Crypto Frameworks are Being Built Brick by Brick
The markets were relatively calm this week as the summer doldrums took hold. Trading volumes declined significantly, and the S&P 500 inched forward by about 1.0% while Bitcoin retraced around 4%. Prices are expected to remain fairly flat until the next Fed meeting provides further clarity for market participants.
While price movements have been unimpressive, crypto has stayed busy, with this week’s developments continuing the trend of an improving regulatory landscape and growing institutional adoption. Fundraises continued to impress but more importantly, the U.S. Federal Reserve announced guidelines that could pave the way for crypto banks entering the banking system.
The Federal Reserve has been under fire for some time now due to their inconsistent and slow treatment of crypto banks seeking master accounts and it seems that they are now aiming to rectify their wrongs. With Fed approval, crypto banks will no longer need to partner with traditional banks to serve as intermediaries. Additionally, a three-tiered framework has been proposed that aims to evaluate the risk level of an applicant institution. Depending on their risk level, different due diligence procedures will be followed with the aim of providing more clarity and insight into the approval process. Crypto banks such as Custodia and Kraken would likely fall into the riskiest tier as they are neither FDIC insured nor subject to supervision by a federal banking agency. Still, this framework alone provides a marked improvement over the opaque processes in place today and hopefully lays the groundwork for further clarity.
Next, let’s take a quick look at how things are going in Europe. While we have already spent a large sum of time here in the previous weeks, there are a few noteworthy items to stay aware of as their situation grows ever more precarious:
UK inflation hit 10.1% in July, well on track for the anticipated 13% by year-end. This is now a 40-year high.
Europe is being roiled by one of its worst heatwaves in recorded history. Paradoxically they will be wishing for warmer weather this coming winter as energy prices climb to record highs.
German baseload year-ahead power prices are up nearly 500% from the year prior. They have also stalled the closure of a few nuclear plants in order to prepare for the coming winter’s energy demands. Couple this with nuclear energy being considered green in recent EU legislation changes and it is not unreasonable to expect nuclear power to have a sort of renaissance in the coming years as energy independence becomes top of mind for nations.
In Other News
Despite the bear market, allocators seem to be having little trouble raising large funds. The sustained interest in the ecosystem is once again validated by CoinFund and Shima Capital raising $300 million and $200 million, respectively, to deploy across Web3.
Crypto broker Genesis cuts staff by 20% and their CEO steps down amid continued internal turmoil.
The Ethereum merge is targeted for September 15 after a couple of years of delays. Multiple successful testnet merges have led the Ethereum Foundation to feel confident that a successful switch from Proof of Work to Proof of Stake is on the horizon.
Mining Metrics
Bitcoin Price: ~$23,500
Hashrate (amount of computing power used by the Bitcoin network): 198EH/s
Hashprice (expected value of 1 TH/s of mining power per day): ~$0.106
ASIC Prices (the computing machines used to mine BTC): $33.95/TH
Crypto markets cooled slightly this week as expectations for further rate increases rose after the release of the minutes from the most recent fed meeting. These minutes are designed to serve as an account of the dialogue that transpired during the meeting, but also serve the dual purpose of adjusting initial market reactions if they were off from the desired outcome.
As expected, the laggards that were yet to report their earnings finally got their numbers in and performed similarly to their peers:
Riot Blockchain recorded a net loss of $366 million, primarily off the back of severe impairment charges due to the decline in Bitcoin’s price and impairment charges to goodwill from earlier acquisitions of Whinstone U.S. and ESS Metron
Greenidge Generation reported a net loss of $108 million and plans to pause the development of new sites in order to focus on preexisting facilities
Stronghold Digital Mining reported a loss of $40 million and significantly restructured its debt to keep the company a going concern for at least the next twelve months
Of all the major announcements in the world of mining this week, the last one takes the cake as Stronghold Digital Mining undergoes the first major restructuring of this bear market. Our team has maintained the stance that Q3 and Q4 would be rocky for many of these operators if prices did not meaningfully improve and it seems that the dominoes are now beginning to fall. As we wrap up this week’s newsletter, here are just a few highlights from their restructuring:
Return of 25k financed miners to NYDIG, reducing overall debt burden significantly
WhiteHawk equipment financing agreement converted to a 36 month term, extending payback period and lowering monthly payments
Strike price on warrants lowered from $2.50 to $.01
A full list of the restructuring from their Q2 report is below:
Until next week,
Artem