Analytics

The Bitcoin Crash Provided a Rare Glimpse inside the Heart of the Crypto Industry

The aftershock of Bitcoin’s heavy selling provided a glimpse into how different companies reacted to the market volatility. Following numerous predictions for imminent selling in Bitcoin and Ethereum, BTC nosedived to around $19,000.

The panic that gripped the cryptocurrency markets provided some interesting insights into the industry.

It has been estimated that in order for bitcoin miners to remain profitable, Bitcoin must trade at $21,000 the very least. As the price broke below $20,000 not long ago, there was an effort by key figures in the financial sector (such as Bank of England Governor Andrew Bailey) to intensify the selling.

The majority of central banks are against cryptocurrencies in their current form. They are nevertheless appreciate the blockchain technology and CBDCs (Central Bank Digital Currency) are being tested.

It was recently announced that the Bank of Israel is testing CBDCs with Hong Kong’s central bank. The project will be in the form of a two-tiered system, scheduled to begin in Q3 2022.

The panic that gripped several firms in industry is truly mind blowing.

Bitcoin Miners Panic

Due to the large drop in Bitcoin, BTC miners decided to scale bank on their operations. One of the indicators that reflects reduced activity from bitcoin miners is BTC hash rate.

source: blockchain.com

The most recent decline in Bitcoin’s hash rate displays how bitcoin miners cut back o their operations. GPU prices were also slashed due to the bear crypto market.

Tom’sHardware reported the RTX 3080 that was sold for at least $1,000 is listed in eBany for less than $650. Different sellers listed four RTX 3080s for $2,500, approximately $418 for each one.

Bitcoin miners that experienced a drop in their mining income began panicking and tried salvaging their investment by selling their equipment as soon as possible.

source: tom’sHardware

There may be some correlation between GPU prices and the crypto markets as GPU powers up the blockchain. The correlation may become thinner over time as crypto markets continue to evolve.

Jaime Leverton, chief executive of Hut 8 said: “Companies that have been thoughtfully planning for the downturn for some time are likely to weather this period, but many have acted with impulse at the height of the market, and may be stretched and underfunded in the coming months.”

Hut 8 Mining Corp. is among the top biggest crypto miners in the industry, focusing on Bitcoin and Ethereum. Hut 8 set aside 7,078 BTC according to some reports that may be used for acquisitions.

Some are expecting takeover deals to take place within the year.

Bitfarms Liquidated Almost 50% Of Its BTC

Bitfarms released a statement on its website that it sold almost 50% of its BTC holdings (3,000 Bitcoin for approximately $62 million). Jeff Lucas, CFO of Bitfarms said: “In consideration of extreme volatility in the markets, we have continued to take action to enhance liquidity and to de-leverage and strengthen our balance sheet.

“Specifically, we sold 1,500 more Bitcoin and are no longer HODLing all our daily BTC production.

“While we remain bullish on long-term BTC price appreciation, this strategic change enables us to focus on our top priorities of maintaining our world-class mining operations and continuing to grow our business in anticipation of improved mining economics.

“Since January 2021, we have been funding operations and growth through various financing measures. We believe that selling a portion of our BTC holdings and daily production as a source of liquidity is the best and least expensive method in the current market environment.”

Full statement

It is worth adding that Bitfarms used some of the capital from liquidating BTC to pay Galaxy Digital for the $100 million (approx.) loan it took.

‘A substantial decrease in Bitcoin price may result in the Company being unable to meet the minimum Bitcoin collateral requirements, which could result in the disposition of the Company’s Bitcoin pledged as collateral by the Facility Lender, or repayment of the facility in fiat currency on demand.’

Google Organic Search for Bitcoin Spikes

As organic search for Bitcoin has been dwindling over the past couple of months, the crypto crash injected renewed interest in Bitcoin. Organic search for ‘Bitcoin’ reached 100/100 on google trends.

source: google trends

El Salvador, Netherlands, Nigeria, Switzerland, Austria and Turkey are among the top countries that searched for Bitcoin. Organic search tends to increase during firm price movements.

In this instance, investors may experience Fear of Missing Out (FOMO) due to BTC and ETH rebounding off their lows.

Crypto Winter, Job Layoffs

The fear of a chilly crypto winter made several crypto exchanges to act as a precaution. Coinbase announced that will cut 18% of its global workforce, which is approximately 1,100 jobs.

