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Sentiment and inflation: Factors putting pressure on Bitcoin price

July 26, 2022 Coin Telegraph

Bitcoin prices are besieged by a multitude of factors, and the cryptocurrency is struggling to breach the $25,000 mark.

Subsequently, there are fears that Bitcoin prices will take longer to recover.

Bitcoin (BTC) has been hovering around the $20,000 range for several weeks now after the coin lost over 60% of its value from its peak in November. The recent plunge wiped out over $600 million from its market cap and caused rising concerns of a bubble burst.

Negative investor sentiment

Cryptocurrency investors have been on edge since Bitcoin’s fall to around $20,000. Many of them fear that more unprecedented selloffs by key players could precipitate a bigger downtrend.

Further declines are likely to amplify losses and make it harder for the market to recover in the medium term. As such, many investors are holding off additional investments.

Besides the fall of cryptocurrencies, the decimation of linchpin crypto firms such as Three Arrows Capital (3AC) and the Celsius Network has also had a negative effect on investor sentiment.

The Singapore-based 3AC hedge fund, for example, collapsed with about $10 billion in investor funds.

The recent crypto crash threw the agency into financial turmoil and made it hard for it to repay its creditors and investors.

The Celsius crypto lending network, which was also revered in crypto circles, also fell on hard times when the crypto market dropped. The company was forced to halt payments to creditors and customers due to low liquidity.

Such incidences have upset investor confidence in the industry and reduced capital inflows needed to buttress cryptocurrencies such as Bitcoin.

Margin calls and liquidations

Liquidation occurs when an asset broker forcefully closes an investor’s collateralized position due to a loss affecting the initial margin.

Liquidations usually amplify market slumps by inadvertently increasing the number of selloffs.

On Jan. 11, for example, BTC futures contracts worth approximately $2.7 billion were liquidated within 24 hours, causing prices to retrogress from about $41,000 to sub $32,000 levels.

A similar occurrence happened on June 14 and caused Bitcoin prices to plummet by about 15%. About $532 million worth of Bitcoin was liquidated as a result.

While liquidations influence prices in the short term, they negatively impact asset prices by increasing market turbulence, which causes uncertainty. Uncertainty is bad for the business because it extends fear cycles.

Inflation

Inflation refers to the reduction in relative purchasing power using a nation’s base currency. High inflation usually leads to an increase in commodity and service prices and is typically characterized by unchanging income rates. During the month of May, the United States Consumer Price Index reached 8.3%. For comparison, it was 0.3% in April 2020 when COVID-19 lockdowns started.

Many analysts theorize that the high inflation rate was brought on by the aggressive fiscal policies adopted by the U.S. government in 2020 in response to the COVID-19 pandemic.

The government lowered Fed interest rates to zero and unleashed a $5 trillion stimulus program to avert an economic disaster — far more than the $787 billion used to quell the 2008 recession.

The funds used during the pandemic buoyed the economy and helped boost demand for goods and services. However, supply chains were unable to keep up with the growing demand for certain commodities, hence the rise in commodity prices.

Of course, there are other compounding factors, such as the war in Ukraine, which has affected oil prices and led to higher transport costs.

These elements have led to a higher cost of living and reduced investments in speculative instruments such as Bitcoin due to less disposable income.

That said, Bitcoin prices can recover as soon as current socioeconomic dynamics change for the better.

Federal Reserve interest rates

In March, the U.S. Federal Reserve increased the lending rate for the first time since 2020. At the time, Bitcoin prices didn’t move by much because the rate was already factored in.

However, the announcement prepped investors for upcoming changes and touched off a gradual descent.

On June 15, the Fed raised its lending rate again, this time by three-quarters of a percentage point, which is the highest increase in two decades. The anti-inflation measure caused markets to fall in the subsequent days. The Dow Jones was forced to recede by over 700 points while the S&P 500 fell by 3.4%.

Notably, Bitcoin investors began pulling out of the market a few days after the announcement, causing prices to drop from $30,000 levels to $18,900 between June 7 and June 18.

The reaction was expected because the Fed had already signaled that it would be implementing an interest hike. Fed interest hikes historically reduce investments in speculative assets such as Bitcoin.

Market correction

2021 was a positive year for Bitcoin. The cryptocurrency ended the year with approximately 60% in gains. However, this was an almost 300% increase since the onset of the COVID-19 pandemic. Consequently, a pullback was almost inevitable due to the market overheating.

