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About the Newsletter

The FAL Cryptocurrency Newsletter is a monthly newsletter that focuses on the monthly highlights throughout the cryptocurrency and financial technology (FinTech) industries.

Coins to Follow

Bitcoin

Bitcoin is the first cryptocurrency and the largest by market cap. Created in 2009, Bitcoin has grown astronomically since its launch and continues to lead the cryptocurrency industry while also often dictating overall cryptocurrency market movement. It also established the norm of using blockchain as a public ledger for tracking cryptocurrency transactions, providing a revolutionary level of transparency that the broader financial system has lacked.

Currently, BTC is attempting to hold onto this support after rocketing through the latter half of March. It tested resistance at $48k but was unable to maintain it. It’s very likely that if BTC finds higher support here, it won’t be too long before it makes an attempt at testing resistance once more. It should be noted that the MFI is bordering overbought territory while the MACD looks as if it’s swinging downward, so it wouldn’t be surprising if we either receive some continued sideways movement, or slightly more dips within the coming month (at least on the technical side). On the fundamental side of things, the industry is once again attracting large amounts of attention, so it remains to be seen how the price will react to that.

Ethereum

Ethereum is the second-largest cryptocurrency by market cap. It’s known for being the first cryptocurrency to introduce smart contract capabilities on its blockchain, setting the precedent for ecosystem coins in the future. As the most actively used blockchain, Ethereum has established itself as the largest ecosystem coin by market cap. Many other tokens are based on the ERC-20 protocol on Ethereum’s network.

Ethereum’s long-awaited ETH 2.0 could be on its way soon. Rumors have been stirring throughout the crypto industry as ETH 2.0 is moving onto its final testnet before mainnet. This is huge news for the second-largest token (by market cap) in the space. While we don’t have an exact date on when this could go mainnet, it’s important to realize the magnitude of what it means for the space once this is achieved. This scaling solution will revolutionize large sections of both the DeFi space, as well as the NFT space. With fees lower and transactions quicker, the ETH network will be given the space it needs to grow and flourish.

On the technical side of things, ETH has followed BTC’s movement through areas of resistance and into higher ranges. It’s not too surprising given the ETH 2.0 developments on the fundamental end. The MACD is swinging downwards slowly, and the MFI is well into overbought territory, so on the technical side of things, it wouldn’t be surprising if we encounter a slight correction in the coming week or two.

Kava

Kava is a decentralized lending protocol that’s been talked about quite a bit in the Defi space. It uses multiple cryptocurrencies and allows users to both lend and borrow. Kava is built on the Cosmos network. They allow users to lock cryptocurrency in a smart contract in order to receive a stablecoin called, USDX. Lenders are able to receive Kava as payment as a collective.

Kava has been creating a lot of buzz in the space lately. This month could be a big month for the protocol. On April 5th, the Ethereum co-chain beta is launching as well as the ETH bridge beta. If these features do well in beta, they could bring a lot more functionality to the protocol. As far as fundamental developments go, this could be a significant one.

Kava has skyrocketed along with most of the cryptocurrency space during the last half of March. It’s attempting to settle in its current area, however, it’s encountered some volatility in this range over the last week or so. Overall volume is significantly less than a week ago, so it’s likely we could see it attempt to hold here and exhibit some sideways movement or dip if support isn’t maintained. The MFI is just exiting overbought territory as it trends downward and the MACD is steadily trending downwards. These are further reasons we could see either some sideways movement or slight dips if support isn’t maintained.

Secret

Secret Network is the first privacy token with its own “privacy-preserving” smart contracts. This means that the smart contracts are completely encrypted to protect users’ information and data. Whereas ETH’s smart contracts are public, Secret allows encryption from input to output, to a completely encrypted state. This allows for encrypted dApps. It also has the ability to bridge with other assets on different blockchains. SCRT is built on the Cosmos network.

