Autor Cointelegraph By Anirudh Tiwari

The biggest letdowns in crypto and blockchain in 2021

The biggest letdowns in crypto and blockchain in 2021

Uverejnil používateľ | dec 23, 2021 |

2021 has been one of the most interesting years for blockchain technology and cryptocurrencies, both in terms of adoption and mainstream acceptance. From governments such as El Salvador to large corporations like Tesla, Goldman Sachs, Bank of America and Morgan Stanley, many institutions have made a step toward becoming a part of the ecosystem.Even so, there were a few issues and events that soured the mood for cryptocurrency investors and the community in general.SEC’s rejection of VanEck’s spot Bitcoin ETFFollowing the United States Security and Exchange Commission’s approval of ProShares’ Bitcoin (BTC) futures exchange-traded fund early in October, Bitcoin rallied to a new all-time high of $68,789.63 on Nov. 10, as per data from Cointelegraph Markets Pro. The ProShares Bitcoin Strategy ETF, which trades under the ticker BITO, had the biggest ever first day of any ETF in terms of natural volume, indicating how highly awaited the launch of a BTC ETF was.Soon after, on Nov. 12, the financial regulator spoiled the party by rejecting Van Eck’s proposal for a spot Bitcoin ETF, which led the price of the flagship cryptocurrency to start its downward spiral journey.Jan van Eck, CEO of VanEck, wasn’t pleased with the rejection.We are disappointed in today’s update from the SEC declining approval of our physical bitcoin ETF. We believe that investors should be able to gain #BTC exposure through a regulated fund and that a non-futures ETF structure is the superior approach. @tyler @gaborgurbacs— Jan van Eck (@JanvanEck3) November 12, 2021The bid to get approval from the SEC for a spot ETF has been going on for more than eight years, since July 2013 when Cameron and Tyler Winklevoss tried to launch the “Winklevoss Bitcoin Trust.” Even though such a long time has passed and the narrative around cryptocurrencies has changed, Gary Gensler’s SEC has not yet approved a spot ETF for Bitcoin.Related: VanEck’s Bitcoin spot ETF shunt solidifies SEC’s outlook on cryptoEric Balchunas, senior ETF analyst at Bloomberg, opined on the SEC’s rejection. Balchunas has been vocal about the SEC’s rejection of the several spot ETF applications that have been filed. He has become one of the prominent voices tracking new ETF developments surrounding cryptocurrencies like Bitcoin and Ether (ETH).She (the SEC) is Just Not That Into You (Spot Bitcoin ETF Filings) = my summary of @JSeyff great note today explaining why spot bitcoin hopes are so bleak (unfortunately). The bar SEC sets is so high and so inconsistent one can only conclude they just don’t want to see it happen. pic.twitter.com/7HRDReWF2N— Eric Balchunas (@EricBalchunas) November 18, 2021

Ethereum network: Gas fees out of controlThe Ethereum network underwent a landmark upgrade in 2021: its London hard fork, which put ETH on a deflationary trajectory with Ethereum Improvement Proposal (EIP) 1559. As of the time of writing, 1.244 million ETH has been burned, valued at over $4.96 billion. Along with the burn mechanism being introduced, Ethereum gas fees also saw a huge spike in light of the increased utilization of decentralized finance (DeFi) protocols on the blockchain and the proliferation of Ethereum-based nonfungible tokens (NFTs) in the cryptoverse. Gas fees continue to cross 100 gwei, even leading up to 2022. “Gwei” is the smallest unit of Ether, equal to 0.000000001 ETH.The gas fees on the network hit a yearly high of 373.8 gwei on Feb. 23. Even though gas fees seemed to be in control between May and August, there have since then been several instances of spikes that are highly unfavorable, especially for retail investors in the DeFi markets. This has also led to several DeFi protocols and investors choosing alternative blockchain networks, such as Binance Smart Chain, Solana, Polygon, etc.Say wooooot? #eth #gasfees pic.twitter.com/JdO3j0pgtL— Ceeeebastian⭕️ (@ceeeebastian) December 18, 2021

