Representatives from both the U.S. legislators and administration officials expressed urgency Tuesday around providing clarity to the digital asset or blockchain industry during Axios’ “Crypto and the Investing Space” event.
Why it matters: If the rules in an industry are fuzzy, the bad actors are fuzzy, too.
Driving the news: “I’d wave a magic wand tomorrow and start defining some of these things,” Rep. Darren Soto (D-Fla.) said Tuesday morning.
Similarly, Christy Goldsmith Romero, a newly appointed commissioner with the Commodity Futures Trading Commission (CFTC), said, “I am certainly of the opinion that I would like Congress to act.”
At the grassroots, many investors have done very well investing in cryptocurrency but many others have lost life changing amounts of money.
At both levels, people are calling for government leaders to catch up.
Zooming out: The big question facing governments right now is this: are the rules that already exist for investors adequate to the task of managing cryptocurrency markets? Or should lawmakers and regulators start fresh?
The answer so far: TBD.
What they’re saying: Soto, who co-chairs the Congressional Blockchain Caucus, said he would “start defining” terms relevant to the cryptocurrency industry.
He was speaking to his view that crypto tokens and coins could be “a commodity, a security, a currency — it could even be a future. Trying to fit it into a 20th century box didn’t work and isn’t working now,” he told Axios’ Hope King.
“This is an example where existing laws are just antiquated,” he said.
Soto appeared to express frustration at the pace of legislation, expressing regret that most of his colleagues want to get the administration’s take on these questions before writing new laws.
“Our job is to pass new laws to evolve to what society has,” he said.
Meanwhile, Soto described the light touch approach that he and his colleagues on the Blockchain Caucus would prefer.
“We want to make sure we have guard rails for the most blatant frauds you can see, like pump and dump,” he said, rather than going further and trying to protect people against market risk.
Soto declined to specifically endorse the recent legislation from Senators Lummis and Gillibrand, but he did note, “We definitely agree that the SEC jurisdiction should be narrowly defined.”
Yes, but: Goldsmith-Romero described the task of those working under existing legislative authority now — the agencies — as attempting to see what’s ahead. “I think we’re looking into the future and asking where we should build the road,” she said.
But they are doing so blind, she complained.
Victims and whistleblowers are the chief way agencies find out where to look for trouble in the crypto industry right now, she said.
“The CFTC doesn’t have any regulatory authority. We can’t look at books and records,” she said.
“We’ve got a pretty sizable market that’s essentially unregulated. Regulators have no window into it,” she went on.
Nevertheless, she said, the CFTC has taken something like 50 actions in the space and also enabled 11 crypto-focused products to trade in the markets it regulates, under its mandate to enable responsible innovation.
The bottom line: “If regulation fails to keep pace with technology, the most vulnerable people are going to be hurt,” Goldsmith-Romero said.
Just months ago, crypto companies were advertising heavily during the Super Bowl after virtual currencies enjoyed a dizzying rally in 2021.
Today, Bitcoin and other cryptos are plunging, and companies such as Coinbase, which runs the largest crypto exchange in the U.S, are announcing layoffs.
“The crypto house is on fire, and everyone is just rushing to the exits because there is a complete loss of confidence in the space,” says Ed Moya, a senior markets strategist at financial firm Oanda.
Here’s what’s going on.
Why are cryptos falling so sharply?
Because they are being hit by the same factors impacting stocks and other assets.
Consumer prices are surging at the fastest annual pace in over four decades, and the Federal Reserve is hiking interest rates aggressively to bring down inflation.
On Thursday, the Fed raised rates by three-quarters of a percentage point and indicated it could raise them again by the same amount at its next meeting in July if needed to cool down prices.
Higher interest rates make borrowing costs more expensive for people and companies, and that’s raising concerns about an economic recession.
Stocks have fallen dramatically from records set in January, with the broad S&P 500 index entering a bear market this week (when an index falls 20% or more from its recent high).
Cryptocurrencies have hardly been immune. Since Bitcoin hit an all-time high in November, the value of the world’s most popular digital currency has fallen by about 70%, and its rivals are also suffering. Ether is down by around 70% this year, and so is Dogecoin.
Bitcoin’s backers have always claimed the digital currency would be an “inflation hedge,” but in fact, it hasn’t behaved that way.
As shares of tech companies have plummeted, so has Bitcoin’s value.
“What this episode, this crash in crypto prices, shows is that cryptocurrencies are by and large speculative financial assets that are subject to macroeconomic forces, such as changes in interest rates,” says Eswar Prasad, an economics professor at Cornell University.
So what does this mean for cryptocurrency companies?
The sharp falls in cryptocurrencies are driving some companies into problems.
Celsius, which takes cryptocurrency deposits from individuals and lends them out, stopped withdrawals because it’s facing financial trouble. Binance, a cryptocurrency exchange, halted Bitcoin withdrawals for several hours on Monday.
The problems at Celsius are undermining confidence in the broader cryptocurrency space just weeks after the collapse of a stablecoin called TerraUSD.
