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Why Dogecoin shot up 26% in 24 hours

Initially created as a joke by Jackson Palmer and Billy Marcus in 2013, Dogecoin has since become the granddaddy of all meme coins. This group of cryptocurrencies typically experiences sharp rises amid increased interest in the coins and equally sharp drops once interest wanes.

On 25 April, the renowned godfather of Dogecoin, Elon Musk, announced that he was buying Twitter for $44 billion. The legacy social media platform can now expect wholesale changes in the weeks ahead, one of which will probably be the addition of DOGE as a payment method. This news saw the coin shoot up 26% in the space of just one day.



Despite remaining a dedicated fan of the social network, Elon Musk had criticised Twitter for what he saw as its arbitrary censorship on multiple occasions. In his speech announcing his acquisition of the company, Musk noted the following:

Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated. I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans.

Twitter founder Jack Dorsey expressed his support for Elon Musk, calling the approval of his bid the "singular solution I trust". However, not everyone reacted to the news with enthusiasm. In fact, Dogecoin co-developer Jackson Palmer termed the deal a "hostile takeover". He deleted that message just as quickly as he did a tweet from 13 May 2021 in which he called Elon Musk a "self-absorbed grifter".

Jackson Palmer's criticisms relate to Elon's manipulation and trickery of the general public. This comes after Tesla suspended Bitcoin payments for its cars in favour of Dogecoin, citing the original cryptocurrency's "environmental impact". However, both cryptocurrencies use a PoW protocol and need miners. Then, in July 2021, Musk published a cryptic post that sent BABYDOGE on a 500% moonshot.



At the time he posted his tweet, the project hadn't even been up and running for a month, which led to him being accused of pumping and dumping (a process whereby actors artificially inflate interest in an asset before later selling all their holdings).

Elon Musk has an extremely large reach, with an audience of over 83 million subscribers. By way of comparison, Jack Dorsey only has 6.3 million. Musk's significant informational clout doesn't just worry Jackson Palmer; it also has the White House on edge. Yesterday, Press Secretary Jen Psaki announced President Biden's growing concern over the power of private social media platforms and the need to increase their legal responsibility.

Despite the agreement reached with Twitter, the deal has not yet passed through all the necessary steps and must still be voted on by shareholders and approved by the appropriate regulators. Until that has happened, we shouldn't expect to see any tangible changes in the way the social media platform operates. According to CEO Parag Agrawal, the deal will be concluded by the end of the year. As for society at large, many people are concerned that Donald Trump's account could be unblocked.


StormGain analytical group
(cryptocurrency trading, exchange and storage platform)

[stormgain]

The NFT market takes off: $1 billion in one week

NFTs (non-fungible tokens) significantly simplify the process of buying and selling pieces of digital art, in-game items and metaverse objects. Over the past year, the NFT market has grown by more than 1000%, and its capitalisation now stands at more than $10 billion.



Demand for NFT tokens is strongly correlated with the total capitalisation of the cryptocurrency market, which explains why trading volumes tanked hard in 2022. However, from about mid-April, the situation changed completely as weekly volumes reached $1 billion.



One driver of this growth was the Moonbirds collection, which ranks first place in the ranking, with $165 million in sales over the past week alone. During this period, 1309 market participants completed 1821 trades. Meanwhile, the most expensive image went for 350 ETH (equivalent to $1 million). All in all, the collection consists of 10,000 birds.



The Moonbirds collection is available on the major NFT marketplace OpenSea. The platform is making every effort to push the popularity of the NFT market while also seeking to maximise the number of works it offers. This week, news broke that the company is acquiring the NFT platform Gem. OpenSea is already implementing several of its unique features, such as more user-friendly search and rights collection tools.

The NFT market's revival is strengthening the positions of blockchains that support smart contracts. Ethereum is the NFT leader with a market share of 92% and a turnover of $876 million over the past week. The network's high practicality has ensured the coin's growth relative to Bitcoin starting as far back as 2020. Then, the project's main rally coincided exactly with the dawn of new industries like NFTs and DeFi.



Ethereum's future expansion is largely dependent on the network's migration to a proof-of-stake protocol, which will ultimately lead to increased speeds and lower transaction costs. This is expected to take place in Q3 of this year, though the 'switchover' date has already been postponed multiple times.


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Why Bitcoin hasn't taken root in El Salvador and what to expect from the CAR

The Central African Republic became the second country after El Salvador to declare Bitcoin legal tender. El Salvador's pilot provides a perfect example of why this step will fail to have a significant impact on the country's economic situation. Bitcoin prices have also ignored this news.



In its efforts to combat inflation, El Salvador took its own currency out of circulation in the early noughties, replacing it with the US dollar. This enabled it to stabilise its economy but brought its own series of negative consequences.

Salvadorians are actively immigrating to more developed countries in search of work and then continue to support their relatives at home financially. In 2019, the volume of money transfers sent by these immigrants constituted 1/5 of the Latin American country's GDP or $6 billion. Between 5-10% of these funds are taken by international payment systems, the lion's share of which go to Western Union. Salvadorian President Nayib Bukele has named lower fees for cross-border payments and the reduction of the US dollar's influence on their economy as the key reasons for his adoption of Bitcoin.

