September Newsletter
About FAL Cryptocurrency
FAL Consulting is a cryptocurrency consulting company. We provide a wide variety of services related to cryptocurrency and blockchain. You can find a full breakdown of our services at cryptofal.com.
Written by Drew Feliciano and Michael Vescera
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. This month, we’ll be focusing on the four coins of the month, EIP-1559, the progress of cryptocurrency ETFs, some NFT tips, and diving deeper into the infrastructure bill.
Coins to Follow This Month
In this section, we cover the coins we’re watching this month.
Chainlink (LINK)
Chainlink is a decentralized oracle blockchain built off of Ethereum. As an oracle token Chainlink can translate English contractual terms into something that the Ethereum blockchain smart contracts can understand. It acts as a data payload by providing the smart contracts with the relevant data. With its initial white paper being released in 2017, Chainlink has made its way to becoming one of the top 15 cryptocurrencies by market capitalization.
Chainlink’s ratio to BTC is potentially gearing up to continue the upward trend it has been displaying over the past year or so. That, and in the shorter term, it looks like it’s attempting to settle near the bottom of the uptrend range it has been moving in since 2019. This could mean that we could see some movement with the broader altcoin market to the upside in its ratio to Bitcoin, as well as a movement more specific to Chainlink’s movement patterns in its ratio to BTC.
Chainlink has been another token that may be gearing up to make a move with the broader cryptocurrency space. It has been forming strong lower support around the lower $24.15 to $24.70 range. Momentum looks to be gearing up as well on the daily candle chart according to MarketCipher.
Ethereum (ETH)
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 into 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.
Following the release of EIP-1559, Ethereum’s price action has moved significantly to the upside. It follows the overall market movement that has continued upwards since the short-term low on July 20th. The uptrend since then continues to be strong with it starting to recover a large share of the losses seen in May and June, and settling in its current range.
In its ratio to Bitcoin on the weekly candle chart, Ethereum looks like it could potentially be gearing up to test points of resistance that we have not tested since late May and early June. With this weekly candle breaking out in the ETH/BTC ratio, Ethereum may continue to test upper resistances in its ratio to Bitcoin.
Over the past couple of weeks, Ethereum has started to move sideways, with a slight breakout recently. With gas fees through the roof over the past couple of weeks, the network is still seeing large amounts of congestion as demand and use surges, however, if short-term support and uptrends hold, we may continue to see strong pushes from Ethereum.
Bitcoin (BTC)
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 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.
Being the largest cryptocurrency, Bitcoin often dictates the overall market movement. For cryptocurrency investors, Bitcoin price action is an important factor whether one has direct exposure to Bitcoin or not. Following the short-term lows set on July 20th, Bitcoin has shot to the upside maintaining both higher lows and higher highs as of yet. It has broken through many short-term resistance trends and continues to do so on its way back up.
Bitcoin has faced heavy resistance approaching $50,000, and had broken below an uptrend pattern it started back in July. However, support in this range still seems strong for now. That being paired with current fundamental outlooks as well as positive market sentiment show a fairly positive outlook on BTC price action as long as these shorter-term supports hold.
Cardano (ADA)
Cardano is a decentralized, layer-2 blockchain protocol. The Cardano blockchain protocol has the highest percentage of its total supply staked in the cryptocurrency industry. Since Cardano’s blockchain has layer-2 scaling capabilities it boasts both cheap fees and quick transactions. Like Ethereum, Cardano is also an ecosystem coin. From a technical standpoint, Cardano has a much smaller market cap, meaning it is more likely to move with more volatility, but it could also potentially indicate more room for growth than the largest ecosystem coin, Ethereum.
Cardano has seen a continuation of a tremendous uptrend following the news of its smart contract launch in September, as well as its release to the Japanese market. In August, it was announced that the hard-fork, Alonzo, is planning on being rolled out on September 12th. Smart contract capability is a huge feature for any blockchain protocol looking to expand its use case scenarios to community development. This will allow for the development of decentralized apps as well as tokens based on the ADA network, and more!
In anticipation of these events, Cardano has made exponential gains, rising to a new all-time high of $2.97 before seeing a slight correction in reaction to overall market movement and settling in its current range. Above is the ratio of ADA to BTC which could be signaling a potential slowdown in ADA’s outpacing of the rest of the overall market. While some technicals could be showing this, it is important to keep in mind the fundamental developments as well such as their smart contracts going mainnet on September 12th.
Market and Investment Updates
This section of the newsletter covers updates to protocols, as well as developments in the overall cryptocurrency market.
EIP-1559
Following Ethereum’s new update released on August 4th, EIP-1559 Ethereum was provided with a potentially revolutionary deflationary mechanism through token burning. This changes the way that the Ethereum fee structure operates by burning a dynamic base amount of the transaction fee on the Ethereum blockchain. This was a somewhat controversial move for the Ethereum community, especially for miners because this would mean that there’d be a certain amount of the asset burned instead of being sent to them.
Many ETH miners were against the passing of this protocol, with this taking a large share of their profits, however, the protocol decided in favor of the deflationary feature. This adds a potential scarcity effect to Ethereum’s technically uncapped total. Since this influences the entire network, when Ethereum is used, portions of the gas fees are now directly burned. This includes every Ethereum-based DEX transaction, like on Uniswap.
This means, the more the network is used, the more tokens are burned. Along with the increase in demand for Ethereum, this should help increase the price value in the long term by potentially creating a supply shock. This acts as a potential deflationary control for Ethereum’s technically uncapped supply. This is something Ethereum has been attempting to implement for a long time, however, it wasn’t until fairly recently that EIP-1559 went mainnet because of its controversy.