Market corrections happen frequently and are a natural occurrence in both equity and crypto markets. They are usually caused by economic shocks that prompt investors to take money out of mercurial markets.

Major market corrections usually give way to a bear market, especially when there is a sudden drop of more than 20%.

The current crypto winter is the result of a multitude of factors that include geopolitical tensions and uncertainty amid reports of a possible recession.

The Bitcoin market is likely to recover once these aspects are overcome.

What to expect in the near future

Bitcoin is set to bottom out in the medium term, and this will allow the asset to gain some stability, enough to mollify investors and give rise to bullish sentiment. Speaking to Cointelegraph, Yubo Ruan, founder and CEO of Parallel Finance — a decentralized finance (DeFi) lending and staking protocol — said that the market was in a transitional period, stating:

“I think a healthy market has lows and highs. This current period is a moment of consolidation and will gain momentum as many who have been on the sidelines waiting for a better price begin to buy in. Institutions and major Fortune 500 companies are likely to add some level of crypto to their balance sheets in the coming months.”

Konstantin Boyko-Romanovsky, CEO and founder of noncustodial hosting and staking platform Allnodes, told Cointelegraph:

“Bear markets and bear sentiments allow for a thorough introspection. This is a time to slow down the race for the next best crypto and concentrate on innovation. Blockchains that suffered the greatest during the most recent market plunge may have to take a deeper look at what needs to change in order to remain competitive and beneficial in the future. With that being said, the crypto market and the traditional market will recover. It’s a matter of time.”

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3AC: A $10B hedge fund gone bust with founders on the run

July 25, 2022 Coin Telegraph

3AC: A B hedge fund gone bust with founders on the run

Bitcoin Price

3AC downfall has led to a multi-billion dollar cascade that has claimed the likes of Celsius, Voyager and many other crypto lending firms with exposure to the hedge fund.

Three Arrow Capital (3AC), a Singapore-based crypto hedge fund that at one point managed over $10 billion worth of assets, became one of the many crypto firms that went bankrupt in this bear market.

However, the fall of 3AC wasn’t purely a market-driven phenomenon. As more information surfaced, the collapse looked more like a self-inflicted crisis brought upon by an unchecked decision-making process.

To put it concisely, the hedge fund made a series of large directional trades in Grayscale Bitcoin Trust (GBTC), Luna Classic (LUNC) and Staked Ether (stETH) and borrowed funds from over 20 large institutions. The May crypto crash led to a series of spiral investment collapse for the hedge fund. The firm went bust and the loan defaults have led to mass contagion in crypto.

The first hints of possible insolvency occurred in June with a cryptic tweet from the co-founder Zhu Su in the wake of the movement of 3AC funds. The crypto market crash led to a severe decline in the prices of top cryptocurrencies including Ether (ETH), which led to a series of liquidations for the hedge fund.

3AC exchanged roughly $500 million worth of Bitcoin (BTC) with the Luna Foundation Guard for the equivalent fiat amount in LUNC just weeks before Terra imploded.

The rumors ramped up after Zhu removed all mention of investments in ETH, Avalanche (AVAX), LUNC, Solana (SOL), Near Protocol (NEAR), Mina (MINA), decentralized finance (DeFi) and nonfungible tokens (NFTs) from his Twitter bio, keeping only a mention of Bitcoin (BTC).

The series of liquidations for 3AC had a catastrophic impact on crypto lenders such as BlockFi, Voyager and Celsius. Many of the crypto lenders had to eventually file for bankruptcy themselves due to exposure to 3AC.

Sam Callahan, a Bitcoin analyst at BTC savings plan provider Swan, told Cointelegraph:

“Using only publicly available information, in my opinion, the failure of 3AC can really be broken down into two things, 1) Poor risk management and 2) Unethical and potentially criminal behavior. The first is a classic example of what happens when you use too much leverage, and the trade turns against you. In this case, 3AC borrowed hundreds of millions of dollars, mostly from cryptocurrency lending platforms, to make arbitrage bets in risky DeFi protocols. One such risky bet was on Terra. Of course.”

He added that 3AC didn’t own up to the mistakes, went ahead to borrow more money and “allegedly even used clients’ funds to make bets to try to make their money back. This was the moment when 3AC morphed into more of a blatant Ponzi scheme. As general market conditions continued to worsen and liquidity dried up, 3AC was exposed as the Ponzi scheme it had become, and the rest is history.”