To facilitate the acceptance of Bitcoin, the government launched its Chivo wallet that allows users to exchange cryptocurrency and dollars free of charge. A TV and radio public information campaign was launched, while each user received a stimulus bonus of $30. This was quite a serious stimulus for residents of a country where this amount is equivalent to 0.7% of the average annual per capita income.

Despite all the government's efforts, a majority of its citizens' main motivation was to get the bonus and then immediately stop using their wallets. The US National Bureau of Economic Research (NBER) conducted a study that identified some key negative trends. It surveyed 1800 people, with a confidence interval of 95% and a sampling error of 1.94%. The results revealed that 61% of respondents never used Chivo again after spending their bonus.



21% of those surveyed had heard of Chivo but still had not downloaded the application. One of the key reasons cited was a lack of a mobile phone with internet access.

The population's low literacy rate and poor access to information technology are some of the main reasons for the failure of El Salvador's Bitcoin implementation campaign. Salvadorians are used to paying cash for goods and services and either don't trust or don't understand new technology. Before Chivo launched, more than 70% of respondents were unbanked, and almost 90% had never used mobile banking.

Chivo isn't experiencing much demand as a means of making cross-border payments either. In February 2022, only 1.6% of cash transfers were received using a digital wallet, and these were by respondents who had the app installed on their phones.



It's safe to say that the majority of Salvadorians simply proved not to be ready for these new technologies, meeting them with misunderstanding and ultimately rejection. So, what can we expect from the CAR, one of the poorest countries in Africa with an annual GDP of $2.4 billion?


StormGain analytical group
(cryptocurrency trading, exchange and storage platform)

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Bitcoin metrics: the spring is compressing

Generally speaking, a protracted consolidation leads to a sharp breakout in financial markets. Over a four-month period, Bitcoin has been ‘circling’ around $40,000, and that breakout could happen as soon as next week.



The trading volume for perpetual Bitcoin futures (i.e., without actually delivering the cryptocurrency) last year compared to the volume seen on the spot market due to a large influx of speculators and short-term investors. However, in the past eight months, a significant drop in the trading volume of derivatives has been seen, going from an average of $70-$80 billion per day to the current $31 billion per day.



The funding rate is payments to traders for holding a perpetual futures contract. If a majority of investors are buying, then they pay funding to sellers to hold a long position (i.e., buying). Conversely, if bears prevail, the funding rate becomes positive for buyers.

This instrument perfectly illustrates market sentiments. The current funding rate is being significantly compressed, which speaks to the drop in both trader activity and growing market uncertainty.



One argument for a price increase for Bitcoin is the strong sentiments in favour of accumulation on the spot market. According to analytics agency CryptoQuant, total Bitcoin holdings on 21 tracked exchanges are at their lowest levels since September 2018. What’s more, the outflow of BTC from crypto exchanges is close to record highs.



We previously covered (https://stormgain.com/blog/why-bitcoin-is-falling-despite-positive-statistics) why efforts among crypto enthusiasts alone are insufficient to trigger a price increase. Institutional investors continue to roll back investment programmes, and US GDP dropped into negative territory in Q1 2022. Now, the yield on crypto futures is 3%, which is comparable to the yield on 10-year US Treasury bonds and significantly lower than the current inflation rate of 8.5%. Not sure that Bitcoin will rise quickly, investors are moving their money to higher-yield assets.

On 3-4 May, the US Federal Reserve will have a scheduled FOMC meeting at which the country’s key interest rate could be increased by 0.75% in one go (in favourable conditions, the rate is usually increased by 0.25% increments). This will boost the long-term value of the dollar, increase the risk of a recession in the United States and may provoke a sell-off of risky assets such as Bitcoin.



In anticipation of a new correction, various analytics agencies are calculating the strongest support level below which Bitcoin’s price is unlikely to fall. According to Whalemap, this level falls in the range of $25,000-$27,000. With that, whales are already prepared to actively buy up BTC at $34,000, which is also the approximate break-even level for Bitcoin miners.


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Major investors flee Bitcoin

Since 2020, institutional investors (companies with holdings above $1 million) have become the leading investing power in the cryptocurrency market. ETFs tracking the Bitcoin spot and futures markets started to emerge while the number of public mining companies and investment funds soared. Even Western countries' state pension funds weren't too timid to buy Bitcoin.



This was mainly a result of active dollar printing by the Fed in a bid to backstop federal support programmes for citizens and businesses. Then, in April 2020, US-based crypto exchange Coinbase recorded a 400% increase in deposits equal to $1,200, the amount received by Americans in stimulus checks. At that time, Bitcoin was priced at $7,000.



More than a third of all dollars in circulation were printed over the last two years, while the Fed's balance sheet has doubled to reach $9 trillion. Investors put money in all sectors of the economy, from real estate to cryptocurrencies, which led to inflation in the US significantly above the Fed's target level.

Now, in an effort to cool markets, the Fed has been forced to do a complete policy 180, raising its key rate and selling part of its bond holdings. This will inevitably lead to a decline across most risk assets. The stock market (S&P 500 Index) has already dropped by 13% YTD.

