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It was impossible to start writing this letter before 8:30 this morning. Why not? Simply because that’s when the July inflation data for the United States was to be released. After recording a 9.1% increase in June, the sharp drop in energy prices led us to believe that we would be turning the corner and finally seeing an easing in the CPI. Analysts were expecting an annualized increase of 8.7%.
In the end, an increase of 8.5% was recorded. Not surprisingly, the markets reacted positively to this information. A drop in inflation gives the markets hope that several more interest rate hikes will not be required before falling back to the desired levels. For bitcoin, this has translated into a daily low price of $22,600 – right on its 30-day moving average by the way – to a price of $24,000 at the time of writing. This also keeps it on the right side of the all-important 200-week moving average. In short, the rebound remains tentative, but the indicators are favorable for a continuation of it.
Coinbase released its financial results yesterday. The company reported a net loss of $1 billion in the second quarter. Transaction volume on the exchange also dropped 29% for the same period. The total number of users transacting on the platform stands at 9 million, a drop of 200,000 in the last three months. Compared to the same quarter last year, Coinbase posted a gain, adding 200,000 active users. Cathie Wood’s hedge fund ARK was a large stakeholder in the company. Now, Wood confirmed Monday that the Securities and Exchange Commission’s (SEC) labeling of nine tokens traded on Coinbase as unregistered securities prompted the firm to sell some of its shares in the company. On July 26, Ark Investments sold more than 1.4 million Coinbase shares worth $75 million. According to the fund’s website, however, the firm still holds more than $451 million in shares in the company.
The migration of the Ethereum blockchain from proof-of-work to proof-of-stake is approaching and Coinbase CEO Brian Armstrong’s comments were particularly interesting in this regard during the quarterly earnings call. He said that the company is not focused on profit. Its focus is on staking. “Any given quarter it could be up or down,” he said of the cryptocurrency market. “It’s important to distinguish between what is in our control and what’s out of our control.” In its letter to shareholders, Coinbase emphasized that it keeps its users by offering them the ability to stake the cryptos they hold. The exchange sees its staking product as an early win for the company. It also mentions that staking is one of Coinbase’s priority products, with the long-term goal of becoming the number one staking provider among companies involved in crypto. In short, the company is putting a clear emphasis directly in line with the model soon to be borrowed by Ethereum. “In early August, we began offering Ethereum staking for institutional customers,” the shareholder letter states. “We will continue to add more assets for staking for our retail and institutional clients in the future.”
On Monday, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) took the unprecedented step of sanctioning popular cryptocurrency transaction anonymizer Tornado Cash. This means that Americans are not allowed to interact with this smart contract, and could face the kind of sanctions usually reserved for terrorist financiers or mafia bosses if they are not in compliance. Tornado Cash is a “mixer” on the Ethereum network. In a simplified way, it allows Ethereum users to send ether or ERC-20 tokens to the service to be “shuffled” with other users’ tokens before being sent back, making it impossible to know who sent what to whom and when. Vitalik Buterin, founder of ETH, has admitted to using the service himself to send funds to Ukraine, not to mask his identity, but rather to mask the identity of the recipients so as not to harm their security.
This decision will be interesting because of the very nature of Tornado Cash which is a simple, transparent, decentralized and automated open source code. In short, anyone can copy and run it. The question is therefore how far this legal decision will reach and how it could be enforced when the very nature of the targeted product essentially seeks to present the anonymity of its users. Already, members of Tornado Cash’s Telegram channel are sharing tips on how to access the app via identity protection servers, including Brave and Tor browsers. The U.S. government, meanwhile, claims that the platform has been used to launder more than $7 billion in crypto since its launch in 2019. North Korea is reportedly a major user.
In short, the idea here is not to take a position on the legal decision, but simply to raise the regulatory challenge in front of brand new types of financial products.
Mark Cuban is an involved player in the crypto world and is never stingy with his comments. This week he took on digital land buying and the metaverse in general. “The worst part is that people are buying real estate in these places,” Cuban said. “That’s just the dumbest shit ever”. What makes land in the metaverse valuable, in theory, is the same two principles of physical real estate: scarcity and location. However, it is highly questionable whether these can really be applied to the metaverse. Indeed, is it possible to artificially introduce the principle of scarcity in a universe that is not physically limited?
Remember that British engineer, James Howell, who threw away a hard drive containing 7,500 bitcoins and has been trying for years to recover it in a vast landfill? After accidentally throwing the wrong drive in the trash, the man asked the Newport City Council to allow him to dig for it in a landfill. However, his requests were repeatedly denied, even when he offered to pay the local government a quarter of the cryptocurrencies held in that wallet. That said, he is not giving up. He hopes to persuade local authorities to let him have the precious hard drive back with a new proposal backed by a hedge fund. Finding such a small device in more than 100,000 tons of trash would be a monumental task, but the engineer believes that using artificial intelligence and automation can help sort through all that trash faster. Howells proposes two versions of this new plan. The first would sort the 100,000 tons for three years using a combination of human sorters, Boston Dynamics’ “Spot” robotic dogs, and a special conveyor belt with automated sorting systems. The whole thing would cost as much as $11 million and take nine to twelve months. He is also considering a scaled-down version of this operation that would cost only $6 million and take up to 18 months. After digging up the trash, Howells plans to clean it up and recycle as much as possible, while the rest will be re-filled. The idea is to have as little impact on the environment as possible, but it remains to be seen whether this will convince the authorities to give the operation the green light. This hard drive holds $180M in bitcoins.
Technically, this analysis shared by twitter user DaanCrypto seems about right. It was important for bitcoin to defend its 30-day moving average, which also corresponded to the diagonal of the bullish triangle drawn up. However, it will take a move north of $24,700 for the price to break out of its current consolidation plateau and make another bullish push.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of August 10th, 2022, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered.
