TABLE OF CONTENTS
The cryptocurrency market can be crazy, but it doesn’t have to be! We’ll highlight some key developments and significant activities that you should be watching.
-High Bitcoin Fees
The cost to send a transaction is vital for the future adoption of Bitcoin. A significant utility of Bitcoin is sending money as a payment for services/products. With transaction fees averaging $4–5 during sometimes, we can see substantial transactional problems.[Figure 1] You run into even more issues when you have a Point of Sale business and must wait for the transaction to go through. Since the fees are high for micropayments, they are often left unconfirmed for a day, which causes a merchant dent. Below is an illustration of the number of confirmed Bitcoin transactions per day over the last year. [Figure 2]
Higher fees result in transactions getting prioritized by miners, so in time of quick circulation, the market can be congested, resulting in the average fee spiking. As the Halving occurred in May, we saw a build-up as miners left the market due to a decrease in mining profitability. If Bitcoin’s usability is decreased during heightened fee times, then its potential value takes a short term hit.
-Kyber’s Decentralized Exchange
Kyber’s Decentralized Exchange is doubling down with technology infrastructure. According to the research group Messari, the Kyber network has increased over 3.5X since last year, making it one of the top-grossing crypto exchanges. [Figure 3] Kyber has over six million dollars locked up[Figure 4] in its decentralized reserves, making it the third biggest decentralized exchange.
Kyber has been crushing it even in the world’s recent pandemic crisis. Over 13,000 unique addresses were used in Kyber during April and surpassed $200,000,000 worth of cryptocurrency transactions. The market has been calling for decentralized exchanges for years, and we’re finally getting to see some early adoption with this new innovative technology.
We’ve seen a flip in the market with cryptocurrency as more people enter. Investors who may have been skeptical around Bitcoin are seemly more interested in what Defi has to offer. [Figure 5] Shows a few Defi projects that have been making moves in the new smart contract financial space.
Traditional Exchanges have done profoundly in the cryptocurrency space and have proved to be one of the most successful businesses within the area. To put the centralized cryptocurrency space into perspective, Binance a popular exchange that is tokenized processed $4.6B+ in total volume today. [Figure 6]
Kyber also has a native token KNC, which distributes rewards to token holders, which netted holders $2,890,000 in annualized earnings. If Kyber were to process 1% of Binance monthly market volume, which is estimated at $134,002,352,460, they would be processing $ 1,340,023,524.6, which would translate to ~$19,363,339.93047 in annualize earnings. (Over six times more than what they are currently doing)
Observed Trends (longer term developments)
-BTC 2020 Halving
The Bitcoin Halving is an operation embedded into the blockchain that decreases the reward that mines are given for validating a block that transactions are in. The prize is split in half, so miners will begin receiving 6.25BTC for each block until the next Halving. Every 210,000 blocks the blockchain undergoes a “Halving,” which means it only happens every few years since a block is created every ten minutes or so. The objective of this operation is to lower the inflation rate of new Bitcoins entering in the market. Only 21,000,000 Bitcoins are available to be mined, so the blockchain has a designed plan to ensure that coins are just printed like traditional methods of currency.
When looking back on the Halving, we need to focus on three critical factors, price, hash rate, and mining profitability.
During the Bitcoin Halving, Bitcoin was estimated to be around $12.25, and within ten days, the price increased to $13.43. This price increase was on a less liquid market than today, and buying pressures were much lower.[Shown in Figure 7]
Below you will see a picture of Bitcoin’s Hashrate before and after the halving. The Hashrate fell significantly, from 27.61 THash/s to 19.98 THash/s. [Figure 8]It took Bitcoin around six months to fully recover from the reward block getting cut.
Bitcoins mining profitability was hit extremely hard as the block reduced in half, so the operating income of miners was cut in half resulting in a lot of miners selling off equipment and stopping. It wasn’t until February 2013 that the mining profitability reached it’s peak again. [Figure 9]
The second Halving also recorded a small price increase going from $652.14 to $674.03. [Figure 10]
The hash rate fell from 1.56 EHash/s to 1.40 EHash/s following the 2016 Halving. A significant drop in hash rate can cause security issues as a 51% attach is more obtainable as miners leave the network. [Figure 11]
As expected, the second halving had a negative impact on the mining profitability as the reward is 50% less. This causes smaller operations to shut down as the expenses of running a mining rig don’t decrease. [Figure 12]
After the Bitcoin Halving on May 11, 2020 we saw Bitcoins average fee increase substantially due to the increase in hash, and the decline of miners. To get a better understanding of this, let’s take a look at the previous halving’s.
At the start of the Halving the price of Bitcoin stood at $8,527.96 and was $9,073.27 ten days later for the third Halving increase. [Figure 13]
The Hash rate dropped from 137.5713E to 87.192E only four days later. [Figure 14]The hash rate is still substantially lower as many miners have left Bitcoin to move on to other coins. In the next figure we will look at the profitability of mining Bitcoin after the 2020 Halving.