Crypto companies are responding by re-evaluating their plans for the future.
“We appear to be entering a recession,” Brian Armstrong wrote.
Some backers of cryptocurrencies still believe a “crypto winter” could lead to a “crypto spring.” In the past, deep downturns have led to strong rebounds.
But according to Moya, the analyst at Oanda, the economic landscape is different now, and so is crypto’s outlook.
In fact, with the Fed continuing to raise interest rates aggressively and with inflation still high, there is likely to be more pain ahead across all markets, including cryptocurrencies.
What dose this mean for those who got into cryptos?
It’s been a rude awakening for the millions of people who bought cryptocurrencies, especially if they got into the craze last year.
Prasad says 2021 was “the height of crypto mania.”
The total value of all the digital currencies in the world swelled to $3 trillion. Crypto companies inked sponsorship deals with professional sports teams, and Coinbase, Crypto.com, eToro, and FTX shelled out millions of dollars to buy ads during the Super Bowl.
Crypto.com hired actor Matt Damon as a spokesman, and an FTX ad featured the curmudgeonly comedian Larry David.
The message from these companies was that crypto represents the future of finance and it was best not to miss out.
“The technological razzle-dazzle of cryptocurrency swept in a lot of retail investors who didn’t realize the sort of risks they were taking on,” Prasad says.
Today, the total value of crypto market has been shaved to about $1 trillion. And if you bought Bitcoin on Feb. 14, the day after that Super Bowl ad bonanza, it is now worth about half of what you paid for it.
What will this mean for regulations on the sector?
The increase in amateur investors, combined with the growing complexity of some of the cryptocurrency products, are worrying regulators.
Crypto markets are still fairly new, and there’s a lack of clarity even about the most basic things, like who is in charge of overseeing the space.
Right now, both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) claim oversight of parts of the crypto market.
“If there is no guidance whatsoever, people will be taken advantage of, and we want to prevent that” says Cam Harvey, a finance professor at Duke University. “Right now, we have basically nothing.”
The SEC is stepping up enforcement actions against crypto companies and considering new rules. Meanwhile, in an executive order, President Biden asked government agencies to make policy recommendations.
And in Congress, Sen. Cynthia Lummis (R-WY) has teamed up with Sen. Kirsten Gillibrand (D-NY), on the first comprehensive crypto legislation. The bill would give more regulatory authority to the Commodity Futures Trading Commission.
Still, for now, many analysts don’t think the broader financial system is at risk. The total value of the cryptocurrency market is still less than the total market value of a big company like Apple.
But this recent downturn has raised some serious concerns.
WASHINGTON — Those who have invested in cryptocurrency have been watching their savings plummet in 2022, and the trend has continued in June.
For example, as of Tuesday evening, prices had dropped below $23,000 per Bitcoin. One week earlier, this same coin would have been worth more than $31,000. In the past week, Bitcoin has dropped roughly 25 percent.
The year-long trend is similarly perilous. In November 2021, Bitcoin reached a record high, reaching nearly $70,000.
Other coins, like Ethereum, have similarly seen their price drop. As of Tuesday evening, the price was roughly $1,220 per coin. That’s down from its November 2021 high, when the price was over $4,800.
Amid crashing prices, multiple cryptocurrency platforms have added to the confusion, by partially halting trading.
So, what’s going on with Cryptocurrency? To get a better picture, our team spoke with a trio of financial experts.
James Angel, Associate Professor and Academic Director of FINRA Certified Regulatory and Compliance Professional Program at Georgetown University
Hilary J. Allen, Professor of Law at American University’s Washington College of Law
Robert J. Barbera, Lecturer and Director at the Center for Financial Economics at the Johns Hopkins University
Why Cryptocurrencies are so volatile?
All three of our experts emphasized that these losses are historic, substantial, and across the board in the crypto space.
“It’s falling through the floor is what’s happening,” said Allen. “Prices on all kinds of crypto assets are tanking.”
Our experts pointed out that cryptocurrencies are by their very nature volatile because the value is based solely on what investors believe others will pay for it.