There's no way these trends won't spread to the crypto market, too. Consequently, net capital outflows from cryptocurrency funds reached an all-time high of 14,327 BTC. US investors are fleeing at a higher rate than in any other region, with investment holdings down 11% over the past month.



Much like the stock market, Bitcoin is trading at a discount this year. However, as volatility has lessened, the declines are definitely less severe. This is partly due to the activity of smaller investors who continue to show faith in the coin's strength. Investors with wallets holding between 0.1 BTC to 10 BTC just doubled their positions in April to increase their total combined holdings to 2.5 million BTC.



If small players were a driving force on the Bitcoin market, we would currently be seeing rising prices instead of an ongoing correction.



However, the major market movers continue to be institutional investors, whose strategies are built on following the Fed's lead. The regulator announced a single 0.5% interest rate hike at its meeting this week. A sharp interest rate hike coupled with the upcoming balance sheet shedding by the Fed will likely lead to even larger capital outflows from Bitcoin.


StormGain analytical group
(cryptocurrency trading, exchange and storage platform)

[stormgain]

Mining Ethereum more profitable than Bitcoin

Despite Bitcoin's larger capitalisation, mining Ethereum requires a lower initial investment that pays off much earlier. And even Bitcoin's status as a "store of value" doesn't play into miners' hands.



Many have dubbed Bitcoin the digital gold, with analysts at many leading banking institutions (including Goldman Sachs and JP Morgan) writing about such a shift in preferences. The network is the most decentralised and secure, but it does not support smart contracts, and its speed (TPS) is limited to seven transactions per second.



As a result, the main income miners receive is the block reward, which currently stands at 6.25 BTC. The commission per transaction, meanwhile, remains below 1%.

With Ethereum, the situation is completely reversed, and the high demand for transactions is leading to significant increases in commission. The network is only slightly faster than Bitcoin and cannot process more than 20 TPS. This requires users to offer higher tips to miners to ensure that their transaction is added to the next block as quickly as possible. The average commission currently stands at $13, but on 4 May, it reached an unprecedented peak of $6,000.

This spike was sparked by the launch of Yuga Labs' new NFT collection in which each token provides access to a virtual plot of land in the new metaverse, Otherside. Demand exceeded all expectations, and buyers inflated miners' tips massively in a bid to secure one of the 55,000 tokens on offer. The collection sold out in three hours.

As a result of the hype surrounding the launch, miners were able to earn $231 million in a single day, which marked a new all-time high. The previous maximum of $117 million came in May 2021.



The news didn't go unnoticed by Elon Musk. On 4 May, the Tesla CEO changed his Twitter profile picture to a collage of Bored Apes from Yuga Labs' Bored Ape Yacht Club. What's more, he did so in breach of copyright since he hadn't bought the NFT and didn't have the rights to its use. The collage's author, Michael Bouhanna, asked him to either delete the image or purchase the rights from the rightsholder.



With the dawn of NFTs and DeFi, Ethereum has become more profitable not only for miners but also for hodlers. The ETH/BTC pair has maintained an uptrend for several years now, one that will continue thanks to the future expansion of virtual assets and the emergence of new metaverses.


StormGain analytical group
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[stormgain]

Why TRX is up 24% in a week

While many coins are seeing a mass sell-off amid a 7% overall correction of the crypto market, Tron's TRX project is on the rise. It all essentially boils down to the launch of the new USDD stablecoin and Justin Sun's desire to boost the Terra blockchain's market cap.



Thursday, 5 May, marked the launch of the algorithmic stablecoin USDD, which is pegged 1:1 to the US dollar. To maintain this exchange rate, USDD is also tied to the firm's native TRX coin. If the price of USDD drops, arbitrageurs are able to claim $1 worth of TRX in exchange for the stablecoin. Conversely, if USDD's price rises, arbitrageurs spend $1 worth of TRX and receive USDD in return.



The advantage of algorithmic stablecoins is the fact that their emission cannot be influenced by the developer. In contrast to centralised stablecoins (e.g., Tether), it is impossible to mint more coins in order to cover any expenses. One downside is the lack of stability of the entire system, which means that crypto panic selling could threaten the 1:1 peg with fiat and lead to the devaluation of the stablecoin.

In order to minimise this risk, Terra is also tying UST to its own Bitcoin reserves, which currently stand at 80,394 BTC or $2.9 billion. This step helped UST become the third-place stablecoin by market capitalisation with $18.7 billion. It also helped Terra win a 14.3% share of the DeFi market, where it is only surpassed by Ethereum.



USDD is basically a carbon copy of UST, which is why traders are expecting Terra to repeat its earlier success and are thus actively buying up TRX. Justin Sun, however, has not yet shared his plans to put together a bank of reserves for the stablecoin, while a series of scandals involving him personally have scared off many potential investors.

Tron currently sits in 19th place on the leaderboard, with a market cap of $8 billion. The network has more than 90 million addresses, and its low commission rates have enabled it to rack up $41.7 billion in TRC-20 USDT transactions. That's more than any other project. If Justin Sun manages to convince the community of the reliability of his new product, TRX could well continue to grow.


