In this issue
- Ethereum and Dogecoin prices rocket to the moon
- S&P Dow Jones launches crypto indices
- Mastercard wants in on CBDCs
- Who will be Andreessen Horowitz’s next crypto superstar?
- Beijing tightens leash over crypto miners
From the Editor’s Desk
Things are heating up out there in cryptoland.
And increasingly, the mainstream headlines we keep seeing reflect the price hype as investors swarm into altcoins. “Why is dogecoin’s price spiking? The crypto has surged 11,000% in 2021” proclaims one; “Ether’s 1,500% Jump Is Just the Start for Crypto Faithful” states another.
Well now two institutional purveyors of benchmark price indexes, S&P Global (previously known as Standard and Poor’s) and Dow Jones are getting into the crypto game and providing information and support for cryptocurrency markets, adding it to their range of markets from commodities to agriculture, and everything in between.
But just like looks, price ain’t everything. Whirring under the surface is an entire ecosystem that is changing and being redefined. Price simply reflects the opportunity to leverage this evolution for the individual. DeFi, or decentralized finance, is opening the doors of this financial opportunity for the first time to those on the other end of the gini coefficient. That’s what makes this industry interesting. Prices are simply a broader expression of that.
Until the next time,
Founder and Editor-in-Chief
1. Ethereum and Dogecoin prices soar anew to the moon
By the numbers: Ethereum | Dogecoin — over 5,000% increase in Google search volume.
Ethereum has woken up, breaching US$3,000 for the first time in its existence as it reached a new all-time high of over US$3,500. Its native coin Ether, the world’s second largest cryptocurrency is now responsible for 16.3% of the near US$2.4 trillion market cap of the entire cryptocurrency industry. Dogecoin prices also jumped higher and higher to rank the coin as the world’s 4th most popular cryptocurrency, after popular trading platform eToro listed DOGE and crypto exchange Gemini announced that it, too, would support Dogecoin.
- Even as smart contract blockchain Binance Smart Chain gave investors alternatives to the high gas fees on the Ethereum network, the average Ethereum transaction fees have decreased from a weekly high of 60 gwei to 37 gwei as of publishing time.
- The European Investment Bank has also announced last week that US$121 million worth of bonds have been issued on the Ethereum blockchain.
Forkast.Insights | What does it mean?
Despite reports of congested networks and high gas fees, the Ethereum blockchain still hosts the majority of the DeFi space and NFT creation. According to Dune Analytics, the growth of DeFi users is looking increasingly parabolic, quadrupling to over 2.1 million users in just the past eight months.
“Earlier this year, Ethereum had been lagging behind Bitcoin. Coupled with high gas fees and platforms such as Binance Smart Chain aggressively competing for market share, the language around Ethereum was surprisingly bearish,” Ben Caselin, head of research and strategy at AAX said in an interview with Forkast.News, ”Especially considering the activity across the decentralized finance (DeFi) and non-fungible token (NFT) sectors.”
The Ethereum blockchain has been touted as being the potential backbone of the internet of the future, but unlike the traditional internet, the Ethereum protocol is much better suited to capture the value of the applications built on top of it.
Ethereum’s base layer can be labelled as a “Fat Protocol” with a “Thin Application” layer. This is the reverse of the traditional internet which can be described as a Thin protocol with a Fat application layer.
With the traditional internet, the “thin” internet protocol layer is not as valuable as the “fat” applications built upon it. Sites like Facebook and Google are valuable because of the data they hold, which is privately held and not freely available to other applications running on the Internet Protocol.
In the case of the Ethereum protocol, the decentralized applications (DApps) built on top of it are unable to silo their data and value from the base layer as smart contracts are open-source. DApps that have been built on top of the blockchain like DeFi — the decentralized exchanges (DEXs), lending protocols and yield farming — are also able to enhance their balance due to their ability to interoperate with each other as they share the same base layer.
As Ethereum’s native cryptocurrency acts as the fuel for the computational power on the entire network — gas fees must be paid in ETH — one unit of ETH could essentially be viewed as one share of the value of the underlying Ethereum network — the base layer of the internet of the future. This also means that the value of ETH is directly linked to the user demand on the network, which continues to surge into 2021.
“In Asia, for example, we can see partnerships around central bank digital currencies (CBDCs) that leverage the Ethereum blockchain, while in Europe, the European Investment Bank is organizing a ‘digital bond’ sale on Ethereum,” Caselin added to the ever-expanding use cases of Ethereum.
2. S&P Dow Jones launches Bitcoin and other crypto indices
By the numbers: S&P 500 — 1,700% increase in Google search volume.
