1. Market movements
Bitcoin posted a second consecutive positive close of the month in August, up + 13% for the month. Ethereum gained an even more impressive + 31% in August as demand for non-fungible tokens (NFTs) picked up again.
Equities (+ 3%) and US dollars (+ 0.7%) rose in August (+ 2-4%), while long-dated US bonds (-0.5%) and gold (-0.2%) gave in slightly.
Table 1: Price comparison: Bitcoin, Ethereum, gold, US stocks, long-term US treasuries, US dollars (% change)
As we discussed last month, the government is arguably the last remaining major investor category missing on Bitcoin’s incredible journey to becoming a new global reserve currency.
The introduction of Bitcoin as legal tender in El Salvador on Tuesday, along with El Salvador, which was the first government ever to announce an investment in Bitcoin, appears to have been a major catalyst in getting BTC back above 52,000 on September 6th US dollars climbed.
The crypto markets flash crash subsequently suffered on Tuesday, September 7th, as leveraged borrowing increased and crypto futures markets returned in excessive exuberance, resulting in a swift liquidation of speculative positions.
Looking ahead, perhaps the key question related to the outlook for crypto markets over the next few months is whether the latest fundamental drivers of crypto demand, including:
- Mainstream crypto introduction
- continued growing interest in NFTs and DeFi
- more states are following El Salvador’s lead in adopting Bitcoin as a currency reserve and legal tender
will offset some uncertain regulatory developments around several key crypto growth categories:
2. On-chain analysis
Every month we dive into on-chain data to explore interesting trends or movements in the Bitcoin network.
Overall, on-chain activity increased in August (Table 2).
Average daily fees continue to decrease from $ 4 / transaction to $ 2 / transaction. This trend has continued since May 2021.
Table 2: Network activity in August vs. July
One issue that we continue to monitor closely is the evolving bitcoin mining landscape after the crypto mining process in China from May to June.
Anecdotal reports and official announcements suggest that a very significant proportion of the crypto mining previously done in China has either moved outside of China or gone offline.
However, we are skeptical of claims that the Chinese authorities managed to get rid of all bitcoin mining in China.
In fact, we are seeing evidence that some large mining pools believed to include a very significant proportion of China-based miners, such as AntPool, have recently maintained or even increased their market share despite the Chinese crackdown on mining (Illustration 1).
Some mining analysts have tacitly estimated that up to 30% of pre-crackdown ASICs (crypto mining computing hardware) are either still operating in China or waiting to come back online after the Chinese regulatory heat has cooled .
Figure 1: AntPool has seen market share growth in mining despite China’s crackdown
3. What we read, hear and see.