In this issue
- OpenSea: Capital punishment
- Crypto markets: Grin and bear it
- Bitcoin mining: Power plays
From the Editor’s Desk
Sometimes life comes at you fast.
OpenSea’s community of supporters found that out this week as news emerged that the non-fungible token marketplace was headed for an initial public offering.
The Wall Street pivot plainly disappointed many OpenSea devotees who had hoped to be rewarded for their loyalty to the platform rather than see it “sell out” — as they might characterize it — to the suits in the traditional finance sector.
There was a sense of inevitability about the looming stock market listing. After all, businesses as spectacularly successful as the likes of OpenSea have to grow up sometime — as the suits might say.
There seemed to be no such inevitability about the week’s crash on crypto markets, which had recently been enjoying a robust rise following a period in the doldrums earlier this year.
Whether the encroachment of TradFi into crypto (or, perhaps, “mainstream adoption” — depending on whether you bought the dip or suffered from it) is to blame for the market downturn remains to be seen. But Bitcoin’s slump, in particular, raises questions about how the original crypto’s price dynamics have evolved.
In crypto, life can certainly come at you fast. And understanding the make-or-break developments is critical to navigating the journey.
Until the next time,
Founder and Editor-in-Chief
1. OpenSea leaves community unmoored
By the numbers: OpenSea — over 5,000% increase in Google search volume.
Non-fungible token (NFT) marketplace OpenSea is on course for an initial public offering, according to Brian Roberts, the platform’s new finance chief. Roberts, a tech veteran who as Lyft’s chief financial officer led the ride-sharing underdog to beat Uber in a race to go public in 2019, is planning to pull off the same feat for OpenSea, the world’s biggest NFT sales platform.
- Projects such as Ethereum Name Service showered early adopters with appreciation by airdropping governance tokens for its new decentralized autonomous organization, and some OpenSea supporters had been expecting similar rewards, including a rumored OpenSea token. On hearing the news, they didn’t hold back on voicing their disappointment.
- A user tweeting as @LivingPixelated wrote: “Wait… What? OpenSea is doing an IPO? Disappointed. Your platform is a success because of the community, and you can’t give back.”
- Another with the Twitter handle @basedkarbon said: “No surprise that OpenSea is doing an IPO instead of community governance. Anyone who’s had the displeasure of speaking with OpenSea community support would know that OpenSea doesn’t care about community at all. They’re not web3, they’re tradfi [sic] 2.0.”
- OpenSea became a US$1.5 billion NFT unicorn in July following a US$100 million series-B funding round led by Andreessen Horowitz, U.S. National Basketball Association superstar Kevin Durant, and actor and seasoned crypto venture capitalist Ashton Kutcher.
- OpenSea’s trading volume rose by more than 1,000% during the month that followed, hitting an all-time high of close to US$3.4 billion. That volume has gradually dropped back, ending November at US$2.4 billion, but the platform’s US$12.7 billion all-time trading volume leads those of all other NFT marketplaces, and is far ahead of play-to-earn powerhouse Axie Infinity’s US$3.7 billion, in second place.
Forkast.Insights | What does it mean?
OpenSea’s growing pains are emblematic of the ongoing tension within the crypto community. On one side are early adopters who flocked to projects in return for tokens and rewards that one day might turn out to be worth a fortune. On the other are the growing roster of tech investors and venture capital funds piling into the space, bringing with them expectations that any value generated by the projects they’ve put money into will flow back to them first, rather than to the communities from which they grew.
Although some see the OpenSea case as a pitched battle over who helped the platform reach such dizzy heights, the real story is that Web 3.0 is starting to emulate Web 2.0 in its early days. And we all know how that turned out.
While enthusiasts help companies find their feet, ultimately it’s those with the biggest bank balances that have the final say. Microsoft, Apple and other startups all faced similar issues in their early days, but all managed to stay a step ahead of community critiques by building their business quickly and attracting new users.
One thing is certain: OpenSea’s anticipated IPO will give it all the financial firepower it needs to forge ahead, whether its critics like it or not.
2. Market misery
By the numbers: crypto crash — over 5,000% increase in Google search volume.
The cryptocurrency market is still recovering from a rout at the weekend amid a slew of bad news, including warnings of a default by Chinese property giant Evergrande, disappointing job growth numbers in the U.S. and mounting concerns over the Omicron Covid-19 variant that hit equity markets. Crypto’s aggregate market cap fell by more than US$500 billion as US$2.09 billion of long positions were liquidated on Saturday, Hong Kong time.
“Whether it’s a reaction to several crypto [exchange-traded fund] applications being withdrawn or ahead of something to come, whales in the crypto space seem to have transferred coins to trading venues, taken advantage of a bullish bias and leverage from retail traders, to then push prices down,” Justin d’Anethan, head of exchange sales at crypto exchange EQONEX, told Forkast.News. D’Anethan said Bitcoin exchange reserves were growing and that the Bitcoin leverage ratio was rising across markets in the run-up to the nosedive, which had hinted at a looming sell-off.
