Category: Cryptocurrency

Cryptocurrency

Why Solana’s Cryptocurrency Is Plummeting This Week – The…

What happened

Recent comments from the Federal Reserve have prompted a major sell-off for high-risk investments, and Solana (CRYPTO:SOL) has been impacted by the pullback. The blockchain network’s SOL cryptocurrency is down roughly 16.5% over the past week as of 4 p.m. ET on Friday, according to data from S&P Global Market Intelligence.

Transcripts of a Federal Reserve meeting held in mid-December were published on Wednesday, and the contents have riled the market and led to steep sell-offs for growth-dependent stocks and cryptocurrencies. In addition to significantly cutting back on bond purchases and raising interest rates, the Fed may also reduce its holdings in Treasury bonds and mortgage-backed securities, according to the recently published meeting transcripts. Add it all up and investors are looking at a much less favorable backdrop for growth stocks and cryptocurrencies. 

A dollar breaking into blocks.

Image source: Getty Images.

So what

Cryptocurrencies have sometimes been touted as a decentralized investment alternative that can offer protection from the whims of central banks and stock market volatility. However, recent trading suggests that digital tokens are hardly immune to macroeconomic pressures. While leading cryptocurrencies have produced stellar returns in recent years, the Fed’s recent comments pointing toward a more challenging environment for growth-focused and speculative investments have clearly created bearish pricing pressures. 

Now what

Even with the recent pullback, Solana’s cryptocurrency is still up roughly 6,870% over the past year of trading. The SOL token has skyrocketed thanks to speculative momentum and surging interest in the Solana blockchain ecosystem. Solana provides a network for executing smart contracts and building decentralized finance (DeFi) applications, and its rapid transaction speeds have helped it generate excitement among developers and investors.

For comparison, Ethereum‘s blockchain network is currently capable of handling roughly 13 transactions, but Solana can process up to 50,000 transactions per second. Ethereum still stands as the leading network for building cryptocurrencies and DeFi applications, and it sports a market cap of roughly $382 billion. Meanwhile, Solana now has a market capitalization of roughly $43.5 billion.

It’s possible that Solana’s SOL token will continue to climb if the underlying network continues to offer transaction processing advantages and attract engagement from developers, but investors should keep the token’s risk-reward dynamic in mind. The SOL token has already posted stellar gains, and the overall macroeconomic backdrop could create a more challenging backdrop for cryptocurrencies this year. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Cryptocurrency

Cryptocurrency Market Crash: Is Ethereum a Good Buy Now?…

Seasoned crypto investors have come to expect volatility. It’s the price of admission for participating in this emerging industry. That being said, it never feels good to lose money, and many popular cryptocurrencies have taken a beating recently. In fact, the crypto market as a whole has fallen 30% from its high in November 2021.

This is hardly the first time the market has crashed, and I doubt it will be the last. But every past downturn has been a buying opportunity. Ethereum (CRYPTO:ETH) remains the second most valuable cryptocurrency, but it currently trades 30% below its all-time high. Is now a good time to buy?

Here’s what you should know.

The most popular programmable blockchain

Ethereum is a programmable blockchain powered by the Ether token. Unlike the Bitcoin blockchain, which serves only as a ledger for electronic transactions, Ethereum also supports smart contracts (i.e., computer programs). That technology is the key to decentralized applications (dApps), software that exists on a peer-to-peer network rather than on the centralized servers of a corporate entity.

Like other software, dApps can be anything from social media and file storage solutions to decentralized finance (DeFi) products. More importantly, because dApps exist beyond the control of any single authority, they prevent censorship and protect user privacy. Additionally, DeFi products — dApps that allow users to borrow, save, and earn interest without banks or other institutions — make financial services more accessible and more efficient.

In 2015, Ethereum made its debut as the first programmable blockchain, and it has since parlayed that edge into a more substantial advantage. Today, the platform boasts over 2,900 dApps and $151 billion invested in DeFi products. Put another way, Ethereum accounts for 75% of all dApps and 62% of all DeFi investments, making it the most popular programmable blockchain by a wide margin.

A person sits at desk making notes beside two computer screens.