Secret token will be an interesting protocol to watch this month with the proposed EU ban on anonymous transactions. While this could cause some sell-side pressure in the broader privacy-coin sector, SCRT has its own mainnet upgrade coming in April. This upgrade is the first of two that are intended on improving SCRT’s scaling and efficiency significantly.

While SCRT doesn’t have as much technical history as other tokens, it has had a strong showing after finding lower support over the last couple of weeks. The MFI is bordering overbought territory, and the MACD looks like it could attempt to swing downwards soon. This along with the positive and negative fundamental developments could lead to a volatile month for SCRT.

Vechain

Vechain is a blockchain protocol that focuses on simplifying and enhancing supply-chain logistics through blockchain technology. Vechain’s main token is VET, and its gas token is VTHO. They attempt to provide enterprises with accessible and open information as to the logistical side of their operations without having to go through “data silos” according to Investopedia. According to Vechain, their goal is “to build a trust-free and distributed business ecosystem platform to enable transparent information flow, efficient collaboration, and high-speed value transfers.”

Vechain has recently announced that it is partnering with Alchemy Pay for fiat payment rails and crypto on-ramps. This will be a big play for Vechain and its community. This brings access to Vechain to larger audiences and could help further mainstream use. This could lead to a potential influx of buy-side pressure for the protocol.

Like many other protocols in the space right now, Vechain’s MFI is also bordering overbought territory after having a strong showing throughout the latter half of March. The MACD’s momentum waves are already swinging downward as its EMA lines look like they’re preparing to reach their upwards peak. It wouldn’t be surprising if we see a bit of a correction in price or sideways movement in the coming week or so.

Features

The Future of Privacy Coins?

Privacy tokens are something that regulators are both perplexed and frightened by. While many privacy advocates are in support of privacy tokens and their usefulness for a variety of people, governments accuse these projects of being vehicles for money laundering and other illicit activities. With governments having this type of mentality towards privacy tokens, many have speculated whether regulation would eventually lead to an outright ban of privacy tokens in some places.

To understand and potentially predict how privacy tokens may be treated by regulators, we have to understand the attitudes of regulators towards them, the attitudes of the public towards them, and the attitudes of those in the crypto space surrounding these protocols.

It’s not too surprising that both regulators and law enforcement aren’t huge fans of privacy tokens or privacy-based blockchain protocols. Law enforcement has especially been opponents of privacy-based crypto and the broader cryptocurrency space for over a decade now.

In a piece from 2020, Forbes interviewed someone from the Secret Service regarding cryptocurrency’s roles in crime. They found that cryptocurrencies and crime often intersect in cases of money laundering, fraud, or cases where they’re trying to “undermine the integrity of financial and payment systems.” The piece revealed that while they don’t believe these are cryptocurrency-specific problems, there are protections that cryptocurrency can provide for illicit actors that they can’t find in the fiat system. The Secret Service views crypto less as a type of crime and more as a tool that can be used for crime at times.

With this being the view of the broader cryptocurrency space, it’s not too surprising that law enforcement holds unpopular opinions of encrypted iterations of this new tech. Also in 2020, the IRS offered a reward of over half a million dollars to anyone who could trace cryptocurrency transactions, specifically privacy coins such as Monero. Monero allows for private transactions where the users and the transaction amounts are protected and not easily accessible as with public blockchain ledgers like BTC and ETH. The IRS sees crypto, and more specifically privacy tokens, as a potential tool for evading taxes as well.

Like law enforcement, regulators have similar concerns about private cryptocurrencies being used as tools for illicit activities or evading taxes. While most US and EU-based centralized cryptocurrency exchanges are registered, where strict AML guidelines are abided, there are still many aspects of the cryptocurrency space that don’t have that information as readily accessible to regulators. One of the features of the cryptocurrency space that intentionally lacks this information is privacy tokens and blockchains.

