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Cost of mining once again overtakes Bitcoin price

Bitcoin's growth in 2023 encouraged miners to increase their output significantly. During this period, the average computational capacity jumped by 41% to reach 344 EH/s.



The capacity raising by miners cancelled out the positive effects of price growth. The issue is that the network automatically adjusts difficulty so that an average block creation time would reach 10 minutes. The additional computational capacities were compensated for by increased difficulty. As such, the average cost of mining one Bitcoin once again moved ahead of the coin's actual price. According to data from MacroMicro, the average mining cost now stands at $32,000.



The yield from one terahash of capacity is around the same level as in October last year when Bitcoin was trading at around $20,000.



The fierce competition is forcing miners to sell the coins they have mined. It seems that virtually every miner has forgotten the "mine and hold" strategy of 2021. Currently, their combined reserves are estimated at around 1.8 million BTC, which is around the same level as they were in November of 2021.



It's highly unlikely that miners will return to accumulation, and the competition in the market will only rise. We have written previously about TeraWulf, which managed to secure (possibly) the lowest tariff in the industry, $0.02 per kWh, on account of its direct connection to nuclear power. These kinds of moves will press other miners with a less effective business model. For example, No. 1 by computational capacity Core Scientific was unable to handle the competition and was forced to declare Chapter 11 bankruptcy last year.



As for Bitcoin, rising capacities are good news for the cryptocurrency. First of all, this increases the network's security. Second, it suggests coming inflows of new investment.


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The share of the US dollar in global reserves drops from 73% to 47%

In 2022, the dollar's share in global reserves contracted ten times faster than it had over the previous 20 years. Analysts at Eurizon believe the reason for this was the application of mass sanctions. They opined that, "Without the need for us to take sides in this debate on Ukraine, it seems reasonable to speculate that the main driver of the collapse in USD's reserve status in 2022 may have reflected a panicked reaction to property rights being jeopardised. What we witnessed in 2022 was sort of a 'defund-the-global-police' moment."

As a result, the dollar's share in global reserves fell from 73% in 2001 to 55% in 2021 and 47% in 2022.



Meanwhile, China's yuan rose to 3% in global reserves, while international blocks, such as BRICS and ASEAN, are holding negotiations on lowering their use of the dollar in international settlements.

The shift away from the dollar is a long process, but the trend is now intensifying. As economist Peter Schiff said in an interview with Commodity Culture, "I think the current financial crisis which just started is going to ultimately deliver the death blow" to the US dollar's global reserve currency status.

One reason for the new crisis is the United States' move to tighten its monetary policy, which is having a destabilising effect around the world. China's Ministry of Foreign Affairs spokesman, Wang Wenbin, criticised the US Federal Reserve last week, saying:

The massive interest rate hikes by the US Federal Reserve since last year have significantly increased global financing costs and exacerbated disorderly international capital flows. This has not only led to the bankruptcy or takeover of some banks in the US and Europe but also made things more difficult for emerging markets and developing countries... We urge the US and other developed countries to prudently assess the spillover effects of their economic and financial policies, stabilise market expectations in a timely manner and avoid creating adverse shocks to global financial stability.

When it comes to moving away from the dollar, developing countries have several alternatives. El Salvador, for example, chose Bitcoin to be its legal tender in 2021. That allowed citizens who emigrated for work to send money to relatives with minimum commission. In 2019, the volume of these money transfers accounted for one-fifth of the country's GDP, or $6 billion. Of that, nearly 10% went to international payment systems in the form of fees and commission.



The Reserve Bank of Zimbabwe plans to launch a gold-pegged digital token to reduce inflationary pressures and the national currency's falling exchange rate. Previously, the country experimented with the US dollar as a unit of account, but the disadvantages outweighed the advantages.

As developing countries' efforts to move away from the US dollar gain momentum, Peter Schiff may be right about the current crisis putting the nail in the coffin of the US dollar's hegemony.


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Interest in Ethereum staking beats the outflow of validators

The limit of validators' outflow and the month-long delay of Lido unstaking have positively affected the net inflow statistics. Concerns about the Shanghai hardfork didn't prove to be true, despite losing the price momentum.