S&P Dow Jones Indices — a joint venture between S&P Global and News Corp., which owns Dow Jones — launched the S&P Digital Market Indices. The new crypto indices include the S&P Bitcoin Index, the S&P Ethereum Index and the S&P Crypto Mega Cap Index. S&P’s have gone live under ticker symbols SPBTC, SPETH and SPCMC. The Mega Cap Index is a combination of both Bitcoin and Ethereum’s performance weighted by market cap.
- The indices do not measure the price but use Lukka Prime Fair Market Value Pricing and are weighted by supply multiplied by the price of the asset.
- S&P joins Bloomberg and Galaxy Digital’s Bloomberg Galaxy Crypto Index which was launched in May 2018.
Forkast.Insights | What does it mean?
As investment in cryptocurrencies surges, institutions are coming under increasing pressure to supply their customers with the tools they need to access and assess the growing crypto asset class. The stated goal of the indices, according to S&P Dow Jones, is “to bring transparency to the emerging cryptocurrency market.”
The Digital Market Indices launched on S&P Dow Jones Index track the performance of the crypto assets listed on well-known transparent exchanges, specifically ones that meet minimum liquidity and market capitalization criteria.
When the world’s leading index provider first announced its plans for the indices last December, it said it would cover more than 550 digital assets and allow its clients to create customized indices as well as other benchmarking tools for cryptocurrencies.
“Traditional financial markets and digital assets are no longer mutually exclusive markets,” said Peter Roffman, global head of innovation and strategy at S&P Dow Jones Indices.
With more institutions jumping in, and acquiring huge portions of Bitcoin such as MicroStrategy and Tesla, with the former’s CEO Michael Saylor explicitly stating their aim is to hold — accessibility of the asset may become more scarce. Could this eventually lead to all Bitcoin transactions going directly through institutions?
Perhaps Bitcoin’s limited supply and institutional appetites could be what completely nullifies the first sentence in the Bitcoin white paper: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Once upon a time, Facebook was a virtual world where social interactions were made equal for everyone. Its mission statement was to “Give people the power to build community and bring the world closer together.” However, Facebook didn’t profit off of a free community, it profited when it became another tool of corporations mining data and capturing users as their audience for advertising. By working with the establishment, Facebook became the social media giant it is today.
Similarly, Bitcoin was created around an anti-establishment thesis but is now caught up in an institutional wave that has seen its price surge to previously unfathomable heights. While it might be losing its outsider identity, with new products like the S&P Dow Jones Indices and continued institutional interest — Bitcoin and other crypto could be poised for exponential growth in a market it was created to usurp.
3. Mastercard wants in on CBDCs
By the numbers: Mastercard — 3,850% increase in Google search volume.
Mastercard’s Q1 earnings call has revealed that the American financial behemoth is investing in smart contract technology to explore its role in central bank digital currencies (CBDCs). Mastercard CEO Michael Miebach said that the company continues to “engage” with central banks around the world.
- Miebach added that numerous central banks around the world have been using its CBDC testing platform launched last September.
- Mastercard is also supporting the adoption of private cryptocurrencies, most recently partnering with crypto exchange Gemini to launch a crypto rewards credit card this summer.
Forkast.Insights | What does it mean?
Mastercard has long been in favor of central bank digital currencies as a means of financial inclusion, and the continued support shown by the payments giant towards governments should come as no surprise.
Last September, Mastercard launched a virtual testing platform to allow central banks to evaluate use cases and test rollout strategies for CBDCs by simulating a CBDC ecosystem.
Speaking at the Fortune Global Forum on Oct. 27, Mastercard’s former CEO Ajay Banga said that while Bitcoin’s lack of transparency in its origins was a concern along with its extreme volatility — central bank digital currencies could be a powerful tool to service the unbanked. Banga also revealed that the payments giant had a large library of over 90 patents relating to CBDC.
As current Mastercard CEO Michael Miebach said in their Q12021 call, many central banks, including the European Central Bank, have taken a collaborative “two-tier approach” in which central banks mint the CBDC with the private sector facilitating distribution. To aid in taking on some of the distribution, the company will invest further in smart contract technology.
Mastercard also previously engaged with the Bahamas central government on central bank digital currencies in February this year to give citizens of the archipelago the option to load the country’s CBDC onto a prepaid Mastercard.
Raj Dhamodharan, executive vice president of Digital Asset & Blockchain Products & Partnerships at Mastercard, said the partnership between the Bahamas and his company was “an example of how the private and public sector can rethink what’s possible, while delivering the strongest levels of consumer protection and regulatory compliance.”
4. Who will be Andreessen Horowitz’s next crypto superstar?
By the numbers: Andreessen Horowitz — over 5,000% increase in Google search volume.
