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Distributed Ledger: Bitcoin to record the worst first half of a year in history. Here’s what to watch in crypto for the second half.

Hello! Welcome back to Distributed Ledger, our weekly crypto newsletter that reaches your inbox every Thursday. I’ll walk you through what’s going on in the current bear market.

As usual, find me on Twitter at @FrancesYue_ to send feedback, or tell us what you think we should cover. You can also reach me through email to share your personal stories with crypto.

Crypto in a snap

Bitcoin BTCUSD, -5.92% lost 4.9% over the past seven days, trading at around $19,123 on Thursday, according to CoinDesk data. Ether ETHUSD, -7.66% lost about 3.7% over the seven-day stretch to around $1,036. Meme token Dogecoin DOGEUSD, -8.05% gained 4.6% while another dog-themed token, Shiba Inu SHIBUSD, -3.08, went up about 3.7% from seven days ago.

Crypto Metrics
Biggest Gainers Price %7-day return
TerraClassicUSD $0.05 516%
Amp $0.01 31%
Tenset $3.67 18.7%
Evmos $1.98 15.3%
The Sandbox $1.04 10.6%
Source: CoinGecko as of June 30
Biggest Decliners Price %7-day return
Synthetix Network $2.21 -25.8%
Elrond $48.66 -16.8%
Zcash $53.11 -16.3%
Waves $4.99 -16.7%
Bitcoin SV $54.25 -12.3%
Source: CoinGecko as of June 30
A bloody first half

Bitcoin is down about 58.8% so far this year, on pace for its worst first half of a year in history, according to Dow Jones Market Data. The previous worst half was in 2018 when bitcoin fell 54.7%. 

In fact, the whole crypto market has been in turbulence, with total market capitalization shrinking to around $886 billion on Thursday from over $3 trillion in November, according to data from CoinGecko.

As crypto prices crashed, some blockchains and crypto companies also suffered. Terra, once one of the largest blockchains, collapsed, with about $50 billion market capitalization of its token TerraUSD and Luna (now TerraClassicUSD and TerraClassic) almost wiped out. This month, major crypto lender Celsius paused withdrawals while several smaller platforms followed suit. Meanwhile, a British Virgin Islands court ordered the liquidation of crypto hedge fund Three Arrows Capital after creditors sued the fund for failure to repay debts. 

Could the crypto market turn its way around for the rest of the year? Here’s what to watch: 

Fed and macro

As forced selling cools down, crypto’s correlation with the equity market is back in focus. I wrote more about it last week. 

Some have argued that bitcoin and U.S. stocks may have already reached a bottom. “I think we’re starting to see what I call the seller fatigue,” Erin Holloway, president at crypto custodian Prime Trust, said in an interview. “A lot of people have already rebalanced their portfolios accordingly.”

“I think we are going to see some normal wavering in the marketplace and it will be one day up one day down, but I think that steady dives are coming to slow its pace and we may start seeing that volatility up and down on a daily basis and then we’ll come out of it,” said Holloway. 

Louis LaValle, managing director at 3iQ Digital Assets, said he expected the Federal Reserve to pivot from its aggressive monetary policy if “something breaks, or more things start to break,” LaValle said. “Until that happens. I think all risk assets are going to be under pressure,” according to LaValle.

“Right now we have low growth, and we have record inflation. The only thing that the Fed can do is really go about the same monetary policy decisions that they’ve been doing historically,” LaValle said. 

Still, from the technical perspective, some analysts expect a final washout decline in the second half before bitcoin reaches a bottom of around $12,500-$13,000. Read more here

Ethereum’s ‘Merge’

Ethereum’s “Merge,” a major upgrade that will transition the blockchain from proof-of-work to proof-of-stake, is arguably the most anticipated event in crypto this year. Vitalik Buterin, Ethereum’s co-founder, said in May that the “Merge” could take place as soon as in August.

Compared with proof-of-work, proof-of-stake is much more energy efficient, while it allows crypto holders to stake, or deposit their coins, to generate yield and to secure the blockchain.

