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Russia’s ban on paying for goods and services with DFAs and the worst bitcoin sell-off in history. Key events of the week

22.07.2022

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9 min

Bitcoin exchange rate has risen by 12,91% over the past seven days. The highest values were reached by the asset on July 20, when 1 BTC was trading at $24 276, the lowest values were registered on July 15 — $20 382 per one coin. The bitcoin exchange rate is $23 549 as of July 22, 10:40 UTC (according to Binance).The value of the second most capitalized cryptocurrency, Ethereum, has risen 34,22% over the past seven days to $1637. The native token of the cryptocurrency exchange Binance (BNB) is up 13,51% and is trading at $269,9.The total capitalization of the crypto market increased from $0,959 to $1,1 trillion during the week, with bitcoin dominating 40,8%. Ethereum's share is 16,75%.

Ban on the use of DFAs as a means of payment

On July 14, Russian President Vladimir Putin signed a law on the regulation of digital financial assets (DFAs). The document imposes a ban on payments for goods, services, and works with DFAs, excluding certain cases stipulated by federal laws. The main provisions of the new law come into force upon its official publication.

The document also introduces the concept of an electronic platform operator. Such operators are equated to the subjects of the national payment system and have the right to settle transactions on electronic platforms. The Bank of Russia will create a register of electronic platform operators and will be able to take measures against them if violations of the law “On the National Payment System” are identified. An operator to be excluded from the register by the Central Bank will not be able to carry out settlement of transactions carried out with an electronic platform.

On July 18, Rosbank conducted its first investment transaction in Russia using digital financial assets (DFAs). The bank invested in a digital token for palladium metal issued by the Atomyze platform. GPF Investments, an international fund with a portfolio of precious metals, acted as an issuer. The asset is linked to the market value of palladium and entitles Rosbank to a cash claim equivalent to its market value.

“The worst bitcoin selling” in history

Public mining companies sold 14 600 bitcoins in June, representing 23% of their total reserves and around 400% of all volume cryptocurrency mined in a month. According to Arcane Research analyst Jason Mallory, from January to April, miners sold an average of 20-40% of the coins mined. He noted that “this strategy worked well until the bear market arrived” and in May companies sold 100% of their mined BTC.

Core Scientific sold the most cryptocurrency (10 000 BTC). It used to be the largest holder but has now dropped to sixth place with 1959 BTC. The leader in terms of owned cryptocurrency among publicly traded mining companies became Marathon Digital Holdings, which owns 10 055 bitcoins. Mallory noted that after the sale, the companies’ holdings returned to the figure at the start of the year.

Amid the bitcoin sell-off, prices for mining equipment fell to December 2020 levels. According to Luxor Mining’s Hashrate Index service, the price of flagship ASIC miners, whose power efficiency ranges between 38 J/TH and above, dropped to $41 per 1 TH of power. Bitmain’s Antminer S19 and S19 Pro are on sale for $20-23 per TH. MicroBTC’s Whatsminer M30 line models are being sold in roughly the same price range.

Swedish Energy Minister Hashayar Farmanbar said that the country was faced with the choice of allocating more electricity to businesses that provide jobs or increasing the capacity of mining companies. He stressed that Sweden needs the resource “for more useful things than bitcoin.” The government is concerned about the increased consumption of electricity, so it asked the relevant agency to create ways to track the energy used for digital infrastructure. According to Farmanbar, the issue with electricity distribution is not controversial. Preference will be given to those organizations that benefit the community.

In the US, congressmen sent a letter to the Department of Energy (DOE) and the Environmental Protection Agency (EPA) asking them to require miners to report information about emissions and energy consumption. Officials said that they had little data on the scale of miners’ activities, so it was crucial that the agencies work together. They noted the problem of the environmental impact of cryptocurrency mining and called on the DOE and EPA to use all available powers, such as section 114 of the Clean Air Act.

According to the international Bitcoin Mining Council's (BMC) report for the second quarter of 2022, mining energy consumption increased by 63% over the year, while hashrate rose by 137% over the same period. The council collected data on more than 50% of the bitcoin network. According to BMC, cryptocurrency mining accounts for 0,086% of total carbon dioxide emissions. In addition, it is noted that cryptocurrency mining consumes 0,15% of the world's electricity.

BMC reported that the share of energy from renewable sources used for cryptocurrency mining increased by 6% over the year to 59,5%. At the same time, the efficiency of mining increased by 46% over the year.

