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The Great Mother of All Financial Crises

August Market Outlook

Listen to the podcast recording here.

We are moving closer to a crisis that is potentially much more catastrophic than the 2008 Great Financial Crisis, or GFC.

The July US debt outlook downgrade by Fitch, along with a warning from Goldman Sachs analysts about the risk of the US dollar losing its dominant reserve currency status, marked a more visible path towards a potentially greater crisis than 2008’s GFC. US dollar weakness has also helped buoy crypto demand.

Whether we’ll ever see an even bigger crisis than the GFC — a Great Mother of All Financial Crises — is something we explore later in this month’s Outlook.

We also feature a guest excerpt from Camila Russo’s new book The Infinite Machine, which tells the story of the rise of Ethereum (we interviewed Camila during our monthly webinar).

First we’re pleased to offer you our latest thoughts on what’s driving crypto markets and on-chain activity.


1. July Markets: Major cryptos significantly outperformed other asset classes in July as the US dollar had its worst month in a decade

  • Bitcoin (BTC) broke out of its ~2 month flat spell and resumed its substantial outperformance of other asset classes such as equities, +24% for the month
  • Ethereum (ETH) continued to outgun bitcoin, up +57% for July, driven by strong DeFi activity; Ethereum continues to lag behind bitcoin over the past two-years
  • The US dollar dropped 4% in July, its worst performance in a decade, helping drive up prices of other hard assets like gold (+11%) to a new all time high in USD terms

2. On-chain insights: Highlights from the Blockchain.com data science team

  • Nigeria has been the most trending country in recent months. It has increased by 60% its usage of Blockchain.com web wallet since April 2020.
  • Japan is once again in the top 10, while Hong Kong and Morocco haven’t been as active in the past two months.
  • Analysis of the Twitter hack

3. The Great Mother of All Financial Crises

  • July US debt outlook downgrade by Fitch and warning from Goldman Sachs analysts about risk of US dollar losing reserve currency status marked path towards a potentially bigger crisis than the 2008 GFC
  • Emerging US digital dollar design consensus is not sufficiently focussed on cyber security risk, increasing the odds of catastrophic, destabilizing hack following its launch

4. Excerpt from The Infinite Machine by Camila Russo

5. What we’re reading, hearing, watching

1. Crypto significantly outperformed in July as USD had its worst month in a decade

Overall, crypto outperformed stocks and gold in July. For the month Bitcoin (BTC) and Ethereum (ETH) were up 24% and 57%, respectively.

Other hard assets such as gold registered double digit percentage gains to set a new all-time high in USD terms (+11%). Equities (+6%) and long-dated US Treasuries (+4%) also performed well (Table 1).

Table 1: Price Comparison: Bitcoin, Ethereum, Gold, US Equities, Long-dated US Treasuries, US Dollar (% Change)

Sources: Blockchain.com, Google Finance

The big loser for the month of July was the US dollar, down 4%, marking the greenback’s worst monthly performance in 10 years.

Some of the reasons cited for the dollar’s weakness include a record 33% annualized shrinkage in US economic activity during the second quarter, a rise in COVID-19 infections relative to Europe and other better performing areas, and electoral uncertainty. We explore additional concerns surrounding the future outlook for the US dollar below in section 3 (“The Great Mother of All Financial Crises”).

Ethereum and DeFi boom continues while concerns mount over “ponzinomics” (leveraged over exuberance)

The price of Ethereum (ETH) continued to well outperform bitcoin, with ETH up +33% for the month over BTC.

Amid all the noise and hype, one signal of real economic activity we monitor closely is mining fee revenue, where Ethereum continued to lead bitcoin for a second straight month (Figure 1). This relatively greater level of activity witnessed on the Ethereum network has been driven in significant part by growing use of stablecoins riding atop Ethereum and the DeFi boom.

