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June Market Outlook

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1. Market movements: Crypto outperformed stocks and gold in May as the US dollar and Treasuries weakened; bulls and bears debate meaning of 1999/2017-esque frothiness

May was a strong month across most “risk-on” assets such as US equities and tech stocks in particular, with the US dollar and long-dated Treasuries selling off-slightly.

In May cryptoasset markets continued to bounce back from their “Black Thursday” March low for the year, with bitcoin (BTC) and Ethereum (ETH) up an almost identical 10.5% and 10.6%, respectively, in May (Table 1).

Table 1: Price Comparison (% Change): Bitcoin, Ethereum, Gold, US Equities, Long-dated US Treasuries, US Dollar

Sources: Blockchain.com, Google Finance

Crypto experienced a strong price rally last spring and now no longer eclipses all other major asset categories over the trailing twelve months; both gold and long-dated bonds have outperformed bitcoin over this period. While Ethereum has more than twice as high percentage gain compared to bitcoin in 2020, it still lags significantly behind bitcoin over the past 12-months.

As we publish this month’s Outlook some “rationality” appears to be returning to US equity markets, which have recently seen trading action reminiscent of the late-1990s dot.com tech stock and 2017 crypto bubbles.

Companies like Hertz (HTZ) that have declared bankruptcy and risk seeing equity holders completely wiped out have seen prices rally sometimes over 10x. Some of this price action appears aided or possibly led by substantial retail speculation. In crypto markets, a number of “altcoins” have also seen dramatic price increases, such as Kyber Networks (KNC) which more than doubled over the last several weeks.

How should crypto market participants interpret this recent dramatic price action?

Are price mania episodes essential to significant increases in crypto adoption?

One question that is often debated in cryptoasset markets is whether dramatic price swings are an inherent part of the process of sustained cryptoasset price appreciation.

Looking at history, crypto markets have experienced a number of arguably manic “bubble” episodes since bitcoin launched over 11 years ago. While the sell-offs from such speculative episodes have frequently been extraordinary, prices have subsequently stabilized at levels higher than where they started at the outset of the speculative period (Figure 1).

Figure 1: Major bitcoin price rises and subsequent corrections have generally stabilized at ever higher price levels

While crypto bubbles receive significant attention, there are periods in bitcoin’s history where what can be characterized as less dramatic, relatively steadier price appreciation was experienced. For example, bitcoin showed measured price gains (by bitcoin standards) from its mid-2015 lows to the end of 2016 (Figure 2).

Figure 2: During mid-2015 through end of 2016 Bitcoin’s price showed sustained and significant appreciation without “manic” price exuberance

During this 18-month period bitcoin’s price, after stabilizing in 2015 in the ~$250 range for an approximately six-month period, climbed into the ~$400 range for a number of months . Bitcoin’s price then moved upwards again into the ~$500-$600 range for a shorter period of time. Towards the end of 2016 the price then started more rapidly ascending to ~$1,000, setting up a dramatic ~20x price increase in 2017.

While it might be tempting to wish for a return of heady 2017 price action, it remains an open question whether less dramatic periods along the lines of those witnessed in 2015–16 are “healthier” and ultimately more constructive for longer-term cryptoasset adoption than the manic periods, which we appear to be seeing some early evidence of a possible return to recently.

Manic periods attract significant media attention, which in turn boosts awareness and fan powerful psychological drivers of adoption (so-called “FOMO”, or fear of missing out). Manic episodes have also certainly expanded crypto network activity in the short-term. It would be hard to argue against the importance of price mania in crypto’s rise over the past decade, and looking ahead manic episodes may prove essential to any rise from today’s tens of millions of crypto users to billions.

But manic episodes can also turn-off some newcomers to cryptoassets, who are frightened by the volatility, or arrive too late to the party and miss-time the inevitable sell-off. Dramatic sell-offs may ultimately slow down the rise of crypto use by deterring or setting back crypto adoption for extended periods.