The main concerns were that the majority of validators would like to quit, withdraw funds and exchange ETH for other coins. First of all, this was to affect US investors, where the SEC is trying to push for security status for Ethereum. Attacks by regulators led to Paxos cancelling BUSD minting and the Kraken cryptocurrency exchange's recent rescission of staking services.

In the past two weeks, Kraken has withdrawn 457,000 ETH, leading the outflows.



The withdrawal was more than compensated by the arrival of new participants. Note that rewards should be excluded from validator outflow statistics, as their withdrawal has no effect on the volume of funds participating in the staking.

And so, the net inflow of funds after the hardfork has amounted to 387,000 ETH. The withdrawal implemented with the Shanghai update attracted more cautious investors who weren't ready to stake funds for an indefinite period of time. Part of the inflow was also provided by old participants, who used the reward to increase their positions in the staking.



It can be assumed that all else being equal, the trend will continue, and the inflow of validators will compensate for the exit of older participants. Risk factors include stricter crypto regulation and SEC Chairman Gary Gensler's attitude towards Ethereum.

First, Coinbase, the largest cryptocurrency exchange in the US, has already received a Wells Notice of illegal financial securities transactions. Coinbase isn't yet ready to follow Kraken's footsteps and intends to dispute the claims in court. But the risk of halting staking is quite high, and the crypto exchange's share of the total validator pool now stands at 12% with 2.3 million ETH.

Second, the staking for the largest validator aggregator Lido Finance (30.5%), will end in May. This will create additional pressure on the withdrawal queue and could increase ETH inflows to cryptocurrencies.

Existing risks are the cooling factor preventing ETH from rising against BTC, despite the importance of the update. And while the pressure from exiting participants will soon diminish, the complex relationship with regulators is more unpredictable.


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Here's why new shocks to US banking are causing Bitcoin to skyrocket

Bitcoin jumped 7% to $30,000 yesterday due to shocks from the drowning First Republic Bank's report. Despite a $30 billion infusion by a consortium of banks in Q1, a move backed by the Fed and the Treasury Department, the institution's customers decided to exit anyways.

The Fed's tightening of its monetary policy continues to hit the banking sector, making assets on balance sheets cheaper and reducing demand for banking services. After a series of bank collapses by cryptocurrency-friendly banks, First Republic (hereafter, FRC), one of the top 30 US banks by capitalisation, was next. The main catalysts of the liquidity problems were the high proportion of uninsured deposits (two-thirds, according to the FDIC) and the excess of loans and investments over deposits (111%, according to S&P Global).

To prevent bankruptcy, a consortium of banks transferred $30 billion of uninsured deposits to FRC in Q1. Another $70 billion in loans were provided by JPMorgan. In the meantime, US Treasury Secretary Janet Yellen reassured the public of the banking sector's resilience.

The measures taken weren't enough to improve the bank's credibility with the public. According to the Q1 report, customers emptied accounts worth $100 billion in March. This frightened shareholders, as they would lose their investment entirely if the bank goes under FDIC management. In the past two days, shares have fallen by 47%; they've collapsed by 95% YTD.



The likelihood of FRC's bankruptcy is extremely high. It'll be the fourth bank to collapse in 2023, but hardly the last as the Fed promises further monetary policy tightening. CME's FedWatch tool estimates a 72% probability that the key rate will be raised by another 0.25% next week.



Bank failures make a rate hike irrelevant as the provision of total insurance for the previous three episodes and the launch of an emergency lending programme go against monetary tightening and the fight against inflation. The Fed has already provided more liquidity to banks than in the 2008 crisis.



A worsening banking environment could force the regulator to pause its rate hike and turn 180 degrees. These actions would lead to a rise in high-risk assets such as Bitcoin.



The bankruptcy of banks and the Fed's dilemma benefits Bitcoin's advantages, such as decentralisation, high independence from the traditional financial sphere and limited issuance. While the Fed conducts hidden QE and builds up its balance sheet, Bitcoin's volume is reduced every four years, and the final supply is limited to 21 million coins.

In addition, deposit insurance in the US is limited to $250,000, and the Treasury is unable to provide full coverage, as this would lead to a poor investment policy for financial institutions in the future. Bitcoin's ability to act as a highly liquid store of value can attract capital in the case of further worsening in the banking sector.


