Distributed Ledger: Why bitcoin, ether and other cryptocurrencies plummeted following hawkish Fed minutes

Crypto in a snap

Major cryptocurrencies suffered losses the past week. Bitcoin BTCUSD, -0.39% is 8% lower from seven sessions ago, trading at around $43,370. Ether ETHUSD, -3.03% lost 6.9% during the past seven days to around $3,453.

Meme token Dogecoin DOGEUSD, +1.24% was down 7% during the past seven sessions to around $0.16, while another dog-themed token, Shiba Inu SHIBUSD, 2.79, declined 7.7% to roughly $0.00003.

Crypto Metrics

Bitcoin plunges

Bitcoin declined about $3,000 after minutes from last month’s Federal Reserve meeting, released Wednesday, showed there robust talk among policy makers about how to more quickly move away from their current easy-monetary stance by hiking rates and shrinking the central bank’s $8.67 trillion balance sheet.

Though bitcoin supporters have long touted the cryptocurrency as “digital gold,” a store of value and a hedge against inflation, it has recently been trading more in line with risky assets, often in tandem with tech stocks, as investors face macroeconomic uncertainties.

After bitcoin dropped below its $46,000 support level, liquidations soon followed — more than $300 million in bitcoin futures positions have been liquidated during the past 24 hours, according to crypto derivatives data site Coinglass.

“For a few weeks now, we’ve been clearly in a downtrend and there are no signs of a decisive reversal in sight,” Mikkel Morch, executive director at crypto hedge fund ARK36 wrote in an email.

“However, striking similarities between the current price action and the market moves between mid-May and August do give reasons for cautious optimism in the medium term. A bounce to around $47K in the next few days could corroborate that thesis while further losses would largely invalidate it,” Morch wrote.

Bitcoin’s loss has contributed to a 6% decline of the global crypto market capitalization to roughly $2.2 trillion. In November, the global crypto market capitalization stood above $3 trillion, when bitcoin and ether hit record highs.

Smaller tokens tend to post outsize losses than bitcoin when under selling pressure, while they usually post more significant gains than bitcoin during bull cycles.

Why blockchain gaming?

People used to play videogames to get rewards within the games. But now, they can be compensated with cryptocurrencies or nonfungible tokens, which can be sold for real money at different marketplaces or crypto exchanges. 

That’s how blockchain games, which refer to videogames that adopt the blockchain technology, open a new world to some gamers. 

Axie Infinity, a Pokémon Go-like game, where players raise, breed and battle their digital pets called Axies, has helped some unemployed people make a living during the pandemic. Other popular blockchain games include Crypto Kitties, Sandbox and Sunflower Farmers, among others.

Total users of blockchain games have grown to 1.4 million from about 386,600 in early July, according to data provider DappRadar. The market capitalization of play-to-earn tokens amounted to about $24.7 billion, according to CoinGecko. 

“A lot of people are very enticed by the whole aspect of earning while they play,” Ashton Wolfe, project leader of blockchain game Crypto Fight Club told Distributed Ledger in an interview.  

“It’s a form of entertainment and ultimately a form of inspiration as well to figure out ways to monetize your time while you’re either staying at home, or you’re going on a bathroom break and want to play a five minute videogame on your phone or on your laptop,” Wolfe said. 

Robby Yung, CEO at Animoca Brands, backer of Sandbox, told MarketWatch in November that he has seen “incredible success where [blockchain gaming] companies are literally profitable within months of opening their doors, even from a relatively small user base, because the economic activities generated so benefit the users.

“It’s not a one-way system where companies take most of the benefit. And because of that, it thrives very quickly,” Yung said.  

John Wu, president of Ava Labs, creator of blockchain Avalanche, said he expects the growth of new users in blockchain gaming to outpace that of decentralized finance. “The learning and adoption curves in gaming are notably smaller than that of DeF,” Wu said. “It’s kind of like there’ll be more WhatsApp users than subscribers to [Charles] Schwab,” Wu said. 

However, there will be more dollar value locked in DeFi, according to Wu. “Those new adopters [of blockchain gaming] someday will morph into DeFi as well.”

Some argue that the blockchain games are not as mature as the traditional ones. Traditional games tend to have higher resolution “because of sophisticated, high computational capability,” Wu said. “Because it’s all centralized. Otherwise, you can’t service that right now in a distributed way, like on a blockchain.

“The advantage blockchain guys have right now is they’ve integrated gaming with NFTs with DeFi, with the play-to-earn model,” Wu said.

Chen Li, CEO of venture-capital firm Youbi Capital, said he expects to see growth in the quantity and quality of blockchain games in 2022. “ We’re seeing maybe 5 to 10 new games every week. And definitely that’s going to generate a lot more supply to the market, and a lot more games for the users to follow. ”

Li also expects to see more player-versus-player games in the market, in contrast with player-versus-environment games, where gamers compete against the game’s artificial intelligence. “I think the player-against-environment model just generated too much inflation because they are not very challenging,” Li said. “Everybody can easily generate revenue by playing a game so that’s going to cause more and more inflation.”

Crypto companies, funds

In crypto-related company trading, shares of Coinbase Global Inc. COIN, +0.02%  traded down 0.4% to $233.43 Thursday afternoon. It was down 9% for the past five trading sessions. Michael Saylor’s MicroStrategy Inc. MSTR, -0.40%  traded 2.2% lower on Thursday to $498, and lost 11.4% over the past five days.

Mining company Riot Blockchain Inc. RIOT, -3.03%  shares fell 2.4% to $20.85, contributing to a 11% loss over the past five days. Shares of Marathon Digital Holdings Inc. MARA, +0.29% inched down 0.4% to $29.56, and down 14% over the past five days. Another miner Ebang International Holdings Inc. EBON, -9.56% traded 8.9% lower at $1.04, with a 6% gain over the past five days.

Overstock.com Inc. OSTK, -0.94%  traded up 0.3% to $54.50. The shares went down 10% over the five-session period.

Block Inc.’s SQ, +1.97%  shares advanced 1.1% to $144.97, with a 12.3% loss for the week. Tesla Inc. TSLA, -1.02%’s shares traded down 1.8% to $1,066.9, while its shares logged a 0.4% loss for the past five sessions.

PayPal Holdings Inc. PYPL, +3.44% gained 3.4% to $193.59, while it recorded a 0.9% gain over the five-session stretch. NVIDIA Corp. NVDA, +2.60%  gained 0.8% to $278.16, and was looking at a 6% loss over the past five days.

Advanced Micro Devices Inc. AMD, +0.27%  went down 1.4% to $134.38 and logged a 7.5% gain over the past five trading days, as of Thursday afternoon.

In the fund space, ProShares Bitcoin Strategy ETF BITO, -0.98% was 1.8% lower to $27.11 Thursday, while Valkyrie Bitcoin Strategy ETF BTF, -0.88%  was down 1.7% to $16.79. VanEck Bitcoin Strategy ETF XBTF, -0.78%  fell 1.9% to $42.36.

Grayscale Bitcoin Trust GBTC, -0.49% was trading at $32.02, off 1.3% Thursday afternoon.

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