Development of the situation with troubled crypto companies

Following the suspension of withdrawals, Vauld asked the Singapore High Court to impose a six-month moratorium on the proceedings while the company explored ways to restructure because of bankruptcy. Vauld owes creditors a total of $402 million, 90% ($363 million) of which is due to deposits from individual retail investors. Under Singapore law, the moratorium is granted automatically for 30 days from the filing date. A decision on its extension will be made at a hearing on August 1.

Cryptocurrency hedge fund Three Arrows Capital (3AC) owes a total of $3,5 billion to 27 companies that invested in it. 67% of that amount ($2,36 billion) is due to a loan from a company within the Digital Currency Group. About $680 million is owed by 3AC to bankrupt cryptocurrency broker Voyager Digital, and another $75 million to the Celsius lending platform, which is also in bankruptcy and restructuring.

At the first court hearing of Celsius' bankruptcy case, its lawyers said that most of the funds deposited by customers on the platform were actually at the company's disposal. Attorneys referred to the user agreement and explained that the retail part of Celsius' business operations distinguishes three key programs: earning, borrowing and custody. Of these, the latter is the only segment in which the deposited funds are in the full custody of the user. However, it accounts for only 4% of deposits.

New predictions for bitcoin's exchange rate

Mike Novogratz, CEO of investment firm Galaxy Digital, said that the price of bitcoin could rise to $500 000 by 2027. He described the first cryptocurrency as an asset that was created as an “anti-inflation store of value,” noting its growing popularity. As an advantage of BTC over gold, Novogratz singled out the fact that it is much easier to transfer. The entrepreneur also stated that greed, ignorance, and “inane risk management” led to the collapse of the crypto market. He believes that the problems of brokers Celsius Network and Voyager Digital, as well as the hedge fund Three Arrows Capital (3AC), make the entire crypto industry look like “a bunch of idiots.” In his view, this chain of events began with the collapse of the Terra blockchain.

On July 19, an anonymous crypto analyst under the pseudonym Inmortal said that the current week was important for bitcoin, as it could determine whether the asset’s recent rise above the $22 000 mark would be a real breakthrough. He also called two conditions that could lead to the first cryptocurrency’s price rise to $30 000. Thus, BTC needs to hold above $23 000 and seize the initiative from Ethereum to lead the cryptocurrency markets to more sustainable growth.

On July 18, analysts at Glassnode recorded a sign of bitcoin's bottom formation. They noted that the market value of BTC has been below its realized value for more than a month after a wave of capitulations in May and June, and in past cycles, such a situation persisted for an average of 197 days. Thus, the market may begin to recover in ~160 days.

Analysts at asset manager Grayscale believe the bear market could end by the end of March 2023. They also noted that the beginning of a bear phase usually marks the fall of bitcoin's realized value below the market value. This occurred on June 13, 2022 and, according to historical data, such a phase usually lasts 250 days.

Representatives of cryptocurrency exchange BitMEX, for their part, believe that during previous bear cycles (excluding March 2020) bitcoin price was below the realized value for an average of 244 days. Currently, the asset's price has been below its realized value for 30 days, from which experts also conclude that bitcoin is in the early stages of a bear cycle.

NFT market news

The government of the Chinese city of Shanghai unveiled a three-year plan to introduce metaverse technology to promote the tourism industry. The authorities will also encourage the use of NFTs in the field of culture and art. The initiative is aimed at restoring the city’s economy after a prolonged lockdown due to the coronavirus pandemic.

Two major car manufacturers announced their use of NFT this week. Kia released a commercial featuring characters from the Dead Army Skeleton Club (DASK) NFT collection. The campaign is timed to coincide with the launch of the new Kia Soul model. US viewers will be able to receive non-fungible tokens by scanning a QR code from the ad. The project is implemented in cooperation with the marketplace Sweet, the received NFTs will be sent to the wallets of the platform's users.

On July 18 South Korean automaker Hyundai presented IONIQ Citizenship, an NFT-based membership program for owners of the new IONIQ 6 electric car model. The collection consists of 5 000 automatically generated tokens of varying rarity, which determines the level of access to exclusive Web 3.0 content in Planet Hyundai's digital space in the Zepeto metaverse.

The OpenSea NFT marketplace announced the integration of the Solana blockchain into its platform. This will allow the creators of non-fungible tokens to issue and sell them directly on the OpenSea platform. The marketplace will automatically display all certified Metaplex collections (the standard of NFT operation on Solana) and the most popular Solana Candy Machine (an NFT creation tool).

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