Digital Asset Insights #18

This post was originally published on jpfs.com

Goldman Sachs finally considers Crypto as an asset class – a year after having stated just the opposite

The powerful American investment bank, Goldman Sachs, has just now recognized that cryptocurrencies are an emerging new asset class—despite stating otherwise just a year ago. According to its recent report, which was part of a paper posted on Twitter by economist Alex Krüger last week, Goldman Sachs has turned to crypto-related companies like Galaxy Digital, Global FX, and Chainlaysis, as well as critics such as Nouriel Roubini, to hear their opinions on crypto. Their report informed that the bank’s researchers have noted that many large cryptocurrencies are unique and rightfully occupy specific niches on the market – Bitcoin is a highly capitalized currency, Ripple’s XRP is a real-time settlement system, Ethereum is a smart contract platform, Binance Coin is a token for practical applications, and Polkadot is a blockchain platform that can interact with other networks. Goldman Sachs now believes that the intrinsic characteristics of each crypto allow it to attract a specific user base, and that the value of Bitcoin, for instance, is built around its use and distribution. Since massive influxes of institutional capital have confirmed the attractiveness of cryptocurrency, there is a high degree of market development, according to Galaxy Digital CEO Mike Novogratz. Grayscale Investments CEO Michael Sonnenschein called the limited emission of Bitcoin “a way to hedge against inflation and currency debasement.” He also noted that while cryptocurrencies failed to escape the turmoil amid the 2020 pandemic, they recovered faster and outperformed other asset classes. It was Nouriel Roubini, the well-known professor of economics at New York University, who dissented, however, when he stated that he “entirely disagrees with the idea that something with no income, utility or relationship with economic fundamentals can be considered a store of value, or an asset at all.” He also doubted “the willingness of most institutions to expose themselves to cryptos’ volatility and risks.” The Goldman Sachs’ analysts compiled a chart that illustrates all of the ups and downs throughout Bitcoin’s history. The chart definitively indicated that Bitcoin has always rebounded to new highs—no matter how deep the declines were—since 2013. Just last year, Goldman Sachs argued that cryptocurrencies were not an asset class. “We believe that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients,” the bank said in late May 2020. Yet, now they are on board, as Goldman Sachs has announced that it will offer Bitcoin and other cryptocurrencies to its private wealth management group and reportedly even launched a crypto trading team.

British MP calls for a ‘safe space’ for Crypto, noting that Ethereum ‘flippening’ is now occurring

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In the Queen’s Speech debate, a member of the UK Parliament by the name of Tom Tugendhat argued that the Treasury needs to pick up the pace and open up to crypto. Mr. Tugendhat is a Conservative MP (a member of parliament, or MP, is the representative of the people who live in their constituency, and this category includes specifically members of the lower house, as upper house members often have different titles) for the historic market towns of Tonbridge, Edenbridge, and Malling; and he is a chairman of Britain’s Foreign Affairs Committee. He has been an MP continuously since May 2015, and on Tuesday of last week, Mr. Tugendhat debated that values and concepts of individual ownership; and corporate and private responsibility need an update. “The Queen’s Speech does not cover the changing nature of currency, the changing nature of the economy and the innovations that we are seeing online through various forms of cryptocurrencies,” he said. As he argued that there is no time in the debate for him to cover the details of “the flippening” or “why he is going to be bullish on the ETH and not BTC,” Tugendhat expressed the need for the Treasury to enable innovation that will make “the changes needed in order to remove the restrictions that are holding back the economy.” The Flippening is defined as the transition of other cryptocurrencies (such as Ethereum) growing bigger, more important, and more valuable than Bitcoin. Because the first major cryptocurrency was bitcoin, the prices and technology of most other cryptocurrencies have been compared and aligned to Bitcoin. In order to keep up with future trade and risk sharing trends, Mr. Tugendhat made it quite clear that the UK needed to quickly update their legal system and rethink currencies and contracts for “the new economy.” He tweeted this and then noted in his speech before Parliament that “We’re seeing the flippening from #Bitcoin to #Ether and we need H.M. Treasury to help create space for UK innovation and our legal system to learn what’s needed in a new economy.”

