1. Crypto Long & Short: Bitcoin’s Potential as a Collateral Class
Signs point to a new avenue of growth for crypto-backed lending.
Today I’m going to weave together three seemingly unrelated stories from the past week to highlight a trend that I believe we are largely overlooking. Ready?
First, Tesla’s Q1 earnings release revealed that the company sold $272 million worth of its bitcoin (BTC, +1.64%) holdings in the first quarter. According to its CEO, Elon Musk, it did so to test the market’s liquidity. The $101 million it added to the company’s quarterly profit didn’t hurt, either.
Second, crypto lender Genesis Trading published its Q1 2021 report, which showed that the amount of loans outstanding broke through $9 billion, an increase of 136% from the previous quarter.
Third, U.S. Federal Reserve Chairman Jerome Powell spoke about the macroeconomic environment, holding firm to the expectation of an average of 2% inflation over the next few years.
What do these three stories have to do with one another? The answer lies in looking through the growing use of bitcoin as a reserve asset on corporate balance sheets to why companies want to do so today, and why they are likely to want to do so in years to come.
2. Ether Breaks Above $3K for the First Time Ever
Demand for ether continues to rise.
Ether (ETH, +6.36%) (ETH), the second-largest cryptocurrency by market capitalization, went above $3,000 Sunday for the first time in history, according to CoinDesk 20, after setting multiple all-time highs last week.
At press time, ether’s changing hands at $3,026, up more than 2.5% in the past 24 hours.
Ether is now up about 300% on a year-to-date basis versus a 95% rise for bitcoin (BTC, +1.75%).
Ether’s impressive gains came as the demand for the second most valued cryptocurrency has soared.
The total market capitalization for decentralization finance (DeFi), recently hit above $100 billion, with some of the most popular DeFi projects being built on the Ethereum blockchain.
There are more than $68 billion worth of value locked in DeFi, per data from DeFi Pulse.
CoinMetrics data shows the number of active addresses recently surged to a new all-time high of 771,000, surpassing the previous record of 739,000 set in November.
The daily transaction count on Ethereum’s blockchain has increased by 22% to 1.376 million this year, per data provided by Glassnode.
Ether’s growth also came as the Ethereum blockchain undergoes the Eth 2.0 upgrade, which will switch the Ethereum blockchain to a proof-of-stake (PoS) consensus from the current proof-of-work (PoW) consensus mechanism.
Ethereum founder Vitalik Buterin gave a presentation recently on the development roadmap of Ethereum after its merge to PoS including the long-awaited feature, sharding.
Sharding will expand Ethereum’s capacity to process transactions by splitting its database into 64 new mini-blockchains, thus addressing the congestion issues that currently plague the blockchain..
The rise of ether has also benefited tokens associated with several so-called Ethereum killers such as Binance Smart Chain, Solana, and Polkadot.
As CoinDesk reported, FundStrat wrote in a research note Thursday that ether could hit above $10,000 by the end of this year.
“Ethereum’s market cap has risen to ~30% of bitcoin’s over recent weeks,” the note read. “During the last market cycle, ethereum broke this level and [had] as high as 80% of bitcoin’s value.”
3. Binance Smart Chain’s Spartan Protocol Loses $30M+ in Exploit
The attack happened just a few days after another DeFi protocol was attacked on Binance Smart Chain.
Spartan Protocol, a decentralized protocol built on Binance Smart Chain for incentivized liquidity and synthetic assets, was exploited earlier Sunday UTC due to “a flawed liquidity share calculation” in the protocol, resulting in a loss of more than $30 million, according to a medium post by on-chain analysis and security startup Peckshield.
“In particular, the specific hack inflates the asset balance of the pool before burning the same amount of pool tokens to claim an unnecessarily large amount of underlying assets,” the post read.
“What we know so far — attacker used $61 million in BNB to overcome the pools via a[n] as yet unknown economic exploit path to remove roughly $3 million in funds from the pools,” according to the official Twitter account of Spartan Protocol, which first reported the incident around 12:21 AM UTC May 2.
According to Spartan Protocol’s official website, the decentralized finance (DeFi) liquidity platform “provides community-governed and programmable token emissions functions to incentivize the formation of deep liquidity pools.”
The attack came just a few days after Binance Smart Chain’s DeFi exchange Uranium Finance lost more than $50 million in exploit on April 28 from a similar attack.
The attack on Spartan Protocol makes it the sixth biggest monetary exploit in DeFi history, according to Rekt, after EasyFi’s $59 million, Uranium Finance’s $57.2 million, Kucoin’s $45 million, Alpha Finance’s $37.5 million and Meerkat Finance’s $32 million.
4. Cryptotwitter Shows No Respect for Age in Responding to Munger’s Bitcoin Diss
To what should have been the absolute surprise of no one, the bitcoin community and the crypto universe beyond responded in kind.
Berkshire Hathaway Vice Chairman Charlie Munger took no prisoners in attacking bitcoin (BTC, +1.57%) during the multinational conglomerate’s annual meeting Saturday.
To what should have been the absolute surprise of no one, the bitcoin community and the cryptoverse beyond responded in kind, showing little to no respect to the nonagenarian’s years — he’s 97 — and indeed some responders treated Munger’s attack as a stereotypical elderly person’s lack of tech savvy or even a “get off my lawn!” type outburst.
Other comments took issue with Munger’s view that the leading cryptocurrency is bad for civilization when Berkshire Hathaway is a major owner of Coca-Cola, which hasn’t exactly been a boon for public health, and has owned tobacco stocks over the years. Still others found it ironic that the owner of the shares of many financial giants with all their fines criticized bitcoin for its use in crime.
5. Bitcoin Mining Difficulty Sees Largest Downward Adjustment of the Year
This is only the second downward adjustment of 2021, and it marks Bitcoin’s largest difficulty correction since Nov. 3, 2020’s 16% downturn.
Bitcoin’s mining difficulty just fell 12.6%, the network’s largest downward correction of the year, following mass miner outages in China’s coal-rich provinces.
Mining difficulty is a self-correcting and internally referenced score which dictates how hard it is for miners to find the next block in Bitcoin’s blockchain (Bitcoin’s starting difficulty was 1 — every increase from this indicates exponentially increasing difficulty). The difficulty adjustment ensures that blocks are added to the chain at a steady pace, roughly every 10 minutes on average.
Bitcoin’s mining difficulty is currently 20.608 trillion, according to data queried from this journalist’s node. This is down from the 23.581 trillion difficulty Bitcoin set nearly two weeks ago, an all-time high.
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May 3, 2021