Tether Grows, Whales Dump, and ETH Hash Rate at ATHs

AUG 25, 2021 • 4 Min Read

Joo Kian Joo Kian
Disclosure: Delphi Ventures and members of our team have invested in BTC and ETH. This statement is

Market Update

The market is continuing on yesterday’s consolidation, with BTC and ETH moving lower. L1s like SOL, LUNA, and FTM were affected the most given the L1 run-up the past week. AVAX and BNB, however, remained resilient during this pullback. From the NFT universe, CryptoPunks do not seem to be fazed as floor prices pushed up for another leg, going from ~63 ETH to ~78ETH (+24%) today.

USDT Grows, USDC Lags

  • USDC was one of the most favored stablecoins, with exponential growth over 2021. This was, in part, due to higher confidence in USDC as it held reserves in cash compared to USDT’s reserve, which has higher risk through commercial paper (a form of unsecured debt) holdings. USDT’s underlying risks were thus higher than USDC’s. However, in a recent turn of events, USDC’s reserve was revealed to also have riskier assets like commercial papers and corporate bonds, albeit lesser than USDT. And that could’ve been one of the prompts for USDC’s large redemptions this month.
  • Coupled with the market run-up in the past month, USDT was in prime position to capitalize on inflows, issuing between $300 mn and $400 mn a day in mid-August.
  • Since then, Circle announced their desire to reallocate the assets backing USDC into cash and short-term U.S. Treasuries. This reduces solvency risk for USDC and will likely cause investor confidence in USDC to re-emerge.

Are Whales Selling?

  • Analyzing the recent run-up of Bitcoin, the total BTC held in whale wallets (defined as containing 1K-10K coins) fell from about 5.3M to 5.23M in August so far. While a 1.4% drop might not seem drastic, whale holdings are usually quite stable.
  • Meanwhile, smaller wallets with 1-1000 BTC began accumulating slightly more. The so-called “minnows” increased their holdings by .2% in August, up to 9.8M BTC.
  • Generally, this is a fairly bearish signal as this can be indicative of whales and institutions taking profit while retail holds the bag. Looking back at the run-up, whale wallets accumulated BTC till it hit approximately $45K, and began taking profit as it breached $50k.

Ethereum Mean Hash Rate at ATH

  • Ethereum’s hash rate grew to an all-time high of 611 TH/s, last seen at the peak of this cycle in May 2021.
  • The network’s transition from Proof-Of-Work (POW) to Proof-Of-Stake (POS) consensus is expected to occur in Q1/Q2 2022 and would spell the end of POW mining.
  • To further miner pains, the implementation of EIP-1559 has affected miner revenue as a large portion of their earnings from transaction fees is now being burnt. Fees are now split into a “base fee” and a “tip”. Only the tip is paid to miners, while the base fee is burnt. Despite the numerous headwinds for ETH miners, mining doesn’t seem to be slowing down.

Lightning Network Activity Ramps Up on Adoption

  • Lightning Network (LN) is an L2 solution on Bitcoin to improve on its scaling limitation, making it possible for fast transactions and micropayments using BTC.
  • Strike is a digital wallet built on LN, and they are one of the key players influencing the adoption of the Lightning Network. Strike played a key role in El Salvador’s push to make BTC a legal tender in the country.
  • BTC locked in LN and active nodes on the L2 started out slow at the start of the year (and over the last 5 years) but ramped up in June after the El Salvador announcement. It seems reasonable to expect the current trajectory of growth to continue in the coming months.

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