The Wolf Den #650 - Consolidation
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In This Issue:
Consolidation
Bitcoin Thoughts And Analysis
Legacy Markets
Silvergate Fail
Another Scam Bites The Dust
Genesis Is In Trouble
Consolidation
Did you know that there are 1.14 billion websites on the internet, yet only 17% are active? 252,000 new websites are created every day, but 90% of websites created never see any traffic.
Literally zero.
By the time you finish reading this first paragraph, roughly 100-200 websites will be created and most will never see any visits.
You can see these stats HERE.
And if I had to guess, I would say that at least 95% of the internet's traffic is on the top 100 websites, with 99% on the top 200. It's difficult to verify this due to the complexity of defining "traffic," but I still think my guess has a good chance of being correct. Distributions tend to follow a similar pattern in many areas.
For example, whether it's individual wealth, population patterns, or energy drink sales, there is usually only room for a few winners, if not just one. Small brands can find success locally or regionally, but the overall trend is that the best wins the lion's share and the rest fight for the scraps.
In the crypto world, Bitcoin has been the dominant player since the beginning. But that doesn't mean that others haven't tried to unseat it. For a short period in 2017, Bitcoin Cash tried to lure away miners, developers, and investors, but the attempt failed. Other crypto infrastructures have had similar experiences.
Ethereum has managed to avoid the "ETH killers," while Coinbase and Binance have taken the lead as their competition has faltered. A few NFT collections have accounted for a large proportion of transactions. As value has consolidated, I want to bring attention to a particular battle that is playing out quietly: the competition between stablecoins USDC and Tether.
USDC and Tether are in a race to see which will become the dominant stablecoin. Tether has a head start, having been founded in 2014 and boasting a 42% market capitalization lead, but USDC is catching up quickly. Both are vying for the #3 spot behind Ethereum, and their market capitalizations are separated by only $20 billion. One of them is sure to pull ahead soon.
Tether has been in the top 5 coins since 2019, while USDC only broke into the top 10 in 2021. USDC has made greater gains on Ethereum than Tether in 2022 and continues to dominate in institutional adoption due to its tech-savvy build. However, Tether has a stronger presence among retail traders and has a larger following.
We can continue to list the endless pros and cons of each coin, but the point is that one is likely to dominate in terms of market capitalization, and the winner is yet to be determined.
The value of crypto will consolidate over time, as is the nature of distributions in all other data sets, industries, and aspects of life. Tether and USDC should remain "stable," but it will be interesting to see which one comes out on top in 2023. Which stablecoin do you think will win?
Bitcoin Thoughts And Analysis
DAILY CHART
Maybe we will get some exciting price action next week.
Maybe.
For now, we continue the chop.
Legacy Markets
Wall Street equity futures and European stocks struggled to maintain gains on Friday as traders awaited the release of US job numbers, which will help determine the path forward for Federal Reserve monetary tightening. The US is expected to show an addition of 202,000 jobs in December, with the unemployment rate holding steady at 3.7%. The dollar strengthened and Treasury 10-year yields steadied after climbing for the first time this week on Thursday following comments from Fed officials. Market pricing for US interest rates to peak in June rose to above 5% following comments from Atlanta Fed President Raphael Bostic, who said the central bank still has “much work to do” to tame inflation. In Asia, a gauge of the region’s stocks rose in the first week of trading in 2023 amid China’s reopening moves and its measures to boost the economy.
Key events this week:
US nonfarm payrolls, factory orders, durable goods, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 6:42 a.m. New York time
Nasdaq 100 futures fell 0.3%
Futures on the Dow Jones Industrial Average were little changed
The Stoxx Europe 600 was little changed
The MSCI World index was little changed
Currencies
The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.2% to $1.0501
The British pound fell 0.5% to $1.1849
The Japanese yen fell 0.8% to 134.47 per dollar
Cryptocurrencies
Bitcoin fell 0.6% to $16,735.58
Ether fell 0.7% to $1,242.67
Bonds
The yield on 10-year Treasuries was little changed at 3.73%
Germany’s 10-year yield declined two basis points to 2.30%
Britain’s 10-year yield was little changed at 3.56%
Commodities
West Texas Intermediate crude was little changed
Gold futures rose 0.2% to $1,844 an ounce
Silvergate Fail
According to an SEC filing, Silvergate Capital, a California-based cryptocurrency bank, has laid off 40% of its workforce and announced that it will not be launching a digital asset. The company has also decided to write off its acquisition of Diem, which cost a total of $196 million. In addition, Silvergate reported $8.1 billion in withdrawals in Q4, leading the company to sell $5.2 billion in debt securities to counter the outflows. This news caused Silvergate's stock to plummet nearly 50%. It's unclear what would have happened if the company hadn't taken countermeasures.
The contagion is still alive.
Another Scam Bites The Dust
Despite its name, CoinDeal unfortunately wasn't the deal investors were hoping for. In the SEC's filed complaint, six individuals and two businesses were charged with the sale of unregistered securities, which raised $45 million and fooled tens of thousands of investors around the world. CoinDeal claimed investment returns of "more than 500,000x," yet nothing was ever done on their part and the money was spent on lavish lifestyles. Investors really believed the returns were coming. It's a shame these scams happen, but at least they serve as a reminder that education around safe investing is still desperately needed.
Genesis Is In Trouble
Crypto lender Genesis is facing significant challenges, and it seems unlikely that "reducing costs and driving efficiencies" will be enough to save the company. Earlier this year, Genesis laid off 20% of its employees, and it has now laid off an additional 30%. With a $1.2 billion claim against 3AC, $175 million unable to be withdrawn, and $1.675 billion owed to it by DCG, the company is in dire need of a miracle. The question now is whether Genesis will collapse on its own, or if it will take the rest of DCG down with it. Emergency funding from the outside is a possibility, but it's not looking likely.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.
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