Looking at the timeline of events in 3AC:

May 11–12: Immediately following the Luna collapse, several lenders ask about Luna exposure, 3AC says there is nothing to worry about.
May 18: Co-founder Kyle Davies tries to prevent loans from getting called
June 3: Interest rates raised on loans due to market conditions
June 7: 3AC team pitches investors on new opportunities to save the company
June 10–11: Crypto options broker Deribit margin calls 3AC’s account mobyDck
June 13: Davies tries to arrange a new loan from Genesis to pay the margin call
June 16–17: 3AC insolvency widely reported

3AC eventually filed for a Chapter 15 bankruptcy on July 1 in a New York court with no known whereabouts of the founders.

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Marius Ciubotariu, the co-founder of Hubble Protocol, believes the 3AC lending crisis highlights the resilience of the DeFi ecosystem. He told Cointelegraph:

“The challenges that faced 3AC are not unique to cryptocurrency nor financial markets as a whole. Cryptocurrency is currently the only financial market where market dynamics are allowed to play out. 3AC crisis has revealed how resilient DeFi protocols actually are. For example, Celsius suffered from lending losses and was being margin called. In fear of on-chain automated liquidations that are visible to everyone, they rushed to pay their MakerDAO and Compound loans first.”

3AC owes creditors $3 billion

3AC liquidators have requested a stay of proceedings against the business and access to its Singapore offices in a petition to the High Court of Singapore. The court documents show that 3AC owes about $3 billion to creditors, out of which 3AC’s biggest creditor, trader Genesis Asia Pacific, a subsidiary of Digital Currency Group, loaned $2.36 billion.

Among the long list of creditors, Zhu Su also filed a claim for $5 million. In addition to Zhu’s claim, 3AC investment manager ThreeAC Limited is reportedly making a $25 million claim. Kyle Davies’ wife, Kelli Kali Chen, is reportedly seeking a claimed $65.7 million debt in the same filing in the Eastern Caribbean Supreme Court. A court in the British Virgin Islands ordered 3AC into liquidation on June 27.

I've just seen the list of creditors to #3AC and noticed that @zhusu has filed a claim for $5 million. While being on the run, he has somehow found the time to diligently and ruthlessly fill out forms to pursue a claim against his own Fund. https://t.co/YFfWmYZOoM
— Soldman Gachs ⌐◨-◨ (@DrSoldmanGachs) July 18, 2022

There is speculation that founders Zhu and Kylie used investors’ funds to make a downpayment on a $50 million yacht purchase. However, other reports have claimed that Zhu tried selling his house in the wake of the 3AC crisis.

A report from blockchain analytic firm Nansen showed that there was an active and trackable contagion in the markets. The stETH depeg was prompted in part because of TerraUSD Classic’s (USTC) implosion. The report claimed that 3AC was a victim of this contagion as it sold its stETH position at the peak of the depeg panic, taking a significant haircut.

Jonathan Zeppettini, international operations lead at decentralized autonomous currency platform Decred.org, believes market conditions played a bare minimum in the 3AC saga and only helped in preventing the fraud further. He told Cointelegraph:

“In reality, they were just participating in other scams such as Terra and acting as a middleman between questionable investments and lenders who thought their record was so impeccable it absolved them from having to do any due diligence. Cascading liquidations caused by the market correcting forced the end of the game. However, in reality, their model was always a ticking time bomb and would have imploded eventually no matter what.”

Michael Guzik, CEO of institutional lending platform CLST, told Cointelegraph that 3AC failed to mitigate market risks and the wave of collapses, and the liquidity crisis underneath it all, is a “reminder of the importance of age-old lending/borrowing practices like leverage and counterparty risk assessment.”

3AC operated in a very opaque way for being the largest crypto hedge fund, and after the collapse set in, it continued to lie to investors about the extent of losses to lenders, movement of funds and its directional market exposure.

Centralization and opaqueness in crypto firms

3AC’s fall highlights the fragility of the centralized decision-making process that can turn into a nightmare during the bear market. The centralization of the decision-making process in 3AC’s operations only came to light after its positions started getting liquidated.

Zhu and Davies, the founders of the tainted hedge fund, revealed that they received a series of death threats after the collapse of 3AC, which forced them to go into hiding. The two founders admitted that the overconfidence born out of a multiyear bull market, where lenders saw their values swell by virtue of financing firms like theirs, led to a series of bad decisions that should have been avoided.