Image source: Getty Images.

A solution for the scalability problem

Unfortunately, that popularity has created a problem. As more users have transacted on the platform, network congestion has caused speeds to slow and fees to rise. Transaction fees have jumped 750% over the last six months. That problem points to a lack of scalability.

For context, Visa regularly processes 1,700 transactions per second (TPS), and its payments platform is theoretically capable of 24,000 TPS. By comparison, Ethereum can manage just 30 TPS. If left unchecked, that low throughput will continue to push fees higher, and eventually, Ethereum will fall out of favor due to its exorbitant fees.

Fortunately, the Ethereum 2.0 upgrade aims to solve that problem. First, it will change the energy-intensive proof-of-work consensus mechanism to the eco-friendly proof of stake (PoS) architecture. The PoS system selects validators to verify transactions based on their stake in the network, rather than pitting miners against each other based on computing power. This phase should take place in 2022.

Second, the upgrade process will add 64 shard chains to Ethereum. Think of these shard chains as additional blockchains connected to the core chain, distributing the network load more efficiently. And with a few additional tweaks, those shard chains could raise throughput to 100,000 TPS, thereby solving the scalability problem. This phase should arrive in 2023.

The investment thesis

While dApps and DeFi products are more efficient, they aren’t free. Users pay transaction fees to access the products, and those fees are paid in the native cryptocurrency. In the context of Ethereum, that means Ether tokens. In other words, as dApp and DeFi products on the Ethereum blockchain become more popular — an event that seems likely, in light of the benefits — demand for Ether should rise, pushing its price higher.

Additionally, a recent study from Nickel Digital Asset Management suggests that institutional investors are increasingly interested in the crypto space. The study predicts that 82% of institutional investors plan to increase exposure to digital assets by 2023. Given Ethereum’s popularity, I think it’s safe to assume those big money movers will add to the demand for Ether.

For these reasons, now looks like a good time to buy this cryptocurrency.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Cryptocurrency

GameStop reportedly has a whole unit working on NFTs…

Video game retailer and memestock darling GameStop is making a big bet on NFTs and cryptocurrency technology. According to a new report from The Wall Street Journal, the company has built up an over 20-person strong team working on an online marketplace for the virtual items, which could include cosmetic skins and in-game items.

The company is said to be courting game developers and publishers to list NFTs on its marketplace, and hopes to ink deals with crypto companies to develop the underlying technology and help invest in games featuring NFT and blockchain tech. In total, the WSJ reports that GameStop’s investments in crypto could stretch into the tens of millions, and involve agreements made with over a dozen other companies.

A spokesperson for GameStop did not immediately respond to The Verge’s request for comment.

The plans are thought to be part of GameStop’s attempt to turnaround its business, which has been rocked in recent years as consumers turn away from physical releases in favor of buying games digitally online. In December the company’s chief executive Matt Furlong (who joined the company from Amazon last year) said the company was exploring the emerging technologies, and job listings relating to Web3 and NFTs previously emerged in October.

The WSJ notes that gamers are seen as potential early adopters for NFTs in particular, because they’re already comfortable with spending money on virtual goods like cosmetic outfits and weapon skins. Square Enix and EA have publicly expressed interest in exploring the technology, and Ubisoft launched an NFT platform late last year.

But so far much of the response from gamers to in-game NFTs has been downright hostile, with many seeing them as being of little value to the overall gameplay experience, and representing a marketing exercise by companies that have for years been happy to sell virtual items without the need for blockchain technology. S.T.A.L.K.E.R. 2: Heart of Chernobyl developer GSC Game World quickly walked back its NFT plans after they were widely criticised, while Valve has said it won’t allow games using the technology on its game store Steam.

The WSJ’s report comes roughly a year after GameStop found itself at the center of a trading frenzy, as some day traders attempted to boost its share price and punish short sellers. But despite the investment and attempts at a turnaround, the company continues to be in poor financial shape. Last month it reported that its losses were widening, despite some revenue growth. The company’s share price has been falling throughout the past month and a half, although CNBC reports that its share price rose by over 22 percent following the WSJ’s report on its NFT plans.