Currently, the European Union’s parliament recently held a vote in favor of sweeping regulation on much of the crypto industry, including anonymous transactions. Anonymous transactions (such as those of privacy tokens) would then be restricted from accessing the broader fiat financial system. This would also extend to many self-hosted wallets and non-registered exchanges. This proposal is an extension of AML-based regulatory requirements.

Privacy advocates and opponents of the measure have condemned the new proposal, and believe that it could lead to a “de facto ban of self-hosted wallets.” For privacy tokens and privacy-based blockchain protocols, this could be a huge deal. For this rule to pass, it must be agreed upon by both the EU parliament and its national ministers. Many in the cryptocurrency space are hoping that this does not get passed into law, and have been very outspoken about it. One of the main opponents in the space to this measure is the CEO of Coinbase, Brian Armstrong, who had a tweet thread reacting to this that’s been making the rounds throughout the space.

While this ban doesn’t only encompass privacy tokens, it’s very likely that many other governmental and regulatory bodies will group privacy token bans and/or privacy token regulation with other sweeping regulatory measures.

With regulators and law enforcement framing cryptocurrencies as a tool for fraudsters and criminals, it’s unsurprising that this has tainted the public’s perception of the space. When discussing cryptocurrencies, it should be noted that as of late 2021, only about 16% of Americans are invested in cryptocurrencies or have purchased them before, with only 24% saying they know a lot about cryptocurrencies.

So, when you have regulators and those in power painting these protocols with a very broad brush, it doesn’t fare well for public opinion. This has created a branding issue for the space, with many’s first interactions with the space being a story they heard about ransomware or fraudsters. Many who aren’t as knowledgeable of the space will often falsely assume that cryptocurrencies are inherently private, which is another notion you’ll often hear. This is an assumption that only comes with ignorance and will likely be less prevalent as time goes on. Hopefully, this happens sooner rather than later, because it is very likely that public opinion will be needed in the fight to get proper, and fair regulation (on both privacy coins/protocols and the broader cryptocurrency space). It will likely take a lot of influence from the public if we want to avoid sweeping bans on privacy protocols.

With all that being said, it should be noted that both the number of people aware of the space and the number of people invested in the space has increased dramatically over the past few years.

Those involved in the cryptocurrency space regard privacy tokens much differently. Many see it as a useful tool for those attempting to avoid sanctions or for avoiding the prying eyes of oppressive regimes. Crypto advocates in the US often view it as a right to privacy and see the banning or sweeping regulation of privacy tokens as a violation of such. Either way, support remains largely intact by those in the crypto industry.

Regulation of some sort is likely inevitable for both privacy tokens and the broader cryptocurrency space. Unfortunately, it’s likely that these regulations will be supported by both the miseducated public as well as regulators. The EU proposal that included a wide variety of crypto regulations including the ban on privacy-based transactions, will likely not be the last of its kind. While some regulators will likely attempt to push back, it wouldn’t be surprising if we continue to see reiterations of this ban in a variety of international jurisdictions. Most of these regulations are likely to be focused on regulating people’s access to these protocols through registered exchanges since doing it on an individual wallet-by-wallet basis would be impossible. They may block exchanges from listing privacy-based protocols, or even block registered institutions from hosting wallets for these privacy tokens

The issue is, that there are other ways beyond centralized institutions to use these privacy protocols. Decentralized exchanges and non-custodial wallets will also likely be a challenge to enforce regulations on. Whether or not regulators and governments will be able to regulate these entities remains to be seen.

As governments and regulators learn more about the space, hopefully, they’ll see the benefits of privacy tokens and their positive use-case for many before slapping them with an outright ban.

Challenges of Crypto Mining

by Crista Yamasaki

Taking the lead from countries like Iceland, Norway, Sweden, and more recently El Salvador, a Wisconsin hydroelectric plant has partnered with a crypto mining startup to harness clean renewable energy to support mining operations. While the cost is one of the primary concerns for seeking alternative energy, another is in the overall image of the crypto industry and its impact on the environment. After Elon Musk famously highlighted the energy issue with BTC and other PoW coins, the industry has been criticized for the negative impact it has on the planet and communities near which they operate.

