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Why Web 3.0 Tokens Might Be the Next Hot Trade in Cryptocurrencies

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With Bitcoin prices stuck in a month-long queue, some cryptocurrency traders are speculating about what may be the next hot market bet: digital assets linked to visions of a decentralized internet, colloquially known as Web 3.0 tokens.

Data tracked by Messari and published by Jeff Dorman, Arca Chief Investment Officer, shows that the cryptocurrency subsector “Web 3.0 tokens” increased 22% in the week ending August 1st, and Bitcoin and everyone else Subsectors, including non-fungible tokens, are dwarfed (NFTs). Bitcoin, the largest cryptocurrency by market value, gained 10%.

For the year to date, tokens related to decentralized internet applications have seen an average increase of 244%, lagging the 2.726% increase of the NFT subsector but surpassing Bitcoin’s appreciation by 37%.

Related: Market Wrap: Bitcoin and Ether rise on bullish sentiment

Some of the best-known Web 3.0 coins, like Livepeer (LPT), Helium (HNT), and BitTorrent (BTT), have soared at least 800% this year despite a collapse in cryptocurrency markets since April, according to Messari.

“Seeing the Web 3.0 ecosystem grow exponentially since the beginning of the year and keep most of its profits even after the surrender in May is very positive for the crypto market,” Nick Mancini, research analyst for Trade The Chain told CoinDesk. “Higher prices are directly linked to increased demand and expansion of services in each shift, and this allows the ecosystem to continue to grow.”

Web 3.0 refers to a paradigm shift for the Internet operated by network subscribers worldwide and defined by a set of open, trust-minimized and decentralized networks and protocols that offer services such as computing, storage, bandwidth, finance and identity.

For example, the Ethereum-based Livepeer protocol provides a marketplace for video infrastructure providers and streaming applications, while Filecoin and The Graph provide decentralized file storage and data management networks. Helium uses blockchains and tokens to motivate consumers and small businesses to deploy and validate wireless coverage and transfer device data over the network.

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Related: Bitcoin News Update for August 4, 2021

Messaris Tracker reveals that the Web 3.0 token subsector, spanning over 40 coins, has an overall market valuation of $ 25 billion, excluding Oracle provider Chainlink. (The Oracle provider is widely associated with decentralized financing and has a market capitalization of $ 10 billion).

However, looking at prominent projects like The Graph, Filecoin, Helium, and Livepeer, the market capitalization of Web 3.0 tokens is less than $ 15 billion. That’s only 2% of Bitcoin’s total market cap of $ 735 billion. But it’s comparable to the size of the Decentralized Finance Area (DeFi) a year ago. Messari data shows the DeFi subsector now has 137 assets and is worth over $ 50 billion.

Waiting for mainstream attention

While the Web 3.0 tokens far outperformed Bitcoin and other big coins this year, the sector has yet to experience the euphoria or attention of the mainstream that Bitcoin, Ethereum, DeFi, NFT and even Ethereum Layer 2 projects have seen since October 2020 have received .

That’s probably because the underlying technology is relatively complex.

“Web 3 is not as easy to understand as DeFi, and it is probably 12 months behind DeFi in terms of mainstream notoriety,” said Kyle Samani, co-founder and managing partner of Multicoin Capital. “We expect this to change as consumer-facing applications based on NFTs, social tokens and creator monetization increase over the next 12 months, such as Audius, Mirror and many others.”

The DeFi boom began a year ago and has remained intact to this day. The market capitalization of this sector has grown from around $ 5 billion in early 2020 to over $ 50 billion at press time.

Samani is confident that Web 3.0 tokens will catch up as DeFi gets a bad rap at times. however, there is no negativity associated with the idea of ​​a decentralized internet. Recently, Dan Berkovitz, commissioner for the Commodity Futures Trading Commission (CFTC), said DeFi derivatives could be illegal in the US

“Nobody really says that The Graph, an indexing protocol for querying networks like Ethereum and Solana and IPFS, is bad, while many people in the existing financial system say DeFi is bad,” Samani said. “As awareness of Web 3 grows, it’s hard to see anything other than general support and enthusiasm.”

Institutions chip-in

While mainstream adoption is still at least a year away, capital investors are putting money into Web 3.0 tokens. According to the official website, Multicoin Capital is invested in The Graph, Helium and Livepeer.