StormGain analytical group
(cryptocurrency trading, exchange and storage platform)

[stormgain]

Fiasco of the year: UST's stablecoin reserves are depleted as LUNA plummets by 90%

Up until very recently, Terra was one of the most promising projects around. Its stablecoin sat in third place in the relevant rankings with a market cap of $18 billion, while only Ethereum had a bigger share of the DeFi market. Terra's balancer coin LUNA was also the only Top 10 cryptocurrency to hit a new all-time high in 2022. However, its decline proved so earthshattering that it even attracted the attention of US Treasury Secretary Janet Yellen.



Terra's stated aim is to create a bridge between the traditional financial system and cryptocurrencies. In service of this goal, it launched several stablecoins, including the USD-pegged project UST. An algorithm that arbitrates between UST and LUNA (a free-floating coin) is responsible for maintaining the exchange rate at 1:1. This means that UST is considered a decentralised algorithmic stablecoin. We have written about the advantages and disadvantages of this approach on more than one occasion, including in our previous article (https://stormgain.com/blog/tron-increased-in-week).

In order to strengthen the stablecoin's position further, Terra announced that, in the future, UST would be tied to its own cryptocurrency reserves. After accumulating $3 billion in reserves, half of which consisted of Bitcoin, Terra transferred funds to market makers on 9 May to try to stabilise UST's falling exchange rate.



The initial reasons for UST's decline to $0.98 and lower thereafter included the sell-off on the wider cryptocurrency market and an attack by an unknown seller who offloaded stablecoin worth $300 million on 8 May. This was accompanied by social media discussion of UST's vulnerabilities, which sparked panic and significant pressure from other market participants. At one point, market makers tried to steady UST's exchange rate by selling Bitcoin and other crypto assets, but that wasn't enough to save the day.

Currently, it's not known for sure whether Terra exhausted all of its reserves trying to maintain the UST exchange rate or whether it decided to stop its stabilisation efforts to preserve those same reserves. Once the reserves were out of the game, the biggest hit was taken by the project's balancer coin, LUNA, which is down 90% on the weekly chart.

UST's staking yield reached 20%, which translated to a rise in the number of investors and locked value, despite the cryptocurrency market's general decline in 2022. However, the drop in UST's exchange rate has made further staking unattractive, and as investors fled from the stablecoin, its total locked value in DeFi fell by 50% in the span of just a few days. UST is currently trading at around $0.82, which would suggest that the situation has still not normalised and LUNA's decline is likely to continue.



Investor Lyn Alden equated the UST-Bitcoin tie to an attempt by developing countries to save their economies by burning through their gold reserves, hinting at the natural end result of such a move. Meanwhile, on 10 May, Janet Yellon called on Congress to expedite the process of developing a bill to regulate stablecoins, citing UST as a case in point.

In an attempt to salvage the situation, Terra is looking to bring in an additional $1 billion in investment, while the project's developer, Do Kwon, wrote on Tuesday that a recovery plan will soon be presented. However, the project's reputation is already in tatters, and the likelihood of it returning to previous all-time highs is extremely low.


StormGain analytical group (https://stormgain.com/)
(cryptocurrency trading, exchange and storage platform)

[stormgain]

Stablecoins

What is a Stablecoin?

The global financial market is extremely volatile nowadays. Stablecoins, as a type of cryptocurrency, are increasingly attracting investors as an alternative to traditional assets.

So, what is a stablecoin, how is it regulated and what are the types of stablecoins? We’ll figure that out together.

Stablecoin meaning

Stablecoin definition:

A stablecoin is a cryptocurrency that has collateral.

The collateral is often fiat currency (e.g., the US dollar, euro or pound sterling) and gold. Stablecoins can also be pegged to other physical assets, such as precious metals, natural resources, securities, real estate and more. Apart from the fiat-collateralised stablecoins, there are also stablecoins that are backed by other cryptocurrencies or that have collateral in the form of complex algorithmic functions.

Stablecoins regulation

Cryptocurrencies were created as a regulatory-free alternative to national currencies. However, recently, they have become the subject of scrutiny by regulators all over the world.

The authorities of many countries recognise a threat in the growth of the stablecoin market. If it happens, America and other countries may face the problem of a ‘Wild West’ of banking, which US banks had already experienced in the nation’s history when banks issued a large amount of unsecured assets. The authorities are concerned that a similar situation could repeat with stablecoins.

There’s also another risk according to the authorities: stablecoin independence. Any financial instrument may pose a certain threat to a country's monetary policy if that instrument is not controlled by the country’s regulators. In other words, authorities don’t like it when residents prefer the assets of private companies to the national currency.

Regulators also fear that cryptocurrencies can be used for money laundering.

As a result, the US plans to regulate stablecoins as follows: only insured depository institutions will be allowed to issue this cryptocurrency. They will be subject to strict banking regulations with quantitative requirements imposed on their capital and liquidity.

The European Council is considering compulsory licensing of cryptocurrency service providers and imposing capital requirements. In addition, they plan to limit the average number of transactions per token in the EU market.