- Bitcoin dipped below US$50,000 for the first time since early October, bottoming out at US$46,633 on Saturday. At press time, it was trading at US$50,463.
- Ether lost 17%, but has recovered more rapidly than Bitcoin. ETH was trading at US$4,369 at press time, 5.1% shy of its value before the market tremor, a narrower loss than Bitcoin’s 11.6%. Ethereum’s 20.8% market share is also closing the gap with Bitcoin’s 38.2%.
- Among major cryptocurrencies, Terra’s LUNA emerged higher following the weekend’s events, reaching an all-time high of US$77.73 on Sunday after a 23% plunge a day earlier. LUNA overtook Dogecoin among the top 10 cryptocurrencies by market cap and was trading at US$67.88 at press time.
- Ethereum scaler Polygon’s MATIC came late to the party, erasing the 22.9% loss it suffered on Saturday to rise above its pre-weekend price of US$2.31 on Tuesday. MATIC has jumped 33% over the past seven days, and was trading at US$2.38 at press time.
Forkast.Insights | What does it mean?
For seasoned crypto-watchers, the shenanigans over the weekend looked like business as usual. But two key aspects of the market gyrations are worth some attention.
The first is Bitcoin’s dominance. Traditionally, a dip in BTC leads to a slide in the value of all coins. That didn’t happen this time. In fact, Bitcoin’s dominance — its share of the value of the entire crypto market — fell below 40% for only the second time in its history as coins such as Ethereum performed better during the dip.
The second is Bitcoin’s recovery. BTC has taken longer than other tokens to pare its losses, a fact that some analysts attribute to the types of investors holding onto the world’s first crypto, as distinct from those focused more on altcoins and decentralized finance.
Data suggests that most of the money moved out of Bitcoin came from investors switching out of digital currencies and into safe haven assets as broader capital markets look increasingly bearish. This trend highlights that although the arrival of institutional money into Bitcoin can help drive up its price, it can also leave BTC short-changed when the mood on equity markets sours.
3. Mining power struggles go global
China’s effective eviction of its crypto miners this year initially resulted in a number of countries rolling out the red carpet for migrating crypto mine operators. But the energy concerns that helped fuel Beijing’s brisk dispatch of the country’s miners are now also causing headaches elsewhere. As the southern Chinese province of Hainan officially designated crypto mining an “outdated industry” as part of national efforts to eradicate crypto mining, authorities in other parts of the world are also now expressing alarms and cracking down on mining-related power problems.
- In Moscow, an illicit crypto mining farm consuming almost US$7,000 worth of electricity daily was uncovered and closed by local authorities. The data center was reported to have been siphoning off electricity illegally from a local grid operator.
- In Ukraine, a mining operation was found to have used US$128,000 worth of stolen electricity from local substations.
- In late October, Kazakhstan — which, following China’s crackdown on mining, emerged as the second-largest mining powerhouse behind the U.S. — reported power shortages, particularly in its southern regions. Authorities have rationed energy use by crypto miners, dispersing concentrations of miners out of the south.
- And amid a local power crunch, Iceland has reduced power supplies to industrial consumers and closed the country to new Bitcoin miners.
- China’s all-out assault on its mining industry is not slowing down. Qihoo 360, a Chinese internet company well known for producing antivirus software, has built a crypto mining tracker for authorities in the country. Qihoo 360 has said it detected a daily average of 109,000 active mining IP addresses in November. The company was last year included in the U.S. Bureau of Security and Industry’s Entity List of companies subject to license requirements for the export, re-export and transfer of specified items due to its alleged involvement in the development of technology for the Chinese military.
Forkast.Insights | What does it mean?
Stories of Bitcoin miners’ energy usage shouldn’t surprise anyone. The coin’s power-intensive proof-of-work consensus protocol that keeps BTC safe can also divert power from those who need it most.
Stories of miners stealing electricity should be taken seriously, but there are few energy grids capable of handling the demands of industrial-scale Bitcoin mining — even when the miners are paying their way. And although talk of renewable energy sources is widespread in mining circles, the elephant is still very much in the room: Bitcoin’s dogged determination to stick to a proof-of-work protocol.
Networks such as Solana have chosen less energy-intensive consensus protocols, and others have gone further still to completely offset their power usage. Some argue that these newer networks have the luxury of choosing more energy-efficient means of securing themselves, but that Bitcoin has no option but to stay the course.
Meanwhile, Ethereum is taking on the monumental task of moving away from proof of work in favor of proof of stake. That process will take years, but it’s a demonstration of how even the most decentralized networks can centrally organize themselves to find solutions to problems. Bitcoin should be no exception.