Grayscale, the world’s largest digital asset manager and the preferred place for institutional investors to grapple with digital assets, launched a Livepeer Trust in March. Rayhaneh Sharif-Askary, director of investor relations at Grayscale Investments, told CoinDesk last month that investors are diversifying into Web 3.0 tokens.

“It is a diversification within the asset class, whether investors want to use Bitcoin as a store of value or Ethereum for smart contracts,” said Sharif-Askary.

“And then the other applications build on top of these networks and solve other real-world problems,” she said, adding that Grayscale’s Livepeer Trust is structurally identical to the groundbreaking Grayscale Bitcoin Trust (GBTC) (Grayscale is a unit of Digital Currency Group, an investment holding company that is also the parent company of CoinDesk.)

Livepeer’s LPT token is up 1,050% this year. The log’s weekly revenue increased ten-fold to over $ 10,000 in February through June, according to data provided by Web3Index.

Doug Petkanics, CEO and co-founder of Livepeer, told CoinDesk that online streaming is a $ 70 billion market and accounts for 80% of internet traffic today. In addition, analysts predict the market will grow from $ 70 billion to $ 250 billion over the next five years, Petkanics said. The outlook for The Graph and Ocean Protocol also looks good, as Messari’s second-quarter report said.

Strong use case aside, many of these Web 3.0 tokens offer attractive returns through Staked, a platform that allows investors to generate returns from staking and DeFi without keeping their crypto assets.

For example, Helium’s HNT token currently offers an annualized nominal return of 8.7%, while The Graph’s GRT offers a 15% return and LPT offers a 30% return. The high returns led to a positive sentiment for these tokens, as reflected in the sentiment chart below.

“Traders have felt optimistic about them, which amplifies a network effect,” said Mancini. “Dealers benefit and get involved and in turn tell others about the oversized opportunity.”

The crypto market is much more than Bitcoin

Gone are the days when investors viewed crypto markets as synonymous with Bitcoin. While Bitcoin remains the leading cryptocurrency by market value, the recent underperformance compared to other coins suggests investors are digging deeper into digital asset markets to find investments with faster growth potential.

“Weekly data might not mean much, but if we look at three months, six months and 12 months, there is a clear shift away from Bitcoin to other subsectors, including Web 3.0,” said Jeff Dorman of Arca on a Telegram call .

According to Arcas research note released earlier this week, Bitcoin had “both bad up-capture and bad down-capture” this year. In plain English, Bitcoin struggled to outperform other large coins during the market-wide downturn after mid-April, but was also under-challenged when the market rallied in recent weeks.

According to Dorman, the data shows that some new investors are bypassing Bitcoin and Ether and jumping straight into other subsectors of the industry. Historically, investors have used the top two coins as gateways.

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Cryptocurrency

Coal to cryptocurrency: An answer to grid volatility?

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A Midwestern utility company is testing a new tool to cope with variability on the web: mining bitcoins.

St. Louis-based Ameren Missouri, the state’s largest utility company with 1.2 million customers, began mining cryptocurrency in April. When demand is low and electricity is cheap, computers in a 20-foot metal container on site at the Portage Des Sioux coal-fired power station in Ameren race to “mint” a digital coin by looping through complex mathematical calculations.

Ameren Missouri executives see the initiative as research and development rather than a speculative bet on Bitcoin, the price of which has fluctuated sharply this year. It is seen as a pilot project designed to help meet electricity demand with an intermittent energy supply as more and more wind and solar projects go online.

Electric utilities around the world are increasingly tied to the energy-hungry cryptocurrency industry. In the US, however, Ameren is unique among investor-owned utility companies as it is directly involved in mining bitcoins.

Critics argue that the industry is a lifeline for aging fossil fuel power plants at a time when the deepening climate crisis calls for a quick switch to carbon-free energy sources (Energywire, June 24). The fact that Ameren mines bitcoins on-site at a giant coal-fired power plant – one of four that encircle the St. Louis metropolitan area – will almost certainly be scrutinized.

Ameren Missouri, based in St. Louis, says the effort could help reduce its carbon footprint. The utility has to respond to more fluctuating wind and solar power on the regional grid and is looking for ways to avoid having its power plants ramp up and down to meet demand as this is inefficient and can increase emissions.