China has imposed a complete ban on any cryptocurrency transactions at all. It has declared mining and any cryptocurrency transactions, including those on foreign exchanges, to be illegal financial activities.

Interest in stablecoins

Because stablecoins are a collateralised type of cryptocurrency, they are not subject to extreme volatility. As such, their exchange rate does not fluctuate much. Stablecoins will not bring huge profits in a flash, but they also won’t bankrupt their owners overnight, either. So, investing in such currencies makes sense.

Owners of some stablecoins can use them for medium- and long-term investments and earn money with potentially lower risk. Holders can profit by staking stablecoins in their wallets for a certain period, for example for six months. In return, they will be paid a certain amount of interest.

Traders can also use stablecoins as a safe haven to weather financial storms and receive a stable return in the meantime. Having made a successful transaction with high-risk crypto, a trader needs to invest the proceeds somewhere. Withdrawing funds to fiat currencies (dollars, euros, etc.) takes quite a long time, and not all crypto exchanges have such an option. A great alternative is to convert assets into stablecoins, waiting for a better period on the crypto market to trade again.



Types of Stablecoins

Fiat-Collateralised Stablecoins

Fiat-collateralised stablecoins are a type of cryptocurrency with traditional fiat reserve (securities, government bonds, stocks, real estate, gold, fiat currencies such as dollar, etc.).

The largest and the most popular fiat-collateralised stablecoins are:

- Tether (USDT)
- USD Coin (USDC)
- Binance USD (BUSD)

These stablecoins are backed by the US dollar. In such fiat-collateralised stablecoins, there is always a legal entity that manages the money (US dollars) that supports these stablecoins, competently invests it in funds, stocks, government bonds and reliable securities. This legal entity must also provide enough reliable dollar reserves in a bank to exchange all the issued coins for real dollars in case of an emergency.

The great advantage of fiat currencies is that they’re not strongly influenced by price fluctuations, unlike other cryptocurrencies whose value can change significantly.

On the other hand, fiat-collateralised stablecoins are susceptible to inflation because of the underlying currency backing it, which, in turn, is influenced by the rules of the global financial market.

Crypto-Collateralised Stablecoins

Crypto-collateralised stablecoins are stablecoins that have a cryptocurrency as a reserve. This means that they’re backed by other crypto assets that are used as a collateral to maintain exchange rate stability.

Examples of crypto-collateralised stablecoins are:

- Dai (DAI)
- Timivi (TMV)
- DefiDollar (DUSD)

Since the price of collateral cryptocurrency tends to be rather volatile, this type of stablecoin typically uses overcollateralisation. For example, for each $1 token issued, a notional deposit is frozen in crypto with a current value of $1.50 or more.

Any user can check the status of the token at any time. If the value of the crypto deposit declines, the participant needs to recapitalise their account, where the deposit is stored and the conversion takes place.

In other cases, the token can be bought out by ‘keepers’ who benefit from it, or the token is recapitalised by another user, for which they receive a commission of 1% to 6% of the recapitalisation amount.

If the price of the currency pledged to the deposit increases, so does the overall level of supply in the system. As a result, users get the opportunity to take more crypto out of the system.

Some crypto-collateralised stablecoins are backed by a pool of stablecoins that provides diversification, which is aimed at lowering risk.

Algorithmic Stablecoins

Algorithmic stablecoins are a type of stablecoin controlled by a set of rules written in the code of a particular platform. According to the rules, algorithms balance supply and demand for the cryptocurrency by issuing more coins when price soars, and buying them off the market when the price decreases, which makes such tokens stable.

The examples of algorithmic stablecoins are:

- TerraUSD (UST)
- Empty Set Dollar (ESD)
- Ampleforth (AMPL)

The advantage of such stablecoins is flexibility in scaling because no additional assets are needed to secure emission. Another strength is the high level of decentralisation compared to other types of stablecoins.

However, their development is more expensive because they are technically more sophisticated products.

Another disadvantage lies in the algorithm at the core of the system which provides a risk of overissue, dramatic inflation, under-reserve and as a result the collapse of such a financial pyramid someday.

Stablecoins vs Altcoins

So which is better: stablecoins or altcoins?

Altcoins are cryptocurrencies without a reserve that were developed as an alternative to Bitcoin.

The advantages of stablecoins over altcoins include:

- Low volatility

Since stablecoins are always backed by an asset, the rate of stablecoins does not fluctuate drastically. The exchange rate volatility is usually within 4-5 digits after the decimal point. Consequently, they do not have the dramatic value jumps typical of altcoins, such as Ethereum, Namecoin, Dogecoin and other similar coins.

- Level of confidence

Stablecoins, especially those secured by the dollar, are a sufficiently clear and applicable investment tool for the average investor. Such collateralised currencies are much more trusted by users and therefore popular, thus increasing their liquidity.

- Stable value

One digital coin is always equal to the asset to which it’s equated. Therefore, such coins are quite reliable and can be used to pay for goods and services. Both the seller and the buyer will be confident that the payment will be successful.