I don’t think a lot of people outside of a very small subset of crypto users and Ethereum community members understand why the ‘Merge’ is such a catalyst,” Brian Mosoff, chief executive at Ether Capital said in an interview. 

“Not only is it a huge technical achievement, but you’re going to transition ETH from an unproductive commodity to being a yield generating instrument,” said Mosoff. “And you have not seen a majority of ether holders stake their ether into ether 2.0,” which refers to the blockchain after completion of the upgrade. 

Meanwhile, after transitioning into a more environment-friendly mechanism, Ethereum could attract more interest from institutions that have mandates on environmental, social, and corporate governance, according to Mosoff. 

Still, some believe that the “Merge” may have already been priced in to some extent, as it has been announced and in the works for years. There are also other existing proof-of-stake blockchains in competition with Ethereum, such as Solana, Avalanche, Algorand, and Cardano.

“My own take is ether price will probably rise into the Merge. But once the state comes out, it will settle back a bit,” according to David Siemer, chief executive at Wave Financial.

“I don’t think it’s that seismic of a shift that ether will suddenly be worth more than bitcoin or reach $10,000,” Siemer said in a recent interview. 

Regulation 

Terra’s collapse and the crash in other crypto prices is the background “in which global regulators set their agendas for the remainder of the year,” Huong Hauduc, general counsel at crypto exchange BEQUANT, wrote in emailed comments to MarketWatch. 

Regulators across the world are looking at how they should protect consumers during such mayhem, noted Hauduc. 

“Stablecoins will be under even greater scrutiny after the Terra/LUNA fiasco. The ability to regulate stablecoins have knock-on implications to markets such as DeFi (decentralized finance),” Hauduc said.

Crypto companies, funds

Shares of Coinbase Global Inc. COIN, -4.70% dropped 4% to $47.80 on Thursday, and they were down 18.9% over the past five trading sessions. Michael Saylor’s MicroStrategy Inc. MSTR, -7.50% tumbled 5.4% Thursday to $169.72, and it was down 10% over the past five days.

Mining company Riot Blockchain Inc. RIOT, -6.22% shares tanked 4.6% to $4.29 Thursday, and were down 13.2% over the past five days. Shares of Marathon Digital Holdings Inc. MARA, -6.34% declined 3.7% to $5.58, with a 20.8% loss over the past five days. Another miner, Ebang International Holdings Inc. EBON, -7.39%, traded 2.7% lower to $0.42 on Thursday, contributing to a 9.10% loss over the past five days.

Overstock.com Inc. OSTK, -7.39%’s shares traded 6.6% lower to $25.40. The shares lost 16.7% over the five-session period.

Shares of Block Inc. SQ, -3.34%, formerly known as Square, lost 2% to $62.51 contributing to a 7% loss for the week. Tesla Inc. TSLA, -1.42% shares edged down 0.3% to $684.04, while they were down 3.1% over the past five sessions.

PayPal Holdings Inc. PYPL, -2.03% slipped 1.6% to $70.27, and it was down 4.7% over the five-session stretch. Nvidia Corp. NVDA, -1.69% shares fell 1.5% to $153.07, looking at a 5.7% loss over the past five trading days.

Advanced Micro Devices Inc. AMD, -1.26% shares lost 0.4% to $77.65 on Thursday, and were down 5.8% from five trading days ago.

Among crypto funds, ProShares Bitcoin Strategy ETF BITO, -6.33% tanked 5.9% to $11.75 Thursday, while its Short Bitcoin Strategy ETF BITI, +6.28% gained 5.8% to $43.44. Valkyrie Bitcoin Strategy ETF BTF, -6.21% skidded 5.8% to $7.32, while VanEck Bitcoin Strategy ETF XBTF, -6.68% lost 5.7% to $18.50.

Grayscale Bitcoin Trust GBTC, -9.68% plunged 8% to $12.26.

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