Cryptocurrency

Why bitcoin, crypto token values dropped quick – Deseret…

Multiple cryptocurrencies — including Bitcoin — dropped sharply Thursday as global stocks continued to fall, CNBC reports.

Bitcoin — which was worth $43,058.75 on Thursday morning — dropped as low as $42,496 in the last 24 hours, according to CNBC.

  • Similarly, Ethereum dropped 12% to $3,411.92.
  • The cryptocurrency Solana fell 12% to $148.58.

The decline in cryptocurrency coins comes as the Federal Reserve showed officials are seeing a potential quick rise in interest rates for 2022, according to The Wall Street Journal.

  • “As rates rise, holding volatile investments that produce little income becomes less attractive compared with government bonds,” WSJ reports.

Experts said the fast falloff is a sign that cryptocurrencies are risky investments for most people, per MarketWatch.

  • “This is proof that bitcoin acts like a risk asset,” Noelle Acheson, head of market insights at crypto lender Genesis Global Trading, told The Wall Street Journal. “The short-term holders, they are the ones who are trading and will be closest to the exit.”
Cryptocurrency

Bitcoin, Ethereum among cryptocurrencies losing value amid investor uncertainty…

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Bitcoin, Ethereum, Dogecoin: What to know before investing in crypto

From Dogecoin to Bitcoin to Coinbase, cryptocurrency is the hottest trend in investing right now. Here’s what you need to know before buying in.

USA TODAY

Thursday brought continued uncertainty to Wall Street, as investors kept trying to consider the ramifications of the Federal Reserve’s latest meeting for the stock market and the economy. 

Cryptocurrencies continued to lose value, extending declines from all-time highs several months ago. As the tug of war between crypto bulls and bears goes on, though, the more important question of how average investors perceive the digital asset market remains unanswered.

The drop in Bitcoin can be a double whammy for Bitcoin miners. First, they make their revenue in Bitcoin as compensation for providing mining services to the network. So when Bitcoin goes down, their revenue goes down as well without any real offset to their costs. Given the high levels of fixed cost associated with mining, we could see net income drop dramatically if the current Bitcoin trend continues. 

On its face, there wasn’t anything particularly unusual about today’s moves in prices of top crypto assets. Bitcoin (CRYPTO: BTC) was down almost 6% to just over $43,000. Ethereum (CRYPTO: ETH), meanwhile, fell 8% to around $3,425.

There wasn’t anything fundamental that stood out as justifying these steep moves. Rather, investor sentiment seemed to hinge on the perception that crypto asset values will rise and fall with monetary policy, and the Fed’s tightening stance is seen as a threat to further upward moves in Bitcoin and Ethereum.

►Fed moves: Higher mortgage rates are coming. What could it mean for homebuyers?

What happened to cryptocurrency, Bitcoin prices?

Top cryptocurrencies fell heavily on Wednesday as a broad Nasdaq sell-off continued to run through its second straight day and into a third. The Federal Reserve then proceeded to pour gasoline on the bonfire, promising to shut off spigots of easy money for the economy and raise interest rates as many as eight separate times over the next three years, frightening many investors away from riskier assets such as cryptocurrencies.  

Miners aren’t just going to see a negative impact on the income statement if Bitcoin continues to drop; they’ll see their balance sheets get crushed as well, and that should be a concern for investors. 

►The metaverse: How the metaverse could reshape the real estate landscape both virtually and in reality

Why are cryptocurrency prices tanking?

Crypto names heading south for the winter run into the literal dozens.

As markets reopened on Thursday, Solana(CRYPTO: SOL), Terra(CRYPTO: LUNA), and Avalanche(CRYPTO: AVAX) were among the top cryptocurrencies that tumbled — down 10.6%, 9.1%, and 9.7%, respectively, over the past 24 hours as of 9:45 a.m. ET, according to data from CoinGecko.com.

These three are highlighted because, according to the crypto experts at CoinDesk.com, they make up what is called the “SoLunAvax trade,” a group of three cryptocurrencies seen as an alternative to Ethereum(CRYPTO: ETH).