- Risk Insurance

Stablecoins can be used to diversify risks associated with the loss of capital. It’s especially essential when the local currency of the country is unstable due to its weak economy.

Disadvantages of stablecoins compared to altcoins:

- Low profitability

Since stablecoins are collateralised currencies, this financial instrument has a lower profit margin compared to volatile altcoins.

- The need for regular inspections

It’s necessary to conduct constant audits to ensure that stablecoins are properly secured. Otherwise, their value will fall considerably. Altcoins, on the other hand, are not collateralised, and there’s no need to do so.

- Inflation

As stablecoins are often pegged to fiat currency, they’re also indirectly subject to inflation. To avoid this, it’s recommended to diversify risks by investing capital in different assets.

- Account blocking

Although this is not a common situation, cases of accounts being blocked have already occurred with dollar-backed stablecoins. Law enforcement asked to block the account, and it was blocked. Of course, this isn’t so easy to do because the address has no specific known owner with passport details, unlike a bank account. Nevertheless, such risks exist. Meanwhile, altcoins aren’t connected to fiat currencies, so no authorities can limit the rights of their users.

Conclusion

Stablecoins can be considered a reliable currency in the roller-coaster crypto market due to the collateral that is in its bases. Despite the fact that these cryptocurrencies are backed by fiat, it is essential to take into consideration the fact that such currencies are fairly new and there are many subtle questions.

As a result, it is recommended to invest in stablecoins with caution and prudence.

[stormgain]

A Requiem for Bitcoin?

The crypto sell-off is intensifying, and the recent crash of UST raises questions about the viability of stablecoins as an asset class. Against this backdrop, the number of forecasts about the sudden death of Bitcoin and the entire cryptocurrency industry falling into oblivion has increased.



The continuation of Bitcoin's correction was brewing back in March-April. However, smaller users — those with wallets containing less than 1 BTC — absorbed 0.58% of the total circulating supply during these months, increasing their share to 14.3%. Nevertheless, their activity was not enough to hold up the price under the pressure of objective factors. In April and May, we talked about why a key investment force — institutional investors — are moving away from Bitcoin.



With the fall of the crypto market's capitalisation, the problems it faces have become more acute. Thus, the growth of Terra (LUNA) was largely due to its high annual yield, which reached 20% when holding the UST stablecoin on the Anchor platform. Before UST's crash, Anchor was holding 75% of the circulating supply, or $14 billion. As soon as the peg between UST and the US dollar was broken, investors rushed to withdraw their funds (for more details, see yesterday's article).

The collapse of the third-largest stablecoin raised questions about its viability as an asset class, and US Treasury Secretary Janet Yellen urged Congress to urgently draft legislation to regulate stablecoins.

The risk of collapse applies both to algorithmic stablecoins and centralised ones, such as Tether (USDT), which has a capitalisation of $82 billion. An audit conducted last year showed that instead of holding promised dollars in bank accounts, the company was predominantly holding securities as a reserve. This could also lead to a liquidity crisis in the event of an active USDT sell-off. Cautious investors are already getting rid of the stablecoin; its capitalisation has decreased by $1.4 billion in just a few days.



In the event of a break in the USDT-USD peg, the cryptocurrency market may face a full-blown crisis and a serious outflow of capital. For example, gold zealot Peter Schiff is already predicting that Bitcoin will fall below $10,000. And yet, this will still not be enough to signal the end of Bitcoin, whose strength is in decentralisation, independence and a lack of politics and geographical boundaries.



In this regard, the statistics from 99Bitcoin.com, where an obituary for Bitcoin has been maintained since 2010, are noteworthy. During this time, the cryptocurrency has been 'buried' 448 times, reaching a peak of 124 'deaths' in 2017. Only seven obituaries have been written this year, but recent events hint at an increase in the funerary sentiment.

What do you think is next for Bitcoin? Let us know in the comments!


StormGain analytical group
(cryptocurrency trading, exchange and storage platform)

[stormgain]

ZCash shoots up 37% ahead of major update

This year saw a huge upsurge in demand for anonymous coins that enable users to hide both their identity and the transaction amount. ZCash is the second-biggest confidential network by market cap with $1.4 billion. On 11 May, the project's developers announced its upcoming 5.0.0 update, which prompted the coin to rise by 37% from its local low.



ZCash uses the zk-SNARK protocol in which transactions are encrypted and authenticated via a zero-knowledge proof mechanism. This enables one party to prove to the other that the transaction is genuine without revealing any information from the approval process. Simply put, you don't need to have all the necessary information to carry out a transaction and ensure that it is verified as required.

The first zero-knowledge proof protocols required several rounds of exchanging information to confirm that a transaction was indeed approved. Now, all that is necessary is one message, while the size of the actual proof is less than one kilobyte, and the verification process takes just a few milliseconds.

On 31 May, the NU5 update will take place on Block 1,687,104, implementing the Orchard protected payment protocol and Halo proof system. The update will make it possible for users to perform confidential and secure transactions on mobile devices. According to ZCash founder Brice Wilcox, NU5 is a historic step for the whole of mankind since it will bring zero-knowledge proof to everyday technology.



