunities for people in Petrikovsky, as the region was rich with cheap energy resources. “Start mining cryptocurrencies, or whatever they’re called,” Lukashenko said last week. “There is enough electricity in the country.”

Cryptocurrencies have been fully legalized in Belarus for almost four years, ever since the country adopted the Decree of Digital Economy in December 2017. This decree exempted the crypto industry from taxes and allowed its citizens to freely own and transact in all types of digital assets. Belarus has been at the forefront of crypto adoption in Europe. In April 2019, Lukashenko proposed using excess energy from the country’s first nuclear power plant to mine cryptocurrencies. The same year, Belarusbank, the largest bank in the country, said that it was considering setting up a cryptocurrency exchange as part of its digitalization effort. Earlier this year, the country’s Ministry of Energy announced that it was actively exploring starting a state-run cryptocurrency mining project. The massive pro-crypto movement in Belarus can be linked to the complicated political situation which has plagued the country for the past decade. Lukashenko came into power as president in 1994, and he has been re-elected six times since then. In the past, he had faced heavy criticism and sanctions from the West due to his poor monetary policy, the lack of democratic freedom in the country, and mounting foreign debt. Faced with an economic crisis and shrinking freedoms, Belarusians have been migrating en masse to Western Europe, pushing its government to adopt a pro-crypto attitude they believe will keep people in the country.

Seven out of every ten Salvadoran citizens want their political representatives to repeal the newly instated Bitcoin law because they do not believe Bitcoin will solve the country’s financial problems. This is a finding of the latest survey from the University Institute of Public Opinion, which presented the results of its massive, state-wide survey on September 2nd. The global crypto community has widely celebrated El Salvador’s newly introduced law, and yet it lacks support among the people it actually applies to. The law declares Bitcoin legal tender in the country and many industry proponents believe President Nayib Bukele’s law will create a precedent that will push other countries to adopt cryptocurrencies as legal means of payment. The Institute of Public Opinion is a non-profit organization from the José Simeón Cañas Central American University. It published the results of its state-wide survey early last week.

Analyzing some of the worst struggles which Salvadorans feel, the survey revealed that 45% of the people believed the two biggest problems in El Salvador are poverty and unemployment. More telling, it found that 67.7% of respondents said that they didn’t believe their situation would be improved by raising the minimum wage. Salvadorans gave President Nayib Bukele a 7.64 rating, the lowest ever recorded for the 40-year-old since he was elected in 2019. This lack of support for Bukele is thought to have incurred the public’s disapproval for the upcoming Bitcoin law, as well. It goes further than that, and according to the survey, fully seven out of every ten citizens believe that the Bitcoin law should be repelled. Interestingly, only 20% of the people stated that they didn’t trust Bitcoin. Andreu Oliva, the University’s rector, stated that he believed the survey revealed that the population was quite misinformed about Bitcoin and the upcoming law. He believes it is just this misinformation that fueled the recent protests in the country’s capital. He concluded, however, that the country’s massive efforts to bring Bitcoin closer to the masses has great potential to counter the rising anti-crypto sentiment.

Just when Cardano smart contracts are readying for rollout, deep into the testnet phase, a “quirk” emerged in its eUTxO model which may lead to issues of concurrency. Just what does this mean? eUTxO stands for extended unspent transaction output, and these are the systems which  comprise the asset, smart contract, and additional on-chain data relevant to the smart contract. When eUTxOs are created, they have the option to have smart contracts attached to them, and so this model is based entirely on individual transactions grouped in blocks. What this means is that every time you wish to update data held by a dApp (inside of a UTXO), you must spend the original UTXO (thereby destroying it) and create a new UTXO at the same address & holding the same assets. This operates differently from the accounting (or balance) model used by Ethereum, where assets are represented as balances within accounts that are quite similar to bank accounts. In the computing industry, concurrency refers to the ability of a smart contract to handle requests from multiple different agents at the same time.

