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Weekly Crypto Wrap

Friday, May 19, 2023

Welcome to MRP's Weekly Crypto Wrap, a look back at news reports, on-chain metrics, and other data that moved digital asset markets over the past week. These reports will be delivered every Friday morning, provided free of charge by MRP, and packed with useful information for those just beginning their research into Bitcoin and other cryptocurrencies, as well as investors with more experience in digital asset markets.

Click here to see everything we covered in the last iteration of the newsletter.

Aggregation of key events and breaking stories monitored by MRP

Stablecoins: Tether buys bitcoin with a portion of its net profit to back USDT stablecoin

Exchanges: Brokerage Firm Starts Covering Coinbase — Here’s How They View the Stock

XRP: Judge Denies Motion to Seal Hinman Documents in Ripple SEC Case

ETH: Ethereum Briefly Stopped Finalizing Transactions. What Happened?

LTC: Crypto Speculators Are Flocking to a 12-Year-Old Token: Litecoin

Breaking down the most critical trends and transaction patterns on the blockchain

Digital asset markets were relatively stable this week after broadly declining throughout the month of May. The total market capitalization of all cryptocurrencies regained the $1.1 trillion threshold and the unit price of Bitcoin (BTC), the largest digital asset, ranged between $25,900 and $27,700. By Friday morning, BTC had settled around $26,900, up 62.0% in the year-to-date period.

Bitcoin regained its footing in the past several days as network congestion and transaction (tx) fees declined from extremely elevated levels. Pending txs in the mempool were close to 270,000 this morning, down from a record 440,000 at one point last week. Fees dropped from a multi-year high of $30.00 to less than $4.00 in recent days. That traffic set off alarm bells about Bitcoin’s scalability, which MRP covered in last week’s Crypto Wrap, but as we noted would likely be the case, the tx tsunami was only a short-term phenomenon that would likely result in a small gift to miners.

The backup was largely caused by a surge in the popularity of BTC ordinals, digital assets or other metadata (jpegs, sound clips, games, etc.) inscribed on the smallest possible denomination of a Bitcoin, called a Satoshi. Bitcoin is divisible down to eight decimal points, making a Satoshi equivalent to 0.00000001 BTC. Ordinals can be traded like non-fungible tokens (NFTs) on the Ethereum (ETH) network, with the difference being that an NFT is a smart contract verifying the ownership of some asset hosted in a separate database, as opposed to the ordinal’s inscription being stored on the blockchain itself. The experimental standard for ordinal inscriptions is referred to as “BRC-20”, a play on Ethereum’s ERC-20 token standard. However, because Bitcoin ordinals are stored on chain and more data-heavy than a standard tx, it will also take up more block space – which is a finite commodity.

A single Bitcoin block’s “weight” is limited at 4 megabytes of data (MB) and can only mined and added to the chain of other blocks once every ten minutes. With the data included in ordinal inscriptions taking up greater space in these blocks, fewer transactions can fit into each one, resulting in greater wait times and fees associated with sending other transactions. Following the basic laws of supply and demand, block space costs more when there is greater demand and bidders adjust the fees they will pay accordingly. As we noted last week, Fees are mainly a way to compensate miners for the work that they are expending through the use of electricity (in addition to the block subsidy), but they also serve as a barrier to spam in the network. That’s not to say the ordinal fad should be perceived as a intentional or unintentional attack on the network, but one could argue that the ordinals ordeal has been a display of Bitcoin’s resiliency against a simulated campaign meant to jam up the network.

In the end, with little motivation behind the ordinals trend aside from a spike in speculation and curiosity, high fees exhausted themselves – just as intended. Ordinals are not likely to totally dissipate, but remain a part of the ecosystem in a smaller way, likely ensuring blocks fuller than in the past – which some argue makes Bitcoin more secure. That seems to be at least partially true in this case, as limited block space and surging fees certainly attracted more sustained hashing power to the Bitcoin network recently. The overall hash rate’s 7-day moving average touching an all-time high of 368.5 million terahashes per second (TH/s) on May 16. Hash rate measures the computational power per second being used for mining.

