Hey Snackers,
From markets to memes, crypto's rarely static. But now, perhaps more than ever, both crypto's underlying tech and its role in a regulated society are in flux. Today, we're peeling back the layers of this moment with a crypto-takeover edition.
As of Friday afternoon, bitcoin and ether (the two largest cryptos) were both down over 55% year to date as crypto winter sends chills through summer.
Equities aren't doing so hot either: the Nasdaq plunged 4% on Friday after Powell said the Fed would keep hiking rates till inflation is under control — suggesting rates could stay elevated for a while.
Ethereum's make-or-break moment nears as crypto readies itself for the big Merge
The future of finance… aims to leave its past in the dust. The ethereum Merge — a years-in-the-making reimagining of the world's second-largest crypto — is set for mid-September, and crypto fans are HODLing their breath. The Merge is meant to move the chain's consensus mechanism (think: verification process) from “proof of work” (PoW: old, power-hungry) to “proof of stake” (PoS: new, efficient). It's a critical moment for the seven-year-old crypto, with real — ahem — stakes:
- Eth-ficient: PoS-powered ethereum is expected to use 99.95% less energy by having validators instead of miners add new blocks to the chain. Reminder: validators are people "staking" (aka: depositing and locking up) ether as collateral; miners = tons of energy-sucking computers.
- Dirt-eth: Right now, ethereum uses as much energy as the Netherlands and emits as much carbon as Singapore.
- Crypt-oh shucks: The Merge will not actually reduce transaction fees or speed up transactions.
Growing up = growing pains… Dragging a chain worth $202B into the future isn't like flipping a switch. Plenty could go wrong, from bugs to industry consolidation (aka: dreaded centralization). Merge fans argue that if ethereum sticks with the old PoW, it risks getting left behind by new chains on the block (like: solana), but not all of cryptoland's on board:
- Miner detail: In the new PoS future, ethereum miners (and their costly computer rigs) are no longer needed. One response: a proposed forked PoW ethereum chain living on after the merge (meet: ETHPOW).
- Mis-stake: Critics worry PoS is less censorship-resistant than PoW, and that validators might be pressured into censoring ethereum at the protocol level.
The Merge is full steam ahead… and crypto's future is along for the ride. Picture a bunch of railroad engineers trying to swap out parts on a moving train — but the train's packed with priceless cargo and can't slow down. That's kind of like the Merge. Getting it wrong risks derailing the ethereum train and everything built on top of it (DeFi, Ape NFTs). If the upgrade succeeds, the train’ll run cleaner and could inspire the broader crypto industry to follow suit. If it fails? Hold on.
The “Wild West” of crypto could be reaching a regulatory boiling point
The good, the bad, and the cryptic… Crypto’s so-called “Wild West” could be in for a reckoning. For over a year SEC Chair Gary Gensler has said that many crypto products should be considered securities and regulated as such. Think: the same controls and protections as stocks and bonds. The SEC's doing more than talking: as part of an insider-trading case last month, it classified nine cryptos as securities.
- An asset is deemed a security by the SEC if it’s “an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others.”
- Right now: A lot of cryptos are considered commodities, and lots of crypto products are virtually unregulated.
Scrutiny is brewing… This year, high-profile instances of crypto fraud have cranked up the heat from regulators and lawmakers. Recent meltdowns of some high-yield crypto lenders have added fuel to the fire. In many crypto-fraud cases, there isn’t much investors can do. People who had their funds locked by crypto lender Celsius, for example, are begging bankruptcy judges for help. Now:
- Crypto lenders (think: BlockFi, Celsius) are facing increased scrutiny. In February, BlockFi agreed to pay the SEC $100M for failing to list its crypto-lending product as a security.
- So are crypto exchanges: One Senate staffer said every US crypto exchange is being investigated. And blockchain firm Ripple is fighting a lawsuit that argues its XRP currency is a security.
- Chasing clarity: A Senate proposal released this month seeks to give commodities regulators the leading role in overseeing bitcoin and ethereum, while giving the SEC some oversight.
Scrutiny may be reaching a boiling point… So far, the SEC’s strategy has been case-by-case enforcement actions and lawsuits. But if it can bring crypto under its purview, it could change the industry’s biz model. Listing securities carries rigorous disclosure and registration requirements meant to protect investors. While some crypto enthusiasts want it to stay unregulated, others believe that clear guardrails could boost the whole industry.
What else we’re Snackin’
- Fall-fit shopping… swipe my crypto-card. From Starbucks to AT&T to Chipotle, companies are increasingly tapping crypto as a payment option. This month Gucci expanded its bitcoin-checkout option to nearly 75% of its stores. Now, the same percentage of all retailers plan to take digi-coin payments. But most won’t HODL: half of merchants plan to use third-party platforms to convert crypto and get paid in $$. Digi-adoption takes time: only 2% of US adults paid with crypto in the past year.
- Between a block and a hard place… Crypto miners are stuck. Billion-dollar mining giants like Riot Blockchain make $$ by using a slew of computers to validate transactions and earn crypto. But in the US — the world’s top bitcoin-mining hub — miners are struggling to earn profits since income has fallen (BTC’s down 70% from highs), while energy costs have soared. Some miners are selling bitcoin reserves to cover costs. But Riot may’ve found a fix: the company gets paid not to mine when energy grids are overloaded (think: heatwaves).
- The regulatory house drops… on a tornado. This month the Treasury Department sanctioned Tornado Cash, a crypto mixer for people seeking on-chain privacy. The US says it was also used by bad actors like North Korea to launder $7B. The rub: Tornado Cash is a smart contract — so the gov't dropped sanctions on code. Now digital-rights groups are riled up and a pro-privacy congressman is questioning the move. Also: trolls are sending ETH to celebs like Jimmy Fallon via Tornado Cash to get them blacklisted (aka: “dusting”).
This Week
- Monday: Earnings expected from Pinduoduo
- Tuesday: Earnings expected from Baidu, CrowdStrike, HP, Chewy, Best Buy, and ChargePoint
- Wednesday: Earnings expected from Okta, MongoDB, and Five Below
- Thursday: Jobless claims. Earnings expected from Broadcom, Nio, Lululemon, Hormel, and Campbell Soup
- Friday: August employment numbers release
Authors of this Snacks own: bitcoin, ethereum, and solana and shares of Starbucks and AT&T
ID: 2399696