Manic episodes also place significant emphasis on price as the driving force in using cryptoassets, overshadowing other important reasons for why the technology has been developed and adopted (eg self-custody and financial sovereignty, censorship resistance).

As we contemplate how another manic crypto bubble could play out, one potential key difference between the current era and 2017 is the increasing integration of the traditional financial system with crypto markets. The rise of US Commodities Futures and Trading Commission (CFTC) regulated futures markets, and the participation in these markets of potentially systemically important institutions, such as Renaissance Technologies, could lead to regulatory concerns over outsized and possibly destabilizing price exuberance in crypto markets. Indeed, this specific concern has already been highlighted in the Financial Stability Board’s financial stability risk assessment of cryptoasset markets.

However, there are reasons beyond mass collective amnesia to believe we may not see another episode as manic as 2017.

Today, with the development of futures and options markets, and growth in crypto borrowing/lending markets, crypto traders have more ways of speculating on downward price moves than in 2017. Indeed, in spring 2019 crypto prices began rising rapidly in a manner reminiscent of 2017, as bitcoin’s price quickly climbed above $10,000. However, price momentum was arrested well below the 2017 all-time high of ~$19,000 as traders last year moved to punish unsustainable exuberance. Today’s less lopsided crypto trading landscape may help tamp down future excessive exuberance.

2. On-chain insights: highlights from the Blockchain.com data science team

Each month we do a deep dive into on-chain data to explore interesting trends or movements, specifically for the Bitcoin network.

We start at a high level with a look at network activity in May compared to April. In short, May was a month of increased market capitalization, an increase in transactions, and an increase in the number of active addresses (Table 2).

Table 2: Bitcoin network activity — May vs April

Source: Blockchain.com

Yet when we examine the average network fees there was more congestion and a higher fee per transaction. In May, the average fee per transaction was $3.36, as opposed to $0.67 in April.

Figure 3: Increased user activity boosted network fees in May, which in turn increases network security

Source: Blockchain.com

But that’s just the average fee. It’s perhaps more useful to understand the best time to send a transaction.

To do so, it is important to know the state of the mempool to estimate — given the selected fee rates — how long it might take the network to confirm the transaction. We looked at what day of the week and hour of the day the mempool was more or less busy in May.

Around 5am UTC time, the mempool is on average 30% less busy than the daily average, while it is around 40% more busy around 2pm UTC time. As we reported in November last year, the “Bitmex effect” triggers an afternoon of more congested mempool to avoid. Mornings are found to be the sweet spot where the network will be more likely to confirm your transactions quickly.

Figure 4: Best time of the day to send a transaction is early morning Greenwich Mean Time

Source: Blockchain.com

The month of May saw really busy transaction activity towards the end of week, with the mempool 30% busier on Fridays than the weekly averages. The mempool took the whole Saturday and a bit of Sunday to catch up on accumulated transactions, and Monday was the best day to send transactions with the mempool almost 30% less busy.

Figure 5: Best day to send a transaction is Monday

Source: Blockchain.com

Trending countries⁴

Another question we’re often curious about is how crypto is trending at the country level. In May we saw a number of countries increase their fraction of overall transactions, most notably Nigeria, Mexico, and the United States.

Table 3: Trending countries — increase in use in May over April

Source: Blockchain.com internal data

Meanwhile, the fraction of transactions sent from Korea, Brazil and Romania have decreased by 24.42%, 23.8% and 22.93% in comparison to April.

Table 4: Trending countries — decrease in use in May over April

Source: Blockchain.com internal data

Bitcoin ownership concentration

Another interesting way to analyze the market is to look at active wallets and examine funds concentration.

