July 3, 2022 | Issue 22 🇺🇸
BITCOIN DROPPED 37% IN JUNE – SECOND BIGGEST MONTHLY LOSS
Business publications feature daily headlines about the dismal state of the stock market and crypto. The Wall Street Journal: "Markets Had a Bad First Half of 2022. It Can Get Worse." "Crypto's Domino Effect Is Widening." Bloomberg: "Rattled Stock Bulls Keep Paying Punishing Price for Hopefulness." "Crypto's Brutal Week Ends With a Trading Halt and a Bailout." June was a tough month for crypto supporters. On June 1, bitcoin traded over $31,000 and dropped as low as $17,000 mid-June. On June 30, it recovered slightly at $19,209. When I started this newsletter 22 weeks ago, bitcoin was $42,379 and crypto influencers posited that crypto was a safe haven against inflation. However, as inflation started to creep upwards, crypto investors began moving their money elsewhere and prices started to drop. Crypto started to mirror declining tech stocks and the selling accelerated in May as stablecoin USD Terra imploded. In June, crypto lender Celsius and crypto hedge fund Three Arrows Capital collapsed. Weaknesses in the crypto ecosystem are being exposed. Add the Russian invasion of Ukraine, a 40-year high for inflation, the Fed's 0.75% increase in the Fed Fund's rate, and the growing likelihood of a recession. This is a challenging time for the crypto industry and crypto investors. Crypto is not alone. Most industries are being tested. Don't give up on crypto. Use this bear market to learn about crypto and how it will impact real estate. In each issue of Crypto News for Realtors, I report about companies on the brink of disaster and companies who are thriving. Look for the parallels to the real estate industry. Real estate professionals who have been through a cycle or two have observed investors, brokerages, and agents who weathered the tough markets. If you have any questions or want to talk about crypto, reach out to me. The best part of my week is meeting colleagues and discussing crypto. If you'd like me to speak to your office about crypto, have your sales manager contact me. My presentation covers: 1) Crypto fundamentals (cryptocurrency, NFTs, blockchain, and stablecoins); 2) Real estate deals involving crypto; and 3) Transaction challenges. Enjoy your July 4th weekend. In the spirit of our founding fathers, here's an inspirational quote from Alexander Hamilton that could be applied to learning about crypto – “Men give me credit for some genius. All the genius I have lies in this; when I have a subject in hand, I study it profoundly. Day and night it is before me. My mind becomes pervaded with it. Then the effort that I have made is what people are pleased to call the fruit of genius. It is the fruit of labor and thought.” Have a productive week and stay crypto curious! Rich Hopen firstname.lastname@example.org | 908.917.7926 PS. You can find all CNR newsletters here. PSS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me.
▸ Crypto Exchange FTX Gets Option to Buy Battered BlockFi
BlockFi, a crypto lender based in Jersey City, experienced losses over the past month from the decline in crypto prices and faced a liquidity crisis.
Last year, BlockFi was valued at $5B.
Crypto Exchange FTX signed an agreement on July 1 with BlockFi that gives FTX the option to buy BlockFi for $240M. It also provides a $400M revolving credit facility. (A credit facility is a type of business loan. It is subordinate to client funds.)
BlockFi's CEO, Zac Prince, explained on Twitter that BlockFi customers started withdrawing funds when competitor lending platform Celsius froze its customers' assets. BlockFi also had provided loans with the failing hedge fund Three Arrows Capital and this resulted in an $80M loss. Earlier this year, BlockFi paid a $100M fine to the Securities and Exchange Commission (SEC) for violating investor-protection laws.
BlockFi needed an infusion of cash and FTX stepped in to bail them out. FTX has also talked about helping crypto miners.
▸ SEC Sued by Grayscale For Rejecting Grayscale's Petition For Bitcoin ETF Grayscale sought to convert one of its crypto products into an exchange traded fund (ETF), but the request was rejected by the SEC on grounds that there were not adequate investor protections in place.
Grayscale said the SEC currently allows several futures products tied to bitcoin. (Futures-based ETFs trade on the price of bitcoin in the future.) The rejected application is for a spot bitcoin ETF. (Spot ETF trades on the current price.) According to a Nasdaq survey of financial advisors, 72% would be more comfortable investing in crypto if there was a spot ETF. The Wall Street Journal quoted Grayscale's CEO, Michael Sonnenshein, "It is curious in our minds… how it is that the SEC is comfortable with approving bitcoin futures-based ETFs, but not spot-based ETFs.”
▸ Stablecoin Legislation in 2022?
An intergovernmental group of financial regulators discussed introducing legislation that would regulate stablecoins.
After last month's collapse of Terra USD, an algorithmic stablecoin, the working group is exploring setting safeguards to protect investors.
▸ MicroStrategy Buys $10M in Bitcoin
MicroStrategy CEO Michael Saylor announced the company purchased another 480 bitcoin. The company holds a total of 129,699 bitcoin, currently valued at $3.98B. Saylor has been a vocal proponent of bitcoin and his advocacy has not wavered during past few months.
CRYPTO CLASS – BITCOIN MINING
Bitcoin miners are central to maintaining the Bitcoin blockchain. They verify new blocks of bitcoin transactions and store the entire bitcoin blockchain. (See Blockchain and Proof-of-Work & Proof-of-Stake.)
Bitcoin mining is an expensive operation and revenues are tied to the price of bitcoin. The falling price of bitcoin is stressing the industry.
According to an article in the Wall Street Journal by Paul Vigna, miners are being forced to sell some of their bitcoin holdings to finance new equipment because lenders are reticent to provide loans to crypto businesses.
Miners hold 800,000 bitcoin. Publicly traded mining companies sold 30% of their bitcoin from January to April 2022.
When miners sell bitcoin it contributes to falling prices.
The breakeven bitcoin price for miners is $17,600 according to Glassnode, a crypto data analysis firm.
If the price of bitcoin does not start climbing, more bitcoin miners will be forced to use their reserve bitcoin to finance their operations. This will inevitably lead to miners closing their businesses.
INFLUENCERS - People to follow
Paul Vigna – @paulvigna
Vigna is a reporter for the Wall Street Journal and co-author of two authoritative works on crypto and blockchain – "The Age of Cryptocurrency" and "The Truth Machine."
RESOURCES – Books, websites, podcasts, interviews, articles
Wall Street Journal video explaining the collapse of crypto lending platform Celsius.
CRYPTO WORD – dApps
Decentralized applications or "dapps" are applications that run on a distributed network.
OH, ONE MORE THING –
Thanks for reading! See you next week.
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