Joshua Peck, founder and chief investment officer at crypto hedge fund Truecode Capital, explained to Cointelegraph that what made 3AC’s failure especially pernicious was its venture capital investing, it often managed the treasury for its portfolio companies, plus it was so well regarded that many other platforms extended them substantial credit, such as Blockchain.com’s $270 million in loans.

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The full extent of its interdependence with other digital asset firms was unclear until 3AC’s positions began liquidating during the cryptocurrency bear market in 2022. It rapidly became apparent that many firms were more exposed to 3AC than was broadly understood. Peck told Cointelegraph:

“Our view is that to avoid total loss in the crypto market, the totality of the cryptocurrency risk profile must be managed. Managers with a background in the engineering disciplines are more qualified to manage cryptocurrency portfolios because the majority of the risks associated with digital assets have more in common with software projects than financial firms. This was certainly true in the case of Three Arrows Capital.”

3AC’s downfall snowballed into a catastrophe that brought down the likes of Celsius, Voyager and a few other crypto lending firms along with them. The extent of the damage caused by 3AC exposure is still unfolding, but it is important to note that the crypto market has managed to get past Terra and the crypto lending fiasco.

Not just Bitcoin price: Factors affecting BTC miner profitability

July 23, 2022 Coin Telegraph

ASIC

As many crypto holders are gearing up for a bear market, what are the factors influencing the mining business?

The ongoing cryptocurrency bear market has triggered a massive decline in Bitcoin (BTC) mining profitability as BTC mining expenses outpace the price of Bitcoin.

Closely tied to the drop in the BTC price, Bitcoin mining profitability has been tanking since late 2021 and reached its lowest multi-month levels in early July 2022.

According to data from crypto tracking website Bitinfocharts, BTC mining profitability tumbled to as low as $0.07 per day per 1 terahash per second (THash/s) on July 1, 2022, touching the lowest level since October 2020.

The decline in BTC mining profitability has caused some big changes in the crypto mining industry.

Lower Bitcoin prices fueled selling pressure as miners were pushed to sell their BTC to continue mining and pay for electricity. The majority of big crypto mining firms like Core Scientific had to sell a significant amount of Bitcoin in order to survive the tough market conditions.

The growing unprofitability of BTC mining has also triggered a big drop in demand for crypto mining devices, causing many miners to sell their mining hardware at a discount.

As lower prices of application-specific integrated circuit (ASIC) miners and graphics processing units (GPU) may drive more interest from new miners, it’s crucial to remember that the price of mining hardware is just one out of many factors behind BTC mining profitability.

What is Bitcoin mining profitability and how is it defined?

Bitcoin mining is an economic activity that involves the production of the digital currency Bitcoin using the computing power of GPU-based miners or specifically-designed ASIC miners.

Bitcoin mining profitability is a measure defining the degree to which a Bitcoin miner yields profit based on a wide number of factors, including the price of Bitcoin, the mining difficulty, the cost of energy, the type of mining hardware and others.

Factor 1: Bitcoin price and block rewards

The price of Bitcoin is one of the most evident factors impacting the BTC mining profitability as the value of BTC is directly proportional to profits yielded by miners.

Bear markets trigger even more attention to BTC price from miners because they risk losing money if BTC drops below a certain price level.

Miners should also take into account the amount of the block reward or the amount of BTC given to miners for mining one block on the BTC blockchain. Bitcoin’s original block reward amounted to as much as 50 BTC before it was cut to the current 6.5 BTC following three historical block reward halvings.

Bitcoin halvings are a major part of the BTC protocol, aiming to decrease the quantity of the new coins entering the network by cutting the block reward in half every 210,000 blocks or approximately every four years.

Factor 2: Bitcoin mining hardware characteristics

Bitcoin mining profitability largely depends on the choice of a BTC mining device and related characteristics including hash rate, power consumption and price.

Hash rate is the processing power of a miner, measured in hashes per second (H/S). Higher hash rates include representations in kilohashes per second (KH/S), gigahashes per second (GH/S), terahashes per second (TH/S), exahashes per second (EH/S) and so on.

A miner’s hash rate is the speed at which it can solve crypto mining puzzles to mine Bitcoin. The faster the speed, the more BTC is mined in a specific timeframe. As the BTC hash rate is constantly breaking new highs, Bitcoin miner manufacturers regularly produce new mining devices supporting higher hash rates, while older miners apparently become obsolete over time.