One of the largest barriers to the crypto industry and oft-cited apprehension over its expansion is the gargantuan amounts of energy required to mine and confirm transactions on the blockchain for PoW coins. After China banned crypto mining last June, companies fled to a variety of countries—namely the U.S. and Kazakhstan. At the time, an estimated 40% of mining utilized renewable energy but quickly dropped to 25% as countries like Kazakhstan are predominately supported by fossil fuels. The same is true of energy in the U.S., where old coal plants were brought out of commission to support the increasing demand. While some may have looked towards renewable energy sources, the quickest and easiest choices relied on energy already in use and immediately accessible. These sources were largely not renewable or clean.

The primary issue of crypto mining is the excessive use of fossil fuels and therefore the increased carbon footprint. The secondary issue is based on infrastructural and resource limitations. The sheer volume of energy consumption by mining operations is a problem as is the stress imposed on local power grids. As a result, clean energy can’t remedy this issue alone. One of the main reasons behind the decision to ban mining in China was blamed on the power deficit that crypto mining created. The same issue was encountered in Iceland, where new crypto operations are now blocked because the surplus of energy decreased drastically due to the influx of mining.

Fellow Nordic countries Sweden and Norway have faced a similar issue and recently made a motion to ban crypto mining in the EU. In the US, infrastructure limitations in Texas have stifled plans to accommodate incoming miners. Despite having invited mining groups to their state, local officials quickly laid out restrictions for when the power grid becomes vulnerable during the winters. Miners were asked to shut down when needed, meaning they would lose out on potential profits. As it isn’t yet a requirement, it remains at the discretion of the companies to shut down when asked by local authorities.

It’s clear that the concern over the crypto mining industry is multilayered, making solutions less singular. The issues cross-cut between politics, infrastructure, energy, and environmental barriers. Clean and renewable energy account for a portion. The first unified step towards reform from the industry came with the April 2021 Crypto Climate Accord (CCA), inspired by the Paris Agreement on climate change. This private sector-led initiative was created as a way for the industry to take accountability and minimize its carbon footprint. Furthermore, advancement in technology is on the horizon to harness geothermal energy from any point on the planet by using high-power millimeter-wave drilling. This could potentially solve the energy deficit for not only crypto miners but the global community as well.

After remedying energy sources, the industry may need to look towards direct investment into the infrastructure and governments of the locations they operate. Many governments fatigued by hosting crypto mining complain that the industry consumes more than it returns, so the value in their presence is minimal. Power grids are often built to support local communities, not entire industries. Adding an industry like mining would require updates and overhauls in order to meet the energy demands.

As the consumption level of mining exceeds most small countries, it behooves the industry to contribute to updating the foundation that supports them. In order to continue operations, symbiotic relationships would prove more advantageous to all parties concerned and change the public view on crypto. For an industry set on upsetting the status quo, the most on-brand action is to actively contribute to positive change.

The Significance of APE

There is always something going on in the NFT space—for better or worse. We have seen everything happen from people changing their lives overnight to people being scammed out of money they couldn’t afford to lose. Like with any new technology, there are people that know how to exploit holes in the current systems and take advantage of those who do not know how to protect themselves. The Bored Ape Yacht Club (BAYC), as we have all heard of by now, is continuing to set a standard that all NFT projects going forward should be taking note of. This also pertains to the launch of their $APE coin.

