Welcome to our 21st edition of ‘The Digital Asset Digest’. Over the last few weeks, we have seen DeFi take the crypto market by storm, and with cryptocurrencies, gold, and equities at new highs for the year, investors have never been so polarized between greed and fear.
That’s where we step in. Our newsletter helps you navigate the volatility of the market by providing an evidence-based look at where markets are heading. We hope this week’s edition challenges your preconceptions and equips you with new insights.
Bitcoin was relatively unmoved this week as gains over the weekend were offset by steep losses last Tuesday. Ether stole the spotlight this week, rising 10.3% after Ethereum Classic was hit by its third 51% attack this month. XRP was down modestly, falling 1.2% for the week as Tether reclaimed its spot as the third largest crypto.
Equities were up again for the week, driven primarily by Info Tech and Communication Services as the S&P 500 hit new all-time highs as tensions between Trump and presidential candidate Biden grow increasingly tense. The NASDAQ posted a 3.5% return, while the Nikkei rose modestly after filings revealed that Buffett opened a stake in five leading Japanese companies.
Precious metals posted enviable returns across the board as gold futures rose 2.0% and silver futures rose a staggering 6.9% for the week. Oil gave up some of its gains as Hurricane Laura threatened key refining facilities across the U.S. Gulf Coast.
“Turns out that plugging a bunch of computers into our electrical grid that do nothing but draw current and hash through algorithms has had some negative environmental impacts. Recent studies suggest that Bitcoin-related power consumption has reached record highs this year — with more than seven gigawatts of power being pulled in the pursuit of the suspect digital currency. A study from the Cambridge Center for Alternative Finance released on Monday estimates that the global bitcoin mining industry uses 7.46 GW, equivalent to around 63.32 terawatt-hours of energy consumption. The study also notes that miners are paying around $0.03 to $0.05 per kWh this year.”
“Blockchain investment firm Digital Currency Group (DCG) has expanded into the bitcoin mining industry. The company – which also owns CoinDesk – announced Thursday the venture is already operating through a subsidiary called Foundry, an entity launched in 2019. Foundry provides cryptocurrency miners and equipment makers with “institutional expertise, capital, and market intelligence,” DCG said. It’s also “one of the largest bitcoin miners in North America,” per the announcement, and has provided “tens of millions of dollars” in financing to other mining operations.”
“To ensure scarce high-performance computing resources are only used by authorized applications, researchers at Los Alamos National Laboratory have developed an artificial intelligence system that can detect malicious codes that hijack supercomputers for illicit applications such as cryptocurrency mining. Legitimate cryptocurrency miners depend on racks of specialized computers that solve complex computational problems that chain together transactions and receive a portion of the mined cryptocurrency as a reward. Some miners take shortcuts, hijacking high-performing computers at universities or government facilities, taking advantage of their processing power and saving themselves from having to set up their own mining systems.”
“Five years ago, Ethereum, Canada’s biggest contribution to the blockchain space, officially went live. Since then, the cryptocurrency platform has become the second largest in the world, next to Bitcoin. Although it is now a global phenomenon, Ethereum’s roots are in Canada, where a significant portion of its early development took place. The decentralized peer-to-peer blockchain platform has come a long way since its launch, enduring a massive hack, an initial coin offering bubble, and now, the accelerated growth of decentralized finance. Today, the crypto leader is on the verge of beginning its long-awaited shift to Ethereum 2.0.”
Cryptocurrency Weekly Performance
Indices & Commodities
“Cryptocurrencies have now officially made a debut on the balance sheet of a central bank; could this lead to an entirely new cryptoasset reporting framework? Recently it was discovered that Central Bank of the Bahamas had included its newly created cryptocurrency, known as the Sand Dollar, on its balance sheet during April 2020. Although the amount that was actually listed was only equivalent to $48,000, the implications of this inclusion are profound. This revelation comes on top of the news of just how comprehensive blockchain projects are at the Federal Reserve Bank of Boston, where over 30 blockchains are in various phases of testing and evaluation for possible implementation.”
We are continuing our bullish thesis on Bitcoin. Our readers will know that we have been bullish on the coin throughout August and we continue to see this as the most likely path until the end of this year.
Three indicators support our bullish thesis. 1) MACD looks like it’s positioning for another crossover, which signifies a potential uptrend over the next few weeks. 2) Stochastic RSI is in oversold territory, suggesting that upwards movement is imminent. Finally, 3) Bollinger Bands look like they’re beginning to tighten, which is indicative of a strong breakout in either direction. We have one indicator telling us that a breakout is coming and two that tell us that an uptrend is coming. We see these as encouraging indicators that reinforce our near-term thesis.
We highlight how a similar set up in late July led to a rally that allowed Bitcoin to cross the $12,000 mark (see orange circles).
This year, we have seen investors rotate into altcoins at rates never seen before in history. While Bitcoin’s returns have been attractive, they pale compared to the returns generated by DeFi based coins and projects. Does this spell the end for Bitcoin or are we still in the early stages of a new paradigm? Join us next time on ‘The Digital Asset Digest’ to find out.
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As always, thanks for reading and we hope to hear from you soon.