As of June 5th, here is the number of addresses that contain more than:

  • 1 USD : 22,219,444
  • 100 USD : 7,720,841
  • 1,000 USD : 2,877,749
  • 10,000 USD : 686,281
  • 100,000 USD : 140,160
  • 1,000,000 USD : 13,511
  • 10,000,000 USD : 1,578

How concentrated are funds:

  • 3,040,600 addresses (10.05% of total addresses) have more than 0.1 BTC, and represent 98.88% of total bitcoins
  • 816,632 addresses (2.7% of total addresses) have more than 1 BTC, and represent 95.04% of total bitcoins

3. George Floyd, Black Lives Matter and Crypto

Since our previous monthly outlook there have been a number of significant developments relevant to the crypto outlook, with the outrage over the death of George Floyd in the US and the now international Black Lives Matter (BLM) protests arguably the most significant.

Concerns that law enforcement may leverage social media accounts and activity to help police BLM protests may have driven the rapid growth in use of the privacy enhancing Signal app (Figure 6). The rise in the use of the Signal app suggests awareness of the importance of privacy, encryption and open source technology is growing, and this may in turn bode well for increased future use of cryptocurrency.

Figure 6: US daily downloads of the privacy enhancing Signal messaging app spiked at end of May alongside the start of Black Lives Matter protests

Source: Quartz

While there are some reports of an uptick in cryptocurrency activity related to the BLM protests, we do not yet see any statistically significant evidence of this in either our own public or internal data. But could the BLM protests and their aftermath help drive a similar meaningful increase in crypto use and adoption?

While the protests sparked by George Floyd’s death are ongoing and evolving, and it is interesting to note similarities between present conditions and prior periods when new payment systems were adopted. For example, the initial surge in M-pesa mobile money use in Kenya in 2008 is believed to have been driven in significant part by ethnic/political unrest and a mistrust of banks during an election season.

Kenyan ethnic unrest is thought to have played a significant role in the rapid adoption of the M-pesa payments system in 2008

Of course, bitcoin is not only an alternative payment system, but also an alternative currency (M-pesa allowed for the transfer of an existing currency). Prior academic work from Blockchain.com head of research Dr Garrick Hileman has explored common factors driving alternative currency adoption throughout history, and many of these factors are widely present today (Figure 7).

Figure 7: Five forces have historically powered growth of alternative currencies

4. COVID and rising US-China tensions: How will we pay for it?

It is still far too early to know with any degree of precision the ultimate economic and financial costs, as well the cost in human lives, of the COVID-19 crisis.

However, what is well known is that the world was already facing a world record level of total debt (government + corporate + household) prior to the virus outbreak. Just looking at the government balance sheet, or public debt, we know that advanced economies were already facing world war levels of debt without having entered into any such conflict (Figure 8).

Figure 8: Prior to the COVID-19 outbreak the world was already facing world war levels of public debt

At the same time, there is growing signs that the world’s two largest economies — the United States and China — are moving towards or already in what some are labeling a new “cold war”. Others say the evidence of hostile activities across various areas including information (misinformation), cyber and other forms of espionage, and intellectual property theft and other forms of economic conflict make it more akin to a “hot war”. The fact that a significant kinetic conflict over Taiwan or other issues in the South China Sea has not occurred yet disguises from public view to some degree the intensity of competition already occurring between the world’s two leading powers.

As Figure 8 shows, wars are expensive. Any escalation of hostilities between the United States and China could have a very negative impact on government balance sheets across two dimensions. First, the additional fiscal outlays, leading to a nominal rise in the absolute level of debt. Second, the negative hit to economic growth due to trade tensions and other negative economic spillovers that undermine growth, thereby negatively impacting the public-debt-to-GDP ratio, a key measure for assessing debt sustainability.

The dual threat of COVID and US-China tensions may lead to a situation where debts simply become unsustainable. In such a scenario there are only seven distinct mechanisms for addressing an unsustainable public debt problem (Figure 9).

Figure 9: Of the available mechanisms for addressing a sovereign debt problem, financial repression may prove the most politically feasible

In the current environment, not all of these options may be available (eg sufficient economic growth) or politically feasible or desirable (eg tax hikes, spending cuts).