The crypto exchange is expected to have around 5,000 employees by the end of June 2022. Coinbase also reported it saw a decline of 19% in its active monthly users in Q1 2022 due to a rapid decline in cryptocurrencies’ prices.

Vauld, a cryptocurrency exchange backed by Coinbase in Singapore announced it is cutting its workforce by 30%. Most of Valud’s employees are based in India. Darshan Bathija, Co-Founder and CEO at Vauld wrote a post in the company’s blog that ‘Vauld continues to operate as usual despite volatile market conditions.’

Bathija also highlighted that the exchange has no exposure to Celsius or Three Arrows Capital and ‘all withdrawals were processed as usual and this will continue to be the case in the future.’

Valud will also reduce marketing expenses and halve executive compensation. Gemini is also skimming 10% of its employees, Crypto.com to cut 5% of workforce.

source: bitcoinity

Bitcoin trading volumes are up on multiple exchanges including Kraken and Bitstamp. While some may argue that these are Bitcoin short liquidations, volumes remain firm during BTC bullish rebound (at the time of this writing).

Ether is also enjoying strong volumes across the exchanges. The layoffs may be related to recession fears in the US. Many companies (not related to cryptocurrencies / tokens) had reduced their staff.

During the 2008 Lehman Brothers crisis many turned to trading / investing in various financial products. Extraordinary volatility often unveils opportunities.

Although the cryptocurrency markets are still relatively new compared to stocks or forex, a similar concept may be applied.

Binance and Lbank affirmed that they are continuing to hire, ‘against the trend’ of reducing staff ahead of a potential recession. The effects of these announcements reassure investors that the exchanges are well-financed and are positioned to tackle hurdles that may occur.

It may also draw talent to these exchanges as opposed to others. It will be unsurprising if executive figures will depart from Coinbase and Gemini to join Binance or Lbank.

Crypto Ads Spending Cut

Following Bitcoin price drop from over $60,000 to $20,000 (approx.), crypto exchanges have dialed down their marketing spending. The Wallstreet Journal (WSJ) estimated that spending was cut by over 90% by the top crypto companies (including TV ads).

Crypto.com spending in May was $2.1 million compared to $15 million in November 2021. Gemini spending dropped to $478,000 in May from $3.8 compared to $3.8 million in November.

However, not all companies have trimmed their marketing budget. FTX estimated to have spent $5 million in May compared to $3 million in November.

It is quite surprising to see significant spending cuts. Bitcoin is appears to be presented as a ‘winning horse’ that only gains attraction when it ‘wins.’ When the horse is short of breath and underperforms, it is deemed as an unattractive.

The majority of investors are aware that a dip in a highly-valued asset may be an opportunity, which is backed by large BTC holders netflow.

source: intotheblock

It may be possible that well-capitalized companies are not slicing their spending budget. As long as the market remains volatile traders are likely to participate. However, when the price is held in a tight range, some may prefer to stake their holdings.

The Next ‘Hot’ Sector and Conclusions

Bitcoin miners need to learn from oil rigs companies how to act and prepare for price fluctuations. Hiring during a bear market may demonstrate the financial strength and stability of the company.

Interest in cryptocurrencies is highly correlated to price fluctuations. The next dominant sector that may rise over time in my opinion is the metaverse or more accurately metaverse real estate.

As the top cryptocurrencies weakened significantly, bargain hunters may attempt to increase their exposure to virtual real estate market.

source: google trends

Trading volumes are still firm despite the ‘crypto crash.’ In an event the US enters recession at the end of the year, Bitcoin may ‘de-peg’ from the US markets and claim a safe-haven status.

Hiring during a bear market may signal the strength of the company in its ability to withstand extreme market conditions. Chopping the marketing budget in a phase that may attract more traders/investors into the crypto markets may not achieve its goals.

The new GBP stablecoin may be available as soon as July.

Acquisitions may blossom. Gripped by panic, companies may offer their project for sale at a fairly competitive price. Uniswap Labs, a popular decentralized exchange (DEX) recently acquired Genie, an NFT marketplace aggregator. The size of the acquisition is undisclosed at the time of this writing.

USD trading volumes for NFT purchases dropped by more than 66 percent in the past 30 days. It increases the odds Genie was acquired at an attractive price should NFT volumes surge over the next 12 months.

The next major event aside central banks is the ETH merge (due in August) and ADA hard fork (postponed to the last week July). Tether announcing a new stablecoin that is pegged to GBP may also contribute to ETH as it will initially be available on the ETH Mainnet.

   

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