In order to address this ongoing issue, Vitalik Buterin, co-founder of Ethereum, has suggested the upgrades EIP 4448 and EIP 4490, which would serve as a temporary fix by resorting to a method known as data sharding, which would cut costs for zk-Rollups on the blockchain.However, it remains to be seen whether the proposal will pass the governance structure of the network and how effective these upgrades will actually be in reducing gas fees.Related: London’s impact: Ethereum 2.0’s staking contract becomes largest ETH holderSolana network: Outage and DDoS attackLaunched in April 2019, Solana has grown rapidly to become one of the leading blockchain networks, with a total value locked (TVL) of almost $12 billion. The network’s native token, SOL, has increased in price by almost 130 times given the current price of around $180. The token hit an all-time high of $260.06 on Nov. 7.However, on Dec. 4 at 13:46 pm UTC, the Solana network suffered an outage that lasted nearly six hours. The mainnet beta cluster of the network stopped producing blocks at slot 53,180,900, which stopped new transactions from being confirmed on the blockchain. This outage drew criticism from various traders and developers, who took to Twitter to criticize the network.Scott Lewis, co-founder of DeFi Pulse, was one of the critics, citing Serum’s order book data as evidence of a lack of “real customer orders.”hey! someone forgot to turn on the “real customer orders that are definitely not a bot” for serum now that solana is back up.No new trades in the last 2 hours? pic.twitter.com/fCJ6hqCjvn— Ξ (@scott_lew_is) December 4, 2020

This wasn’t the first outage Solana experienced this year. Back in September, the network suffered a 17-hour outage between Sep. 14 and 15 due to a distributed denial-of-service (DDoS) attack targeted at Grape Protocol’s initial decentralized exchange offering on Sept. 14. During a DDoS attack, a large number of coordinated devices or a botnet congests a network with fake traffic in an attempt to take it offline.Soon after the second outage on Dec. 4, the network was hit by another DDoS attack on Dec. 9 that temporarily congested the network, although it managed to stay online throughout the attack. Related: Scalability or stability? Solana network outages show work still neededEven though the attack was blamed on Solana’s fundamental design and use of its proof-of-history consensus mechanism, the developers still seem to have faith in the network’s potential. Solana co-founder Raj Gokal elaborated on the DDoS attack on Twitter:if you’re not helping the @solana community focus on those metrics, if you’re lying or perpetuating lies, if you’re competing for the tiara and bouquet in the hater’s ball…save your tweet threads until you’re ready to do the hard work of scaling crypto.until then, fuck off.— Raj Gokalᵍᵐ (@rajgokal) December 12, 2021

In the aftermath of the DDoS attack, Solana’s on-chain development efforts saw a noticeable spike in terms of daily GitHub submissions. In fact, the network surpassed Polkadot and Cardano to become the most developed blockchain network between Nov. 12 and Dec. 13.Binance Smart Chain network: Security exploitsBinance Smart Chain is the parallel chain to Binance Chain, with both blockchains designed and maintained by the cryptocurrency exchange Binance. BSC was first unveiled in April 2020 and launched soon after in August 2020.Since then, the network has grown to become the second most widely used blockchain to deploy decentralized applications, after Ethereum. According to DefiLlama, the TVL in DeFi protocols on the network currently stands at nearly $17 billion. The TVL hit an all-time high of $31.72 billion on May 10, at the peak of the previous bull run in the market.However, the network and the protocols running atop it have been extremely vulnerable to security exploits ever since its launch. Below is a list of some of the DeFi protocols on BSC that have been a victim of security exploits and hacks:Considering that the list above isn’t exhaustive in nature, it is safe to say that there have been hacks and security breaches leading to losses of hundreds of millions of dollars in the 18 months that the network has been in operation. In addition to these security exploits, there have been several phishing attacks on the PancakeSwap decentralized exchange alongside Cream Finance.Related: DeFi hacks on Binance Smart Chain rise as TVL and volumes increaseHowever, the Binance ecosystem is attempting to address this issue in several ways. The latest effort is the introduction of Project Shield, a security audit program that will add an additional layer of protection for users attempting to gain exposure to both BEP-20 and ERC-20 tokens on the Binance exchange.Plenty to look forward toDespite these instances and issues leading to disappointments for the crypto community in 2021, it is evident that the growth in digital currency use is higher than ever before. With innovations like NFTs, GameFi and the Metaverse, the cryptocurrency domain is tapping into the next big thing in the world of art, gaming, music and finance with a single innovation that will change these industries for the better.