ZCash benefits from a high level of protection and relies on miners in much the same way as Bitcoin. Bitcoin, however, is a public network, something which fraudsters can use to their advantage by tracking wallets making major transactions and thus identifying future potential victims. Furthermore, senders may compromise themselves when sending transactions to "undesirable" individuals. With ZCash, these risks are eliminated.

In April 2022, it was revealed that one member of the ZCash launch ceremony was Edward Snowden. As the ex-NSA employee put it, "you can't have truly free trade unless you have private trade. And you can't have a free society without free trade".


StormGain analytical group
(cryptocurrency trading, exchange and storage platform)

[stormgain]

Terra (LUNA): is there life after death?

Last week, we discussed the dramatic demise of the Terra blockchain, which, until as recently as April, was among the Top 10 with a market cap of $40 billion. The network was unable to maintain the exchange rate of its algorithmic stablecoin, UST, which resulted in its balancer coin, LUNA, being completely devalued in the space of just a few days. Furthermore, it is still not yet known whether the team used the entirety of its $3.5 billion in cryptocurrency reserves to save the system.



Parity between UST and USD was maintained by either reducing or increasing the supply of LUNA. Because demand for UST remained high on account of its 20% annual staking yield, LUNA exhibited strong growth and became the only Top 10 coin to reach a new all-time high in 2022.

The company has promised that it will soon release a detailed report on the reasons behind its recent collapse.



Several analysts believe that the precursors for the collapse were already in place well before the May crisis, while the decision to tie UST to the company's reserves was a sign of the system's inherent fragility.

UST is an algorithmic stablecoin whose issuance was initially only pegged to the price of LUNA. This is what differentiates it from centralised stablecoins (e.g., Tether), where the exchange rate's stability is maintained by reserves held in bank accounts. Terra took the unusual step of bolstering its algorithmic UST with $3.5 billion in cryptocurrency reserves.

The company was forced to prop up the UST exchange rate by selling Bitcoin once LUNA started to fall. Either the reserves were simply insufficient, or they were not used in full. Analytics firm Elliptic traced the course of the coins and revealed that 28,000 BTC were sent to an account on the Binance cryptocurrency exchange, while 52,000 BTC were sent to a Gemini account.



However, they were unable to track where their assets went next. Terra could have used its own funds to prop up UST, or it could have transferred them to unknown accounts. If the company maintains its reserves, this will present an opportunity for the project to relaunch.

On 13 May, Do Kwan laid out a recovery plan that involved forming a new fork in the Terra blockchain and distributing 1 billion tokens among LUNA and UST holders who can provide photographic proof of their ownership prior to UST losing its peg to the US dollar.

Open critics of this route include Binance CEO Changpeng Zhou and leading Terra validator Jiyun Kim. Zhou noted that "forking does not give the new fork any value", calling upon the company to buy up the coins and burn them. Meanwhile, Kim, whose pool has shrunk from $1 billion to $3 million, has proposed that the community rally together and create an entirely new blockchain.

The lack of a consensus within the Terra team means the chances of the network relaunching are significantly lower than they otherwise might be. In addition, Do Kwon may soon be under investigation following official complaints to the authorities by a number of disgruntled investors.


StormGain analytical group
(cryptocurrency trading, exchange and storage platform)

[stormgain]

Another stablecoin bites the dust. Is Tether next?

The cryptocurrency space is facing an institutional crisis as a result of crumbling faith in stablecoins. And while few heads might have been turned by the collapse of a few minor projects, the decline of UST (Terra) — the third stablecoin by market cap — caused quite the furore, indeed. UST's capitalisation plummeted from $18.7 billion to $1.4 billion, while its balancer coin LUNA was totally devalued. For more info, see our previous articles.



Stable coins are the central interface between fiat and cryptocurrency, facilitating the movement of digital assets and the establishment of corresponding exchange rates. It's difficult to overestimate their influence. The overwhelming majority of cryptocurrency exchanges use stablecoins as a base currency for quoting the prices of various instruments.

After UST fell under pressure from sellers looking to protect their savings, DEUS Finance's DEI stablecoin was unable to hold on. Like UST, DEI is an algorithmic stablecoin.



If Tron's USDD network had launched earlier and managed to attract enough investment, it would have been the next to get wiped out. USDD was built on the basis of UST and uses the same algorithmic mechanism. In a bid to attract investors, Justin Sun is offering an annual staking return of 30%, whereas UST only offered 20%. USDD's capitalisation currently stands at a total of $300 million.

A loss of faith in stablecoins was always bound to impact Tether, the clear leader in this particular asset class. Over the last week, its capitalisation has steadily dropped to reach a total of -9%.



In contrast to the other coins mentioned above, Tether is a centralised stablecoin whose stability is guaranteed by the company's own reserves. The company could have rested easy if it had only kept its initial promises to hold bank reserves in USD equal to the volume of USDT issued.

Under pressure from the New York Attorney General's Office, Tether conducted an audit that revealed the state of its reserves: only 5% of USDT was guaranteed by fiat, with over half backed only by corporate bonds.