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The interest of long-term holders will determine the move beyond $30,000

Sceptical market participants view the $30,000 level as serious resistance for Bitcoin. For the same reason, some users with wallets under 1,000 BTC rushed to lock in the gains they made in Q1.



The increased volatility in recent days led to the liquidation of buyers of perpetual futures contracts on 26 April for a record $80 million over the past month. For the bears, this served as a strong argument for the significance of the marked price level.



Futures are mainly used for margin trading, which is of interest to speculators. Long-term investors buy cryptocurrencies on the spot market and then move them to cold wallets.

The margin continues to shrink after the FTX collapse. Consequently, long-term investors are more likely to be behind the growth momentum of 2023.



This is also confirmed by the low level of crypto exchanges' total balance sheet, which amounts to 2.19 million BTC at the moment. Despite Bitcoin's 80% price growth in 2023, holders are in no hurry to move the cryptocurrency to exchanges.



This indicates a desire to keep the majority of funds in cold wallets and an expectation of further price rises.



Going back to the first chart, we see that the reversal in whale behaviour is worth noting. After the coin sell-off during the rise to $30,000, they returned to hoarding. In most cases, whales anticipate (or cause, depending on the market conditions) further movement of cryptocurrency, as we've covered more than once.

For example, MicroStrategy, the largest public BTC holder, returned to buying after a pause, adding 7,500 BTC to its coffers in the spring. The company's reserves are now valued at 140,000 BTC, worth a total of $4.1 billion. Interest in the cryptocurrency is growing amid shocks in the US banking sector and the Fed's possible turn to dovish monetary policy. The regulator's upcoming meeting will take place next week.


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Support level for Bitcoin short-term holders is $24,400

On the heels of Bitcoin's 80% increase in 2023, crypto exchanges have experienced an influx of coins brought on by some holders wanting to take profits. On certain days, it reached a rate of 30,000 BTC/month. Peak indicators either coincided with a correction or preceded one.



That rate has now dropped to 22,300 BTC/month, although pressure remains on the pioneer cryptocurrency's price. Buyers are primarily short-term holders (STH) who are rushing to lock in profits. They recently made up more than 60% of all realised profit.



The analytical agency Glassnode used the MVRV indicator (an estimate of the average unrealised profit) to identify the point at which STH enthusiasm dries up. Their analysis found $24,400 to be the level at which the cohort of STHs will reach a breakeven point if the correction continues.



STHs' desire to lock in their profits is a leading factor for why Bitcoin's price rise is currently being restrained. We previously noted that, after selling part of their reserves on the price rise, the whales have begun to accumulate again.



It's also worth noting that with the bankruptcy of the fourth-largest bank in the United States in 2023 (JPMorgan took over First Republic Bank on 1 May), the number of daily transactions on the Bitcoin network set a new all-time high after it surpassed 426,000. The previous high had been reached during the 2017 rally when there were 379,000 transactions per day.

It remains to be seen what the Fed will choose to do at its meeting today. Some experts suggest that we'll see the last interest rate hike this year, while others believe that the central bank's monetary policy tightening is over. If the Fed leaves its key interest rate unchanged, Bitcoin's price will most likely begin to rise again.


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The number of ETH whales declined after the Shanghai hardfork

The Shanghai hardfork, which allowed validators to withdraw funds, continues to have a mixed impact. On the one hand, the long-awaited upgrade is attractive to more cautious investors. On the other hand, a number of participants continue to leave the system because of shifting priorities.

The latest updates haven't affected network speeds, which don't exceed 20 transactions per second. Validator outflows have already resulted in a three-fold fee increase since staking ended on 12 April. The higher fees are quite a negative issue as developers and users become more interested in using faster networks.



There are currently 15,000 validators queued to withdraw around $837 million or 450,000 ETH.   The major part of the outflow is caused by Kraken's refusal to provide staking services due to the SEC's action and pre-trial settlement.



That said, there's a risk that Coinbase, which accounts for 12% of the total validator pool with 2.4 million ETH, leaves staking for the same reasons. And the largest player, Lido Finance, hasn't yet unstaked its 6 million ETH.