Figure 1: Ethereum’s mining fee revenue continued to eclipse Bitcoin’s for the second full-month running

Source: Delphi Digital

While some concerns have been expressed over DeFi being driven by what has been described as “ponzinomics”, we take some umbrage with this term being applied to DeFi as a whole.¹ A more legitimate concern is the possibility of excessive leverage and over exuberance, which could potentially lead to a painful unwind.

There is undoubtedly real innovation underpinning many of the leading DeFi platforms, and we’ll be publishing more on this exciting area of crypto in the months ahead. Investors should be aware that picking individual DeFi winners from the losers can be difficult given how rapidly DeFi is evolving. However, Ethereum (ETH) is a way to gain broad exposure to the DeFi boom, as growth in the use of DeFi and other applications built atop the Ethereum protocol (eg stablecoins) appear to be helping to drive a growth in the value of ETH.

2. On-Chain Analysis

Each month we dive into on-chain data to explore interesting trends or movements on the Bitcoin network.

We start at a high level with a look at network activity in July compared to June (Table 2).

Table 2: Bitcoin network activity — July vs June

Source: Blockchain.com

The average fee per transaction has almost doubled in July with $2.43 per transaction as compared to $1.28 in June. While we observed reasonable fees similar to June in early July, increased volatility towards the end of the month led to congestion levels already observed in May.

Trending countries⁵

Another question we’re often curious about is how crypto usage is trending at the country level. In July we saw a number of countries increase their fraction of total Blockchain wallet transactions, most notably Peru, India, and Indonesia (Table 3).

Table 3: Trending countries: increase in use in July over June

Source: Blockchain.com internal data

Japan has once again joined the Top-10 increasing country list, alongside the best performing country in recent months, Nigeria, with a 60% increase since April. Nigeria has also been the country in the world with the most relative interest in Bitcoin according to Google search data.

Meanwhile, the fraction of transactions sent from Morocco and Hong Kong have been lower than usual, with both countries in the Top-10 decreasing countries for the second month in a row.

Table 4: Trending countries — decrease in use in July over June

Source: Blockchain.com internal data

Bitcoin ownership concentration

Bitcoin ownership distribution, as measured by the number of unique addresses owning a material quantity of bitcoin, continued to expand. The number of addresses holding at least 0.1 BTC was up +0.7% over June. and addresses holding at least 1 BTC decreased by 0.1% over June:⁶

  • 3,101,745 addresses (10.0% of total addresses) have more than 0.1 BTC, and represent 98.87 % of total bitcoins
  • 818,416 addresses (2.64% of total addresses) have more than 1 BTC, and represent 94.97 % of total bitcoins

The Twitter hack

On July 15th, hackers gained access to multiple verified accounts on Twitter and began luring followers to send bitcoin with the promise of an immediate return on their investment. Several bitcoins were sent to the scammer’s wallet.

Bitcoin is a public distributed ledger, which means that anyone could watch in real time as the Twitter scam unfolded. While our non-custodial wallets and services give users their own keys, it also means that the funds sent to this scam are irreversible. That was the case for 0.76 BTC that were sent in 28 transactions from Blockchain.com.

Funds can be traced on the blockchain and the graph shows each utxo being sent to different addresses. (Figure 2) Most likely on a quest to cash out those bitcoins, the hackers sent a 2.9 BTC to Wasabi Wallet, well known for its coin-join privacy features. Coin-join enables mixing multiple utxos with others as input of a transaction to send bitcoins to multiple destinations, hiding the provenance of the bitcoins. However, it is unlikely to help the hacker cashing out as most AML tools that regulated entities use automatically flags those types of transactions as highly suspicious.

Figure 2: Following the funds of the Twitter Scam

While everybody witnessed funds being accumulated to the scam addresses, one could also read a transaction warning the hacker about Bitcoin being traceable, recommending the use of another currency Monero (Figure 3). While a cost efficient way of broadcasting a message to thousands, those outputs will never be spent as it is almost impossible that somebody owns the corresponding private keys. Like Sjors Provoost explained in his presentation “The State of Bitcoin” at the Odyssey Tech Deep Dive in 2019, when using Bitcoin as a way to store data, one should make sure to use the operator OP_RETURN to avoid spamming the UTXO set with non-spendable utxos.

