1. Bitcoin miners cheer as hashprice continues to push higher
Bitcoin [BTC] blasted past $37,000 in continuation of the bull run which has seen the king coin gain more than 34% over the last month, according to CoinMarketCap. While BTC retreated to the $36,000 zone at press time, the market was optimistic of further upside in the short-term.
Hashprice spikes to six-month high
The rally also got a thumbs up from Bitcoin miners. This was because of the subsequent boost to Bitcoin’s hash price, seen as an important barometer of miners’ profitability.
According to Hashrate Index, the hashprice exploded to $91 per PetaHashes per day (PH/Day), the highest in six months. Moreover, this represented a significant increase of 27% over the last week.
Hashprice is a well-known mining metric that quantifies how much a miner can expect to earn from a specific quantity of hashrate. It is positively correlated with changes to Bitcoin’s price, thus explaining the significant jump in value.
More fees for miners
Apart from Bitcoin’s price, hashprice is also directly related to transaction fees earned by miners.
As shown below, the portion of block rewards coming from fees has increased sharply in the last 10 days, climbing to a six-month peak of 27% on 9th November.
Miners use block rewards to cover the costs associated with mining equipment and electricity. Hence, they routinely liquidate their holdings to raise cash.
However, during phases of low volatility when the returns aren’t great, miners sit on their stashes and wait for a rally to distribute coins into the market.
Miners are cashing out
AMBCrypto analyzed CryptoQuant data and noticed a marked drop in coins held in miners’ wallets since the late-October rally. In fact, more than 5,000 BTC coins have been offloaded by miners since then.
2. Celsius Bankruptcy Plan Faces Skepticism, Regulatory Hurdles
Celsius Network LLC, the failed crypto lender, won bankruptcy court approval on Thursday to transform into a creditor-owned Bitcoin mining firm. The plan, which has been met with skepticism from some customers and faces regulatory hurdles, would see Celsius repay customers through a combination of cryptoassets and stock in the new, publicly listed Bitcoin mining company.
US Bankruptcy Judge Martin Glenn said he would confirm the firm’s plan to repay customers, which could start early next year. The ruling is a major milestone for the firm, which went bankrupt last year amid a downturn in digital assets but won enough creditor support for a path through Chapter 11 despite fraud allegations against former executives.
Federal prosecutors have accused former Celsius CEO Alex Mashinsky of manipulating the firm’s native CEL token and making misleading statements to get customers to invest their assets on the platform. Mashinsky has pleaded not guilty.
The firm’s transformation into a crypto miner has raised concerns among some customers, who argue that the plan is too risky and that they will not be adequately compensated for their losses. The company has said that the plan is the best way to repay customers and that it is committed to making them whole.
The plan still faces regulatory hurdles, including approval from the US Securities and Exchange Commission. The firm has said that it could pivot to a liquidation if the crypto mining proposal falls through.
Judge Glenn has urged the SEC to move quickly in deciding whether or not to approve the crypto lender’s plan. He has said that the company’s customers have been waiting too long to get their money back.
Why Celsius is transforming into a Bitcoin mining firm
Celsius is transforming into a Bitcoin mining firm because it believes that this is the best way to repay its customers and generate revenue. Bitcoin mining is a process of verifying transactions on the Bitcoin blockchain and earning rewards in the form of Bitcoin. Celsius believes that the value of Bitcoin will continue to increase over time, which will make mining more profitable.
Celsius customers will receive a combination of cryptoassets and stock in the new Bitcoin mining company as part of the repayment plan. The exact amount of cryptoassets and stock that each customer receives will depend on their individual circumstances.
Celsius has said that it could start distributing assets to customers early next year. However, this will depend on a number of factors, including regulatory approval and the market conditions.
Celsius’ plan to transform into a Bitcoin mining firm is not without risks. The Bitcoin mining industry is highly competitive and the profitability of mining can fluctuate depending on the price of Bitcoin and the difficulty of the Bitcoin network. Celsius also faces regulatory hurdles, including approval from the SEC.
Overall, Celsius’ bankruptcy court approval is a major milestone for the company and its customers. However, there are still a number of challenges that Celsius must overcome before it can repay its customers and emerge from bankruptcy.
3. The landscape of crypto exchanges never stops changing
Do you recall the state of crypto exchanges back in 2017? I entered the crypto space at that time, and crypto exchanges were entirely different from what they are today. They offered a bad user experience, had poor website engines, lacked mobile applications, and had almost no investment products or trusted methods to buy crypto.
Looking at it from today’s perspective, the experience with cryptocurrency exchanges in those years was extremely clunky. And, let’s not even start talking about the capabilities of the first generation of decentralized exchanges (DEXs).
Two bull run cycles have passed, and now we see a completely different picture. As Bob Dylan aptly put it, “The Times They Are a-Changin”—and in the crypto space, this change happens very quickly. We now have a significantly altered crypto exchange landscape, and I want to delve into its current development in this article.