In April 2020, Tugendhat participated in the launching of the China Research Group (CRG), a brain trust set up by a group of Conservative MPs in the UK which had been formed to “promote debate and fresh thinking about how Britain should respond to the rise of China.” For that, Tugendhat was consequently sanctioned by the Chinese government, together with the CRG, since they focused on investigating issues related to China’s industrial and diplomatic policies.

Tugendhat finished by saying, “If we do not get this right, these standards will be set by authoritarian Governments with no interest in innovation, or in wild places where there is no regulation and no accountability,” China’s trade policy, in particular the development, ownership and regulation of platform technologies, are drawing more and more attention overall, as their authorities keep intensifying crypto warnings.

North American miners form ‘Bitcoin Mining Council’ together with Elon Musk

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In China, Bitcoin miners are reeling from the after-effects of the country’s latest crypto attacks. Meanwhile, miners on the other side of the planet are forming a new council to promote sustainable mining. North American mining companies, Bitcoin firms, and Tesla CEO Elon Musk himself are currently involved in this council. In a tweet last week, Musk said, “Spoke with North American Bitcoin miners. They committed to publish current & planned renewable usage & to ask miners WW to do so. Potentially promising.” For those unfamiliar, mining uses a massive computing system that solves millions of complex calculations each second to validate transactions on the Bitcoin network (a process known as ‘proof of work’). However, this requires enormous amounts of energy for the maintenance, cooling, and smooth running of the machines. As the source of this energy is inevitably derived from coal and fossil fuel-powered energy producers, there is a concern that mining leaves behind a huge carbon footprint for seemingly little benefit to the world. This has become a PR issue for companies, and even though most institutional investors seem to know the benefits of holding Bitcoin (or other large-cap cryptocurrencies), none can deny that the ensuing climate damage poses a problem. Tesla, the electric carmaker helmed by Musk, is a prime example of how the PR issue affects crypto. The firm started accepting Bitcoin as a payment method for its vehicles earlier this year, but then just weeks later, said it would cease doing so due to the ‘ecological impact’ of using Bitcoin.

A proposed solution may offer a simple way out. Using renewable, or waste energy, sources to mine Bitcoin would theoretically cut down on the supposed climate problem. Some leading North American miners are already on board with that: in a statement to CryptoSlate, Peter Wall, CEO of Argo Blockchain, said, “Sustainability has always been at the heart of Argo’s mining operations and the newly-formed Bitcoin Mining Council is the next logical step in fostering a sectoral shift towards renewable energy.” Wall added, “I enjoyed speaking with Elon Musk about these issues this weekend, and I look forward to joining Michael Saylor and other leading North American miners in working to future-proof an industry that must collectively improve sustainable mining practices and take ESG concerns seriously.” As it is now, Bitcoin mining is said to consume more electricity than the entirety of Argentina. With positive adaptations, insight, and ingenuity, hopefully that will all soon change.

Bitcoin, Ethereum prices extend gains after ‘Green Mining’ and a Goldman Sachs push

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Bitcoin prices rose last week (after a 40% plunge the week prior) as North American miners formed a ‘Council’ to consider green alternatives for mining in their initial meeting as a council with Tesla CEO Elon Musk. Because the prices rose so starkly, some traders even raised concern that Elon Musk may have too much influence on the cryptocurrency market. As soon as the news hit about the council and Musk’s involvement in it, Bitcoin prices jumped by 12%. Bitcoin had a retest of the $36,624 support and then managed to close above it to make it a successful retest.  So often, after a successful retest of lower support the price action seems to move positively, and in an uptrend, according to Bitcoin’s trading charts. At this time, its next resistance is around the $42,130 mark, a level it has already been unsuccessful to overcome, now seen as resistance three times in recent months. However, with positive news surrounding Bitcoin from several sources having resulted in a good fundamental narrative, prices may soon break through the $42,000 resistance, which would then become a stable support area. Ethereum (ETH), the world’s second-largest cryptocurrency by market cap, showed strength and rising institutional inflows late last week. Technically speaking, the ETH chart shows more room to grow when compared to the BTC chart as there are fewer resistance levels on their way to the previous all-time high of $4,300. A major resistance level is around the $2,750 mark, however, with a steady uptrend, it could be broken soon. One of the positive catalysts was a leaked Goldman Sachs report that stated ETH is a better store of value than Bitcoin. Analysts at Goldman Sachs said, “Given the importance of real uses in determining the store of value, Ether has a high chance of overtaking Bitcoin as a dominant store of value. The Ethereum ecosystem supports smart contracts and provides a way to create new applications on its platform.”