SoLunAvax tokens, notes CoinDesk, have booked gains in the “several hundred percent” range over the past year, as investors sought out alternatives to Ethereum — which was itself up roughly 300% through early November.

So why are these cryptocurrencies falling now? One possible reason is that Ethereum itself is getting cheaper and you don’t really need to buy an “alternative” to Ethereum if the thing you really want is on sale.

►Investing in the metaverse? What the future holds as real estate, crypto, NFTs fuel growth

What’s next for cryptocurrency prices?

More concerning than that, though, is a theory raised by CoinDesk toward the end of its report on the SoLunAvax trade. To wit, “over $800 million in crypto liquidations” (i.e., sales of cryptocurrencies) had taken place over the last 24 hours.

And these were no ordinary liquidations, but forced liquidations.

As Binance Academy explains, a forced liquidation in cryptocurrency is akin to a margin call in stock investing. Basically, it means that the same traders who have been “liquidating” these hundreds of millions of dollars’ worth of cryptocurrency did so because they bought cryptocurrency on margin (i.e., they took out loans from their brokers), anticipating that prices would go up. When prices went down instead, their brokers called in their loans, and the traders were forced to liquidate assets to come up with the cash to repay those loans.  

Suffice it to say that if CoinDesk is right and we’re starting to see margin calls in the crypto space, then this trend of falling prices begetting margin calls…causing more prices to fall…resulting in more margin calls — well, let’s just say things could get ugly in a hurry.

If you’re one of those unlucky investors who’ve invested in cryptocurrency on margin, the best move right now might be to sell and cut your losses before this mess gets any worse.

►Dumb money?: Investing in collectibles has long drawn free spenders. How do NFTs compare?

Includes information from Motley Fool reporters Dan Caplinger and Rich Smith

Cryptocurrency

Best Cryptocurrency to Invest in 2022 for Long-term Investments…

Cryptocurrency continues its global rise to prominence, with growing numbers of investors viewing it as a worthwhile part of their portfolios.

After the failure of ICO’s (Initial cryptocurrency offerings) in 2017 and 2018 which spooked early adopters, there has been an upturn in momentum in recent times through two new instruments – NFTs and DeFi.

And as we look ahead to 2022, there are a variety of products that may harvest a good return.

Bitcoin

Bitcoin is possibly the best-known cryptocurrency, and is now into its 13th year having launched in 2009.

It is the world’s largest cryptocurrency by market capitalisation, and it is traded using software based on blockchain technology, a decentralized database that runs on more than 15,000 computers (nodes) around the world and records transactions and account balances.

That durability and time-tested status ensures Bitcoin should continue to be a popular hold in 2022.

Ethereum

Historically just behind Bitcoin in the cryptocurrency stakes, 2022 could be the year that Ethereum starts a rise to the top.

It dominates financial transactions and payments across all sectors, as well as providing the infrastructure for much of the DeFi protocols, and as such has an actual function as well as simply holding value.

It accounts for around 20 percent of the overall market.

Solana

In terms of ‘altcoins’, Solana which recently fell 12%, presents itself as the best option for investment as it seeks to establish a new smart contract network to compete with Ethereum.

Launched in 2020 it is still relatively new, however it is already starting to acquire an increasing share of the market.

Polkadot

Polkadot is very similar to Ethereum in allowing developers to create smart contracts and applications. From a functionality standpoint, it may grow a lot over the next year.

Binance Coin

The cryptocurrency of the world’s largest exchange can have a great growth during 2022, as long as it is easier and cheaper to transact with Binance crypto, there will be more movement in the market, which would influence the trading price.

Cryptocurrency

Crypto scammers took a record $14 billion in 2021…

Chinnapong | iStock Editorial | Getty Images

Scammers took home a record $14 billion in cryptocurrency in 2021, thanks in large part to the rise of decentralized finance (DeFi) platforms, according to new data from blockchain analytics firm Chainalysis.

Losses from crypto-related crime rose 79% from a year earlier, driven by a spike in theft and scams.

