Insula Market Update – Week of May 31th 2021

The crypto world experienced a week of mixed emotions as consolidation got underway following a highly volatile month from April to May. Bitcoin recovered strongly off of lows of $30,000 and is now expected to trade sideways for some time before a longer term direction becomes clearer. On a related note, global search interest for “cryptocurrency” also reached all-time highs. Of the major cryptocurrencies, Ethereum experienced the most severe swing, with prices briefly dipping below $1,800 before recovering to above $2,500 – still far below the $4,400 all-time high set less than three weeks ago. 

Compared to the broader market, Bitcoin held up relatively well — with prices on Monday down about 10 percent for the week. But what drove the sell-off? There appear to be three major issues: fear of a Chinese government crackdown on crypto, uncertainty around US regulators’ intervention, and fallout from Elon Musk’s recent tweets.

  • On Friday, Chinese Vice Premier Liu He called for authorities to “crack down on Bitcoin mining and trading behavior.” Chinese officials reportedly have a variety of concerns about the cryptocurrency: its potential to disrupt other markets, the perception that Chinese mining operations are using too much energy, and a desire to protect the digital Yuan (the central-bank digital currency the nation has been racing to develop). 
  • In the wake of the announcement, some large mining companies announced they’d be suspending operations in China. This is significant because a large portion of all mining happens in China. (Important to note that many in the crypto community see the potential for less mining to be concentrated in a single country to be a positive outcome.)
  • On Thursday of last week, the US Treasury announced that any crypto transfer of $10,000 or more will have to be reported to the IRS. According to a CNBC report, the move came as analysts on Wall Street and beyond suggest that the Treasury and SEC could “soon take a more active role in cryptocurrency regulation.”

Musk’s Influence Continues

Elon Musk surprised the crypto community and sent markets reeling when he announced on May 12 that Tesla would suspend accepting BTC payments due to concerns over the environmental impact of Bitcoin mining. The Tesla CEO met with the biggest North American mining companies (including Argo Blockchain, Hive Blockchain, and Riot Blockchain) on May 23. Following the meeting, the mining firms announced the formation of the Bitcoin Mining Council — a consortium that aims to accelerate the adoption of sustainable-energy mining worldwide. 

So what does the science say about crypto and the environment? While everyone agrees that Bitcoin mining is a resource-intensive process, Bitcoin doesn’t seem to be a significant contributor to climate change — and new research shows that it could even be helping drive the transition to sustainable energy. 

Stablecoins, Microstrategy and Sports NFT’s

  • Following the NBA and the MLB into the world of non-fungible tokens, Major League Soccer announced new NFT products. 
  • As crypto prices fell, many traders sought refuge in stablecoins. The market capitalization of USD Coin surged past $20 billion — a 400 percent increase since the beginning of the year. 
  • Billionaire investor Ray Dalio — founder of Bridgewater Associates, the world’s largest hedge fund — revealed in an interview that he owns “some Bitcoin.” Citing concerns about inflation, he said, ““Personally, I’d rather have bitcoin than a bond.” 
  • Wells Fargo is the latest large bank to offer crypto exposure to wealthy clients.
  • MicroStrategy, which began adding bitcoin to its treasury last year, announced that it made another $10 million purchase this week. As of May 21, the total value of Bitcoin held by Microstrategy is more than $3 billion. (MicroStrategy CEO Michael Saylor also organized the meeting between Musk and the major North American mining companies.)

Insula Fund Highlights

This week we are focusing on the synthetics aspect of the holdings within Insula’s investment fund, Insula Pala. Synthetic assets allow indirect exposure to financial instruments when it is inconvenient (or even impossible) to own the underlying asset. One of the ways Insula provides exposure synthetically is via an Ethereum project called Synthetix.  

Synthetix

Synthetix is a decentralized finance (DeFi) protocol that provides on-chain exposure to a wide variety of crypto and non-crypto assets. The protocol is based on the Ethereum (ETH) blockchain and offers users access to highly liquid synthetic assets (synths). Synths track and provide returns on the underlying asset without requiring one to directly hold the asset. The platform aims to broaden the cryptocurrency space by introducing non-blockchain assets, providing access to a more robust financial market.

Via Synthetix, Insula gives investors exposure to Cardano (ADA) and Polkadot (DOT), two of the most valuable projects in the cryptocurrency market:

Cardano

Cardano is a proof-of-stake blockchain platform that says its goal is to allow “changemakers, innovators and visionaries” to bring about positive global change. The open-source project also aims to “redistribute power from unaccountable structures to the margins to individuals” — helping to create a society that is more secure, transparent and fair. Cardano was founded back in 2017, and the ADA token is designed to ensure that owners can participate in the operation of the network. Because of this, those who hold the cryptocurrency have the right to vote on any proposed changes to the software. 

Polkadot

Polkadot is an open-source sharding multichain protocol that facilitates the cross-chain transfer of any data or asset types, not just tokens, thereby making a wide range of blockchains interoperable with each other. This interoperability seeks to establish a fully decentralized and private web, controlled by its users, and simplify the creation of new applications, institutions and services. The Polkadot protocol connects public and private chains, permissionless networks, oracles and future technologies, allowing these independent blockchains to trustlessly share information and transactions through the Polkadot relay chain (explained further down). Polkadot’s native DOT token serves three clear purposes: providing network governance and operations, and creating parachains (parallel chains) by bonding.

We hope you have enjoyed our weekly email and that it has been effective in informing you about Insula and the crypto market as a whole. If you would like to invest Insula’s diversified crypto fund you can view more information at https://insulainvestments.com/fund or reach out directly at jules.becci@insulainvestments.com 

error: Any software, web content and databases are protected by copyright.