In this edition, we’ll take a closer look at the significance of PayPal’s confirmed entry into the cryptocurrency space, the fact that DeFi is gearing up to becoming an over-leveraged bubble, and the fundamental bitcoin data! You’ll not want to miss out on the latter part as bitcoin’s macro fundamentals tell a familiar story — especially for bitcoin OG veterans.
Let’s dive right in.
PayPal Letter confirms crypto rumours
It’s no secret that there’s currently a mad dash to jump on the next bitcoin bull cycle among institutions, whether it’s JPMorgan, Hedge Funds loading up on crypto, Coinbase’s upcoming listing, or even high net worth retail investors — nobody wants to miss out.
However, if anyone needed any more proof that this space is going to the stratosphere and beyond, a recently revealed letter to the European Commission from PayPal has confirmed that it is developing cryptocurrency capabilities.
The letter was originally submitted on March 20 as a response to the Commission’s public consultation on building an EU framework for cryptocurrency markets which lasted from December 2019 through to March.
One of the main points PayPal wishes to tackle is financial inclusion.
“ Of particular interest for us is how these technologies and crypto-assets can be utilized to achieve greater financial inclusion and help reduce/eliminate some of the pain points that exist today in financial services.”
PayPal also commented on its falling out with Facebook’s Libra project, stating that it dropped out because the company began working on its own solutions in the space.
An excerpt read:
“ Since the project’s inception, PayPal has taken unilateral and tangible steps to further develop its capabilities in this area, and therefore — without questioning the value of the project — took the decision not to participate in the Libra Association and to continue to focus on advancing our existing mission and business priorities to democratize access to financial service.”
Paypal’s imminent entry into the space opens the doors to an additional 300 million users potentially entering the space, even if to a minor extent (at first).
DeFi takes off
Following the Fed-driven stock market pumps, there have also been some exceptional gains recently in the DeFi space. Notably, this space looks and smells a lot like the 2017 ICO boom (& bust), largely because of the way it inherently functions. The entire market cap has gone from crossing $1 billion for the first time last year to crossing $2.5 billion today.
This is largely due to the compounding effect that allows traders to leverage borrowed money and in turn lend it back to the same platform. Suffice it to say, this is the epitome of maximum risk and heavy swings should be anticipated given the clear probability for an eventual domino effect disaster. Naturally, a bubble can go on for much longer than is reasonable and from a portfolio perspective, there’s reason to allocate some lottery capital in this market.
A recent tweet by famed Bitfinex whale and vocal opponent of Ethereum, JOE007 took a more critical approach of the space.
“Ethereum staking” is a marketing ploy to suck greedy ETHtard plebs into useless “2.0” and trap their ETH there forever while insiders, whales and Eth Foundation gang unload premine riches of ETH 1.0 without retail competition. Wicked clever, just like other ETH scams.
- ʲᵒᵉ🕶️7 (@J0E007) July 12, 2020
Needless to say, the party hasn’t stopped yet and while bitcoin volatility will liquidate a lot of people in DeFi, one cannot easily dismiss the idea of finance 2.0 in light of the broken financial system that currently exists.
Indirectly related to bitcoin’s highly anticipated move outside of the perpetual range, it’s interesting to note that the Stablecoin supply ratio (SSR) has never had more buying power than now.
Calculated by Glassnode media, the SSR divides bitcoin’s market capitalisation by the market capitlaisation of all major stablecoins.
As per the above graph, a wide discrepancy between the SSR and bitcoin’s market price typically speaks to an incoming convergence one way or another. Back in 2018, the convergence was to the downside, while in the 2019 mini-bull run, an attempted convergence to the upside ultimately failed as the trend seemingly decoupled.
Today, the SSR stands just above the 15 point mark, indicating that stablecoins could acquire about one fifteenth of the total bitcoin supply. In March, the ratio stood at 88, which means that stablecoin purchasing power has surged more than six times over.
Meanwhile, following last week’s fresh hashrate all-time high, bitcoin’s mining difficulty has also seen another uptick. Per the bitcoin protocol, as more miners join the space to secure the network, the difficulty (and hence the security) of bitcoin incrementally increases with it.
Since the halving event took place, however, bitcoin’s hashrate hasn’t really had much effect on the total market capitalisation when seen on a year-on-year basis (7-day average). In the months before the halving, the network’s hashrate more or less accompanied bitcoin’s capital inflows, but now that half the supply is being minted daily, that relationship could evolve in size, scope and timeline.
In fact, many investors and experts were expecting a sizable market crash after the halving took place in May 18, but that never came. Instead, the hashrate down-tick was fully absorbed by the market. This resulted in fresh all time highs in mining operations which have yet to be printed on the above 7-day chart.
The question on everyone’s mind is: what bearing will increasing hashrate have on the bitcoin market now that prior consolidation has been fully absorbed?
The macro answer lies in the previous halvings, and while history is not destined to repeat itself in its exactitude — it often rhymes.
As of the last few months following the halving, it’s now a waiting game for bitcoin to make its next move to greener pastures. Mind you, there is no doubt in my mind that bitcoin will see new all time highs within the next 12–18 months for a plethora of reasons you will know about if you’ve followed this newsletter chain. The only question is the exact inflection point that sends bitcoin into the next paradigm.
In any case, stay safe and see you on Mars!
Check out Monday’s newsletter for the technicals!
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Originally published at https://mailchi.mp.