“The prices of cryptos have always been volatile,” said Angel. “They’ll always be volatile because it’s very difficult to figure out the fundamental value of any of these various crypto tokens.”https://from.tegna-media.com/tgna/highimpact_test/9019125/output/web/V1/R0/index_750x191.html?refId=jdx1gygp0808l3i8hf4f&clickUrl=&clickmacro=https://adclick.g.doubleclick.net/pcs/click%3Fxai%3DAKAOjstyHVGYci3xeFJK7ZQlEUj91OWJcweOMOIOzSPuYkafJ9v7lPSFXkzZoOq20f_8vSdOSNR1LfrghFheGWrVB9clrdvY5OEA9tF1x9ORCpbw3N6cZgiduZs5tBlJJKNOHtzpXfFgWVVKNw8sKRrchA2gaJRfp7Wam2NhNdU3uIbmiFfBMQyk1vpPXHYZwK7GhPeU86y4ZkNbB1mjurqEAezk5eFC66TCh25-PkP8FHHCT6eHvaUBzOvCEXquPfcpDPp-SFn5W78iHgLa1CvT2EVVr7Cr4EUXUWsX3Xi4maWOU-rMM7t-15KaRxEMN0XCW7iDRRRX5WlYtnY2sOMUkdUSx0fvPd0WEOwi_Js6UyjWTSD7zdBaOW-3CQ%26sig%3DCg0ArKJSzGcjycuuLxrKEAE%26fbs_aeid%3D%5Bgw_fbsaeid%5D%26urlfix%3D1%26adurl%3D&lId=5991658066&cId=138394547344&oId=3015475141&referer=https://www.wusa9.com/article/news/verify/whats-going-on-with-cryptocurrecy-why-have-prices-crashed-bitcoin-ethereum-blockchain-celsius-binance/65-74447173-92bd-4685-9bb2-f8b82dee2f6d&uniqid=&load_time=1655815950978
This volatility makes investments in cryptocurrencies highly speculative and risky, said Barbera.
“It can go to a billion or it can go to a penny,” he said. “And there’s nothing about that price that means anything.”
Why the recent drop?
Our experts said that it’s difficult to single out one reason why the market is selling off Bitcoin at such a drastic level. However, they all are in agreement that the rising interest rates are a big factor.
“The Federal Reserve is increasing interest rates,” said Allen. “Which is tightening the amount of money in the financial system. And so people are abandoning riskier investments in general.”
Barbera said that he believes these rising interest rates will push more investors away from risky assets like cryptocurrencies.
“You do spectacularly well when money’s easy and things are going up,” he said. “And it’s pretty breathtaking in the reverse.”
Angel pointed out that prices are dropping in the stock market as well, as market confidence has been on the decline.
“The prices of all financial markets have been dropping,” he said. “And the actual markets have always been volatile. They’ll always be volatile because their values based on what people expect is going to happen in the future. And nobody really knows what’s going to happen in the future. So the crowd can change its mind in a heartbeat, and usually does.”
What’s happening with Celsius and Binance?
Amid the major cryptocurrency sell-off, some announcements from crypto lenders and exchanges have added to the confusion for some investors.
Celsius, a cryptocurrency lender, announced on Monday that they were “pausing all withdrawals, swaps, and transfers between accounts” due to “extreme market conditions.”
The company said that this action was being taken to “stabilize liquidity and operations while we take steps to preserve and protect assets.”
Angel explained what likely caused this action.
“What they’re basically saying is there’s been a run on the bank,” he said. “We don’t have the ability to honor the withdrawals, and therefore we’re not going to let anybody withdraw.”
Binance, the major cryptocurrency exchange, also had to temporarily pause withdrawals of Bitcoin on Monday due to a “stuck transaction causing a backlog.” Binance reported that this problem was resolved just hours later.
Extreme fear has dominated the bitcoin landscape for over the month and a metric is down to its lowest position in years.
Amid the ongoing massacre in the cryptocurrency market, the popular Bitcoin Fear and Greed Index has plummeted deep into an “extreme fear” state. In fact, the metric is at its lowest position since the COVID-19 crash.
Extreme Fear Becomes the New Norm
The crypto markets took a massive turn for the worse starting at the end of March. At that time, bitcoin was riding high, close to $50,000, and the community wondered if it will be able to breach that level and even head for a new ATH.
However, that was not the case, and BTC entered its longest negative streak. The cryptocurrency closed the next nine weekly candles in the red and lost over $20,000 in value in the meantime.
It remained around $30,000 for a while but started plummeting last Friday again. The weekend brought more pain, and so did the start of this week. As a result, bitcoin nosedived to just over $20,000 earlier today, which became its lowest price position since December 2020.
Somewhat expectedly, this predominantly bearish trend resulted in a massive shift in investors’ beliefs and overview of the market. This is best presented by the Bitcoin Fear and Greed Index – a metric determining the overall sentiments by gauging different sorts of data, such as volatility, surveys, social media comments, and more.
It displays the end results from 0 (extreme fear) to 100 (extreme greed). Ever since the start of May, the Index has been deep inside “extreme fear.” The past few days saw another decline in the metric, which now shows 7 – the lowest position since the COVID-19 pandemic.
Down to $13K or Bounce-Off?
Whenever such extreme price volatility hits the market, analysts rush to provide their predictions on what will transpire next. By basing his forecast on a double top that BTC formed recently, the veteran derivatives trader Peter Brandt said bitcoin is poised to drop even further, indicating a short-term bottom of just over $13,000.
In contrast, another popular analyst – Will Clemente – sees this crash as a buying opportunity since the dormancy flow metric dumped to its lowest point ever. It describes the average number of days that each spent coin had remained dormant before finally moving.
As the chart below shows, once the metric goes down, BTC tends to bounce off in the short- to mid-term.