Bitcoin mining has once again gotten harder to mine, pushing a lot of smaller players out of the mining economy.[Figure 15]
Why does this matter?
Let’s take a look at our three focus points and discuss the facts.
The price has had a positive reaction to the Halving; however, it isn’t a good indication that it will present future earnings. A month after the previous Halving’s, we’ve seen lower prices due to selling off, which could indicate a sell-off based on profiting during a hyped event.
It seems as though the Halving would be a tremendous investment opportunity as it slows down the supply. However, to see a price surge their needs to be added demand in Bitcoin and more usage outside of just “Hodl’ing.”
In the long term, the Halving is impactful because it slows the supply down, and if demand is kept high, then the price will move based on standard economics. However, in the short term, the Halving poses a few adverse risks due to the decrease in security and possible miner sell-offs that would create selling pressure.
Hash Rate is oftentimes compared to Bitcoins price, and in the illustration below, you’ll be able to see the comparison between the two indicators.[Figure 16]
Correlating Bitcoin and it’s hash paints an unrealistic picture of the economy because many outside factors play a role in price development. We will usually see a hash increase within fourteen days after the Halving as the blockchains infrastructure averages ten-minute blocks. So, if miners leave, it will become easier to mine a block which will push some miners back into it.
As the difficulty increases, Bitcoin will have built-in price floors due to the added expense, which will be helpful over its longevity. However, on a short-term horizon, it hurts miners.
As the difficulty gets higher and the reward gets smaller based in USD, there will be fewer miners who can stay afloat and process transactions. Below is an illustration of the mining pools that own the market of miners. [Figure 17]
Bitcoins foundation was such that anyone could participate in the verification process, but know this foundational lining is becoming harder and harder to say. As the smaller “mom and pop” miners leave the market, we’re left with the big companies that will have more pull in the direction of the chain. As it becomes less profitable to mine, the hash rate could drop, and a 51% attack could be more likely, although it’s not too worry some as there are defensive mechanisms.
Mining profitability has many different deciding factors in terms of its ability to generate revenue. The location and equipment play a determining role, which is dangerous because it centralizes the areas in which Bitcoin is mined. If China has the cheapest energy and the best manufacture plants. Then China decides they will ban cryptocurrency mining in a minute’s notice; then, the entire network could take a dramatic hit.
Towards the end of the report under Tim’s Corner, there will be a good indication of Bitcoins’ price speculative future.
Ethereum 2.0 is coming, and here is why it’s essential!
Ethereum 2.0 is a network upgrade that will be running together with the existing blockchain but will add the addition of “sharding.” Sharding is a new scaling solution that will allow the network to split up into different “shards’ that nodes can connect to validate transactions. This means that nodes won’t have to validate the entire blockchain and thus work more efficiently and cheaper.
Ethereums new network upgrade will also introduce the much-anticipated Staking mechanism, which will allow holders to earn staking rewards, rather than block rewards via proof of work. The required investment is set at 32 ETH; however, there will be services in place to help smaller investors join in on the rewards.
Fees have been relatively the same throughout ETH’s lifetime, making it extremely popular to use. However, there is an expectation that ETH’s average fee will increase as more people use smart contracts to start their staking process. Remember, with Ethereum; you need to buy “gas” to send transactions on the network and to interact with smart contracts. [Figure 18]
As we take a broader look at the Ethereum market, we can see investors are interested in Staking as the number of addresses that have 32 Eth have been on a steady incline. [Figure 19]
With Billions of dollars held in Ethereum it’s no secret that if Ethereum 2.0 comes to market in July of 2020, it will make a huge commotion in the market.
Stable coins have been booming! See how they’re changing the financial market.
In the last two months, stable coins have risen over $7B, according to Coindesk. Below is a picture of the daily transaction value to the total stable coins on the Ethereum blockchain. [Figure 20]
Stable coins offer investors a way to have the transactional benefits of cryptocurrency, but not hold the same volatility liability of keeping it.
Many stable coins transacted on the Ethereum blockchain and use gas within smart contracts, which has increased Ethereum’s utility and helped it increase its transactional volume exponentially.
Find out what coin we’re putting an eye on!
Enjin coin is an ERC-20 token that is geared toward the video game industry and is aiming to bring ownership to virtual assets to a transparent and liquid market. With Enjin coin, players will be able to buy and sell their virtual game assets in an open exchange that will give players a scam free transaction through smart contracts.
Enjin is an established company in the video game industry, with over 18 million gamers across 250,000 communities, according to Enjin.
Enjin coin allows gaming developers to list their assets in an open market, and players can purchase them and have access to secondary sales.
It’s estimated that by 2025 the virtual gaming market will reach $185B. With Enjins marketplace, you must use ENJ coins, so if they were to capture 1% of the market, they would have a market capitalization of $1.85B.
Currently, ENJ is sitting on a $157,700,000 market cap, so if it were to reach $1.85B, it would increase 11.73X, making its current token price worth ~$2.23. [Figure 21]
What Problem is Enjin Coin solving?
