👉 Is Bitcoin More Environmentally Friendly Than We Thought?

Monday, March 01, 2021

Your Weekly Update On All Things Crypto

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OVERVIEW

Bitcoin as an ESG Investment?
Tether Reaches $18.5M Settlement With NYAG
Anchorage Raises $80M in a Series C Funding Round
Bitcoin Dips But On-Chain Metrics Show Strength
Alt-Coins: Some Big Winners... And Everything Else
Picks of the Week: AMPL & SNX

MACRO NEWS

Bitcoin As A ESG Investment?

This week we thought we would start the newsletter with a bit of a philosophical piece on Bitcoin. Every market cycle, the cryptocurrency ecosystem grows, and as it grows the same questions and concerns seem to be raised. One of the most common criticisms of Bitcoin is its energy consumption, and while we agree that Bitcoin does consume a lot of energy, we thought it would make sense to discuss why it takes this much energy, and whether or not it can be justified.

As more and more institutions look the invest in Bitcoin, they are forced to reckon with the sustainability narrative as they navigate their ESG (Environmental, Social Governance) goals. This point was raised by Raoul Pal last week on Twitter as he surveyed crypto Twitter for resources he could share with these institutional investors to ease their concerns. The community raised some valid points.

How do we decide what is or isn't valuable to spend our energy on?

Let's look at this from a personal perspective first. We spend energy on our work in order to get paid; We spend energy in the gym in order to get fit; We spend energy on our family because it makes us happy. Each requires energy, but each provides us a different value. Instead, the question we ask as a society should be more centered around "is the energy being used worth it?" It is shocking that we seldom hear complaints that Christmas lights in the US use as much energy as El Salvador or Ethiopia every year. Yet it is seen to be a "waste of electricity" to secure a global, permissionless, peer-to-peer, real-time settlement system.

How clean is Bitcoin's Electricity?

We are often pointed to how much energy Bitcoin uses, but what kind of electricity it uses is far less discussed. A study by the University of Cambridge showed that roughly 76% of crypto miners use energy from renewables as part of their energy mix, with 39% of the total electricity consumed coming from renewables. While North American miners were particularly clean, sourcing 63% of their total electricity consumed from renewables. Bitcoin miners are forced to innovate and stay on the bleeding edge of renewable energy in order to ensure their operations remain profitable. Those miners that are still using fossil fuel, are often using trapped gas or energy that would have been wasted otherwise. It could even be argued that Bitcoin is providing an acceleration of the adoption of green energy.

What Bitcoin mining enables for humanity?

In the StoneRidge 2020 Annual Letter, Chairman Ross Stevens points out, "Bitcoin mining is the only profitable use of energy in human history that does not need to be located near human settlement to operate. The long-term implications of this are world-changing and hiding in plain sight." As such, Bitcoin will allow us to harness the untapped potential of remote streams, dams, or waterfalls for energy that would never have been possible before due to geographic constraints, and connection to the grid. Remote areas can finally make monetizable the energy created by their natural wonders because that energy can be converted into Bitcoin and sent anywhere in the world.

Cheap Energy = Human Flourishing

In the context of this article, we only had the time to dive into the "E" of ESG. But if you are interested in learning more about this space, we suggest you check out this episode of The Breakdown, hosted by Nathaniel Whittemore.

TOP STORIES

Tether Reaches $18.5M Settlement With NYAG

For 22 months, the cryptocurrency industry has closely watched the unfolding legal case involving The New York Attorney General's Office (NYAG), and sister companies Bitfinex and Tether (USDT). With major implications spawning all sorts of FUD, the long-standing legal drama was finally resolved on February 23rd. The NYAG Office announced it came to an $18.5M settlement with the cryptocurrency exchange and USD-backed stablecoin.

In a statement released last Tuesday, NY Attorney General Letitia James claimed "Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines." The case commenced back in April of 2019, with the NYAG accusing Bitfinex of losing access to $850M and covering up the losses with a loan and line of credit from Tether, a sister firm that shares ownership and key executives with the exchange. The lending of close to $1B between entities triggered the suspicions of the most conservative regulator in America, questioning the transparency of Tether which is supposedly backed by a 1:1 USD reserve ratio. The NYAG inquiry secured an injunction, froze the line of credit, and caused the companies in question to turn over more than 2.5 million documents.

So what happened?

In 2019, Ivan Manuel Molina Lee and Oz Yosef, two principal figures at Crypto Capital, were detained and indicted by Polish and US authorities respectively. Their mysterious Panama-based firm, Crypto Capital, provided shadow banking services for exchanges such as Bitfinex. With accusations of fraud, laundering, and unlicensed money transfers, the firm's capital was seized. This led to a liquidity crisis for Bitfinex, who claimed they were victims of fraud. They took a loan from Tether in order to "ensure continuity for Bitfinex's customers."

NYAG's Case of Bad Faith

The attorney general's case is notable because it highlights a key question that has long bedeviled the stablecoin and global cryptocurrency market. In a broader sense, Tether is widely used to bet on price moves for other tokens and considered a substitute for fiat currency, based on its 1:1 claim. The Justice Department has long been investigating whether Tether actually had the cash to support such a claim, and the outflow of nearly $1B added fuel to the speculation that Tether may issue tethers without backing, or to manipulate crypto prices.