The remaining concern for decentralization and security, however, is how bloated the Bitcoin blockchain may become from the popularity of inscription data. According to Glassnode, an additional 24 gigabyte (GB) of data has been added to the chain since February. This represents an increase of 5.3% in just a few months and 18.0% since the same time last year.  The larger the blockchain ledger is, the more storage space is required for users to run nodes – the network of computers running Bitcoin Core and hosting digital copies of BTC's blockchain across the globe. The nodes form a peer-to-peer communication network that validates the canonicity and comformity of all blocks and transactions added to the ledger by miners. If storage needs asdociated with nodes becomes too cumbersome in too short a period of time, some fear the expansion of the network may become constrained by CPU limitations. Bitnodes estimates that there are currently 44,604 full nodes operating globally.


MRP's latest Daily Intelligence Briefings on everything from BTC to DeFi and NFTs

February 22, 2023: Ethereum May Face Contagion from SEC Crackdown on Crypto Exchanges’ Staking Services →

February 14, 2023: Staking Services and Stablecoins in SEC Crosshairs as Crypto Industry Preps for Court Battles →

January 24, 2023: Bitcoin Mining is Back to Profitability, Hash Ribbon Shows Peak Capitulation May Have Finally Passed →

October 18, 2022: Fallout From Ethereum “Merge” Bolsters Bitcoin’s Hash Rate as Some Criticisms Still Linger →

October 7, 2022: Ethereum’s Post-Merge Era Conquers Key Goals, Yet Centralization and Regulation Concerns Linger →



Tether buys bitcoin with a portion of its net profit to back USDT stablecoin

Tether said it would invest 15% of its net profit into bitcoin to “diversify” the reserves that back its USDT token. That would amount to roughly $222 million, based on the company’s last attestation report, which said the company generate $1.48 billion of net profit.

“The aim is to keep the Bitcoin portfolio value well below the size of our total excess reserves that accounted for 2.48B at the end of Q1/2023, while bitcoin holdings accounted for 1.5B,” a Tether spokesperson said.

Read the full article from CNBC +


Brokerage Firm Starts Covering Coinbase — Here’s How They View the Stock

Berenberg Capital Markets Analyst Mark Palmer “Coinbase's better-than-expected” first quarter results proved it is positioned to weather the so-called crypto winter, according to a research note authored by Palmer and associate Hassan Saleem. 

Despite creating a derivatives trading platform in Bermuda and looking to build a hub in Dubai, Coinbase generated 86% of its net revenue in the US in the last year, as of March 31, Palmer noted. Setting up new operations offshore — alongside a potential legal battle with the SEC — would be an expensive undertaking, even with $5.3 billion in available cash.

Read the full article from Blockworks +


Judge Denies Motion to Seal Hinman Documents in Ripple SEC Case

Ripple has been tied up in a lawsuit with the SEC for several years after the Commission accused the firm of illegally selling the XRP token without registering it as a security.

Part of the legal battle has centered around a controversial 2018 speech and the documents that surround it. In the speech, Bill Hinman, a former SEC director, explained why he did not consider Bitcoin or Ethereum as securities. Judge Analisa Torres has however denied the SEC's motion to seal these documents on Tuesday.

Read the full article from Decrypt +


Ethereum Briefly Stopped Finalizing Transactions. What Happened?

The Ethereum blockchain suffered two brief episodes last week where blocks weren’t finalizing. finality is the point where transactions on a blockchain are considered immutable. Finality is supposed to guarantee that transactions within a block cannot be altered.

A loss in finality can lead to some security issues like reorgs, which occur when a blockchain produces more than one block at the same time, usually because of a bug or an attack. This means that a validator node temporarily creates a new version of a blockchain, which makes it difficult to properly verify if a transaction has been successful, while the old version of the blockchain continues to exist.

Read the full article from CoinDesk +


Crypto Speculators Are Flocking to a 12-Year-Old Token: Litecoin

Litecoin has rallied almost 20% since May 8, when fees on Bitcoin reached a high of $30 per transaction, compared with a decline in an index of cryptocurrencies. To facilitate faster transactions, a new “block” of transactions is added every 2.5 minutes on the Litecoin chain, compared with every 10 minutes for Bitcoin. 

Read the full article from Bloomberg +


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