Shifting dynamics of centralized exchanges
We had the most challenging and transformative year for centralized crypto exchanges, starting with the FTX collapse. I believe it can only be compared to the infamous Mt.Gox crash. As a result, I can identify three main trends that are reshaping the CEX landscape now.
The first one is a direct outcome of the FTX collapse and represents a significant shift in the crypto exchange industry toward greater transparency—proof-of-reserves audits. These audits aim to ensure that centralized exchanges are holding their clients’ funds in full. This means that CEXs must provide proof to depositors and the public that their deposits match their balances. Independent third parties conduct these audits to eliminate the possibility of reserve data falsification, and now anyone can access proof-of-reserves audits to confirm whether a crypto exchange holds the complete reserves of users’ funds.
After the FTX collapse, proof-of-reserves audits have become essential as they enable users to verify that the balances they hold on a CEX are backed by assets. Moreover, they encourage businesses to adhere to transparency standards, making it more challenging for them to engage in doubtful activities, and ultimately enhancing their trustworthiness.
The second trend is reshuffling the top list of top CEXs itself, with Binance gradually losing its leadership position. Just a year ago, its leadership was unquestioned. However, in 2023, Binance saw its spot market share decrease for seven consecutive months and now holds only 34% of the market. Binance has faced numerous accusations of varying degrees of validity, legal challenges in several jurisdictions, and has been forced to leave some jurisdictions or close some of its products, such as the Binance Card.
Nevertheless, while Binance loses its ground, nature abhors a vacuum. We can also witness the rise of the market share of other CEXs and DEXs, as users shift slightly towards them. The most crucial factor for the future success of any exchange would be compliance with clear and elaborate regulations. This is the third important factor changing the crypto exchange landscape now.
This year we witnessed regulatory tightening in most jurisdictions. Sometimes it’s so hard that crypto firms are forced to decide whether it’s better to leave these jurisdictions (just like the recent big discussion about the US) or even to stop operating there, like it’s happened in the UK.
Ultimately, the future for CEXs is very uncertain. The crypto community is extremely wary of any regulatory initiatives in any country or region. There are only a few jurisdictions that can be referred to as a safe regulatory haven for CEXs right now. What’s even more intriguing is that even the recently adopted MiCA regulation would only take effect in late 2024 or even later, which would still leave enough room for uncertainty in the CEX industry. In this climate, adaptability and resilience will be paramount for survival.
Decentralized exchange surge
Decentralized exchanges have emerged as alternatives to the challenges presented by centralized exchanges, such as centralization itself, vulnerabilities to hacks, mandatory KYC verifications, and control over private keys. The initial generations of such exchanges, like IDEX or EtherDelta, had poor user experiences and limited liquidity.
A revolutionary shift in the defi landscape occurred in November 2018 when the Uniswap exchange implemented the automated market maker (AMM) model for the first time. This model was initially outlined by Ethereum’s co-founder, Vitalik Buterin back in 2017, and now the vast majority of DEXs have since adopted this model. AMM technology offers lower fees, greater accessibility, and faster transaction speeds.
The last two years have been highly successful for DEXs in implementing new technologies, as they turned towards the adoption of order book models and decentralized derivative functionality. The evolution of decentralized services also involved cross-chain technologies like bridges and atomic swaps. It enabled DEXes to offer their services on multiple blockchains simultaneously. It was quite interesting for me to observe how different crypto services adopted similar solutions, with DEXs implementing cross-chain functionality and cross-chain bridges evolving into DEXs, ultimately turning all of them into multi-chain decentralized exchanges.
Uniswap remains the leader among DEXs, and as the leader, it reflects the sentiment in the crypto space. From my perspective, there are primarily two key aspects to consider. The first one has raised some doubts within the crypto community: a feature allowing customization of the KYC verification procedure was discovered in the repository of the fourth version of the decentralized exchange Uniswap. The community viewed this as a potential risk of centralization, though this feature could be specific to liquidity providers and useful for projects needing to comply with regulatory requirements in specific jurisdictions.
Another noteworthy change is that Uniswap introduced swap commissions of 0.15%, which also received mixed reactions. Some individuals perceived this measure as a step away from decentralization. However, I believe it reflects the true state of the crypto bear market, as projects seek new sources of income. I think you may have noticed a very similar trend when many cross-chain services gradually raised their fees, as they were no longer willing to cover the costs of users’ swaps. That’s why the price of a swap on such services has become quite the same now.
The pivotal juncture
This year could potentially mark the end of the ongoing bear market, but the current state of the crypto exchanges is unlike anything we’ve seen in crypto history. Prior to the recent ETF crypto price spike, we witnessed the lowest recorded market trading volume. For now, centralized crypto exchanges are facing their most challenging times, while decentralized exchanges boast the most advanced technology.
Amid this unique crypto market situation, centralized and decentralized exchanges stand at a critical juncture. Their future is shaped by still ongoing regulation debates and technological progress. Uncertainty shrouds what lies ahead, and the pivotal skill for everyone in this ever-changing crypto exchange landscape is the ability to adapt to these changes.