Jordan got into crypto in 2016 by trading and investing. He began writing about blockchain technology in 2017. He has managed numerous crypto-related projects and is passionate about all things blockchain. Contact Jordan: LinkedIn
As the crypto market crumbled this year, short-term speculators were among the first to dump their holdings. Now mounting losses have even some of the most steadfast investors looking like they’re bailing out.
A measure called the spent output profit ratio, which tracks how much profit has been realized from market activity in digital currencies on a blockchain on any given day, has declined to its lowest level in a year, according to Glassnode data.
The vanishing gains suggest long-term owners are coming under pressure, a potentially worrying sign for a market known for its hodlers — the staunch and stalwart base of backers who would ride out any slump no matter what.
“The thought was not to worry, the long-term investors are holding strong,” Noelle Acheson, head of market insights at Genesis Global Trading, said in an interview. “Well, we’ve started to see the long-term holders sell as well. According to on-chain data, some of them seem to be panic selling, exiting at below cost.”
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The spent output profit ratio offers a clue on sentiment and profitability over a given time frame and reflects the degree of realized gains for all coins moved on the chain, according to Glassnode. It shows an average and doesn’t necessarily mean all long-term holders are selling, nor that all those offloading are doing so at a loss. But it’s another point of concern for a market that’s endured a number of setbacks, with few evident catalysts to help it reverse course.
Digital assets have been selling off all year along with other risky holdings as global central banks have shifted to hiking interest rates to quell soaring inflation. Bitcoin is down roughly 50% this year, and Ether has slumped 70%. An index of 100 of the largest coins was down more than 60% this year through Friday.
The latest strains for cryptocurrencies have emerged from the lending space, where high-profile companies like Celsius Network and Babel Finance have frozen withdrawals. Meanwhile, a tweet by Three Arrows Capital, a major crypto hedge fund, raised concern about possible financial troubles at the firm, adding to the sense of broadening distress.
“I am so, so glad that that is being flushed out as we speak — that needed to break, that needed to be out of the system,” Anastasia Amoroso, chief investment strategist at iCapital, said on Bloomberg’s “What Goes Up” podcast about the speculative froth getting wrung out of the system.
Because crypto has such strong proponents backing it, market-watchers have been obsessed with figuring out who’s getting hurt and abandoning investments in this year’s bear market.
Short-term retail holders who had bought over the past year and a half faced an early test as Bitcoin fell to the lowest levels since 2020. Then strategists at Glassnode said this month that the downturn had entered its “deepest and darkest” phase, with even long-term holders coming under duress.
Overall, the crypto market has shed more than $1 trillion in value this year. Some smaller coins have declined 90%.
“The most stunning feature of this bear market in crypto is its monotonic relentlessness — there is no sneaky underlying bull narrative to catch the market short,” said Brent Donnelly, president of Spectra Markets. “What was once a massive flood of FOMO money trying to get in is now an equally raging torrent the other way.”
China’s recent lockdowns to control the spread of COVID-19 have made Apple Inc (AAPL.O) iPhone assembler Pegatron Corp (4938.TW) “emphasise” its expansion in other countries, a senior executive at the Taiwanese firm said on Wednesday.
In April, Taiwan-headquartered Pegatron suspended operations at its Shanghai and Kunshan plants in China due to strict COVID-19 protocols, impacting production and deliveries. China has since lifted those restrictions.
However, the company is still facing labour shortages, exacerbated by COVID restrictions in China, leading the company to “emphasise” its expansion plans elsewhere, President Liao Syh-jang told an annual shareholder meeting in Taipei.
“We faced COVID controls for two months. We couldn’t have assessed that in advance, so that makes me emphasise our expansions in Vietnam, India, Indonesia, and North America, to solve our labour shortage, the gap between peak and low seasons, and to increase the utilisation of our production capacity.”
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In recent years, Pegatron has sought to expand its footprint in Southeast Asia and North America.
Chairman T.H. Tung added that their customers had “different reasons” for setting up factories in Vietnam, India and Mexico.
“But one shared factor is the ability to reduce concentration in Shanghai, Suzhou, Chongqing,” Tung said, adding that recruiting staff in China has become increasingly difficult over the past seven to eight years.
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Tung said that with the COVID pandemic easing globally, China coming out of its lockdowns to control the coronavirus and the electronics industry’s peak season coming later in the year, the rest of 2022 should be much better for the company.
“Combining these factors, I expect the second half of the year to be better, or a lot better, than quarter two.”
Taiwanese firm Foxconn (2317.TW), the world’s largest contract electronics maker which also assembles iPhones, last month predicted more stable supply in the second half of 2022.
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On June 2, 2022, the New York Legislature passed a bill, S6486D, that would place a two-year moratorium on certain new cryptocurrency mining operations at fossil fuel energy plants in New York. The bill would also limit circumstances in which mining operations currently operating at plants in New York would be able to renew the permits or registrations that allow them to operate. However, the bill would not immediately require existing mining operations to cease, and the bill will not become effective unless it is signed by New York Governor Kathy Hochul.