Figure 3: Transactions with outputs warning about traceability of Bitcoin

3. The Great Mother of All Financial Crises

The 2008 financial crisis has been dubbed “The Great Financial Crisis”, or GFC. And with good reason.

The GFC did not start in a peripheral economy, as had previous financial crises over the past several decades. Rather it originated inside the United States, home to the world’s largest economy and financial system.

The impact of the GFC across numerous metrics, such as lost economic output, was also considerably greater than any financial crisis since the Great Depression, another of the “great” with a capital ‘G’ crisis with roots inside the United States.

Indeed, if a crisis aspires to greatness it helps if it starts inside the world’s largest economic and financial system.

Planning for the next big one

Since 2008 it has become more widely understood that it is always just a matter of time until the next major global financial crisis.⁷

While we can be near 100% certain that there will be another major financial meltdown, a number of important unknowns remain, including:

  • timing (arguably the most difficult aspect of crisis forecasting)
  • amplitude (total size and knock-on effects)
  • epicenter (eg 2008 crisis originated from US housing market)
  • trigger mechanism (eg the cataclysmic Sept. 2008 crisis events were set in motion by much smaller events the prior summer when two BNP Paribas subprime funds were frozen)

Thinking ahead about what could trigger the next major financial crisis, Goldman Sachs analysts recently warned the US dollar was at risk of losing its global reserve status.

The Goldman analysts who sounded the alarm noted the dramatic increase in the price of gold, the so-called “currency of last resort”, which was up 11% for July and 30% year-to-date. Gold has traditionally operated as something akin to the proverbial canary in the coal mine when it comes to the US dollar, with such major price moves sounding the alarm bell for potential trouble.

Coming shortly after the Goldman warning was a somewhat surprising downgrade of the United States debt outlook by Fitch, one of the major credit rating agencies. The warning raised some eyebrows as currently US Treasury yields are at record lows, suggesting ample demand supporting the US government’s voracious borrowing appetite. However, any concerns over unsustainable US borrowing and debt levels would also likely have negative consequences for the US dollar.

Thinking about the unthinkable

The US dollar is the world’s financial leviathan; a singularly dominant international trade and reserve currency. Any substantive changes to it (and especially any changes to its reserve status) will significantly alter the global economic landscape and impact billions of people around the world.

And any sudden precipitous change in the US dollar’s status as a major reserve currency could be absolutely catastrophic. Such a prospect seems so remote that frankly many even in the crypto space find a sudden US dollar collapse difficult to fathom.

However, a failure to think about the unthinkable — from the effects of cascading mortgage defaults on housing prices to Wall St’s risky leverage mismanagement — was a key element behind the 2008 GFC.

Cyber security is being overlooked in central bank digital currency planning right now

The lack of unthinkable thinking is also emerging as a concern from early planning for a new US Digital Dollar, and other central bank digital currencies (CBDCs) currently under discussion.

A widely deployed central bank digital currency, and especially a US digital dollar, represents both an incredible opportunity to address numerous shortcomings in today’s money and financial system, and also a massive risk. Any successful cyber attack of a widely deployed US digital dollar could be catastrophic to financial and economic stability.

It is therefore extremely disconcerting that largely missing, it seems, from early central bank digital currency design discussions are technologists and cyber security experts. Instead, many of the discussions are held primarily by central bank economists, policymakers, regulators, and other non-technology security experts. Have the technologists not been invited?

Not focussing on security early on in CBDC design debates is not only a potentially grave systemic risk mistake, but also inefficient.

Given the essential need to keep CBDC secure, and the fact that digital currency characteristics may flow more naturally from a security-first design orientation, many early CBDC design discussions risk traveling down impractical or undesirable paths.

Bottom line: The mighty US digital dollar is not unsinkable, and a failure to focus sufficient attention on both public debt sustainability and cyber security increases the odds of a financial crisis in size and scope unlike anything prior.