In other words, when it issues Tether, the company is investing in other crypto projects, too. It's impossible to say for sure whether or not some of these funds were also invested in Terra. The probability of this being the case is slashing USDT's value and threatening the liquidity of the $76 billion market cap stablecoin. Investors are also feeling discouraged by the fact that Tether has made multiple requests to regulators to waive its obligation to publish its reserves status.

There is effectively no way for us to judge the quality of the corporate bonds held in Tether's reserves as their contents are hidden from the public. Investor concerns explain the outflow of funds from USDT to USDC, with the capitalisation of this latter rising from $48 billion to $52 billion over the past week alone.

USDC is much more attractive to investors since its parent company, Circle, is registered in the US and its accounting records on the status of its reserves are published monthly by independent auditor Grant Thornton LLP. On 13 May, Circle's financial director, Jeremy Fox-Geen, confirmed that 23% of the USDC in circulation is backed by fiat, with the other 77% covered by short-term US Treasury bonds.


StormGain analytical group
(cryptocurrency trading, exchange and storage platform)

[stormgain]

Chinese miners are back in business

Despite the ban on the use of cryptocurrencies by financial institutions and the designation of mining as an undesirable activity, Chinese crypto miners are now back on track.



According to data from Cambridge University, Chinese miners have now turned their equipment back on after a short hiatus as the country moves into second place in the global ranking, with a share of 21.1%. The US currently occupies the top spot, with 37.8%. Kazakhstan is in third place, with 13.2%, and Russia is now outside the top three after falling to fifth place behind Canada's 4.7%.

Back in 2021, China was the undisputed leader, with a 50% market share and a hash rate of 80 EH/s. However, the country's leadership viewed crypto's growing popularity as a threat to the digital yuan and chose to repress it. Cryptocurrency exchanges almost universally stopped accepting Chinese citizens as customers, with many financial institutions quickly changing their jurisdictions as a significant portion of mining farms migrated abroad.

CBECI project lead Alexander Neumuller has pointed out that the empirical data seem to confirm the aforementioned suggestion that mining is still going strong in China. His calculations were made on the basis of data from four of the biggest Bitcoin mining pools: BTC.com, Poolin, ViaBTC and Foundry. Neumuller also called upon other mining pools to collaborate on a joint research project in order to ensure that the data reflect the reality as closely as possible.



Despite Bitcoin's 55% decline from its ATH and the sharp rise in computational difficulty, mining remains a lucrative enterprise. The top-of-the-range Bitmain S19 Pro generates $5.50 per day when working in isolation. However, in May, deliveries of the liquid-cooled S19 Pro+ Hyd began. Its estimated return is as high as $11 per day.



The constant updating of ASIC fleets by major mining companies will lead to constant increases in difficulty. In light of the larger capacity of US firms to attract private investment, it is likely that the US will continue to hold first place in the global hash rate rankings.


StormGain analytical group
(cryptocurrency trading, exchange and storage platform)

[stormgain]

SHIBA INU predicted to die by 2030

As the crypto market correction drags on, we continue to hear macabre forecasts about the fate of this or that coin. On this occasion, it was analytics agency Finder warning of the impending end of SHIBA INU and a decline in demand for meme coins as a whole.



In its best months, SHIB brought investors 1000% returns, while the network's market cap stood at $40 billion at its peak. From its highs, the coin has eight-fold, and even its listing on the famous Robinhood exchange wasn't enough to generate bullish sentiment. After all, a petition calling for SHIB to be added to the broker's instrument offering had reached over 500,000 signatures.



As the analysts at Finder explained, the death of SHIB is not a question of "if" but rather "when". The cryptocurrency market is only following its natural evolutionary path as investors are increasingly selecting instruments with practical applications or that provide tangible added value. The times of traders buying hundreds of random coins and hoping that some of them go to the moon are on their way out. Meanwhile, most of the demand for joke coin SHIB was predominantly emotional and not based on solid fundamentals.

This is confirmed by an analysis of the factors that led to its huge price spikes. When asked, the crypto experts from Finder called SHIB's biggest growth drivers PR hype and celebrity mentions. For instance, on 14 March 2021, Elon Musk wrote a tweet saying how he wanted to get his hands on some Shiba Inu, only later explaining his motivation: that he has a pet dog of that particular breed. However, social media were soon abuzz with information about the coin, leading it to rise by 300% in just a few days.



SHIB was built on the basis of Dogecoin, while the initial aim of the project was to reach the same capitalisation as its other canine counterpart. It reached this goal last year, but since then, SHIB hasn't stopped losing ground to its predecessor.



In contrast to Dogecoin, SHIB is nothing more than an ERC-20 token with an anonymous issuance of 1 quadrillion coins. The reasoning behind such a large emission was the desire to ensure that the coin's value remains low and thus attracts the largest possible number of investors.

A short while ago, the project's developers launched their own decentralised exchange, and SHIB was equipped with its own burning mechanism. But this didn't help. The total locked value of ShibaSwap continues to fall, currently standing at less than $60 million. According to Finder's estimates, SHIB will be worth $0.0000025 by 2025, around 20% of its current value.


StormGain analytical group (https://stormgain.com/)
(cryptocurrency trading, exchange and storage platform)