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ETFS 21Shares Crypto Monitor - 10th February 2022

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Market Outlook

The market is back on track for recovery with Bitcoin picking up by 12.6% since last week, jumping above the $40K mark and reaching nearly 40% of the total crypto market for the first time in 6 months. Ethereum on the other hand was up 14.4% since last week, sustaining its position above the $3K mark while XRP and Cardano outperformed the rest of the altcoins, ranked respectively at #6 and #7 by market capitalization.

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Kazakhstan’s Crackdown on Miners

The crackdown on Bitcoin miners continues in Kazakhstan as regulators look into increasing the tax on electricity for cryptocurrency miners by 500% to make it $0.012. Miners may also have to pay a monthly tax on equipment, regardless of whether they earn block rewards or leave their ASICs on, as suggested by Marat Sultangaziev, Kazakhstan’s first vice-minister of finance who compared the concept to a similar tax that casino operators pay on their machines. For most of January, the government turned the lights off on miners as the country faced widespread energy shortages and massive protests over rising fuel prices. To control those protests the government imposed a nationwide blackout, taking a toll on the hashrate for major pools with exposure.

As predicted in our previous newsletters, miners based in Kazakhstan are eyeing new homes for their facilities. Some reported that they’re considering Russia after Vladimir Putin pulled the brakes on the crypto ban saying that the country has “competitive advantages” especially in mining cryptocurrencies given the “surplus of electricity”. Putin told Russia’s Central Bank, which called for the ban, not to neglect the leverage that Russia has in the area, being the third-largest source of Bitcoin’s hashrate after the US and Kazakhstan.

Web 3 The Largest Beneficiary of The Great Resignation

The US unemployment rate is expected to fall below 3%, a rate last witnessed in the 1950s towards the end of the Korean War. The reason behind this prediction, made by St. Louis Federal Reserve Bank President James Bullard, is that in only the last two months the unemployment rate dropped by 0.7 percentage points to 3.9%. On the back of America’s “Great Resignation”, a wave of talents are leaving tech giants and traditional finance (the Federal Reserve itself saw an economist walk away with an offer from Uniswap Labs) to join projects in the wider Web 3 hemisphere, the largest beneficiary of this phenomenon, as our Research Lead puts it. The total value of tech stocks is $9.5T as of writing, as opposed to crypto market’s $1.6T. Remember those numbers because at 21Shares, we believe that in the future the Great Resignation will reflect in the valuation of many crypto projects disrupting industries, such as financial services, eCommerce, media, and art.

On another note, as shown in the image below, investors who purchased Bitcoin 1 to 2 years ago are starting to sell at a high frequency. This group represents circa 12% of the selling pressure since December 2020. Historically this metric was around 5 to 8% over the past few months.

Bitcoin: Realized Cap HODL Waves

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On Tuesday morning, two individuals were arrested in the US for trying to launder cryptocurrencies (worth $3.6 billion) that were stolen during the 2016 hack of Bitfinex, a cryptocurrency exchange. This is another living proof that cryptocurrencies and blockchain are not synonymous with money laundry and financial crime, the blockchain technology is the most secure innovation that ever existed to disrupt traditional finance.

We’ve also come across some positive patterns to boost more confidence in the ecosystem. KPMG in Canada completed an allocation of Bitcoin and Ethereum to its corporate treasury, which marks the first crypto investment for the full-service Audit, Tax, and Advisory firm.

Sequoia – arguably the most respected VC firm in the world who invested early in Apple, Google, and more — led a $450 million investment in Polygon, which aligns with our thesis on Polygon as the largest beneficiary in the L2 vertical until L2 matures.

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