4. Excerpt from The Infinite Machine. Guest feature by Camila Russo

At a booze-and-EDM-fueled yacht party with views of the Statue of Liberty, two randomly selected guests were gifted Aston Martins at the end of the night. One car had a Bitcoin “B” stamped across its door; the other had an Ethereum logo. At another event in a Brooklyn warehouse, the sushi served was advertised as being “on the blockchain,” while wellness guru Deepak Chopra led meditation sessions, and a digital cat, alive only thanks to lines of code and pixels, was sold at an art auction for $140,000. At one crypto company– sponsored venue, Snoop Dogg smoked a blunt onstage and shared it with the audience. Wall Street bankers-turned-crypto-investors courted Silicon Valley dropouts-turned-crypto-entrepreneurs at a penthouse in New York’s SoHo neighborhood. At another after party, Bitcoin bros raised champagne glasses to bethonged dancers in a fabled downtown strip club as a rapper sang cryptocurrency-themed songs flanked by oily poles.

Three Lamborghinis parked in front of the Hilton near Times Square greeted some 8,500 attendees who had paid $2,000 a ticket for a chance to get in on the cryptocurrency gold rush. Dozens of twenty somethings, who had raised millions of dollars overnight selling their own digital coins, manned colorfully festooned booths at the event.

All of that happened in the span of seven days, in only one city. It was New York’s “Blockchain Week,” where the crypto community had gathered to attend the parties and conferences parlaying promises into fortunes.

Indeed, in those seven days, sixteen startups raised almost $300 million in a crowdfunding mechanism known as an initial coin offering, or ICO, where anyone, anywhere in the world, could issue cryptocurrencies and sell them to investors equally spread out across the globe.

Still, the market had fallen hard after an eye-popping rally, and the question everyone was asking was whether the recent slump was a temporary pullback or the beginning of the end. Exuberance was tinged with a whiff of desperation, which made the over-the-top spectacles seem even more urgent. Most of the startups raising money and presenting at conferences weren’t much more than promises in a website. The Lamborghinis had been rented.

The high point had been just a few months earlier, in December 2017, when the price of bitcoin, the largest and first cryptocurrency, spiked to almost $20,000 from around $1,000 at the start of the year. Veterans took the pullback in stride, reminding themselves that, since the digital currency launched in 2009, its price had gone through exponential rallies and crashes three times before. During those past spikes, bitcoin had represented most of the entire cryptocurrency market. But this time it was different.

Ethereum, with its digital coin called ether, had launched in 2015 and two years later, its price was shooting up even faster than bitcoin’s. It had peaked in January 2018 at over $1,400, soaring from just around $10 twelve months earlier. That meant that anyone who had bought roughly $10,000 of ether at the start of 2017 and sold at the top had become a millionaire. At one point in the rally, some investors speculated it would overtake bitcoin in market capitalization as it grew even faster than the first cryptocurrency.

And there was good reason, some argued, for ether to rocket to the moon. Ethereum isn’t only a network for its digital currency, ether. It’s meant to be the base layer for developers to build whatever application they can dream of, including issuing their own coin. All they had to do was push out a few lines of code and they could mint cryptocurrency and trade it for bitcoin or ether, which could then be exchanged for dollars — the so-called ICO funding mechanism that demolished the barriers between those seeking to raise money and those willing to give it away for the chance of getting rich. Thanks to this novel way of raising money, thousands of new coins were popping up and adding to the crypto feeding frenzy.

Investors — really anyone with an internet connection — were throwing money at these cryptos and at the young developers building them. ICOs were over in minutes, sometimes in seconds — that’s how fast these blockchain startups reached their multimillion-dollar targets. There wasn’t much you could do with these coins, which exist only on the internet and are traded on lightly regulated online platforms. They aren’t accepted by most merchants, and the decentralized applications, or “dapps,” for which they were intended to be used are still experimental and glitchy. But using them was actually not the point. The point was to buy them before the price jumped and then flip them later at the next new peak. At least, that was the theory.