Behind-the-Meter, Proof-of-Work Mining The bill would only apply to so-called “behind-the-meter” plants that power mining operations—those that supply electricity directly to an on-site user without going through the electric grid. This would cover, for example, cryptocurrency mining operations that acquire energy generation plants and operate those plants to power their mining operations.
The bill would also only apply to proof-of-work operations, which it defines as “a consensus algorithm in a blockchain network used to confirm and produce new blocks to the chain to validate a cryptocurrency transaction, where competitors complete new blocks and where the algorithm changes the complexity of the competition in a manner that is designed to and/or results in increased energy usage for each competitor when the complexity is increased.” Proof-of-work, together with proof-of-stake, are the two major consensus mechanisms used to verify cryptocurrency transactions. (Proof-of-work is the means by which Bitcoin is mined and. requires significant energy output.)
A Moratorium on New Facilities and Renewals The bill would add a new section to the New York Environmental Conservation Law, which is administered by the New York Department of Environmental Conservation (DEC). DEC is responsible for New York’s air pollution control permit and registration program; facilities that generate air pollution must first obtain and then maintain a DEC permit or registration.
The bill would temporarily prohibit DEC from issuing new permits or registrations to fossil fuel-based electric generating facilities that supply behind-the-meter energy to cryptocurrency mining operations that use proof-of-work authentication methods to validate blockchain transactions. The bill would also prohibit DEC from renewing air permits or registrations for such facilities if the renewal application seeks to increase or would allow or result in an increase in the amount of electric energy consumed or utilized by the cryptocurrency mining operation.
The bill would not immediately impact existing facilities, which could continue to operate. Existing facilities could also renew their permits if they do not seek to increase the energy consumed by the mining operation.
Making an (Environmental Impact) Statement The bill would also require DEC to prepare an environmental impact statement on cryptocurrency mining operations that use proof-of-work authentication methods to validate blockchain transactions. The bill would require DEC to address a series of issues in the environmental impact statement, including the amount of energy consumed by mining operations, the impact of mining operations on greenhouse emissions, and potential social and economic costs and benefits of mining operations.
Once prepared, the environmental impact statement would be posted to DEC’s website and be subject to a 120-day public comment period. DEC would also be required to host a series of public hearings across New York. Following the comment period and public hearings, DEC would be required to issue a final generic environmental impact statement within one year of the effective date of the bill. Although this final statement would not have an enforceable legal effect, it could serve as the basis for additional legislation and policy proposals. Presumably, the bill’s requirement that DEC publish a final statement within one year of the bill’s effective date was designed to give policy makers an opportunity to act prior to expiration of the two-year moratorium.
Outlook The bill would take effect immediately upon signature by Gov. Hochul. However, the governor must still sign the bill before it will become law and as of the date of this post the governor has not committed one way or the other on whether she will sign the bill. Indeed, although the legislature has passed this bill, the legislature has not delivered the bill to Gov. Hochul for her consideration, and the legislature has frequently waited several months to formally deliver bills to the governor for signature or veto. The ultimate fate of the bill therefore remains uncertain.
CryptoPunks’ average selling price is about $177,420, per DappRadar, while Meebits sell for an average of $16,100. So the deal is likely worth more than $100 million, just considering the price of the valuable NFTs Yuga received. Yuga will also own the CryptoPunks and Meebit brands and logos, which it could potentially use in marketing and merchandising.
The expectation is that Yuga — known as one of the savviest marketers of NFT brands — could help build CryptoPunks and Meebits into even bigger brands, perhaps with some of the characters debuting in games or on luxury goods. Yuga recently struck a deal with Animoca Brands to develop a game using BAYC characters. Owners of BAYC get access to exclusive merchandise and exclusive events.
“What we don’t plan to do is shoehorn these NFT collections into the ‘club’ model we’ve developed for BAYC,” Yuga’s team said in a blog post. “We’re not in a rush here. We’ll be listening to the community before we decide what comes next.”
In some cases, as with CryptoPunks or Bored Apes, ownership can lead to more career opportunities or respect online than in the physical world. It can be viewed as a sort of “flex,” as Gmoney, a notable NFT collector and figure within the space, calls it. That’s why he spent six figures on his CryptoPunk NFT No. 8219, he tweeted in January 2021. “With a NFT, by posting it as my avatar on Twitter and Discord, I can quickly ‘flex’ with a picture.”
“Ownership and authenticity can be quickly verified online,” Gmoney said. “It has the same effect as wearing that Rolex in real life, but digitally.”
Mahtab could relate: When buying his BAYC NFT, “I was struggling to plan my future and did not know how I would meet rent, [and] this NFT paved the way for me for so many opportunities in the digital and real world,” he said.
As part of the acquisition, Yuga said it will transfer commercial and exclusive licensing rights to individual NFT holders for free.