Another important feature of a BTC mining device is the energy consumption. With rising global energy costs, a miner’s ability to consume less energy is essential.

The price of actual mining devices is also an important expense when calculating the BTC mining profitability. Both GPU and ASIC miners got cheaper amid the bear market this year, but brand new flagship miners still cost more than $11,000 at the time of writing.

Factor 3: Mining difficulty and hash rate

Bitcoin mining difficulty is a measure of how hard it is to mine a BTC block, with a higher difficulty requiring additional computing power to verify transactions and mine new coins.

Network difficulty has been rising in 2022, continually breaking new all-time highs. Bitcoin’s mining difficulty adjustment occurs every 2,016 blocks, or about every two weeks, as Bitcoin is programmed to self-adjust in order to maintain a target block time of 10 minutes.

The Bitcoin hash rate is another fundamental metric for assessing the strength of the BTC network, as a higher hashrate means more computing power is required to verify and add transactions to the blockchain. This also makes BTC more secure because it would take more miners as well as more energy and time to take over the network.

Factor 4: Electricity costs

The price of electricity is another important factor when calculating the profitability of BTC mining.

Miners consider electricity prices in various countries in compliance with local crypto mining regulations. As mining activity puts extra stress on a power grid, it’s important to double-check local requirements and specific energy prices for powering BTC miners in this or that country or region.

Bitcoin mining can be powered by many energy sources, both renewable like wind and solar and nonrenewable sources including fossil fuels like coal, oil and natural gas. Amid soaring energy prices caused by recent supply issues, miners should pay special attention to possible implications on BTC mining income when using nonrenewable energy.

Factor 5: Pool fee if not mining solo

Many Bitcoin miners prefer to join mining pools instead of working as individual miners. That is a way to combine their computing power and increase the chances of finding a block and mining BTC faster.

Pool miners should be aware of another small expense that is taken by pool admins that set up the software for this type of mining. The fee is generally 1-3% of the miner’s individual reward, depending on the pool.

Factor 6: Other expenses

Bitcoin mining expenses are not exclusive to ASICs and GPUs and network indicators. BTC mining may also require some additional investment related to the physical mining setup, including facilities and property that are a good fit. Significant expenses may include cooling or noise canceling equipment as some miner machines are associated with a massive amount of heat and noise pollution.

Crypto mining calculators

One of the easiest ways to calculate Bitcoin mining profitability based on all the listed factors is using online BTC mining calculators.

Designed to simplify the process of calculating Bitcoin mining profitability, a BTC mining calculator predicts the approximate mining income based on inputs like BTC price, hash rate, electricity price and others.

Let’s take an example of calculating Bitcoin mining profitability with a brand new Bitmain ASIC Antminer S19 Pro using the BTC mining calculator by crypto market data provider CryptoCompare.

Antminer S19 Pro has a maximum hashrate of 110TH/s and power consumption of 3250W. Let’s assume that a miner’s pool fee is 2% and the miner is based in North Dakota, where the average residential electricity rate in 2022 amounts to roughly $0.11, versus the United States national average price of roughly $0.14.

Given these variables, the daily profit ratio accounts for 27%, with possible BTC mining profits amounting to $70 per month, or $840 per year, according to CryptoCompare. In contrast, given the U.S. national average electricity price of $0.14, the daily profit ratio amounts to 0% or even generates a loss with the current BTC price and other network indicators.

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Technicals suggest Bitcoin is still far from ideal for daily payments

July 19, 2022 Coin Telegraph

Coin Telegraph

Even with the rise of layer-2 solutions, many experts believe Bitcoin may have missed the boat as a currency for day-to-day remittances go.

It is no secret that a vast majority of investors, both from the realm of traditional as well as crypto finance, view Bitcoin (BTC) as a long-term store of value akin to “digital gold.” And, while that may be the dominant narrative surrounding the asset, it is worth noting that in recent years the flagship crypto’s use as a medium of exchange has been on the rise.

To this point, recently, the central bank of El Salvador revealed that its citizens living abroad have sent over $50 million in remittances to their friends and family. To elaborate, Douglas Rodríguez, president of El Salvador’s Central Reserve Bank, announced that $52 million worth of BTC remittances had been processed via the country’s national digital wallet service Chivo through the first five months of the year alone, marking a 3.9%, $118 million increase in value when compared to the same period in 2021.