Policymakers may find that financial repression, in the form of an artificial low interest rate environment enforced via yield curve control and other restrictive measures, can help erode the real value of public debt. Following World War II, financial repression and inflation helped return public debts to sustainable levels in the US, UK and other countries. Recently Fed Chairman Jay Powell took another step in this direction when he communicated the Fed’s forward interest rate guidance that near-zero rates would remain in effect at least through the end of 2022.

The question of “how will we pay for it” here is not one that policymakers alone must confront. Individuals, especially savers, must also think about how they will manage through a low-to-negative interest rate environment.

To help address this challenging environment for savers, Blockchain.com was pleased to recently announce a new interest product for bitcoin (BTC) savers where individuals can currently earn 4.5% APR (paid in bitcoin).

We anticipate that crypto interest and savings products, which are supported by a number of platforms for a range of different cryptoassets (including stablecoins), to be a key driver of cryptoasset adoption in the years to come.

5. What we’re reading, hearing, watching

Crypto

Beyond crypto

For more insights from our research team, go to our Research page and follow our Head of Research, Garrick Hileman on Twitter.

Source: https://medium.com/blockchain/june-market-outlook-4ef1ee16647a?source=rss—-8ac49aa8fe03—4

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Indian Olympic Medal Winners to Get Free Bitcoin (BTC) and Ethereum (ETH)

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The cryptocurrency platform Bitbns intends to open a systematic investment plan (SIP) in digital assets for Indian athletes who win medals at the ongoing Tokyo Olympics. The exchange will reportedly grant around $2,700 in crypto for gold medal winners.

‘Faster, Higher, Stronger’ And Earn Crypto

The Economic Times reported that Indian athletes at the Olympic Games could receive cryptocurrencies as a gift if they manage to win a medal at the tournament in Tokyo.

The trading venue that will reportedly provide the offer is Bitbns. The first athletes that can get cryptocurrency exposure for free are the winners Mirabai Chanu and PV Sindhu. The former won a silver medal in 49 kg women’s weightlifting while the latter acquired bronze in the women’s singles badminton at the Tokyo Olympics.

Bitbns plans to roll out a SIP account and grant nearly $2,700 in digital assets for Olympic champions, $1,350 for silver medal winners, and $675 for bronze medalists. It will transfer the amount into their accounts, and after completing the Know Your Customer (KYC) norms, the athletes will have exposure to cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).

The trading venue explained that it would structure the SIP for a 3-5 year period, and thus the medal winners will be able to generate profits in the long term through Bitbns. Gaurav Dahake – the Chief Executive Officer at the platform – noted:


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“Bitcoin and Ethereum have been the best-performing assets in the last decade, and have given exceptional returns and we aim to get our winners indulge in this rewarding journey.”

Indians Love Cryptocurrencies

According to a recent research, Indian residents increased their digital asset investments from $200 million in 2020 to $40 billion for the first six months of this year, indicating that their appetite for cryptocurrencies surged significantly.

What is even more impressive is that Indians, who are well-known gold admirers, started switching their investment strategies from the precious metal to virtual currencies. A local investor explained:

“I would rather put my money in crypto than gold. Crypto is more transparent than gold or assets and yields higher returns in a shorter period of time.”

The survey added that the number of people who trade cryptocurrencies in India is 15 million. It significantly surpasses a well-developed country such as the UK, for example, where 2.3 million individuals have entered the market. Sandeep Goenka – the co-founder of the platform ZebPay – revealed the reasons why the second-most populated country saw this massive increase:

“They find it easier to invest in crypto than gold because the process is so much simpler. You go online, you can buy crypto, you don’t have to verify it, unlike gold.”

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Source: https://cryptopotato.com/indian-olympic-medal-winners-to-get-free-bitcoin-btc-and-ethereum-eth/

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Coinbase halts Bitcoin SV trading after yet another 51% attack

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Bitcoin SV is in trouble once again after Coinbase announced that it will be halting BSV trading on the platform. This update came on the back of a string of attacks the network has been facing since late June. As per the announcement made by the exchange,

“Due to the 51% attack that has occurred on BSV today we are stopping all BSV trading.”