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Crypto derivatives can foresee price action but need institutional buzz to truly shine

Crypto derivatives can foresee price action but need institutional buzz to truly shine

Uverejnil používateľ | dec 17, 2021 |

The cryptocurrency market has been under a period of duress, with a majority of the tokens in the cryptoverse witnessing a price slump that has set in since the first week of December. The flagship cryptocurrency token, Bitcoin (BTC), underwent a flash crash on Dec. 4, wherein the price of the token fell below $50,000 in nearly two months, as per data from Cointelegraph Markets Pro.This phenomenon was witnessed among the majority of the cryptocurrency tokens as the market was gradually painted in red. Ethereum and Ether (ETH) came to be the network and token of choice for a majority of decentralized finance (DeFi) protocols as Ether witnessed a 19% price drop.However, BTC and ETH also have a healthy futures and options market that could’ve played an important role in foreseeing this ongoing price slump for these tokens.Coinindicing with the price crash on Dec. 4, $950 million worth of BTC options expired, wherein bears had the advantage over the bulls even at the time when the price was trading at $57,000. The options data leading up to this expiry suggested that it was skewed toward the market forces being bearish due to a high proportion of put options below the $57,000 mark. A put option is a contract that gives the holder of the option the right (but not the obligation) to sell a predefined amount of the underlying asset at a predetermined price.A call option is one in which the option holder has the right to buy the underlying assets under similar conditions. The proportion of put options in comparison with the call options leading up to an options expiry is highly indicative of the sentiment that prevails in the market for the underlying asset. In this case, there was a clear indication that markets were heavily bearish even a week before the expiry and the price flash that went hand in hand.The forces in playLuuk Strijers, the chief commercial officer of crypto derivatives exchange Deribit, spoke to Cointelegraph about the signs in the derivatives data that gave an inkling about the incoming crash: “Prior to the weekend correction, we saw a spike in IVs possibly related to post-expiry related selling. There seemed to be some uncertainty in the market, and we saw Risk-reversal strategies being traded (Sell OTM Call + Buy OTM Put).”Since the expiration date for an option is the last date on which the option holder can either decide to exercise the option of either executing the buy or sell order of the underlying asset or the holder deciding to forfeit the option and let it expire becoming worthless, expiries often become significant events that impact the price dynamics of the underlying asset, in this case, Bitcoin. Strijers opined on the impact of this particular expiry on BTC, saying: “Difficult to tell for certain. However, more and more people watch the expiry and open interest levels at certain key strikes which amplifies the relevance of the larger expiries.”Adam James, senior analyst at OKEx Insights, the research arm of crypto exchange OKEx, spoke with Cointelegraph about signs leading up to this crash: “The most obvious signs that a crash may be impending were the extremely high open interest and positive funding. Those two things don’t generally bode well and often require a flush.” He added further:“The cascading sell-off we saw on Saturday was just that flush — thin weekend order books made it easy to steamroll overleveraged longs and cause something of an OI reset. As it happened, the crash was one of the largest capitulating events in BTC’s history.”Despite this phenomenon being an indication that the price of the underlying assets and the derivatives markets are closely related, the size of the markets is still only a blip on the size of the spot markets.Institutional investors could be the game-changerConsidering the derivatives markets that exist for the top two cryptocurrency tokens, BTC and ETH — though with significant growth in open interest — it is a very small percentage of the spot markets and its current market capitalization for their assets. The open interest (OI) for BTC options has grown more than tenfold from nearly $1 billion on July 1 to stand at around $11.4 billion at the time of writing. The OI hit an all-time high of $15.72 