Bitcoin as a payment medium has been on the rise, as is made evident by the noticeable increase in the adoption of layer-2 payment protocols such as the Lightning Network. To this point, BTC transaction volumes are currently up by a whopping 400% over the last twelve months.

Therefore, it is worth delving into the question of whether Bitcoin’s utility as a daily transaction medium is actually feasible, especially from a long-term perspective, as when compared to other networks like Ethereum, Solana or Cardano, Bitcoin still lags behind in key areas including scalability and transaction throughput.

Is Bitcoin’s utility as a payment method overrated?

According to Corbin Fraser, head of financial services for Bitcoin exchange and cryptocurrency wallet developer Bitcoin.com, Bitcoin has lost its first mover advantage as peer-to-peer (P2P) cash. This is due to the fact that, since 2016, the Bitcoin community has done everything possible to explain to its users that they should absolutely not use Bitcoin for payments or remittance-related purposes. He added:

“Use cases of remittance and P2P cash payments have moved to other blockchains with higher throughput, lower fees. Bitcoin will be hard pressed to re-introduce the concept of daily payments to its users and other communities focused on these use cases which have found a home under various other banners.”

Fraser stated that when one takes into consideration the difficulty side of things, such as the hassles involved with ordinary crypto users deploying layer-2 solutions like the Lightning Network to process payments, the situation becomes all the more complex. “Competition in low fee, high throughput chains has increased considerably in the past two years. Bitcoin is on its heels when it comes to shifting focus back to using it for daily payments,” he added.

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On a technical note, he highlighted that Bitcoin’s limited throughput of five transactions per second means that as people start to flock to the blockchain for daily transactions, its memory pool will fill up, causing the fee market to expand, pricing out more and more users and creating a negative experience for users intending on using it for daily payments. He said:

“Even in the event of a mass exodus from layer-1 BTC to layer-2 BTC protocols, the system will struggle both due to deposits and withdrawals to and from the Lightning Network. That said, Bitcoin’s core devs could make some changes to further enhance utility for payments. If the BTC community can rally behind the payments use case, it is possible consensus could be reached.”

A somewhat similar opinion is shared by Toya Zhang, chief marketing officer for cryptocurrency exchange Bit.com, who told Cointelegraph that even though Bitcoin was initially designed as a payment currency, the development of different protocols and stablecoins has made it highly unlikely that it will ever be used as a payment token anytime soon, even with the implementation of layer-2 solutions. She further explained:

“In the long run, limitations related to confirmation times or price volatility are not an issue. The reason for Bitcoin to not be able to fulfill its role as a remittance medium is very simple, Bitcoin is too pure of an asset. It will only fulfill its original mission if all payment-centric cryptocurrencies fail, the possibility of which has most likely sailed.”

BTC transaction numbers appear shaky

Andrew Weiner, vice president of VIP services for cryptocurrency exchange MEXC Global, told Cointelegraph that while BTC does tend to be used for large payments, technically and philosophically, it is difficult to make micropayments using Bitcoin’s layer-1 blocks, which is the very reason why so many developers are pushing micropayments on Bitcoin’s layer-2 network.

To this point, he noted that from 2018–2021, Bitcoin’s micropayments remained absolutely flat, with a public capacity of less than $5,000. However, things went to a whole new level last year, when the network went from 10 million users to approximately 80 million from October 2021 to March 2022. In this regard, Weiner highlighted:

“The main reasons for this are the reduction in the complexity of layer-2 networks (such as the Lightning Network) and the gradual maturity of infrastructure for setting up nodes and utilizing networks. More and more wallets and payment processors continue to grow. Node cloud hosting and node management software companies support BTC’s Lightning payments, enabling enterprises to integrate more into these products and services.”

That said, he conceded that BTC becoming a means of daily payment depends on the asset fulfilling three core conditions: whether its infrastructure is mature enough to achieve low cost and convenient use, whether there is enough use such that large enterprises, institutions and national governments are willing to use the asset and lastly, whether it can deliver a good enough level of security and privacy.

*A pawn shop in the Philippines, a common location for sending and receiving remittances.*

Yohannes Christian, research analyst for digital asset exchange Bitrue, noted that despite being one of the most secure networks in existence today, Bitcoin’s remittance capabilities are one of the worst in terms of speed and fees. He pointed out that the asset can only process 5-7 transactions per second (which works out to 3,500 to 4,000 transactions in a 10-minute block). Furthermore, when this transaction number peaked, Christian noted that it could take up to an hour to settle a payment, adding:

“In terms of fees, the Bitcoin network follows the Supply and Demand Law, with a low of $0.20 per transaction and as high as $50 per transaction during the height of the 2017 bull run. This congestion issue can create a systematic problem for day-to-day Bitcoin payments.”