In 2017 the amount of money raised in ICOs surpassed traditional venture capital funding for blockchain startups for the first time. By the end of 2018, almost $10 billion had poured into this crowdfunding mechanism that year. For perspective, that’s about what companies raised in the equity markets of Canada, Mexico, and Brazil in that time, combined. A new form of raising capital for early stage ventures, and a new avenue to invest in tech startups that just wasn’t available to regular people before, had just been born.

As money clogged the works, some smaller cryptocurrencies soared even faster than bitcoin and ether. If you visited websites tracking their prices, all you would see were numbers colored in green and arrows pointing skyward. All the lines on the graphs were parabolic. It didn’t seem to matter which coin you picked — any one of them would multiply its value several times over.

Everyone wanted to be a crypto millionaire. Google searches for Bitcoin surpassed searches for Donald Trump. Celebrities, some of whom were compensated by crypto companies anticipating a big payday, started supporting ICOs in their social media. Paris Hilton tweeted, “Looking forward to participating in the new @LydianCoinLtd Token! #ThisIsNotAnAd #CryptoCurrency #BitCoin #ETH #BlockChain,” and Floyd Mayweather posted on Instagram, “I’m gonna make a $hit t$n of money on August 2nd on the Stox.com ICO.”

It wasn’t just celebrities paying attention. Suddenly, big bankers and blue-chip CEOs started voicing opinions on cryptocurrencies and blockchain, the underlying technology. “I’m a believer,” said Abigail Johnson of Fidelity Investments. “It’s a fraud,” said JPMorgan’s Jamie Dimon. Lloyd Blankfein, Goldman Sachs’s CEO, said he’s “not willing to pooh-pooh it,” while Warren Buffett, not one to mince his words, said Bitcoin is “probably rat poison squared.”

Meanwhile, with millions of dollars sloshing around, regulators scrambled to make sense of how to deal with these newfangled instruments, if at all. Were they securities? Software? New currencies? Or commodities? Stories abounded of erstwhile crypto founders running off with their company’s stash, hackers stealing bitcoin from ICOs’ digital wallets and exchanges, and robots trolling social media trying to trick people into sending over their cryptos — it was the perfect environment for scammers, pirates, and crazy rumors.

And then there were those who genuinely wanted to create world-changing applications using blockchain technology. They wanted to build a world that would sidestep traditional institutions and allow users to transfer value directly with each other, without having to go through banks and other intermediaries. They wanted to put data and money back under users’ control, instead of in the coffers and computer servers of centralized entities. For them, blockchain technology (and Bitcoin and Ethereum) would wrest power from the big corporations that control tech and finance and put it into the hands of the people.

Of course, nobody was actually preparing to overthrow governments, protest in front of banks, or clash with police on the streets. Rather, it was a revolution based on technology and cryptography, which would unfold in a parallel universe where traditional financial laws didn’t apply, and everything was being built from scratch. At first, nobody would notice or care about these outcast hackers, so their logic went, until it would be too late. The revolution had started with Bitcoin, and now Ethereum opened up a whole new arsenal in this underground fight toward a decentralized future.

At least that was the dream many of these developers had when they dropped everything and joined the growing Ethereum army.

To write this book, I infiltrated this army.

I had first written about Bitcoin for Bloomberg News in 2013, when I was living in Argentina and saw how average people were using the digital currency to protect their savings against inflation and to skirt currency controls. By the time I moved to Bloomberg’s New York office in 2017, “blockchain” was on the tip of everyone’s tongue to the point where it became an empty buzzword. At the time, I was one of a few reporters at Bloomberg, and in the mainstream financial media in general, covering crypto and blockchain day to day. At the end of the year, I came up for air after covering one of the craziest bubbles the world had ever seen. I decided this explosion should be documented more permanently and that Ethereum was the most important story to tell.

