Make Kitco Your Homepage

Crypto SWOT: the global bitcoin mining sector has reached over half sustainable power, reports the BMC

Commentaries & Views

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was XinFin Network, rising 93.22%.

  • Mercado Bitcoin, the largest cryptocurrency exchange in Brazil, announced that it finished its Series B financing round, raising $200 million from the SoftBank Latin America Fund. The deal is the largest Series B round in Latin America's history, and gives the company a $2.1 billion valuation. 2TM Group, the parent company of Mercado Bitcoin, reported that the company plans to further expand its operations in Latin American nations and is contemplating adding branches in Argentina, Chile, Colombia, and Mexico. Mercado Bitcoin added 700,000 new users between January and May 2021, boasting a total client base of 2.8 million, and saw its trading volume balloon to $5 billion, which surpassed the total for its first seven years of operations combined.

  • Ukraine's parliament, Verkhovna Rada, passed a law that considers the country's potential central bank digital currency (CBDC) to be like cash or a bank account. The law describes the electronic Ukrainian hryvnia, which has not been launched yet, being on par with cash, bank accounts, and electronic payments, and as a unit of account in Ukraine. The National Bank of Ukraine (NBU) launched its efforts to create a CBDC in 2018 and has a prototype on the Stellar Blockchain, but progress has been stalled since it published a report on the advantages and disadvantages of a CBDC in September 2019.

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performer for the week was Quant, down 22.65%.

  • Customer complaints against major U.S. cryptocurrency exchanges have increased over the past year as cryptocurrencies became more popular. The Consumer Financial Protection Bureau (CFPB) reported that of the top three crypto exchanges operating in the U.S., Coinbase received the most complaints during the past year, with concerns about domestic and international money transfers, digital wallets, and foreign currency exchange. Customers registered around 1,060 complaints against Coinbase, while complaints against companies Binance.US and Kraken stood at 184 and 34, respectively.

  • Bitcoin posted its worst second quarter (Q2) performance since 2018 as the world's largest cryptocurrency tumbled more than 40% during the period, down more than 45% from its mid-April high of $68,863. Bitcoin's previous two Q2 returns, for 2019 and 2020, were 157% and 42%. On average, since 2014, Bitcoin has registered a return of 33.95% and has never registered a Q2 return lower than 6%. This decline came from the wide-spread scrutiny of the environmental impact of mining the cryptocurrency and the Chinese government's crackdown on mining operations in the country. The chart below shows that Bitcoin's performance has lagged that of Ethereum and the Bloomberg Galaxy Crypto Index during the first half of 2021.

Opportunities

  • Germany's Fund Allocation Act, which was introduced in April 2021 and passed by the parliament, is set to come into effect this week and could theoretically prompt up to $415 billion to flow into cryptocurrencies. The act allows "Spezialfonds", or special funds, to invest as much as 20% of their assets under management (AUM) into cryptocurrencies. Spezialfonds are one of the most dominant investment vehicles in Germany, and allocation of such size could have a positive impact on the crypto ecosystem in Europe.

  • JPMorgan reported that the upcoming launch of Ethereum 2.0 network will make staking coins for yield an attractive source of income for both institutional and retail investors, as the update shifts the blockchain from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism. The report added that an estimated $9 billion is being earned by holders of staked coins on PoS blockchains, annually, and that as Ethereum transitions to PoS by next year, the annual revenue could increase to $20 billion.

  • The Bitcoin Mining Council (BMC) released a report stating that the global Bitcoin mining sector has reached an estimated 56% sustainable power mix in second quarter of 2021. This estimate was derived from just 32% of the miners on Bitcoin's network who are currently utilizing electricity with a 67% sustainable power mix. The BMC classifies sustainable electricity as hydro, solar, wind, nuclear, geothermal, and carbon-based generation with net carbon credits, based on the principles from the International Energy Agency's (IEA) Net Zero by 2050 report. BMC's report comes at a time when Chinese miners are either shutting down operations or are flocking to cheap-energy hubs like Quebec in Canada and Kazakhstan.

Threats

  • Cryptocurrency trading platforms in India might have to pay an additional 18% tax even if they are not domiciled in the country. Currently, all exchanges which operate in India and are based outside the country do not pay the goods and services tax (GST), and the country's tax authority is examining whether such levy should be applied to crypto exchanges, which the department would categorize as providing an online information database access and retrieval (OIDAR) service. Further, cryptocurrency exchanges in India have been struggling to find financial institutions that will offer services to their business as the regulatory environment around digital assets remains unclear in the country.  

  • Fitch Ratings Inc. released a report stating that stablecoins, which are digital tokens pegged to government-issued currencies like the U.S. dollar, could pose contagion risks over time. Analysts and economists have been speculating that if Tether suffers financial losses or there is a dip in consumer confidence, it could trigger a sell-off which can put downward pressure on prices of other cryptocurrencies. Fitch noted that such an event could also have implications for traditional markets, as Tether, which has total assets amounting to $62.8 billion, holds 49.6% of its assets in commercial paper (CP), which can be illiquid, and can create a wider selling pressure in the CP market.

  • Binance, the biggest cryptocurrency exchange in the world, is under scrutiny once again as Thailand's Securities and Exchange Commission (SEC) filed a criminal complaint against the exchange for allegedly operating within the country without relevant licenses. The complaint, filed with the Economic Crime Suppression Division of the Royal Thai Police (ECD), states that Binance failed to meet a deadline for responding to an earlier warning. The SEC added that the exchange solicited Thai customers to use its services via its website or the "Binance Thai Community" page on Facebook. Binance has also received a warning over similar matters from regulators in Japan, been prohibited from operating in the U.K. and exited the Ontario market following regulatory actions against other exchanges in the Canadian province.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.