Meebits is the top NFT collection by lifetime volume, having facilitated $7.54 billion in sales, per tracker DappRadar. CryptoPunks comes in third, with $4.2 billion in lifetime sales, while BAYC is in fifth place at $1.4 billion, per DappRadar.
The acquisition comes as the NFT market cools, with total daily sales nosediving in recent weeks and average selling price declining as well. Concerns about an easing of pandemic-era stimulus and geopolitical tensions have weighed on the crypto market.
Yuga was founded in 2021 by four friends, who decided to build a community around ape NFTs, according to the company.
“To us, NFTs are not about art or even money, they’re about culture,” Yuga Labs said in a recent emailed response. “We believe NFTs are a key that can open the door to incredible utility and a community of people you might not have met otherwise, who are pushing out the frontier of the internet.”
ASIC. An acronym that stands for an application-specific integrated circuit. An ASIC is a powerful and expensive computing device used for mining cryptocurrency. (See mining.)
Bitcoin (BTC). The original, largest and best-known cryptocurrency.
Buy the dip. An investing strategy involves buying an asset when its price has fallen to reap the benefits when its price rises again.
Blockchain. The underlying technology is used by nearly all cryptocurrencies. A blockchain is essentially a complete ledger of transactions held simultaneously by multiple nodes on a network.
Coin. A colloquial term for a cryptocurrency. (See altcoin and meme coin.)
Cold wallet. A physical storage device such as a flash drive, hard drive or “solid state” drive used to store cryptocurrency offline.
Cryptocurrency. A digital asset that can be used as a store of value or a medium of exchange for goods and services. Transactions are verified and recorded using cryptography by a distributed network of participants, rather than a centralized authority such as a bank or government agency.
Cryptography. A method of keeping information secret and secure by scrambling it into indecipherable codes. The information can only be decrypted and read with the necessary key.
dApp. Short for decentralized application, a dApp is an app that isn’t controlled by a central authority. Twitter is an example of a centralized app, with users relying on it as an intermediary to send and receive messages. A dApp is distributed on a blockchain, allowing users to send and receive data directly without an intermediary.
DeFi. Short for decentralized finance. Finance is traditionally centralized because it relies on trusted intermediaries. For example, if you want to send money to a friend or relative, you rely on your bank to send it to the recipient’s bank. DeFi, on the other hand, requires no intermediaries. Participants can send and receive assets directly. In theory, this makes transactions faster and cheaper.
DAO. An acronym that stands for a decentralized autonomous organization. A DAO is a group of people who work together toward a shared goal and abide by rules written into the project’s self-executing computer code. Bitcoin (the project, not the currency) is the earliest example of a DAO.
Distributed ledger. In traditional finance, an organization such as a bank holds a ledger of all its customers’ transactions. Distributed ledges use nodes, or independent computers, to record, share, synchronize transactions on the electronic ledger. A blockchain is a type of distributed ledger.
Double spend. If you spend $5 in cash to pay for a sandwich, you no longer own the $5 and cannot spend it a second time. Even with digital transactions, centralized authorities, such as banks, only permit people to spend their money one time. With decentralized financial tokens like cryptocurrencies, a single coin could be copied 100 times and spent 100 times. Blockchain helps solve and prevent this double-spend problem.
Exchange. A website or app that allows users to buy and sell crypto assets.
Ether (ETH). The native cryptocurrency token of the Ethereum platform
Ethereum. The second-biggest cryptocurrency by market capitalization after Bitcoin.
Encryption. The process of making digital information into a form that prevents unauthorized access. If you use a password to access a website, the site should be encrypting it so that it is of no use to hackers if stolen.
Fiat currency. Traditional currencies are backed by the full faith and credit of a nation state. The U.S. dollar, the euro or the British pound are fiat currencies.
Fork. The process by which the community that runs an individual cryptocurrency makes a change to the blockchain’s governing protocols. The change marks a major departure—a fork, if you will—from the previous iteration of the blockchain. Soft forks typically involve a change in the software protocol, but one that is backwards-compatible. Hard forks are significant enough to require all nodes to upgrade to the latest version.
Gas. Transactions on the Ethereum network carry a fee. For every transaction, users must pay an amount of the native Ethereum currency, Ether (ETH). This fee is referred to as gas. Gas is used to reward Ethereum validators for the energy they use clearing transactions. Gas also serves as a deterrent against malicious use of the blockchain.
Graphics card. Verifying transactions on a blockchain via proof of work involves solving cryptographic puzzles. Solving these puzzles may require significant computing power, which in turn may consume substantial amounts of power. High-end graphics cards used in PC gaming have the processing power needed to validate transactions.
Hash. A hash is the result of a piece of data being put through a special hashing algorithm. It compresses data into a nearly unique alphanumeric string of text. This is important in cryptocurrency because a blockchain is an immutable record of transactions, and hashing can uncover attempts to illegitimately alter or change data.
Hot wallet. A form of online storage for cryptocurrencies, provided either by an exchange or a third party. Since storage is online and accessed with passwords, hot wallets are typically a target for hackers. However, hot wallet operators can help users regain access to their assets if they lose their access codes.