According to the Financial Times, Silicon Valley venture capital firm Andreessen Horowitz (a16z) is looking to launch a venture fund for cryptocurrency projects with a pool of up to US$1 billion. While Financial Times says that a16z has declined its request to comment, the fund has also yet to respond to other crypto media to confirm its new venture.
- A16z has invested in early crypto projects, including Coinbase. A16z sold its stake for almost US$450 million on Coinbase’s Nasdaq debut on April 14.
- Andreessen Horowitz has also invested in other successful crypto projects such as Ripple and Filecoin. It has also backed more recent superstars such as Dapper Labs, OpenSea and Uniswap.
Forkast.Insights | What does it mean?
Following the Coinbase public listing on April 14, Andreessen Horowitz (a16z) reaped the rewards of their early support in cryptocurrency exchange — the venture capital fund cashed out US$449.2 million in COIN for its investors as the stock made its debut on Nasdaq. A16z was one of the two largest outside investors in Coinbase.
As cryptocurrencies like Bitcoin, Ether and others continue to surge and garner mainstream attention, crypto venture capitalists have looked to the success of Coinbase, which currently has a valuation of US$60 billion. Andreessen Horowitz is assembling a third crypto venture fund and is looking to pull in between US$800 million to US$1 billion from investors who are in search of the next Coinbase.
Andreessen’s fundraising for this third fund would double the firm’s previous fund and even rival that raised by Paradigm, which has received $1 billion from investors, including endowments from Yale and Harvard, according to the Financial Times.
Investors are also currently showing more confidence in the cryptocurrency markets after witnessing the returns of firms like MicroStrategy and Tesla that have made direct investment into Bitcoin. Tesla’s Q1 earnings report on April 26 showed the firm generated US$101 million in income from the sale of 10% of the Bitcoin they had bought only months earlier.
Andreessen Horowitz has also continued to invest in new avenues of the digital world. The venture capital firm spearheaded a capital funding round for RTFKT, a virtual fashion platform, raising US$8 million. The virtual fashion platform specializes in digital sneakers and accessories.
5. Beijing looks for crypto miners
Beijing checked all the data centers in the city and asked them to report all energy consumption-related information before the Labor day vacation, reported local media.
- Beijing’s Bureau of Economy and Information Technology has confirmed to The Paper, a digital newspaper run by the Shanghai United Media Group, that the Bureau published an urgent notice on April 28, requiring all data centers based in Beijing to report their energy consumption information, including total electricity consumption and the ratio of crypto mining business represented.
- Beijing’s Bureau of Economic and Information Technology told local media that this action was a regular check on data centers’ major business. It did not disclose any results or any follow-up actions. There is no indication as to whether this was the start of more checks on data centers elsewhere in the country.
- China is now imposing stricter regulations on its crypto mining industry to meet the nation’s ambitious climate goals: China has vowed to halt the rise in its carbon emissions by 2030 and achieve carbon neutrality in 2060. Even though crypto mining is not allowed or discouraged in many regions in China, many mining firms are still mining cryptos while acting as data centers and cloud computing centers.
Forkast.Insights | What does it mean?
At the 2019 United Nations general assembly, President Xi Jinping pledged that China would halt the rise in its carbon emissions by 2030, and achieve carbon neutrality in 2060 — a central goal that is now written into China’s 14th five-year plan.
A growing concern for China’s carbon targets has been its crypto mining ecosystem. The production of cryptocurrency such as Bitcoin requires significant hardware and equipment, or “mining machines,” and the operation of these rigs requires vast amounts of electricity. Chinese miners account for more than 65% of the Bitcoin network’s computing power.
On April 6, academics at the Chinese Academy of Sciences and Tsinghua University published a paper stating that without the appropriate interventions and feasible policies, intensive Bitcoin mining could undermine China’s emission reduction efforts.
The paper states the annual energy consumption of China’s Bitcoin industry is expected to reach a peak of 296.59 terawatt hours in 2024 and generate 130.5 million metric tons of carbon emissions — which would exceed the total energy consumption of Italy and Saudi Arabia combined.
As the mining sector has come under increased scrutiny in China — many mining firms are concealing their operations by leveraging data centers and cloud computing centers.
The “emergency notice” sent out by the Beijing Municipal Bureau of Economy and Information is asking the city’s data center operators to report if they’re involved in Bitcoin and other cryptocurrency mining businesses. It could also be the first of such notices as China’s government continues to weed out these types of operations and gauge the actual power being consumed.
Among the data centers being asked for information, China’s three main telecoms network operators have been put on notice about their participation in cryptocurrency mining.