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Tom Rodgers
Tom Rodgers Head of Research
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ETC Group Crypto Minutes Week #16

The US is using Bitcoin mining to cement its dominant position as world's most powerful crypto nation, Tesla is recharging the energy debate by mining Bitcoin with solar power and Ethereum's long-awaited Proof of Stake upgrade is pushed back, while its non-profit reveals $1.3bn in ETH holdings.

ETC Group Q1 research reveals US Bitcoin mining supremacy

ETC Group's quarterly research reports into the state of the digital asset markets and blockchain infrastructure reveal that the US has cemented its position as the most powerful nation in crypto.

President Joe Biden's March Executive Order was widely considered to be the most positive statement of intent yet from a world superpower to determine the risks and opportunities posed by the sector.

US-based Bitcoin mining pool Foundry USA now accounts for more than 19.5% of all Bitcoin hashrate, up from 2.9% in May 2021, an increase of 572%, ETC Group research shows.

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And while regulation is expected on DeFi platforms, stablecoins and forthcoming central bank digital currencies, the industry remains convinced that Biden and Treasury Secretary Janet Yellen will not make the same mistake as China in 2021 by deliberately dismantling the country's trillion-dollar position as the strongest nation in crypto.

Analysis of key on-chain Bitcoin fundamentals across the quarter also suggests a positive outlook for BTC, despite short-term price weakness. The reports demonstrate Bitcoin is undervalued relative to its growing utility and its expanding use cases: as cross-border currency, pristine collateral and now as a global reserve asset.

The State of Bitcoin Q1 2022 looks at the macroeconomic picture for Bitcoin and cryptocurrencies, how the digital asset is being used by institutions, along with key fundamentals such as network adoption and the cost to use the technology. The State of Blockchain Infrastructure Q1 2022 covers the Bitcoin mining industry, publicly-traded digital asset companies and the newest investing megatrend: the Metaverse.

Tesla now mining Bitcoin with solar power

Amid the bombastic headlines and board-level machinations around Elon Musk's $43bn buy offer for Twitter, a startling piece of related news has slipped somewhat under the radar. Tesla (NASDAQ:TSLA) has started mining Bitcoin with solar power .

In a joint operation with Jack Dorsey's Block (NYSE:SQ) and crypto infrastructure company Blockstream, Elon Musk's electric car giant will power a West Texas Bitcoin mine with its 3.8MW solar photovoltaic array, backed up by the 12 megawatt-hour Tesla Megapack industrial battery that was first revealed in 2019.

The facility is designed to be a proof of concept for zero-emission Bitcoin mining at scale. Renewable energy sources make up 58.5% of US Bitcoin mining, according to the latestavailable data from trade body the Bitcoin Mining Council.

Aside from its car sales, Tesla's largest cash cow is in energy storage generation and storage. This side of the business created $2.78bn of revenue in 2021, company financials reveal. Tesla also deployed almost 4 gigawatt-hours of energy storage in 2021. 1 Gigawatt is enough energy to power around 725,000 homes.

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Musk famously sent the market price of Bitcoin flying in February 2021 when Tesla bought $1.5bn in Bitcoin, and the CEO said he would allow customers to fund electric vehicle purchases with the cryptocurrency, only to rescind the offer weeks later. At the time, the enigmatic billionaire said Bitcoin's energy use was a concern.

Bitcoin uses less than 0.75% of the world's electricity annually and currently wasted ‘flared' gas that is burned by oil companies could power the network more than four times over, research shows.

Jack Dorsey departed Twitter as CEO last year to focus on his payments company. The $70bn market cap outfit, formerly known as Square, has integrated Bitcoin payments into Cash App, makes several billion dollars annually from selling Bitcoin and is planning to build easy-to-use Bitcoin mining machines.

Bitcoin miners are computers that run billions of calculations per second to process blocks of transactions and are rewarded with new bitcoins. In the early days, anyone could mine Bitcoin with their home computer, but the number of entities vying to access daily block rewards in excess of $200,000 has exploded in recent years.

Bitcoin is designed to process one block of transactions, like clockwork, every 10 minutes: or 144 blocks per day. With 6.25 BTC created every time a block is successfully added to the blockchain, that means around 900 new bitcoins (worth $36m) are created every day.

Tesla currently holds $2bn in Bitcoin on its balance sheet.

Interestingly enough, its partner in this venture, Block Inc is a founding member of the Bitcoin Clean Energy Initiative . In 2021 Block committed $10m to support technologies accelerating the move to zero-emission Bitcoin mining.

Ethereum upgrade delayed as Foundation reveals $1.3bn ETH holdings

Ethereum maximalists will have a hold fire a little longer to see the dawn of a new era as the blockchain's years-awaited shift to Proof of Stake was pushed back from June to later this year. Tim Beiko, one of the platform's leading developers, announced on Twitter on 12 April that there was “ no firm date yet ” for the switchover, adding “ we're definitely in the final chapter of [Proof of Work] on Ethereum ”.

Analysts have been waiting with bated breath for the Proof of Stake switchover since the first part of the multi-stage plan went live in December 2020 with the launch of the Beacon Chain. This next, newly-delayed phase will merge the Ethereum blockchain with the Beacon Chain, turning off Proof of Work entirely and enabling full ETH staking.

Ethereum is currently organised as a Proof of Work platform, like Bitcoin. It is currently undergoing a wholesale shift to newer Proof of Stake technology to improve its scalability.

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Proof of Stake technology uses 99.95% less energy because it does away with miners in favour of validators, who stake cryptoassets to secure the blockchain and receive cryptoassets as a reward. Ethereum also plans to introduce another scaling technology called sharding in 2023.

Changing the consensus mechanism of the world's second most-popular blockchain - while it holds and processes billions of dollars in value in NFT markets and DeFi applications - is akin to swapping out the engine of an aeroplane while it is in flight. It is a risky move, but one which its founder Vitalik Buterin considers vital to the future of the $360bn market cap blockchain. The Canadian programmer has been discussing the Proof of Stake switchover since 2015 and it is one which Ethereum's legion of dedicated developers take extremely seriously.

The non-profit Foundations that support cryptoasset platforms are among the richest whales in the industry. The Tezos Foundation, for example, holds $474m in BTC on its biannually-reported balance sheet , most recently reported in March this year. Now the latest report from the Ethereum Foundation [EF] has revealed the non-profit holds $1.3bn in ETH.

The vast majority (99.1%) of our crypto holdings are held in ETH. This ETH represents 0.297% of the total ETH supply on March 31 2022. The EF follows a conservative treasury management policy that ensures we have sufficient resources to fund the EF's core objectives even in the case of a multi-year market downturn .”

As of March 31 2022, the EF treasury was approximately $1.6 Billion, split between $1.3 Billion in crypto, and $300M in non-crypto investments and assets, the Foundation writes.
The vast majority (99.1%) of our crypto holdings are held in ETH. This ETH represents 0.297% of the total ETH supply on March 31 2022. The EF follows a conservative treasury management policy that ensures we have sufficient resources to fund the EF's core objectives even in the case of a multi-year market downturn

Markets

In what was a tough fortnight for crypto holders and traders, most coins saw a 10-15% price drawdown. Blue-chip cryptoassets Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Bitcoin Cash (BCH) held on to the most value, with 12.5%, 13.7%, 11.8% and 10% falls respectively.

Smart contract platforms bore the brunt of the losses, particularly Cardano (ADA) which witnessed a drop of 23.2% and Solana (SOL), which crumbled by 21.7% after a particularly strong set of trading sessions at the end of March.

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Data correct as of 19 April 2022

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