SEC Delays ETFs
With the rise in popularity of cryptocurrency over the past year, many investors and large institutions have been trying to get themselves (and their clients) exposure to the space. Countries such as Canada, Brazil, and Dubai have launched BTC and Etherium ETFs recently allowing people to further diversify their portfolios.
A Bitcoin ETF is simply an investment product that mimics the price of one or multiple assets with a focus on sustainable growth (also known as a derivative). The reason a BTC or Ethereum ETF being approved is important for the growth of the crypto market is because it gives traditional investors a way of buying shares of BTC without having to buy directly from a crypto exchange. Retail investors may prefer to purchase from a traditional and regulated exchange they are familiar with.
Countries outside the US have already gotten the ball rolling by approving multiple BTC and Ethereum ETFs but in the US; however, Valkyrie, WisdomTree, and the Vaneck have had their ETF decisions delayed by the SEC. Sadly, the SEC says that they are going to delay all applications of an ETF for “as long as legally possible.” The most likely reason for these delays is the volatility and possible manipulation of the market.
Investors will usually choose an ETF for its consistent growth and low risk. BTC has shown consistent growth over the long term, but it is the extreme short-term volatility and large amounts of supply held by pseudonymous people that could possibly swing the market up or down with one transaction. That is the risk that the SEC is trying to assess and receive an expert opinion on whether it is a safe product to offer to investors.
These delays have led to companies getting creative in how they are applying to offer an ETF to their customers. Invesco has recently submitted their application for an ETF with a twist that they think will sit better with regulators. They proposed to have their ETF based on the futures contracts of BTC rather than mimic the current price as futures prices are less volatile. There is no sure answer as to when or what it will take to get the SEC to approve an ETF in the US, but they have started the conversations.
Blockchain and Fintech
This section covers a variety of blockchain-oriented guides or news, as well as developments in the broader FinTech space.
NFT Trash, or NFT Treasure?
Knowing what to look for in the NFT market can be difficult, especially when you’re just starting out. That’s why we’ve decided to take a closer look at what you should watch out for when looking for NFTs.
One of the first things we look for is a detailed and transparent roadmap on their website. This is important for providing potential buyers/hodlers with an idea of the long-term goals of the project. The status of the community itself is an important feature as well. Many NFT communities will use Discord and Telegram as well as their social media accounts to assist in creating an active community. It’s important to take a look at the community before deciding whether you want to purchase it or not.
Along with daily volume, the number of tokens in comparison to the number of owners can play a role when certain NFT collections grant you community access. However, not all NFTs grant access to a community or exclusive features, some are just desirable pieces of digital art.
Checking the current floor price in comparison to the minting price is another metric to look at. Finding out if IPFS technology is used to ensure that any hidden linked content that’s a part of the NFT cannot be changed or removed since it is on the blockchain may also be something you want to look at. Certain NFTs with hidden content will give a link, IPFS ensures that these links cannot be taken down by servers, change of domain ownership, etc. They are immutable, protected, and stored on the blockchain.
Deciding whether you want to invest in an NFT collection will largely be reliant on looking at some of these factors as well as your own research.
What Does The New Infrastructure Proposal Mean For Crypto?
After months of negotiations, the U.S. Senate has passed the $550 billion infrastructure bill to the House of Representatives for approval. This bill will go towards fixing roads, bridges, and more with this new government funding. This is good for Americans as it will create jobs and things of that nature in the short term; however, in the next 10 years, this bill is said to add $265 billion to our already staggering $28 trillion. Government-funded projects are generally paid for with tax dollars among other factors.
What stood out on this bill for the crypto community was the tax implications. The infrastructure bill defines a crypto broker as anyone “responsible for and regularly providing any service effectuating transfers of digital assets on behalf of another person.”
This would mean that miners and software engineers will not only be taxed as a broker, but they would also have to record all of their clients’ names, addresses, and transactions as well as report them for tax purposes.
Anne Fauvre, COO of Oasis Labs, a cloud-based blockchain company, said in her interview with Yahoo Finance that, “It would require taxation in a way that isn’t even possible,” she said. “It would require people to send 1099s to people who are anonymous or who you don’t have a direct relationship with.”
This could hinder the growth and innovation of the crypto space as it makes it harder and more complicated for businesses to operate in the United States.
FTX.US Acquires LedgerX
FTX, one of the largest cryptocurrency derivatives platforms and exchanges, recently acquired the derivatives platform, LedgerX. The amount that LedgerX was acquired for was not disclosed by either party. LedgerX is regulated by the CFTC, Swap Execution Facility and Derivatives Clearing Organization and is intended for both institutional investors as well as retail investors.
FTX says that this will provide FTX.US with the ability to provide traders with options and futures contracts for both retail and institutional investors, directly expanding spot trading services. Currently, LedgerX is also even able to use in New York State.
Could this be FTX taking steps to eventually provide services even in NY State? We can only hope.
More News
Here we cover miscellaneous crypto-related news, topics, or charts.
FUD Comparison
Around the time China banned a significant amount of cryptocurrency-related activity, Bitcoin’s price dove about 31%. Of course, there was other news at the time that could have influenced this price action as well. Elon Musk's change of heart on Tesla accepting Bitcoin payments had occurred just days earlier. After Tesla's announcement, China announced its cryptocurrency bans which had a direct influence on price action.
Fast forward a few months later, and the US proposed new rules that many thought would yield similar results in FUD (fear, uncertainty, and doubt) led price action.
Protocols With Highest Staked Value
This is an important metric to look at because it shows which coins have the largest amount of funds staked, as well as the percentage staked in comparison to the total in circulation. Individuals who stake a token usually plan on holding it longer-term. With approximately 69% of Cardano in circulation being staked, that means only about 31% is available for active trading.