The negativity comes from US regulators seeking to label Ethereum a security. Some crypto exchanges, including Kraken, have already been fined for working with the cryptocurrency without a securities license. Coinbase has announced its intention to sue the SEC and, as a preventive measure, has launched Coinbase International Exchange registered in Bermuda.



These events overshadow the positivity of the Shanghai hardfork and reduce the coin's investment appeal. Since the hardfork, whales, whose presence usually correlates with future price cycles, have reduced their presence by 200,000 ETH.



The continuation of the trend, the cancellation of Coinbase's stacking and especially the recognition of Ethereum as a security will result in the altcoin remaining in the shadows in the new bull cycle. It has already fallen 11% in price against Bitcoin since the start of the year.


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Crypto bombs worth 4.3 million BTC

The upcoming changes in the form of the de-dollarisation of the global economy and a potential default on US debt offer tempting prospects for Bitcoin, which stands as an alternative to the traditional financial system. But the cryptocurrency has its own constraints, which could be triggered this year.

205,500 BTC

The US government has accumulated 205,500 BTC worth $6 billion on its balance sheet following the uncovering of hacking attacks and the confiscation of stolen funds. For a long while, the US government held those funds. However, in March, it transferred 10,000 BTC to a Coinbase address to later be sold.



As money into the government's coffers goes out faster than it comes in, the US could face a technical default as early as 1 June, according to Treasury Secretary Janet Yellen. The shortage of funds could prompt the government to sell off cryptocurrency reserves as early as this month.

137,900 BTC

The collapse of the Mt.Gox cryptocurrency exchange in 2014 significantly impacted crypto markets. Between 2011 and 2013, hackers managed to steal around 650,000 BTC. Another 140,000 BTC that had been considered lost were recovered, and the assets were transferred to cold wallets.



Following bankruptcy proceedings and the receipt of claims from affected customers, the Mt.Gox trustee said payments would begin in 2023. Users will only be able to recover 0.23 BTC for each BTC lost, but the price difference more than compensates for the loss. At the date of the bankruptcy filing in 2014, BTC was trading at $500, which is now worth 58 times that amount.



Once they have an impressive profit in hand, most users will likely rush to cash out. 137,900 BTC could potentially add $4 billion in pressure from sellers.

4 million BTC

Speaking of crypto bombs, one can't help but mention the 4 million BTC considered permanently lost. Last week, 1,100 BTC that had been inactive for more than 10 years were reported to have moved.



So not all coins older than 10 years are considered hopelessly gone. The total amount of "lost" BTC is estimated to be worth $113 billion.


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Interest surges: Bitcoin network fee hits a one-year high

Four US banks have gone bankrupt, and a dozen more are struggling. For example, PacWest shares collapsed by 50% in the past day, and Western Alliance saw a 40% drop. According to polls by Gallup, the world's largest polling agency, half of US citizens are worried about the safety of their bank accounts.

As the Fed continues to tighten monetary policy, which reduces the value of a number of assets on banks' balance sheets and the demand for banking services, the likelihood of further shocks is high.


US Federal Reserve key interest rate, %.

One way to insure against a depreciating dollar and the risk of a total loss of funds beyond the FDIC's insured amount ($250,000) is to buy Bitcoin. The cryptocurrency's decentralised nature protects against an attack on the asset.

The network's average speed doesn't exceed seven transactions per second, so those wishing to make a transfer are increasing the amount of fees paid to complete their transaction as soon as possible. Due to a surge in interest, the average fee on the Bitcoin network has increased 2.5 times in the last week to a one-year high of $7.20. The share of commissions in miners' remuneration jumped from 5% to 16%.



Some analysts consider Bitcoin to be a "store of value" similar to gold. For the same reason, there has been a surge of interest following the bank collapses in the United States, with Bitcoin's share of other crypto assets rising from 40% to 46% in 2023.



Bank crises aren't all the woes facing the US economy this year. As early as 1 June, the government could announce a technical default on debt obligations, as money is being spent faster than it's coming in. Congress needs to increase the debt limit, which currently sits at $31.4 trillion.



Geoff Kendrick, an analyst at Standard Chartered Bank, believes that the probability of a default is low, although if it occurs, he predicts that Bitcoin's price could rise to $50,000.