And, while the development of layer-2 solutions may help solve some of the scalability problems in question, he believes the network still needs some time before it can become ready to be used for daily transactions. To put things into perspective, the Bitcoin network currently has a 10-minute block transaction with only a 1MB block size. In comparison, its close alternative, Bitcoin Cash (BCH), has a 2.5-minute block transaction and 32MB block size, which is 128 times faster than BTC.

The future of Bitcoin lies within a layered approach

Muneeb Ali, CEO and co-founder of Trust Machines — an ecosystem of Bitcoin-centric applications and platform technologies — told Cointelegraph that once you have a decentralized base as good as Bitcoin, it is easy to build additional utility and scalability on top, adding:

“That’s what we’re seeing in other blockchain ecosystems and what we can expect for Bitcoin as well. When it comes to global remittance capabilities Bitcoin presents the strongest capability given its decentralization, long term durability, uptime and accessibility. The remittance can be in BTC, or through stablecoins built on Bitcoin layers.”

Ali said that despite there being a decade worth of Bitcoin development, we’re still in the early innings of the growing ecosystem. This is because building on the Bitcoin ecosystem has traditionally been hard given the base layer was very simple and lacked advanced programming features.

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However, now with various Bitcoin layers like the Lightning Network, Stacks and RSK, developers can build more complex applications with relative ease. “Developer traction is an early indicator of increased app development and usage by mainstream users and we’re beginning to see this now starting 2021 or so,” he concluded.

Therefore, as we head into the decentralized future of digital finance, a growing number of countries, institutions and businesses appear to be willing to use Bitcoin as a settlement currency due to a variety of different factors. However, owing to the fact that BTC still experiences great volatility in its day-to-day price action, it is still limited in its overall scope of usability, especially as a payment medium. Thus, it will be interesting to see how the future of the digital asset plays out from here on end.

‘Token will defeat cryptocurrency’: Russia debuts palladium-backed stablecoin

July 18, 2022 Coin Telegraph

Bank of Russia

Backed by a sanctioned Russian oligarch, Atomyze became Russia’s first legal digital asset manager, obtaining registration from the central bank in February 2022.

The Russian government-backed tokenization platform Atomyze has issued its first digital asset backed by palladium in collaboration with the local bank Rosbank.

Rosbank officially announced on Monday that it became the first partner of the Russian blockchain firm Atomyze, acting as an investor in Russia’s first digital asset deal with palladium.

According to the announcement, the newly issued digital asset is the first digital financial asset (DFA) issued through Atomyze. The platform obtained registration from the Bank of Russia in February 2022, becoming the country’s first legal digital asset manager.

Both Atomyze and Rosbank are backed by Interros, a Russian conglomerate and investment firm co-founded by sanctioned oligarch Vladimir Potanin. The CEO of the Russian nickel and palladium mining and smelting company Nornickel originally announced plans to tokenize palladium back in 2019 through a Switzerland-based palladium fund.

According to an announcement by Interros, Atomyze will serve as a key element of Interros’ digital ecosystem including Potanin’s recently acquired private bank Tinkoff, software engineering firm Reksoft and Rosbank.

“This is a truly significant event. Russian businesses and individuals have the opportunity to invest in this metal,” Potanin said in the announcement. The event also marks Russia’s economy entering a new period, the “era of tokenization,” the oligarch noted.

Potanin also expressed confidence that Atomize-issued digital financial assets like the palladium token will sooner or later displace cryptocurrencies like Bitcoin (BTC), stating:

Unlike cryptocurrencies [...] industrial and other tokens are backed by physical assets, and the use of blockchain technology makes their transactions reliable, convenient and transparent. The token will defeat the cryptocurrency, pushing it to the sidelines of the digital economy.

While both Atomyze or Rosbank refer to the new investment product technically as the “palladium token,” the product has characteristics of a stablecoin backed by precious metals. “The innovative product entitles Rosbank to a cash claim equivalent to the market value of palladium,” the bank said in the announcement.

As previously reported by Cointelegraph, major global stablecoin issuers like Tether and Paxos debuted gold-backed stablecoins a few years ago.

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