Scamming was the greatest form of cryptocurrency-based crime in 2021, followed by theft — most of which occurred through hacking of cryptocurrency businesses. The firm says that DeFi is a big part of the story for both, in yet another warning for those dabbling in this emerging segment of the crypto industry.

“DeFi is one of the most exciting areas of the wider cryptocurrency ecosystem, presenting huge opportunities to entrepreneurs and cryptocurrency users alike,” Chainalysis wrote in its annual Crypto Crime report.

“But DeFi is unlikely to realize its full potential if the same decentralization that makes it so dynamic also allows for widespread scamming and theft.”

The wild west of DeFi

DeFi is a rapidly growing sector of the crypto market that aims to cut out middlemen, such as banks, from traditional financial transactions, like securing a loan.

With DeFi, banks and lawyers are replaced by a programmable piece of code called a smart contract. This contract is written on a public blockchain, like ethereum or solana, and it executes when certain conditions are met, negating the need for a central intermediary. 

“The financial system is basically sending money around with various terms and conditions attached to it,” said Joey Krug, Chief Investment Officer at Pantera Capital, a cryptocurrency and blockchain-focused asset manager. 

DeFi transaction volume grew 912% in 2021, according to Chainalysis stats. Impressive returns on decentralized tokens like shiba inu also spurred a feeding frenzy among DeFi tokens.

But there are a lot of red flags when it comes to dealing in this nascent crypto ecosystem.

One problem with DeFi, according to Kim Grauer, Chainalysis’ head of research, is that many of the new protocols being launched have code vulnerabilities that hackers are able to exploit. 21% of all hacks in 2021 took advantage of these code exploits.

Grauer tells CNBC that while there are third party firms that perform code audits and publicly designate which protocols are secure, many users still opt to work with risky platforms that bypass this step if they think they can get a large return.

Cryptocurrency theft rose 516% from 2020, to $3.2 billion worth of cryptocurrency. Of this total, 72% of stolen funds were taken from DeFi protocols.

Losses from scams rose 82% to $7.8 billion worth of cryptocurrency.

Over $2.8 billion of this total came from a relatively new but very popular type of scheme known as a “rug pull,” in which developers build what appear to be legitimate cryptocurrency projects, before ultimately taking investors’ money and disappearing.

“Given the hype around DeFi, people may have been more okay with using less secure platforms due to a fear of missing out on potential gains,” explained Grauer.

Crime stats don’t tell the full story

Crypto-related crime may be at an all-time high, but researchers note that the growth of legitimate cryptocurrency usage far outstrips the growth of criminal usage.

Transactions involving illicit addresses represented an all-time low of just 0.15% of the $15.8 trillion in total crypto trade volume in 2021.

The research firm identifies illicit funds based on their connection to confirmed illicit activity. For example, funds would be considered illicit if they were sent to or from a darknet market, or were known to have been stolen in a hack.

“The fact that the increase was just 79% — nearly an order of magnitude lower than overall adoption — might be the biggest surprise of all,” Chainalysis wrote.

“Crime is becoming a smaller and smaller part of the cryptocurrency ecosystem,” continued the report.

Researchers partly credit the curbed growth of crypto-based crime to the evolving tool kit of law enforcement, as well as the inherit transparency of blockchain technologies.

Crime is becoming a smaller and smaller part of the cryptocurrency ecosystem.

Chainalysis

2021 Crypto Crime Report

Unlike cash and other traditional forms of value transfer, every transaction is recorded in a publicly visible ledger, and with the right tools, Grauer says that it is possible to see how much of all cryptocurrency activity is associated with crime.

“Authorities have been enormously successful in leveraging the transparency of blockchains to investigate and shut down illicit activity,” said Grauer.

In November, for example, the IRS Criminal Investigations agency said that it had seized over $3.5 billion worth of cryptocurrency in 2021 — all from non-tax investigations — representing 93% of all funds seized by the division during that time period.

Other wins for law enforcement in 2021 included the Department of Justice’s $56 million seizure in a cryptocurrency scam investigation, $2.3 million seized from the ransomware group behind the Colonial Pipeline attack, as well as an undisclosed amount seized by Israel’s National Bureau for Counter Terror Financing in a case related to terrorism financing.