In addition to demand for Bitcoin among new market participants, the emergence of the Ordinals protocol and BRC-20 standard have had a significant impact on the rise in commission. Put in simpler terms, they can be deemed similar to NFTs on the Bitcoin network that allow digital items to be exchanged. PEPE, which has also had some buzz around it lately, is a BRC-20 token, as well. In recent days, the tokens have accounted for nearly half of all transactions on the network due to speculative hype.


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Bitcoin fever: skyrocketing fees and suspension of Binance withdrawals

The Bitcoin network overload resulted in a surge in fees, which averaged $31 per transaction on 8 May. Miners were excited by the news because, for the first time since 2017, the fees exceeded the reward for mining a block.



But users have encountered a number of problems. Many transfers are stuck in the mempool because of low fees, as miners choose transactions with the highest fees when forming blocks.

Experienced users have manually set a fee that's higher than the current average. For some transactions with a large number of entry and/or exit points, the fee has reached $1,500.



Some operators, including Binance, were unprepared for the fee increase and didn't raise the rate for users in time. As a result, transactions got stuck in the mempool. The exchange has halted withdrawals twice to raise the transfer fee. The company also announced that it is prioritising the implementation of the Lightning Network, which runs on top of the Bitcoin network and allows fast transactions between LN members at minimal costs.

The situation still remains tense. There are 400,000 unconfirmed transactions in the mempool, which will take 24 hours to process. And, despite the increased fees, demand is high.



The main pressure on the network comes from the Ordinals protocol and BRC-20 tokens based on it that appeared in 2023. Ordinals allowed the numbering of mined satoshi, which led first to the emergence of NFT analogues and then to coins (ERC-20 analogues). Half of all transactions are currently linked to Ordinals.



A closer look at the Ordinals shows that the boom in new coins overshadowed the demand for NFTs. ORDI, NALS and PEPE are among the most sensational ones. This is good news for those who use Bitcoin solely as a payment network, as it speaks to the temporary nature of the excitement. If over 20,000 images were minted on some days in April, less than 1,000 images are released now.



The hype around the BRC-20 coins will likely cool down soon, with the fee returning to its lower rates.



Despite the difficulties, this is a positive development for Bitcoin. First, miners will only have to rely on fees when the last coin is mined. The new application of the network is to support their engagement and keep security and decentralisation at a high level. Second, the emerging crisis encourages the rise of second-tier networks and the development of additional services. Third, the growing demand for Ordinals leads to an increasing demand for Bitcoin. So if Biden follows Trump in minting his own collection, only with Ordinals, it'll increase the investment appeal of Bitcoin among Democrats.


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Ethereum staking yields up 55% in a month

It's been a month since implementing the Shanghai hardfork and allowing validators to withdraw both rewards and staked deposits. During that time, users have withdrawn 1 million ETH in rewards and another 1.2 million ETH due to the full withdrawal of validators from staking.



As expected, the main pressure came from US crypto exchanges, where the SEC is trying to get Ethereum labelled a security. Kraken has agreed to a pre-trial settlement, a $30 million fine and a gradual exit from staking. The crypto exchange has now withdrawn 528 million ETH worth $1 billion, with Coinbase coming in second at 228 million ETH worth $417 million withdrawn.



It's worth looking at the fortuitous decision by developers, who limited set a daily limit of 1800 validators for full withdrawals and up to a daily amount of around 58,000 ETH. While the exit queue is forming on the one hand, on the other hand, the inflow of those wishing to participate in the staking is increasing.

The inflow exceeds the outflow, increasing the number of validators and the amount staked. The recent surge in interest in meme cryptocurrencies also contributes to this, causing an increase in network congestion and fees. As a result, staking jumped from 4.4% to 6.8% in a month.



The fears caused by the expectation of an ETH influx to the exchanges didn't prove to be true. Having received their reward, most validators reinvested it in new staking. Some investors allocated coins to cryptocurrency exchanges for subsequent sale, but the 1.8 million ETH inflow doesn't look significant.



Increased pressure from US regulators and the potential exit of Coinbase from staking with a 12% share worth 2.5 million ETH are risk factors for Ethereum. The most significant damage would come from recognising cryptocurrency as a security.