Michael Saylor, Microstrategy’s boss, rebuts conspiracy theories about the ‘Bitcoin Mining Council’

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MicroStrategy CEO Michael Saylor denies accusations of clandestine motives behind the newly formed Bitcoin Mining Council (BMC), as per a video interview late last week. The BMC now comprises some of the biggest U.S. miners led by Saylor and Tesla CEO Elon Musk. The organization’s origins followed Musk’s having raised concerns over the alleged overuse of coal in powering mining rigs, and the BMC was formed to combat this problem. “The miners have agreed to form the Bitcoin Mining Council to promote energy usage transparency & accelerate sustainability initiatives worldwide,” Saylor stated. But some sections of the crypto community have slammed the BMC, calling it a trojan horse and an attempt at a centralized power grab. The BMC was set up as a response to addressing the long-term sustainability of Bitcoin mining worldwide, because its practice of mining attracts negative press on the grounds of excessive energy use. Cambridge University estimates the network consumes more energy annually than the Netherlands. More recently, Tesla CEO Elon Musk made allegations that most miners use coal, which he called the most polluting of all the fossil fuels. This is a point debunked by Anthony Pompliano, who claims that nearly seventy-five percent of miners use renewable sources.

Earlier this week, Saylor and Musk announced on Twitter they had held a meeting with executives of prominent mining firms, including Argo Blockchain, Galaxy Digital, Marathon Digital Holdings, and others. Saylor later said the purpose of the meeting was to ensure the success of Bitcoin by improving sustainability. But then Marty Bent, the Co-founder of Great American Mining, said, “This move has absolutely nothing to do with green energy or climate. It has everything to do with CONTROL.” Reacting to feedback on the BMC meeting, Saylor   dismissed any talk it was a shady secret meeting with hidden agendas. “If it’s a secret meeting I wouldn’t have told millions of people the next day that there was a secret meeting, trust me,” he stated. To dispel this idea further, Saylor explained what went on in the meeting, saying it was simply a discussion on managing the negative public perception of Bitcoin mining. He added that Musk recommended better data to address the mainstream concerns. “What happened in the meeting, is that Elon met the miners. The miners talked about their approach towards energy and their commitment to sustainability. We asked Elon for his advice about how we might actually manage concerns in the mainstream.” Many comments on social media indicated that the meeting should have included the public.

Police drone finds illegal Bitcoin mine while searching for weed farm

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In a quite bizarre case, UK police busted an illegal Bitcoin mining operation while trying to weed out cannabis operations, the local daily Birmingham Live reported over the weekend. Over 100 mining rigs were found by the police, who were using a drone with an attached heat camera to scout out a location suspected to be running a full-fledged cannabis farm. They were acting on a tip-off about wires running into the facility and human movement in and out of it. Instead, they stumbled upon a Bitcoin mining plant instead, one that allegedly stole thousands of pounds worth of electricity to mine the world’s largest cryptocurrency by market cap. Sandwell Police Sergeant Jennifer Griffin said in a statement, “It’s certainly not what we were expecting. It had all the hallmarks of a cannabis cultivation set-up and I believe it’s only the second such crypto mine we’ve encountered in the West Midlands.” She added, “My understanding is that mining for cryptocurrency is not itself illegal but clearly abstracting electricity from the main supply to power it is.”

Illegal miners try to capitalize by using illegal power sources. Many cases have sprung up in the past which see individuals steal electricity to power the mines, get Bitcoin rewards, and pocket a major chunk of the revenue (because minus the power bills, the cost to run a mining unit falls drastically). Meanwhile, the Birmingham police said that all computers were seized and that inquiries with Western Power, the region’s energy supplier, revealed their electricity supply had been bypassed. “We’ve seized the equipment and will be looking into permanently seizing it under the Proceeds of Crime Act. No one was at the unit at the time of the warrant and no arrests have been made – but we’ll be making inquiries with the unit’s owner,” Griffin added.

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