Ethereum Miners Bet Big on Upgrade Delay

What you need to know today in crypto and beyond

August 13, 2021

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Today's must-reads

Top Shelf

MAJOR ETH MINING: Major bitcoin miners are increasing their investments in Ethereum, despite the network’s upcoming change to proof-of-stake. Industry heavyweights are now aiming to move to break into Ethereum mining, which currently consists of more individual miners than large-scale companies, to cash in on bigger profits than expected from bitcoin mining.

FTX MAKES MOVES: FTX.US, the U.S. affiliate of crypto exchange FTX, intends to offer cryptocurrency derivative trading in less than a year. In an interview with Business Insider, FTX.US President Brett Harrison said it will achieve this goal by either launching its own service, which would require a license, or by acquiring a company.

TAX TIME: Crypto tax software firm TaxBit announced a $103 million Series B raise that values the startup at $1.33 billion. IVP and Insight Partners led the round just five months after TaxBit’s Utah-based team raised its first $100 million. The startup, which provides reporting software to the IRS and select institutional clients, has grown headcount to 120 and added a second base in Seattle.

–Eleanor Pahl & Eli Tan

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Overheard on CoinDesk TV

Sound Bite

“If you have these overly broad approaches to legislation, you’re going to set back ... how the industry is able to innovate”

–Former Utah legislator and Blue Castle Holdings CEO Aaron Tilton, on the infrastructure bill, on CoinDesk TV’s “First Mover.”

What others are writing...

Off-Chain Signals

–E.P. & E.T.

Sponsored Content

Foundry: China is getting out of crypto mining. Is North America ready to embrace it?

To strengthen Bitcoin through geographic decentralization of its mining network – the infrastructure that forms the coin’s backbone – Foundry launched Foundry USA Pool in February 2021. The pool serves as a strong, U.S.-based alternative to the China-dominated mining pool industry.

Putting the news in perspective

The Takeaway

The Dollar Is In the Doghouse

This Sunday, Aug. 15, will be the 50th anniversary of the end of the Bretton Woods currency system. After World War II, major nations essentially agreed to peg their currencies to a gold-backed dollar. But by 1971, faith in the U.S. dollar was eroding, forcing President Richard Nixon to end the dollar’s convertibility to gold. This ushered in the current status quo of relatively free-floating “fiat” currencies.

That long-ago decision still has major implications today. Over the past few months, massive coronavirus pandemic relief spending in the U.S. has triggered worries that faith in the dollar’s soundness could be shaken again as it was 50 years ago. The dollar’s share of central bank balance sheets is still a dominant 59%, but has been slowly declining – threatening to take with it a number of economic and political advantages.

To better understand the road ahead, I’ve been examining the viability of various currencies as central bank reserves, including the euro, the Japanese yen and the Chinese yuan, as well as bitcoin or other digital instruments. That analysis will be published soon, but I wanted to hit on a few highlights of what I learned talking to currency experts.

First, despite high anxiety about the yuan’s rising influence, China faces a deep, possibly unsolvable conflict between its global currency ambitions and its domestic economic agenda: The CCP maintains tight currency controls to encourage domestic investment, but a reserve currency must be freely tradable.

Between that conundrum and the inconsistency of Chinese regulation, experts are generally skeptical that the yuan can climb much in the global reserve rankings anytime soon. Japan, meanwhile, doesn’t sell enough debt abroad for its bonds to take up a large share of global reserves.

Among current options, the euro seems to be the most serious competitor to the dollar, thanks to the large eurozone economy behind it and the relatively open and responsible management of the ECB. A major recent step that makes this more plausible was the ECB’s decision to issue eurozone-wide bonds to fund pandemic relief programs.

That’s ironic given that rising global debt levels are also a pillar of the case for central banks to hold bitcoin as part of their reserves. The coronavirus has fueled a massive surge in global debt, which as of earlier this year stood at 365% of global GDP.

If the world were a single country, that ratio would be a five-alarm fire – especially since so much of it is held by central banks of the countries that issued the debt, which economists including Eswar Prasad argue amounts to money printing. The case for individuals to hold bitcoin rests on the idea that central banks are inevitably tempted to debase their currency through this sort of inflationary policy.

The same argument could be made for central banks: that the debt of other countries presents a large and rising risk. Bitcoin, by contrast, is effectively a commodity rather than debt, making it safer from some perspectives. For now, however, bitcoin’s price volatility remains a major obstacle to national adoption.

Nonetheless, interest in the idea has exploded since El Salvador first dipped its toes in. Much of that has been from countries with weak currencies, such as Argentina, where President Alberto Fernandez this week expressed a degree of openness to using bitcoin.

This, I think, is where to watch for the next major wave of bitcoin adoption: smaller nations with troubled currencies or histories of monetary mismanagement. For them, bitcoin is something entirely novel: a store of value that’s not dependent either on their own central bank, or a potentially hostile third nation. It’s clear they’re paying attention to the possibilities.

–David Z. Morris

The CoinDesk DeFi Index (DFX), measuring the investable DeFi market, is now available for investors watching decentralized finance.

It is the latest index by CoinDesk Indexes, the market standard for crypto assets since 2014. The DFX provides a market-cap-weighted index for a representative basket of DeFi-sector cryptocurrencies that is designed to be investable and replicable for professional investors.

Find out more at coindesk.com/indexes/dfx, or email indexes@coindesk.com.

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