It's worth noting that some congressmen are unhappy with SEC chairman Gary Gensler's policy, which is already leading to an outflow of investment from the country to freer economic zones. For example, in early May, Coinbase launched an international division registered in Bermuda. A change in SEC management would hint at liberalisation and a search for compromise, which would boost Ethereum.


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Why a US default would lead to the collapse of the crypto market

Bitcoin welcomed the bank collapse in March, moving up 21% to $28,400, as volatile monetary policy and the risk of new bankruptcies boosted interest in the decentralised asset. But in the event of the US defaulting on its national debt, the situation isn't so simple, as there's a strong connection between traditional finance and cryptocurrencies via stablecoins.

Stablecoins act as conductors, facilitating the payments and valuation of cryptocurrencies. Most crypto exchanges use stablecoins as a base payment currency for financial operations. Despite the loss of credibility and long-term decline of this segment caused by the collapse of the third-largest stablecoin, UST, a year ago, it's still a significant element of the crypto system, with a market capitalisation of $130 billion or 12% of the entire market.



USDT and USDC are the leading stablecoins, each with a share of 64% and 23%, respectively. However, the latter has shown a significant dependence on the banking sector, losing its peg to the dollar amid SVB's bankruptcy and trading at a 10% discount on 11 March. It was a result of blocking SVB's 8% collateral and a risk of losing funds. Since then, USDC has seen its capitalisation cut to $30 billion.



What's more, the primary danger is not just and not so much that assets are held at banks, as it is that US Treasury Bonds make up a large share of what's held in these stablecoins' reserves. If one can depend on the invulnerability of a systemically important bank when choosing a counterparty, things change when it comes to the potential for a default on American debt. In that case, US bonds held in reserves would turn into worthless paper.

Anticipating the new risks, Circle (USDC's issuer) adjusted its portfolio. Now, the maturity date of the bonds it holds is coming by June, the month that a default could potentially be announced.



Assessing Tether's risks is a lot harder because it's not known exactly which banks hold its reserves and which assets are included in the "corporate bonds" section due to the company's offshore registration and unwillingness to go into details. In terms of bonds, they account for 74%, worth $60.5 billion, while the average expiry date is "less than 90 days".


BDO report of 31.03.23

From this, we can conclude that USDT has a non-zero chance of losing its peg to the dollar if the US defaults on Treasury bonds.



Despite Bitcoin's opposition to the traditional financial system and the collapse of the dollar in the event of a default, the cryptocurrency market could face panic and sell-offs due to the loss of USDT's peg to fiat. It's also worth noting that the likelihood of a default being announced is still low since it would entail systemic risks and hard-to-predict consequences for the US economy.


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Bitcoin network overload leads to surge in demand for Litecoin

Bitcoin is the slowest yet most protected network. Cryptocurrency is recognised by financial analysts as a store of value, but it isn't very suitable for frequent payments.

To confirm payment, the transaction must be included in a block that's formed once every 10 minutes. As the network was improved, the number of included transactions grew by increasing a block, whose average size exceeded 2.5 MB this year.



Nevertheless, when demand for transfers is high, the network encounters a shortage of space since an average of a little over 4,000 transactions are sent for processing in those 10 minutes.



For the transaction to be sent in time during peak hours, users must offer miners higher fees. The fees exceeded $30 on 8 May, which came out of the blue both for regular users and big players like Binance.

This was when many remembered the second coin (by launch date) after Bitcoin. Litecoin was designed in 2011 specifically for quick and cheap transfers. Its blocks are formed four times faster, and its speed reaches 56 TPS versus Bitcoin's 7 TPS. They're technically very much alike, which is why Litecoin is often called Bitcoin's little brother.

Its relatively high speed and lower popularity helped Litecoin avoid the problems that the implementation of Ordinals has brought (see our piece for more details on Ordinals). Moreover, the fee dropped to less than $0.01 in May.



As a result, the demand for transactions in Litecoin grew five-fold in May, going from an average of 100,000 to 500,000 transactions per day. The number of new active addresses also surpassed those of Bitcoin, while the fee stayed at its lowest levels.



Since 8 May, when Bitcoin faced an all-time high overload, Litecoin has demonstrated confident growth against it.