Cryptocurrency

Battle for dominance heats up in cryptocurrency trading –…

The battle for supremacy in cryptocurrency trading has intensified as some of Wall Street’s largest players start challenging digital asset specialists that already handle billions of dollars’ worth of transactions every day.

The most active traders and market makers in the nearly $3tn digital asset space include Alameda Research, B2C2, Cumberland and Genesis Trading, none of them well-known names in traditional financial markets.

But swiftly rising valuations this year have now drawn in trading houses that already dominate mainstream markets such as equities, currencies and futures. Jump Trading, Jane Street, Tower Research and Hudson River Trading, relative newcomers to digital assets, are now competing with crypto native companies to be the fastest and best.

“We know that big guys are coming in but they don’t scare me. We started in 2017 so we have already spent a lot of time on it,” said Michael Safai, the owner and chief executive of London-based Dexterity Capital, which he set up to become “the biggest and baddest prop trading company in the world”.

Dexterity, a digital asset specialist, trades between $2bn and $4bn of cryptocurrency a day.

Banks and Wall Street trading houses have until recently played a negligible role in cryptocurrency trading, which started with retail investors and grew to accommodate companies that were happy to take the other side of bets made by individual punters.

Retail investors trade on hundreds of exchanges where bitcoin — the most popular cryptocurrency — can be bought and sold. The price of digital assets can vary wildly on different exchanges, and traders can profit from the differences between prices if they are fast enough and have the reach to place bets on many platforms.

This is what led Sam Bankman-Fried to set up Alameda Research in 2017 — aiming to capitalise on the disparity between bitcoin’s price on South Korean exchanges and those in the west. He went on to launch FTX, the exchange, in 2019.

Alameda has become one of the key players in providing prices to cryptocurrency traders all around the world. It trades $5bn worth of coins daily, across thousands of products, the company’s co-chief executive Caroline Ellison told an industry publication.

“While established firms from traditional finance are entering the crypto trading space more and more, that’s because they’re attracted by the likewise increasing volume and opportunity set in the space,” Sam Trabucco, co-CEO of Alameda Research, told the FT.

While a lot of companies in the crypto sector started life four years ago, traditional companies have been much slower to dive in. Jump Trading announced the launch of a digital unit in September last year.

“[Their entry in to the space] changes the sorts of things Alameda needs to focus on,” Trabucco said, noting that there is more competition to be the fastest. “But so far the increased competition has not corresponded to lower success.”

In traditional markets, inefficiencies like the South Korean so-called “kimchi premium” are arbitraged away quickly. In crypto this process is much less developed but after the arrival of the Wall Street’s high-frequency trading firms opportunities to profit easily are becoming rarer.

“Traditional HFTs are getting more comfortable trading on crypto exchanges and [they] are encroaching on [opportunities that were] the bread-and-butter of crypto-native prop shops,” Joshua Lim, head of derivatives at Genesis Trading, said.

This is pushing crypto-native firms into broadening their activities into areas like lending, off-exchange trading and exploiting inefficiencies in new areas such as decentralised finance, where profits are still juicy.

Rob Catalanello, co-chief executive of B2C2, backed by Japanese bank SBI, said B2C2’s interest in trading on exchanges has been waning as more investors were willing to strike bilateral deals. Today, 65 per cent of its volumes are transacted on platforms, down from virtually all deals last year.

Institutional investors are interested in products like crypto non-deliverable forwards, a type of derivative widely used in foreign exchange markets. The owner of the contract can be trade cryptocurrency without taking delivery of the physical asset when the deal expires.

While trading on exchanges is declining, Genesis has seen a huge growth in activity at its lending desk, which handled $35.5bn worth of crypto loans in the third quarter of the year, a 586 per cent increase from the same three months in 2020.

Derivatives markets have also grown strongly. And while the big shops from traditional finance are focusing on trading at this stage, the incumbent rulers of crypto are broadening their aspirations and setting their sights on the big Wall Street banks.

“We are one of the biggest, if not the biggest, market makers in crypto and we want to become the first digital investment bank,” said Max Boonen, the founder of B2C2.

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