08/08/2023 0 Comments

1. Litecoin Hashrate Nears ATH Despite Miner Rewards Being Halved

Litecoin Mining Hashrate Is Close To Setting A New All-Time High

Like Bitcoin, Litecoin is a proof-of-work (PoW) network, meaning that chain validators called miners have to compete against each other using computing power to get a chance of hashing the next block.

The “mining hashrate” is an indicator that keeps track of the total amount of such computing power that miners have currently connected to the Litecoin network.

This computing power can be expensive, as aside from the initial cost of setting up the mining rigs, there is also the continuous running cost in the form of electricity bills.

Miners naturally pay these costs off using the revenue that they earn for mining on the network. There are two forms of revenue that miners receive: the transaction fees that they get for solving individual transactions and the block rewards that they earn for solving blocks.

The value of the first of these is mainly dependent on how congested the network is currently, as higher traffic incentivizes users to pay a higher fee in order to get their transfers prioritized.

The block rewards, however, remain fixed in value. These rewards are also the main income source of the Litecoin miners, so they depend on these rewards for paying off their costs.

There is one exception where the block rewards do change in value, though, and that is the periodic “halvings.” These events take place roughly every four years and permanently cut the block rewards on the network exactly in half.

Just a few days back, the latest halving event took place and cut the cryptocurrency’s block rewards from 12.5 LTC to 6.25 LTC. Miners’ revenues have thus taken a large blow, but so far, it seems the mining hashrate hasn’t observed any negative effect, as the chart shared by the official Litecoin X account shows.

In the above graph, the Litecoin hashrate is the line with many short-term fluctuations, while the red-shaded line shows the data for the “difficulty,” an indicator that measures how hard it is to mine on the network currently. The third line here is the 7-day moving average (MA) of the mining hashrate.

The mining hashrate has increased in value recently, even reaching a new all-time high before falling once again. This suggests that miners have only connected more machines to the blockchain after the halving.

The mining difficulty is a reflection of the competition present on the blockchain, so this metric has also approached its ATH after the hashrate has done the same.

It’s unclear currently if the Litecoin mining hashrate can sustain these levels for long, as the revenue hit from the halving is sure to discourage some of the miners who had already been making little profits to begin with.

Usually, the only way for miners to continue to make the same or greater revenues after a halving is through price increases, as the value of their rewards naturally goes up with them. The LTC price, however, has instead plunged since the halving, so it would have rather put even more stress on the miners’ incomes.

2. Bitcoin Must Surpass $98,000 for Miner’s Sustainability in 2024

Bitcoin mining stocks have had a phenomenal year so far in 2023. They have fetched investors double-digit returns. In fact, they have risen significantly higher than BTC and the average stock market index.

Riot platform has been 2023’s top gainer. Its stock has appreciated by 442% from the lows registered on Jan. 3, 2023. Likewise, Marathon is also up 405%. Other mining company stocks, like CleanSpark and Bitfarm, have risen in the 180% to 290% range. Since the beginning of 2023, Bitcoin is up by 78%, while the Nasdaq Composite Index has appreciated by 35%.

The Halving ‘Risk’

Recently, several predictions have been made indicating that BTC could reach a six-figure valuation by 2024. More than traders or investors, mining companies need Bitcoin to attain a certain valuation for sustenance. A recent report published by Seeking Alpha examined the business model of Riot Platforms. Towards the end of June, Riot announced that it had struck a “landmark” deal to purchase 33,280 miners.

Additionally, the company forked out $162.9 million in total. This purchase was made with the intention to increase the self-mining capacity upon full deployment in 2024. With the halving scheduled for next year, miners’ rewards would slash by 50%, putting the entire mining industry at risk. The report pointed out,

“The sector average total business cost per Bitcoin ranges from $30k-$60k while the currently known Bitcoin all-time high is only $69,000. Many Bitcoin mining companies might not survive a 50% cut in Bitcoin mining revenue.”

The report indicated that they don’t see “anyway” where the Bitcoin sector can come out unscathed from the halving. Even though all the stocks have outperformed Bitcoin in 2023, they are overbought at this point. The report cautioned investors that “hodling” BTC mining stocks is “extremely risky,” without proper support from the underlying fundamentals. The report concluded by highlighting,

“Our model suggests that Bitcoin needs to trade above $98,000 to justify RIOT’s current valuation (post-halving).”

3. Indian G20 Presidency Proposes Global Crypto Regulatory Framework to Address Risks

G20 nations under the leadership of India, are considering introducing a global regulatory framework for cryptocurrencies. As such, India has released its proposal for the rule to have its suggestion included in the drafting of the global crypto rule. According to the presidency note, India opines that a more coordinated effort towards digital assets will be required to enforce international regulatory standards.

The G20 Presidency also believes that this same approach will be needed to minimise the risks associated with the nascent industry. Markedly, this note is assumed to be significant because it is the official document that holds India’s opinion on crypto before the next iteration of framing the global regulatory framework into a synthesis paper.

This synthesis paper is to be jointly published by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) before the end of this month. While the exact date for the publication of the paper is not yet certain, a previously published IMF blog post confirmed that the synthesis paper will be delivered at the upcoming G20 Leaders Summit sometime in September.

The FSB has always been keen on ensuring that crypto investors are protected against associated risks. Last year, the agency warned the public about the potential risks of crypto assets on global financial stability. In its report, FSB stated that crypto’s scale, structural weaknesses and rising inter-relatedness with the traditional financial system are risk catalysts. At the same time, the FSB highlighted that these risk factors have blossomed due to the absence of comprehensive regulation by the government.

In July, on its own, the FSB called for more robust and stricter rules for the crypto ecosystem and global stablecoin arrangements.

As part of their collaboration, the G20 is interested in some of the recommendations postulated by FSB. The India G20 Presidency note has requested that the synthesis paper consists of action points promoting the effective implementation of the FSB’s recommendations as well as that of other standard-setting agencies.

IMF and FSB to Conduct Crypto Awareness Outreach

Another action point expected to be considered in the paper is the macro-financial implications and risks specific to Emerging Markets and Developing Economies.

Additionally, emphasis will be placed on conducting outreach to all jurisdictions to generate awareness and sensitize the public about crypto risks. This campaign will start with regions that have seen a higher adoption of crypto assets and would involve non-G20 members. The coordination of the work would be left to the IMF and FSB.

The existence of this note was first known ahead of the meeting between Finance Ministers and Central Bank Governors (FMCBG) which was held in India last month. Ajay Seth, a senior official of the Indian Finance Ministry made mention of the document without revealing details. However, G20 members sought changes to the note, given any document from India as the current president of the G20 should reflect the collective consideration of members.

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Harvey CHEN

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