billion on Oct. 20. Soon after, BTC hit an all-time high of $68,789.63 on Nov. 10.Considering that the total market capitalization of BTC in the spot markets in the same duration was over $1 trillion, it is highly evident that cryptocurrency options are only in their nascent stages and, even still, play a vital role in the price discovery and forecasting abilities for the asset. A similar phenomenon is observed when taking a closer look at the OI data for ETH too.Cointelegraph discussed the size of the crypto options markets with Igneus Terrenus, head of communications at cryptocurrency derivatives exchange Bybit: “When you compare it either to the options market in the commodities space or what Robinhood offers for stocks, what is currently available in the crypto options market seems to be inadequate for both institutional and retail traders.”Institutional investors could be the game-changer to enable drastic change in the crypto derivatives market by exponentially increasing the size, liquidity and depth of these markets. Goldman Sachs, the investment banking giant that revived its defunct cryptocurrency trading desk amid this bull run, predicted that the cryptocurrency options market could be seen as the next frontier for institutional adoption of crypto. The wall street bank themselves announced plans to expand their crypto trading desk to engage with BTC and ETH derivatives products as well.However, Strijers explained that institutional investors coming into the crypto derivatives market is a slow-moving process, especially due to Know Your Customer (KYC) and due diligence processes. He said, “In November, we have onboarded more institutional clients than any month before — the larger the firm, the longer the mutual onboarding process.” He went on to add: “Now, those large clients have an extensive platform and a due diligence procedure as well, especially the ones offering third party asset management in some form, like the multi-billion dollar macro funds, for example.”Other Altcoins play catch upCurrently, there is a liquid options market that exists only for BTC and ETH on various cryptocurrency exchanges like Deribit, LedgerX, OKEx, FTX and even the Chicago Mercantile Exchange (CME), the largest derivatives exchange in the world for traditional asset classes. However, there are no options products available for other prominent cryptocurrency tokens like XRP (XRP), Solana (SOL), Binance Coin (BNB), Polkadot (DOT), and many others, even though these tokens have a highly liquid spot market and even a futures market. Strijers explained further the reasoning behind this existing scenario: “We plan to make SOL products available soon. Beyond that, it remains to be seen as we require proper market maker coverage at all times, including, for example, Sunday evening and other times, in all strikes and expiries. We can’t rely on a handful of market makers, but need many more.”Related: Cryptocurrency derivatives market shows growth despite regulatory FUDNonetheless, there is also a liquid futures market that is available for several of the top cryptocurrencies, even including the meme coin Dogecoin (DOGE) and the native token of the nonfungible token (NFT) game Axie Infinity (AXS). Even still, the OI of the futures-based products of these tokens hasn’t even touched $1 billion despite the market concluding one of the longest bull runs that the ecosystem has ever witnessed.The token, apart from BTC and ETH, that has the highest OI for its futures is SOL, standing at nearly $870 million at the time of writing. Next in the ranks is DOT, with an OI of $573 million, followed by BNB with an OI of $521 million.Considering that all of these altcoins have a spot market capitalization of over $50 billion, the futures market for these tokens is currently only a small proportion of their total market capitalization. This indicates that even though there is a liquid futures market for these assets, its size is very small to have a significant impact on price, although they do play a role in price discovery of the underlying token.As institutional and retail adoption of cryptocurrencies is seen to be growing by leaps and bounds in the past year, their involvement on the derivatives side of the market will also increase over time, especially once institutional giants like Grayscale jump to the fore and get heavily involved in this market pushing market and pricing efficiencies for these assets.

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