And there's more to come for Litecoin users and investors. The altcoin is the first among the major networks to hold a halving event, which is expected in early August of this year. Traditionally, a cut in rewards for miners boosts further growth.


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New highs for the Bitcoin network

Introduced in 2023, the Ordinals protocol gave users the ability to mint NFTs and meme tokens on the Bitcoin network (read more on the mechanics on the creator's blog). This led to excitement and some new record highs.

Daily transactions

Last week, the number of daily transactions surpassed the 2007-high by 39%, reaching 682,000.



The network has faced an overload because of the low processing speed, and the mempool queue has exceeded 500,000 transactions. Users have experienced halted transfers, and the average fee has risen to $30.

Number of transactions per block

The number of transactions has jumped from an average of 2,000 to 4,400 per block.



It's mostly due to BRC-20 coins having displaced other types of ordinals. Simply put, BRC-20 consists of text that helps pack transactions more densely.

Transaction volume

An interesting pattern can be observed when analysing the average volume per transaction. NFTs appeared on the network first, pushing the indicator to a record-high 1.5 KB, as it takes a significant block size to transfer "files". But by the end of April, BRC-20 have replaced NFTs, causing the average transaction volume to drop to the 12-year low of 405 bytes.



Fees

The new protocol was highly appreciated by miners as the hype around ordinals has resulted in fee growth (users have to offer higher fees for their transactions to be processed faster). This is the fifth time in history that the fees have exceeded the block reward (6.66 BTC against 6.25 BTC, respectively). It's also the third time that daily fees have reached $17.8 million. It previously occurred during the cryptocurrency market rally.



Users are divided into two camps in their opinions. On the one hand, ordinals increase demand and empower the network. On the other, they go against Satoshi Nakamoto's idea of a purely payment functionality and cause fees to rise.



One can only claim that the network records caused by ordinals haven't led to similar price shocks for Bitcoin. The number of minted BRC-20 has dropped by 36%, and the mempool load decreased by 45% from last week's highs.


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Ripple is up 9% in just 12 hours as court decision approaches

The Ripple trial is important for the company and the entire cryptocurrency market as regulators are trying to label XRP as a security. But the lack of clear criteria for dividing cryptocurrencies into different classes leads to a consequent weakness in the courts.

Developers minted 100 billion XRP coins, 80 billion of which were gifted to Ripple (this is how the company explains its non-involvement in the token's issuance). Between 2013 and 2018, the company garnered investments from funds and individuals by selling $1.3 worth of cryptocurrency. The SEC considered that to be an ICO and labelled XRP a security.

In 2020, the SEC sued Ripple. Since then, the debate has proceeded with mixed success. The regulator's weakness was the lack of clear criteria for recognising cryptocurrencies as securities and a speech by the SEC's former Director of Corporation Finance, William 'Bill' Hinman, who referred to Bitcoin, Ethereum and XRP as commodities. The discussion on this aspect in court reached a ridiculous point, as SEC officials refused to identify the person in the video.



Sensing a weak spot, Ripple's lawyers requested Hinman's reports. The SEC claimed his assessment was a "personal point of view" that had nothing to do with the case and refused to provide any documents. On 16 May, Judge Analisa Torres ruled that the privilege of the deliberative process didn't protect the transcript of Hinman's speech and was a judicial document subject to the presumption of public access.

Some media spread the word, calling the judge's decision "a victory for Ripple", followed by a 9% jump in Ripple's value in the 12 hours following the news.



However, potential investors must consider some crucial factors. First, the publication of Hinman's speech doesn't mean that Ripple has beaten the SEC. The trial will continue, and a final decision is expected within a year. The majority of such manipulative headlines have resulted in subsequent price deflation (see our March article "Pump & Dump? XRP").

Second, Ripple continues to use reserved XRP to fund its operations. The circulating supply now stands at 52 billion coins, with 43 billion in escrow with the company. It can sell up to 1 billion coins every month (learn more about the mechanics).



XRP is a centralised coin where the company is the key owner and approves the list of recommended validators. The company's ups and downs directly affect XRP's value. A Ripple court victory in 2023 is possible, but it has more to do with legislative gaps and the regulator's weak position.


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