I conducted more than one hundred interviews, of several hours each, with all the original founders and developers working on the protocol in the very early days to the ones building it today. I spoke with the investors, lawyers, regulators, communicators, designers, and researchers who have also shaped Ethereum. Those who talked to me were generous enough to help me unearth dozens of old emails, chat logs, documents, and pictures. I also dug deep into online forums, blog posts, and archived websites. I followed this colorful, idealist, brilliant crew to their conferences and hackathons in Prague, Buenos Aires, Toronto, Berlin, Denver, Paris, New York, San Francisco, and Osaka.

I felt like Alice following the White Rabbit into a world of impossible dreams: banking without banks, breeding digital cats, self-organizing companies with no CEOs, and talk of flying to the moon. Shaggy, unkempt young developers, whether they had dropped out of computer science programs or had fled companies from the other side of the looking glass — these were the magicians trying to make these dreams a reality amid a swirl of internet memes, rainbows, unicorns, and lines of computer code.

At the center of this circle of tech geeks, financiers, misfits, and renegades stood Vitalik Buterin, a nineteen-year-old genius hacker who came up with the idea that would become Ethereum. His dream prompted a cohort of believers from different corners of the planet and disparate backgrounds to join him in making it a reality. They’re working on technology meant to change, at its very core, the way the world works, and this grand vision has drawn even more people in so that several thousands are now building it. Even more are trying to profit, legitimately or illegitimately, from it. Five years into the endeavor he’s well on his way toward changing the world with the multibillion-dollar network he helped create, but it’s been a turbulent ride, with malicious attacks from envious hackers, mind-boggling technical challenges, infighting within the early team, and the lure of near-obscene wealth, which all threatened to derail Vitalik in his idealistic quest.

High up on the list of distractions was the eye-watering growth of the cryptocurrency market. At the market peak on the first days of 2018, the value of digital assets had ballooned to over $800 billion from around $15 billion a year earlier. Thousands of new cryptocurrencies had sprung up in that time. But Vitalik wasn’t happy.

“So total cryptocoin market cap just hit $0.5T today. But have we *earned* it?” Vitalik tweeted on December 12, 2017.

“How many unbanked people have we banked?” he wrote, and continued to ask, how many applications have a significant number of users or are moving large amounts of volume? How many people have been protected from hyperinflation? In a series of tweets, he questioned whether cryptocurrencies’ impact so far was enough to justify the size of the market.

“The answer to all of these questions is definitely not zero, and in some cases it’s quite significant,” he wrote. “But not enough to say it’s $0.5T levels of significant. Not enough.”

As this book goes to press, the value of ether is hovering below $200, down ten times from its record in early 2018. Many of the speculators have cashed out, but true believers like Vitalik and his ilk continue to press forward with their vision. As with previous generations of internet-based revolutions, it’s hard to keep that vision pure and pristine. All too often, it gets murky, muddled, and messed up in the face of reality. Visionaries like Vitalik dream of traveling to the moon and beyond, frequently underestimating the gravitational pull that mundane forces like human ambition, greed, and fear can exert. It turns out that revolutionizing financial systems may be easier than overcoming human frailty. There is no app (or dapp) for that yet, though undoubtedly some tech genius somewhere is working on that right now, too.

5. What we’re reading, hearing, watching


Beyond crypto

Important note

The research provided herein is for your general information and use and is not intended to address your particular requirements.

In particular, the information does not constitute any form of advice or recommendation by Blockchain.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.

Appropriate independent advice should be obtained before making any such decision.


  1. To be clear, yes, crypto scams have existed and continue to exist. As with most things in life, if something sounds too good to be true it probably is, and caveat emptor still applies on the newer, more exotic frontiers of crypto.
  2. Average daily number of confirmed transactions in the public blockchain
  3. Average daily number of confirmed transactions sent from our Blockchain Wallet and API
  4. Average daily number of unique addresses used as inputs and outputs in the confirmed transactions
  5. Based on a subset of our wallet users. The top 10 excludes countries with fewer than 0.3% of total number of transactions
  6. Source : https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html
  7. More localized crises continue to happen regularly e.g. see Lebanon at present.



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