Emarketer released a study that suggests for every one virtual item that is purchased, seven and a half are illegally obtained or stolen. This means that gaming companies have an increased supply of assets that were not paid for or stolen, which hurts their revenue. With a platform that is built on the blockchain, the items are verified with cryptographic hashes and couldn’t be stolen. [Figure 22 & 23]
How does the current gaming market differ from Enjins vision?
Gaming Market Data
When looking at a utility token, it’s important to look at the targeted markets data. [Figure 24]
Since 2014 the global mobile market has been increasing year over year and is expected to hit $935B by 2023. Enjin gives developers tools to implement cryptocurrency seamlessly into their applications, so this market information is essential for their business and speculative future growth.
Forbes released a study that suggests that time spent playing video games has been increasing in past years, which shows that engagement levels are rising within video games. As the user engages more, the more likely the gamer is to spend money. The video game industry has been increasing rapidly, and gamers are ready to grab their wallets for the newest item skin. [Figure 25]
Below is a chart of the struggles that consumers and producers have in the video game virtual market.
Enjin now gives gamers the real ownership of items, and provide them with equity in their purchases even if they are banned from the server, or the game stops development support. When a developer creates an item, ENJ tokens are minted into the item so that they can be broken down by players. So if the game doesn’t work anymore, gamers can recover funds from items they have purchased.
Developing companies(especially small ones) need operating revenue to pay expenses, and with long waiting times, many companies have to shut down due to dry gaming weeks. Enjin gets the developers their money instantly via the items smart contracts.
It can cost thousands of dollars to implement a video game item. However, Enjin has easy integration tools that allow gaming companies of every size to benefit and start earning.
To learn more about Enjin coin, watch their official explainer video here.
When we talk about favorite coins or speculative predictions, it can be easy to confuse value with price. So in this section, we’re going to talk about the price advantages and value advantages that my favorite coins have. I have two currencies on my favorite list in no particular order.
When I look at a coin that I want to invest in, I look at its “value.” What is the coins net benefit to consumers and me? For Bitcoin, the transactional volume is a good indication of fundamental usage and acceptance between consumers. In the chart below, we can see that bitcoin has been increasing its transactions per day. More people are using Bitcoin on average than last year, that’s great for adoption and the success of the currency. [Figure 26]
When I figure out the “pricing” aspect of Bitcoin, I look at a few different things. One thing I look at is the amount of “dormant” Bitcoins in the market. The graph below shows the number of Bitcoins that have been dormant for eight years. 2.46M Bitcoins haven’t been moved in eight years, which leads many to believe that they are lost. These coins serve as “dead” supply if they are indeed lost and non-recoverable. This makes Bitcoin’s current market cap diluted but creates more value within a Bitcoin as demand rises. [Figure 27]
According to the Federal Reserve, $1.87 trillion reserve notes exist in the United States, and according to the CIA, there is around $80 trillion in broad money around the world. With the current price of Bitcoin sitting at roughly $8,834($162.4B market cap), which is 0.203% of the world’s economy. If Bitcoin were to reach 1% of the world’s economy, then Bitcoin would be worth ~$43,517.24. [Figure 28]
Bitcoin’s benefit lies with its ability to allow you to be in full control of your finances. Your money can never be frozen, and you can make cross border transactions within minutes with the base transaction fee.
Below is a graph that shows the USD’s inflation since 1800, and as you can see, it has been devaluing ever since 1937. [Figure29]
1BTC, from its creation, has given consumers 1000% buying power. Only 21,000,000 coins can ever be created.
I would evaluate Bitcoin around $6000–6500 based on its current usability. The Halving will present a significant benefit to Bitcoins’ price in the future, but currently, we’re still very early to announce Bitcoin, the dominant currency of the world. Bitcoin is an excellent tool to hedge against inflation. Millions of merchants accept Bitcoin, but most sell the Bitcoin for USD, and so there is applied buying pressure, which keeps the price steady as demand for the product says the same.
For Bitcoin to grow exponentially and own 1%+ of the world’s wealth, it would need to be accepted for its value and not be pegged to USD. Otherwise, it’s just being used to transmit data on the back end, and stable coins would be a better fit.
As I have mentioned before, I like to calculate the value and build pricing around net benefits.
Ethereum’s network is growing, and more unique addresses are being made, which shows consumers are using the network. People could own multiple addresses, and some people may have hundreds of Ethereum addresses, but the fact that it’s been growing exponentially is a good sign. [Figure 30]
We can also look at the gas that is used on Ethereum to get a better idea of the utilization of the blockchain. We can now see it growing exponentially. Ethereum dapps have been growing heavily, and as more Daily Active Users(DAU) begin to pile into some of these applications, the more Ethereum will be needed to process the contracts. [Figure 31]
Ethereum also plays a vital role in decentralized finance, as more money is added into the new industry, a surge in ETH demand will be pressed.
With the increases in decentralized exchanges, digital tokens, and ETH 2.0 staking, I would evaluate Ethereum at ~$300.