Bitcoin SV was the target of a massive 51% attack early on Tuesday, an attack which was called “the largest since launch” by Blockchair developer Nikita Zhavoronkov. He further claimed on Twitter that the reorganization was 100 blocks deep and wiped out 570k transactions.

The attack was first brought to the community’s notice by CoinMetrics’ Lucas Nuzzi. Arguing that “some serious hashing power” was unleashed on the network early on Tuesday, he revealed that up to three versions of the chain were being mined simultaneously across pools.

Coinmetrics later confirmed that the firm’s own blockchain security monitoring tool FARUM identified the attack.

The Bitcoin Association also confirmed the incident on Twitter, recommending node operators to mark the fraudulent chain as invalid. It’s worth noting, however, that at the time of writing, the Association had released yet another statement on the same.

It said,

“…. believes that this is the same attacker that previously initiated block re-organisation attacks against the BSV network on June 24 and July 1, 6 & 9, 2021.”

Coinbase’s action made waves in the community. However, such steps are perhaps routine for the network now. In the past, BSV has been dropped by top exchanges like Gemini and Binance. It also saw several exchanges block withdrawals and deposits for the asset as liquidity providers suspended access to the token’s liquidity. This was preceded by more attacks in the last week of June and the first week of July.

As far as Coinbase is concerned, the exchange is yet to reveal when it might restart trading services for Bitcoin SV. With many in the community at sixes and sevens, it’s unlikely it’s going to be anytime soon.

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Source: https://ambcrypto.com/coinbase-halts-bitcoin-sv-trading-after-yet-another-51-attack

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Looking To Pull An El Salvador, Spain Considers Bill To Allow Mortgage Payments In Crypto

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Looking To Pull An El Salvador, Spain Considers Bill To Allow Mortgage Payments In Crypto

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Cryptocurrency and blockchain are becoming quite mainstream as of this year and it’s likely that just about any financial transaction will be able to be completed via the use of crypto in the next few years. Of course, there are bodies pushing against the integration given the lack of regulations and the fact that it could help finance illicit acts.

However, the crypto wave is continuing to grow despite all of the recent adversity. And, according to Spanish paper 20 Minutos, Spain could begin to allow persons to pay their mortgages with crypto pretty soon.

The publication reports that Spanish lawmakers are perusing a proposal that would see to the above. The Digital transformation Law, as it’s called, would make it so that crypto and blockchain become legitimized, while tax incentives are being considered for institutions keen on working under the artificial intelligence umbrella, which would include blockchain tech.

Spain’s incumbent People’s Party is intent on having the country’s banking infrastructure catch up to the times in terms of tech and will promote the use of digital currencies, as well as various other transformative technologies. The proposal suggests that the country’s whole mortgage system should undergo reform, in addition to having crypto payments possible.

El Salvador Took The Lead

This comes on the back of El Salvador’s move to accept bitcoin as legal tender. The Central American nation is very pro-crypto in such regard and it appears they have set the stage for other countries to naturalize digital assets, so to speak.

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Where Spain is concerned, the current proposal advises that banks use blockchain as a means of operating the mortgage system while making use of smart contracts for insurance.

“Introduction into the mortgage system – it also proposes that banks use Blockchain technology to manage mortgages, insurance and speed up compensation – it proposes to extend it to insurance policies, with ‘smart contracts’ with conditions depending on the procedures to be followed, the verification processes and potential incidents.“

El Salvador making bitcoin legal tender was a huge move and we aren’t yet to see the full scope, although the country’s population stands at just 6.5 million so they aren’t expected to have that great of an impact on a worldwide scale. Spain is a different case, however.

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Source: https://zycrypto.com/looking-to-pull-an-el-salvador-spain-considers-bill-to-allow-mortgage-payments-in-crypto/

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