ICO. An acronym that stands for initial coin offering. An ICO is the cryptocurrency equivalent of an initial public offering (IPO). It offers investors the opportunity to back a new crypto project.
Jager. The smallest denomination of Binance Coin (BNB).
Know Your Customer (KYC). Although not required, many crypto exchanges carry out certain identity checks on their customers under KYC rules.
Ledger. A record of transactions maintained by both centralized financial institutions and decentralized finance applications. Data for each transaction entered into a ledger may include times, dates, senders and recipients.
Market capitalization. Also written as market cap, this is the total market value of a cryptocurrency. At the time of writing, all cryptocurrencies had a combined market cap of slightly less than $1 trillion.
Mining. Crypto mining is the process of verifying transactions via a proof of work consensus mechanism. Mining involves using computer hardware to solve a hash with trillions of possible combinations. The more computing power you have, the more guesses you can make within each given window of time, and the greater your chances of earning newly minted crypto.
Meme coin. An altcoin based on a meme, a kind of inside joke in the form of an image repeatedly altered and shared online. Dogecoin is an example of a meme coin.
Node. A computer or device connected to other computers or devices that all hold a copy of a blockchain. Each node supports the broader network by sharing information and validating transactions.
NFT. An acronym that stands for a non-fungible token, a digital collectible that uses the same underlying technology as cryptocurrencies.
On-chain. A transaction that occurs on a blockchain, reflected on the distributed, public ledger.
On-ledger currency. A cryptocurrency that is minted by and used on a blockchain ledger, such as Bitcoin.
Orphan block. A block that has been solved but not accepted by the network and isn’t added to the blockchain. Sometimes these blocks are referred to as “stale blocks.”
P2P. Short for peer-to-peer. Refers to a transaction between two people without an intermediary or central authority involved.
Private key. Also known as a secret key, this is essentially the encrypted password to someone’s crypto holdings. It’s an impossibly long number that’s practically impossible to guess. You authorize a transaction by signing it with your private key. Private keys can be used to access and manage your crypto assets.
Public key. The public-facing address of your crypto wallet. To receive funds into your account, you have to share your public key. Each public key pairs with a private key, and the private key is only known, in theory, to that user.
Proof of work. Commonly written as PoW, this is a consensus mechanism employed by many blockchains to prove that miners have done the computational work to guess the 64-character hash necessary to add a block to the blockchain. Broadcasting the solution allows other nodes to quickly verify that your hash is correct and that you have carried out the work required to get it.
Proof of stake. Commonly written as PoS, this is a consensus mechanism employed by some blockchains that requires verifiers to lock up, or stake, a certain amount of cryptocurrency to earn a chance to add new blocks to a blockchain. The more coins you stake, the better your chances of becoming a validator. Should you spend your way into the position to deliberately approve a fraudulent transaction, you risk losing your stake, providing a strong disincentive to cheat.
Quantum computing. A computer science field that uses principles of quantum physics to process much larger data sets at much greater speeds than traditional computing methods.
Regulated. A market in which players must follow certain rules of risk fines and/or the loss of their operating licenses.
Satoshi. The smallest unit in Bitcoin (BTC). For example, 1 satoshi is equivalent to 0.00000001 BTC, a fraction of a penny.
Smart contract. A program that executes itself on a blockchain when certain conditions are met, without the need for human intervention or an intermediary. Once completed, the contract cannot be changed or undone.
SHA-256. A hashing algorithm that compresses data into an alphanumeric string that cannot be reverse engineered, keeping the original data secret and secure while being useful for validating input data. It was partly developed by the U.S. National Security Agency (NSA), and is used by Bitcoin.
Seed. A random series of 12 to 24 words generated by your crypto wallet and used to gain access to it.
Stablecoin. A cryptocurrency that aims to maintain a fixed, unchanging market value that is pegged to another currency, commodity or financial instrument. As of this writing, the biggest stablecoins are Tether and USD Coin.
Tether (USDC). A stablecoin that is pegged 1-to-1 with the U.S. dollar.
Terahash. The rate at which a computer or network can guess one trillion hashes per second when mining for cryptocurrency.
Token. An individual cryptocurrency. Specifically, it’s a way to refer to a crypto that runs on a particular blockchain. For example, XRP is a token on the Ripple blockchain.
USD Coin (USDC). A stablecoin that is pegged 1-to-1 with the U.S. dollar.
Volume. The total amount of currency being traded in the open market at any given moment. In cryptocurrency markets, volume is typically referenced to in a 24-hour period.
Validator. Someone who pays for the chance to validate transactions and earn crypto on a proof of stake blockchain.
Volatility. A market condition in which prices frequently and unpredictably rise and fall.
Wallet. A digital storage device or location for keeping crypto assets secure. Wallets can be online (see hot wallet) or offline (see cold wallet).
Wei. The smallest denomination of ether. For instance, 1 ETH is the equivalent of 1,000,000,000,000,000,000 wei.