A recent article by OccamFi points out that some Plutus developers are concerned that the eUTXO system employed by Cardano will enable only one agent to interact with the SC at a time. This would then create a concurrency bottleneck. “Where developers are currently running into a problem is with only one agent being allowed to consume the UTXO and thus the SC at a time, creating this so-called “Concurrency” issue.” This becomes problematic as in the case of operating a decentralized exchange (DEX), where multiple users require access to a contract address at the same time. Cardano responded to what could just be the latest FUD to come its way. Developers Input Output Hong Kong (IOHK) dismissed this concern as a non-issue, and explaining the situation, they posted a tweet thread which defended their eUTxO model. In that thread, they said, “The specific flavor #Cardano uses is the eUTxO – or extended model which we believe offers greater security, allows for fee predictability (no nasty surprises…) and offers more powerful parallelization.” Specifically, they say their eUTxO system is not bottlenecked if developers employ multiple UTXOs, which they say works to “enforce” parallelism. “And to be clear, dapps are NOT limited to 1 transaction per block. By designing your service or application with multiple UTxOs, you can enforce more parallelism. This is inherent and – we believe – one of the advantages to eUTxO design as we have implemented it in #Plutus.” Up-and-coming Cardano DEX SundaeSwap set the record straight by saying the concurrency problem only affects protocols that allow multiple people access to the same UTxO. But Cardano is capable of running multiple UTxOs, which nullifies the issue.

El Salvador’s President Nayib Bukele revealed that the Central American country successfully purchased 200 units of Bitcoin in a tweet the second Monday of September. With that purchase, El Salvador became the first government in the world to invest in the crypto space. The president hinted that this would be the first of many purchases since the country’s “brokers will be buying a lot more as the deadline approaches.” In fact, later in the day, Bukele revealed that the country went ahead and bought more Bitcoin, taking its total holdings to 400 units of BTC. El Salvador is expected to officially legalize the use of Bitcoin on September 7^th, after it became the first country to recognize the coin as a legal tender earlier in the year. Throughout the year, President Bukele has constantly reiterated his belief that the asset would make remittance to the country easier, faster, and cheaper. At the same time, he expounded the opinion that the Bitcoin Law, which recognizes the cryptocurrency as legal tender, will do a lot of good for the country’s economy and society.

The Central American country has faced some level of backlash from the World Bank and International Monetary Fund who say that adopting BTC could have an overall negative impact. While many crypto enthusiasts have welcomed the decision as a sign of what the future holds for the industry, El Salvador itself has faced hostile reactions. Recently, the country has witnessed some level of opposition from locals who highlighted the issue of volatility attached to the asset and worried over its use by criminals. There are indications that the country could have made the purchase itself by utilizing the $150 million fund it had set aside for the adoption of BTC as a legal tender. Some believe the purchase at the start of last week could be geared towards the government’s plan of giving each citizen of the country $30 worth of the asset. In reaction to the news, the value of BTC briefly climbed to as high as $52,853.

The U.S. Securities and Exchange Commission (SEC) has refused to provide any documentation regarding the XRP holdings of its employees. Similarly, it will not disclose any of its own documentation regarding “trading preclearance decisions” for XRP, BTC, and ETH. Ripple requested the information as part of its ongoing trial with the SEC and hoped to obtain the records in order to determine policies around trading “governing digital assets.” Pascale Guerrier, the Trial Attorney at the SEC’s Division of Enforcement, said that Ripple’s requests “falls well below the low bar of relevance” in the Commission’s case against the company. Oh, really? He then called the motion “an unjustified intrusion” into the private financial affairs of SEC employees. Ripple filed the original motion on August 27th in order to understand SEC’s trading policies when it came to digital assets and whether the regulator allowed its employees to trade XRP. The company was hoping to use the information as part of its defense by claiming that if SEC and its employees behaved in a way that suggests XRP wasn’t a security, there was no way for Ripple to know whether it should classify the token as one.

Ripple held three separate meetings with the SEC during the summer to discuss this very issue, but had no success in any of them, according to the latest motion. Each time, the Commission refused to provide any details about its employees’ XRP holdings, even with redactions of personal information or in aggregate form. In June, the court granted Ripple’s motion to compel the SEC to produce this very documentation, but the Commission only provided a policy from January 2018, called the “Ethics Guidance Regarding Digital Assets,” which showed that the SEC hadn’t restricted its staff from trading cryptocurrencies until January 2018. Ripple believes that the policy is consistent with its view that the SEC itself didn’t see digital assets as securities, and so there was no basis for its accusations that Ripple was selling unregistered securities in the form of XRP. With the SEC’s lawsuit against Ripple going as far back as 2013, the company believes it has very good grounds for dismissal. Ripple CEO Brad Garlingoise fired back at the SEC at the end of August, blasting its handling of the XRP case. “This has been clear from the start — the SEC’s lawsuit isn’t just about Ripple, it’s about what ‘impossible standards of fair notice and due process’ through regulation by enforcement can do to crypto innovation.”