Resolved Allegations

In a sense, the NYAG wasn't wrong. In 2019, Tether announced that its USD reserves equaled roughly 74% of outstanding coins. However, as per the settlement, this diminished ratio was the by-product of Crypto Capitals malicious actions, and "contrary to online speculation, there was no finding that Tether ever issued tethers without backing or to manipulate crypto prices,” says Michael. Tether loaned a substantial portion of its cash reserve in the Deltec account to Bitfinex to make up for the funds taken by Crypto Capital, resulting in the case of 'bad faith'. The loan has since been repaid early and in full, including interest.

Settlement & What it Means for Crypto

Under the terms of the settlement, Btfinex and Tether will admit no wrongdoing but will pay $18.5 million as a "measure of desire to put the matter behind us" says general counsel Stuart Hoegner. More significantly, however, Tether has and will voluntarily provide the NYAG, and the public, with information about the companies reserves for the following two years on a quarterly basis. The benefits of this cannot be overstated. For years, investors for and against crypto have held a degree of FUD around stablecoins. Tether, the 4th largest cryptocurrency by market cap, will reign in a new period of transparency and trust in the market.

Furthermore, this case sheds light on how cryptocurrency companies are often forced into working with shady companies such as Crypto Capital since trusted banks haven't been allowed to operate in the space. CryptoCobain captured this in a tweet saying "my takeaway: corrupt banking system fucking over crypto companies, pushing them to be unbanked and relying on fringe services is bad." We think this pretty well sums it up, and we can speak for the entire industry when we say we are happy to have this whole Tether story closed and behind us.

ACQUISITIONS & FUNDING

Anchorage Raises $80M in a Series C Funding Round

In a blog post last Thursday, Anchorage, a premier cryptocurrency custodian and banking company aimed towards institutions, announced the closing of an $80 million Series C fundraising round. The series was led by GIC, Singapore's sovereign wealth fund, with participation from a16z, Blockchain Capital, Lux, and Indico. Previously, Anchorage raised a total of $57 million throughout several rounds, according to Crunchbase, bringing its total funding to date to $137 million.

“Anchorage has gone through a brilliant metamorphosis — from a world-class custody solution to the standard-bearer for crypto banking" explains W. Bradford Stephens, Co-Founder and Managing Partner, Blockchain Capital. "In just a few short years, they’ve already been a powerful, catalytic force for institutional adoption, regulatory confidence, and overall maturation of the space. We’re proud to lend our support as they continue to push the industry forward — and the financial systems together.”

Founded in 2017 to meet the growing need for institutional custody that lets investors safely hold and use crypto, Anchorage has grown into a full-service financial platform and infrastructure provider for the digital asset space. In January, Anchorage was approved by the Office of the Comptroller of the Currency (OCC) for a national trust charter, which makes Anchorage Digital Bank National Association, the first federally chartered digital asset bank in history.

With the new capital at hand, it will "help us help institutions participate in new ways — by bringing crypto to their users, by diversifying their corporate treasuries, and by enabling a wide range of emerging use cases," states Co-founders Diogo Monica and Nathan McCauley. The blog post also stated that upcoming developments will include easing the processes around the lending of digital assets and partnerships with multiple bank types.

TECHNICAL ANALYSIS

Bitcoin Dips But On-Chain Metrics Show Strength

After rallying 5x in only six months, Bitcoin is finally taking a moment to catch its breath. This was a welcome correction and one that we forecasted in last week's newsletter. However, lest you believe this is the end of the bull market... the on-chain metrics for Bitcoin paint a very different picture.

Normally when we reach a cycle peak, Whale selling tends to increase as they dump their stacks onto unwilling retail bag-holders, but during this correction, Whale selling is actually decreasing. Miner selling is also slowing, signaling they are holding onto their Bitcoin expecting the price to rise in the near future. Another metric we tend to look at for market sentiment is how Bitcoin inflow/outflow from exchanges. Inflows mean people are getting ready to sell. Outflows mean people are moving their coins to cold storage to HODL. Over the past week, 25,600BTC have left the Coinbase exchange - despite the dip, clearly, the market outlook is still bullish.

At the time of writing, Bitcoin has seen a 27% dip from its all-time high of just over $58K, nearly touching its previous relative high at $42K. Bitcoin looks to have turned that previous high into support and has bounced back to roughly $46K for the time being. This type of pullback is common in bull markets. As a reminder, we saw eight pull-backs of 30% or more during the 2017 bull market. This would only be our second 30% pullback since the March 2020 lows... We are only just getting started.

Alt-Coins: Some Big Winners... And Everything Else

Alt-coin dominance has chopped sideways between 35-40% for the entire month of February. This is not to say that there haven't been opportunities to make gains in the alt-coin market, it is just to say that the gains haven't been as evenly distributed through the entire cryptocurrency ecosystem as in past. The market is getting more educated, and picking winners and losers. It is no longer a "Bitcoin go up" followed by "alt-coins go up." In our opinion, this shows a maturing of the industry and its investors. Bad projects are being sniffed out, and solid projects are gaining the credibility they deserve.

Over the next few weeks, we expect a choppy recovery for Bitcoin back up to its all-time high. When this happens, we suspect alt-coin dominance will increase and try to break through the line of resistance at 42.6%. As we've said many times in the past, whenever Bitcoin moves sideways (or up or down slowly) it tends to be a good sign for alt-coins. Liquidity tends to look for higher yields and flows into smaller cap coins in hopes of higher returns. Only time will tell if this phenomenon will play out once again during the next leg up.

View the chart here.