The $APE token was airdropped to holders of either a Bored Ape or a Mutant Ape. These tokens are going to be used for many things inside the BAYC ecosystem that will include the power to vote on ecosystem decisions, such as the use of the community funds, through the decentralized APE DAO. Anyone who is holding APE tokens can participate in the DAO operations. Yuga labs, the creators of BAYC, are trying to campaign for the token and DAO as a completely new organization. The actual creators of APE Coin are technically the ApeCoin DAO itself. The token distribution allowed for 62% of the total token supply to be for BAYC and MAYC holders. 16% is going to Yuga labs and charities, the first charity that they are contributing to is the Jane Goodall Legacy Foundation. About 14% will be used for launch contributors and the final 8% goes to the founders of the BAYC. To further keep themselves compliant with securities regulations, some of these tokens are subject to initial lockup periods and certain amounts will be released over a period of time.

The most glaring issue here is the barrier to entry at this point for a project of this size. The floor price of a Bored Ape is currently around 100 ETH. On top of the fact that they are holding a $300k piece of art, they were now basically gifted, in some situations, hundreds of thousands in free tokens. This also presents the issue of a power problem where the rich keep getting richer in NFTs.

A recurring story in Web3 is that it is not as decentralized as it claims to be. This is because these Web3 startups are heavily funded by venture capitalist companies like Andressen Horowitz and Animoca Brands. Andreesen Horowitz and Animoca Brands were two of the biggest recipients of the APE token receiving a combined 140 million tokens. The issue here is that holding that many tokens in a DAO structure means that they could have a lot of influence on the outcome of proposals and decisions in the community.

Yuga Labs also got more power as we can see in the token allocation above. This does not sound very decentralized when you consider the amount of influence those few entities will have. They also are a dominant force in the entire NFT space as Yuga has also just acquired the intellectual property of Larva Labs. Larva Labs is the creator of Crypto Punks and Meebits, both are major projects with huge followings. This is not just a BAYC issue but a broader crypto problem as well.

The team behind an NFT project is the most important part of the investment process and the long-term success of the project. Looking at the team, ApeCoin DAO is being run by some big names including Reddit Co-founder, Alexis Ohanian, FTX’s Amy Wu, and Animoca Brand’s Yat Su. The good news here is that you have a team with a lot of experience in the crypto and NFT space. The real positive is the utility they are trying to bring to the token.

The BAYC founders just raised $450 million to develop a metaverse. The plan is for a metaverse that will be using APE as the token for transactions. This also puts the valuation of the company at a staggering $4 billion. They are also looking to partner with other games to use APE as their in-game currency to further grow their ecosystem. Currently, the unaffiliated game, Benji Bananas, is already using the APE token as its in-game currency. Real-world use is also on the table as E11EVEN Residences in Miami have announced that they will be accepting APE for purchasing condo units. This opens the door for more opportunities to spend APE in the real world.

There is not much negative that can come from this; however, people may still think that all NFTs are Ponzi schemes. This is just not true and is on full display here. You have to look at the teams behind these projects and not follow the Twitter hype. There are a lot of NFT projects that claim they are going to do everything just to raise their floor price and then never do any of it. This is where BAYC is setting the standard for other projects because they set the bar high and consistently deliver on what they say they are going to do.

This still raises the question of how decentralized it is, especially with the large sums of money and control that the founders and VCs have from this airdrop. This is a running issue with most of the web3 space; however, it does not mean that it is just a money grab. They are immediately bringing virtual and real-world utility to the token. There is a lot that can be taken away from this for future and current NFT projects.

Last Week in Crypto

Crypto Regulation Looms in the Distance

Financial regulators around the world are increasingly focusing their gaze towards cryptocurrency, which has been able to run unchecked for quite some time. A recent bill passed by the European Union Parliament aims to extend existing know your customer (KYC) and anti-money laundering (AML) policies from traditional financial services to the crypto space. Some of these policies include requiring users of cryptocurrency to provide identification for both the sender and receiver for any transaction valued over EUR 1,000, regardless whether or not it is being sent from or to a private wallet or crypto exchange.

The recent EU bill comes as part of a greater push by the international community to regulate crypto in an effort to crack down on the illicit use of cryptocurrency. Canada, Japan, Singapore, and the United Kingdom have joined the EU in its efforts to force crypto services such as exchanges to have greater personal identification requirements in order to operate in their jurisdiction.

