Cryptocurrency roundup: $100bn wiped off crypto market value in one day
It’s been an eventful week for cryptocurrencies, with roughly $100bn wiped off the market on Thursday. Saloni Sardana explains what happened, and rounds up the rest of the week's crypto news
It’s been an eventful week for cryptocurrencies, with roughly $100bn wiped off the market on Thursday.
So what happened?
Here are some of the top stories that caught our eye.
Crypto market loses $100bn in one day
A number of cryptocurrencies including ether, dogecoin, bitcoin and cardano fell on Thursday, mirroring the bearishness in global stockmarkets over concerns that the economic recovery may stall.
Asian markets were weaker as Chinese tech stocks in Hong Kong fell on fears of higher regulatory crackdowns, meanwhile US markets were weaker after the weekly initial jobless claims posted an unexpected rise in numbers.
Another factor is regulation. Cryptocurrencies, particularly the world’s largest, bitcoin, have long been battling rising regulatory crackdowns.
On Thursday, US senator Elizabeth Warren warned of the growing risks facing consumers due to the “highly opaque and volatile” cryptocurrency market, reports Reuters.
“While demand for cryptocurrencies and the use of cryptocurrency exchanges have sky-rocketed, the lack of common-sense regulations has left ordinary investors at the mercy of manipulators and fraudsters,” she said.
The Democratic senator, who also chairs the Senate Banking Committees’ subcommittee on economic policy, made her concerns in a letter addressed to Gary Wensler, chair of the Securities and Exchange Commission, the US financial regulator.
Warren set a deadline of 28 July for Gensler to reply to her concerns.
Ether’s hard fork will launch on 4 August
The Ethereum blockchain’s much anticipated London Update is set to kick in in less than a month. The “hard fork” – a network protocol change that converts previously invalid blocks to valid or vice versa – will launch on 4 August.
The update is considered to be a key part of the Ethereum 2.0 project, which aims to ditch Ethereum’s current “proof of work” protocol – the most popular method of verifying transactions on the blockchain and receiving consensus – to a “proof-of-stake system” by the end of 2021.
Proof-of-work uses a lot of energy. Proof-of-stake is considered more energy efficient and reduces the risk of attacks by miners on the network.
The London protocol update introduces five Ethereum Improvement Proposals (EIPs) (standards specifying new features being added to the blockchain). EIP-1559 is the most significant one.
At present, the fees for ether transactions (called “gas”) fluctuate wildly, and users could only guess how many tokens an ether transaction would use, which undermines the network’s efficiency.
But EIP-1559 also implements a fee-burning mechanism which will result in coins being permanently removed from ether’s total circulating supply. So this is controversial as it can create a hole in miners’ revenues. The aim of EIP-1559 Is to transform ether into a less inflationary cryptocurrency.
Another key provision is EIP-3554, which relates Ethereum’s “difficulty time bomb''. It has been delayed to 1 December.
The difficulty bomb means puzzles get more complicated over time, which in turn make it much harder for miners to solve them, and harder to earn rewards.
China asks a software maker to permanently shut down over allegedly getting involved with crypto
Beijing Qudao Cultural Development Co was ordered to shut down on Tuesday by China’s central bank.
The People’s Bank of China accuses the Beijing-headquartered company of participating in clandestine cryptocurrency transactions through the software services it provides.
The central bank said it took the decision to “prevent and control the risks of virtual currency transactions, and protect the people’s property safety.”
The move is the latest action China has been taking against its “war” on cryptocurrencies.
In recent months, the country has banned cryptocurrency mining and banned companies from participating in this space.
Goldman Sachs is betting on ether to surpass bitcoin as world’s cryptocurrency of choice
Ether also got a boost this week when US banking giant Goldman Sachs says the world’s second largest cryptocurrency will overtake bitcoin to become the world’s dominant cryptocurrency.
The bank said in a note: "Currently [it] looks like the cryptocurrency with the highest real use potential as Ethereum, the platform on which it is the native digital currency, is the most popular development platform for smart contract applications.”
However, as bullish as the bank is on the future of ether, it still doesn’t think either bitcoin or ether will ever replace gold as an inflation hedge.
Crypto enthusiasts have often cited cryptocurrencies’ ability to protect against rising prices as a key reason to buy them. Gold is traditionally considered one of the chief inflation hedges, and the bank thinks the precious metal will continue to be the top choice for investors looking to inflation-proof their portfolios.
Crypto Markets Update
Here’s what happened in the crypto market over the last seven days
- Bitcoin fell 2.6% to $32788
- Ether fell 1.7% to $2083
- Dogecoin fell 11% to $0.22
- Cardano fell 1.2% down to $1.33
- Binance Coin rose 5.9% to $308
What investors need to watch out for next week
Ether may face competition from Polygon
While ether is bracing for its London update, a little known segment of the market called Polygon is booming. And this may threaten ether’s success.
Polygon is a sidechain that supports Ethereum-based decentralised finance economies but in a much cheaper way. DeFi is estimated to be 100 times cheaper than using Ethereum.
The value of assets stored on Polygon has soared, reflected by a rising “total value locked” (TVL) figure. TVL has more than doubled from $4bn in May to $8.4bn at the end of June.
Growth of the polygon network may continue despite ether’s London update.
It is always worth paying attention to any regulatory announcements on cryptocurrencies. Crypto prices may remain volatile throughout July, ahead of the 28 July deadline by which the Senate Banking Committee’s subcommittee on economic policy has to respond to Warren’s concerns.