Crypto Market State Snapshot

Wrapped Bitcoin (WBTC), an ERC-20 token that sits on the Ethereum blockchain, hit a new milestone as Decentralized Finance (DeFi) protocol Nexo used the cryptocurrency synthetic as collateral to mint $4mn worth of Dai. At the start of the year, there was just a little over 500 Bitcoin-equivalent’ locked’ on the Ethereum blockchain. It now hobbles under 4000 WBTC valued at $34mn (see chart). DeFi, which has become a poster-child case for Ethereum has over $800mn across various applications. And while this total ‘locked-in’ value is 50% down from its peak seen just before global financial markets melted down, it remains higher than it did at the start of this year.

Wrapped Bitcoin (WBTC) Value in USD — Source: DeFi Pulse

Bitcoin’s hash rate fell by 25%, meeting 2019 levels since miner rewards were sliced in half in early May as the cryptocurrency entered its next reward era. The drop is the second-largest in mining power the network has ever seen as miners began to feel pressure points of production costs. US Dollar revenue from rewards now stands at 2017 levels. The opportunity now lies in new mining equipment upgrades that major producers like Bitmain have already lined up. Bitmain’s flagship model up until now, the Antminer S9, is set to meet scrap yards as new equipment, the S17, is set to enter the mining network with 275% more hash power and more efficient electricity requirements than its predecessor. And if the math doesn’t add up for larger mining entities, the mining equipment behemoth has already announced plans for a new model, the S19, that has 110 TH/s, almost double the latest S17 currently on the market.

Total Hash Rate (TH/s) — 7 Day Average. Source: Blockchain.com

The prime brokerage model in Bitcoin continues to gain traction this year with the latest entrance of Genesis Global Trading, who recently acquired custody solutions provider Vo1t. The subsidiary of mega-blockchain-industry investor Digital Currency Group (DCG) has noted the potential of over-the-counter (OTC) Bitcoin options to increase liquidity for institutional clients. It remains to be seen whether or not real liquidity will trump the effectiveness of minimized counterparty risk and deal transparency favored on exchanges. Recent developments in the cryptocurrency space are addressing a useful middle-ground for off-exchange settlement. Custody solutions provider Copper has recently launched its inter-exchange protocol called ClearLoop for instant settlement. The service that has gained the interest of multiple exchanges promises faster liquidity options at zero counterparty risk.

Bitcoin language barriers are in the process of being broken down. It wouldn’t take much time for anyone to find someone pointing to the fact that one doesn’t need to buy a whole Bitcoin, but can purchase a fraction of the cryptocurrency. The Cash App, a subsidiary of Square headed by Twitter founder Jack Dorsey, has now opened up the path to clear up the confusion by allowing its user base to have automatic recurring purchases of Bitcoin and display their portfolio in Satoshis (sats) rather than BTC. The feature enters the realm of European-popular ‘Neobank’ Revolut that has given its users the option of recurring Bitcoin purchases for some time. Although retail remains a small capture of Bitcoin investment overall in comparison to derivative markets, there is a ‘hodling’ ethos that has been put to the test of market swings and stayed true to the motto, at least in the data seen on-chain (see chart).

The number of addresses with a Bitcoin balance of 1 up to 10. Source: OXT

Blockchain has been highlighted for potential use by the US Department of Defense in a Whitepaper penned by Think Tank Value Technology Foundation alongside a sleuth of tech major tech companies like Amazon Web Services, IBM, and Consensys, to name a few. The report highlights the potential of blockchain in improving cybersecurity, reducing single points of failure in emergency decision-making scenarios, supply chain, defense logistics, and efficient procurement. The report went as far as looking into the implications of 5G networks and the potential use case of blockchain in spacecraft communications. The analysis also looked into the research and development strides made by China and Russia who have spearheaded projects in finance and defense. The report comes on the back of a US National Defense Authorization Act passed into law last year, where congressional defense committees are to be briefed on the development of a global strategy using the nascent technology. Meanwhile, a draft bill seen by CoinDesk shows that US lawmakers plan to introduce a bill to study blockchain further and highlight the strategies employed by other countries. What is clear is that a demand for a blockchain strategy is being called for across the board.

Regulatory wins for Bitcoin continue to gain speed in 2020 as legal fronts face court judgment on where the asset stands within a country’s financial framework. The latest investigation to gain headlines is whether or not Brazilian banks who banned dealings with cryptocurrency firms were reasonably justifiable and whether or not the financial institutions had violated market competition laws. The reopening of the investigation is a win, pending final judgment, for cryptocurrency firms based out of Brazil. And this isn’t the only case, either. France’s commercial court determined Bitcoin is a fungible intangible asset in March. India’s Supreme Court overturned the cryptocurrency ban set by the Reserve Bank of India. And South Korea passed legislation that fully recognized digital assets such as Bitcoin.

Cryptocurrency Regulation Map
Cryptocurrency Regulation Map — Source: Finder

Bitcoin’s correlation to the S&P500 continues to hold steady months after the cryptocurrency tethered itself to the world’s largest index movements. While 30-day rolling correlation stands at 0.5 (i.e., some correlation), the most interesting fact is that it has held itself at this level since April — the longest-running average correlation to the US equities market. Bitcoin also has a steady No-Correlation to gold for the same period.

Bitcoin correlation to the S&P 500 and Gold. Source: CoinMetrics

Bitcoin Futures exchange volumes are set to hit an all-time high for monthly trading at the end of May nearing the $500bn mark.

Bitcoin Futures Monthly Volumes. Source: Skew, ZUBR Calculations

ZUBR will be hosting round table discussion and a derivatives panel at the upcoming Messari Mainnet 2020 Crypto Event.

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