Whitepaper. A technical document released alongside new crypto projects that explains how the system works.
XRP. A cryptocurrency token that runs on the Ripple blockchain.
Yield. A return on investment, expressed as a percentage.
Zero confirmation. A transaction that has yet to be confirmed on the blockchain, and therefore, isn’t part of the the blockchain yet.
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Beyond the wider adoption of cryptocurrencies by consumers in recent years, companies and organizations have also shown increased interest in crypto-assets in the past year. A myriad of industries, from sports to fashion to art to videogames to music, are entering NFTs, which, depending on the marketplace, may be minted on a PoW or PoS blockchain. Financial institutions are exploring how to compete with decentralized finance products by offering services on blockchains to provide more security and less friction in an effort toward safer and faster transactions. Depending on how such platforms are structured, such services will also be on a PoW or PoS network. This increase in investments in blockchain-based products and services by numerous and varying shareholders has resulted in increased due diligence on how much investments are complying with ESG mandates. Corporate balance sheets are increasingly filled with cryptocurrencies, presumably as an inflation hedge or broad investment strategy, potentially impacting their ESG practices. At least one financial firm has announced that employers may soon have the option to offer workers the option to place a portion of 401(k) retirement savings in Bitcoin. Also, potential ESG issues can arise not only when investing in a cryptominer or in cryptocurrencies verified with a PoW consensus mechanism, but also with an investment in an exchange that transacts in certain energy-intensive cryptocurrencies.
Simply put, with the increased use of these types of emerging technologies, ESG concerns are likely to arise. It remains to be seen how such emerging technologies will balance innovation, while complying with ESG issues.
Focusing on the E in ESG, environmental risks arising from cryptocurrency exposure include, but are not limited to, greenhouse gas emissions from energy usage. Of course, not all crypto investing involves Bitcoin and can encompass less energy-intensive blockchains. Furthermore, some tokens and DeFi projects have attempted to strike a more eco-friendly pose by purchasing carbon offsets to help make their validator networks move toward a carbon neutral goal.
As heard at this Congressional hearing on the energy impacts of blockchains back in January, it was argued that cryptocurrencies, in certain instances, can spur clean energy investment in the U.S. For instance, solar and wind can be challenging sources of energy due to their inherent unpredictability –sometimes the sun shines and the wind blows with varying intensities, or not at all. So, depending on the weather, there can be too much energy or not enough. As previously discussed, in Part I, miners can use this excess curtailed energy that may otherwise go to waste if there is a lack of adequate battery storage, thereby providing much needed capital to green energy providers, essentially subsidizing clean energy capacity.
Stranded natural gas and other fossil fuels are also problematic because the stranded energy is flared, or burned and released into the atmosphere for disposal, contributing to air pollution and lost potential revenue. It has been reported that global flare gas recovery potential is eight times larger than the Bitcoin network’s usage in 2021, according to a separate study by The University of Cambridge. ESG investment may incentivize nomadic Bitcoin miners to use stranded natural gas so the gas, and carbon, is not directly released into the atmosphere through combustion. ESG-minded investors could also invest, with an eye toward driving out “dirty” mining, by disincentivizing the rehabilitation of coal-powered plants. To be sure, investments in blockchain technologies do not necessarily mean that funds are flowing to energy-intensive PoW networks. To this end, some states like New York, are considering stimulating the push away from energy-intensive cryptomining. Recently, the New York legislature passed a bill (S6486D) that would, among other things, put in place a two-year moratorium on the approval of any new carbon-powered PoW mine and by preventing miners from renewing their permits if their facility uses carbon sourced energy and the mine seeks to increase its energy consumption (New York Gov. Kathy Hochul has not yet indicated whether she will sign the bill).
Much attention is paid to the “E” in ESG, but let’s not forget the “S” and “G.” Some fund managers argue cryptocurrency and mining are not ESG compliant [log-in required] due to their intensive energy consumption; on the other hand, others argue that the nascent technology will continue to decarbonize while providing social and governance benefits. Cryptocurrency is seen as a potential solution to banking the un- and underbanked because anyone can access cryptocurrencies with a phone or laptop and internet connection. Moreover, some cryptocurrencies offer lower transaction fees than traditional centralized coordinated transfers allowing systems to be stood up cheaply and quickly to provide greater financial inclusion. NFTs may prove to provide artists a means to control their works and provide additional revenue streams. ESG investors also have an opportunity to advocate for increased gender and racial inclusion with regard to the hiring and retention practices of cryptocurrency companies to fulfill their Governance mission.
Ultimately, there is room for growth on all ESG fronts in the cryptocurrency space, and it remains to be seen how ESG investing objectives will impact cryptomining and how future blockchain platforms will be less power intensive per transaction. As cryptocurrencies and blockchains continue to be a focus among institutional investors and government regulators, the development of new technologies is expected in parallel. ESG objectives can ideally make a positive impact and shape emerging, world-changing, technology and its related industry.