Several prominent members of the crypto community spoke out against said policies, citing their concerns that the proposed regulations are anti-innovation in nature and detrimental to the growth of the space.

Brian Armstrong, CEO of Coinbase, tweeted out his disgust with the EU bill on Wednesday.

While the potential mandates may seem over-reactive at first glance, these types of identification requirements have been a part of the traditional financial system for many years. It is no surprise to see the extension of increased KYC laws and financial surveillance into the crypto space as global adoption continues to compound. Only time will tell if these measures are as heavy-handed as the critics would claim.

Market Update - BTC

The overall cryptocurrency market capitalization is about $2.14 trillion, a 7.54% increase from last week’s valuation of $1.99 trillion. At the time of publication, Bitcoin ($BTC) is valued at $46,356 per bitcoin with a market capitalization of $881 billion making up 41.1% of the total market.

Bitcoin has seen a significant push towards the upper part of its established range this week, breaking past the $46k resistance level on Sunday after almost 3 months of consistent rejections. Price reached a high of about $48k on Monday and Tuesday and was pushed back down to test the previous resistance level as support.

While the price fell below $46k, there appears to be a reversal from a low of $44.2k which suggests that we may have seen the higher low necessary to truly push out of the prior range. With a higher low set, Bitcoin could continue onward to attempt to produce a higher high and test the $48k range once more in the future.

Terra Doubles Down on Bitcoin

Large purchases by the group behind the Luna coin may have contributed to Bitcoin’s recent price rally. The Singapore-based Luna Foundation Guard (LFG) had announced back in February that it would raise over $1 billion USD to establish a Bitcoin-based reserve treasury for its TerraUSD ($UST) stablecoin. The stablecoin would operate on the Terra ecosystem alongside the Terra ($LUNA) coin, acting as a stable coin of value pegged to the U.S. dollar.

A wallet that is rumored to belong to LFG has quietly accumulated large amounts of Bitcoin since late January and has yet to sell any of its holdings. According to results from BitInfoCharts, the wallet now has a balance of 30,727 BTC, equivalent to nearly $1.5 billion USD.

The Luna Foundation Guard is quickly becoming one of the largest organizations that holds Bitcoin in its reserves, and could soon challenge Tesla’s position as the second-largest institutional holder of Bitcoin. Tesla currently holds 43,200 BTC, while the largest known institutional holder MicroStrategy holds 125,051 BTC. For more information on Terra’s Bitcoin acquisition, see our article found here.

NFTs and Broken Promises

NFTs have quickly become one of the hottest buzzwords of the post-COVID era. Regardless if you are looking at gaming companies, sports leagues, or even clothing brands, it seems everyone and anyone is jumping on the NFT hype train.

But a closer look at the NFT industry raises more questions than it has answers. News of mounting scams and rug pulls in the field has garnered the attention of federal authorities as more and more people buy into the NFT craze and end up with half-finished products rendered useless by the abandonment of its creators.

While there are countless projects that fail to live up to their hype, the handful of successful NFT projects have become so exclusive that it is unrealistic for the average buyer to participate. Cryptocurrency as a whole was created as a promise to provide inclusivity and remove the barriers of entry that is often found in traditional financial structures. NFTs may have started as an equal opportunity system but has devolved where a schism has formed between early adopters who may have been lucky enough to buy valid projects and others who are not endowed enough to purchase expensive collections and are looking for the next best thing.

The current NFT economy has reinforced one truth in the digital space: do your own research (DYOR). The promises of wealth and valuation increases are quickly washed away as speculative dreams turn into investment nightmares. For a thorough analysis of the current NFT culture, please read our article found here.

Thanks for reading! For more information regarding the cryptocurrency space, please visit us at https://www.cryptofal.com/.

April Newsletter