Warren Wood, vice president of regulatory and legislative affairs for the utility, likened it to using cruise control on the freeway to driving in stop-and-go traffic in the city.

“We have pretty dramatic load changes from minute to minute, sometimes from second to second,” Wood said in an interview. “We need something that can ramp up and down really quickly to be a really effective tool for balancing.”

He is quick to point out that the pilot is initially funded by the utility shareholders and is free to Missouri fee payers.

Ameren initially tried to include $ 8,000 in electricity bills for 309,000 kilowatt hours of bitcoin mining-related energy use in its fuel reimbursement formula, but withdrew the application to the Public Service Commission after the state’s consumer advocate had questioned him earlier this year.

“If Ameren Missouri wants to get into speculative commodities like virtual currencies, it should be done as an unregulated service where installment payers are not faced with their economics,” said Geoff Marke, chief economist for the Missouri Office of the Public Counsel, said on a file . “This endeavor goes beyond the scope of intended regulation of utility companies and, if allowed, creates a slippery slope that could ask fee payers to provide capital for virtually anything.”

However, executives said the initiative could benefit customers if the concept works. And they are encouraged after the first four months.

The pilot has also piqued the interest of Missouri’s top energy regulator, Public Services Commission Chairman Ryan Silvey, who said he was interested in convening a technical workshop on the matter before he even learned about the Ameren project.

Silvey, a former Republican senator, told E&E News that he has a personal interest in digital currency. And a recent piece of news about an aging hydropower dam in New York state being used to mine bitcoins made him think further about the potential of cryptocurrency as a network asset.

Silvey said it was appropriate for Ameren to take all risk of the project at this point as it has not been reviewed in front of the PSC and other parties. But Missouri law allows utility companies to run pilot programs and look for alternative sources of income that could be used to lower tariffs.

“When a company offers us a program that presents little or no risk for consumers to benefit from, I find it exciting,” said Silvey.

But can Bitcoin mining bring value to the web?

Joshua Rhodes, a research fellow at the Webber Energy Group at the University of Texas at Austin, has researched the impact of Bitcoin mining in Texas and changed his mind about the potential benefits. Texas has become a global hub for cryptocurrency mining after China announced a series of restrictions on digital currencies in May, some of which are aimed at curbing carbon emissions.

“I think that [miners] can add great value, especially how fast they can move up and down, ”said Rhodes. “They can move up and down faster than some traditional generators, which is of value … especially if they are able to monetize the crypto assets.”

According to Ameren, the mining operations at the Sioux plant initially only consume half a megawatt and, depending on grid conditions, can be started up within a minute and shut down again within 20 seconds.

“We talk for a minute or less to turn it on or off,” said Wood. “You really have a good mechanism to try to get a better balance of the grid between your generating resources and the load.”

Questions about coal

Bitcoin mining has been widely criticized for its enormous power consumption – more than 121 terawatt hours worldwide – an amount that exceeds the power consumption of countries like the Netherlands and Argentina, according to the Cambridge Center for Alternative Finance.

But industry defenders, including Twitter co-founder Jack Dorsey, claim that bitcoin mining can advance the energy transition and enable the development of renewable energy and energy storage by helping break down barriers to their disruption and lack of transmission are connected.

“Bitcoin miners as a flexible charging option could potentially help solve much of these disruption and congestion problems so that the grids can use significantly more renewable energy,” said Dorsey’s other company Square and shareholder Ark Invest in an April white paper.

Among the skeptics is Andy Knott, deputy regional director of the Sierra Club’s Beyond Coal campaign.

The Sierra Club recently began research into bitcoin mining and its impact on the power grid after news reports of bitcoin mining operations powered by coal waste, natural gas and nuclear power plants, Knott said.

These projects include a cryptocurrency miner in northwest Pennsylvania that plans to run its operations on waste coal.

“It clearly generates electricity demand, and what will it cover besides the existing electricity generation on the grid?” Said Knott.

However, Ameren officials said just because the pilot is physically housed at the Sioux plant doesn’t mean bitcoin mining is coal-tied. The aim of the project is initially to validate the concept.

Alex Rojas, director of distributed technologies at Ameren, said that because the mining operation is modular, it can be relocated to other locations on the utility’s grid, be it an underutilized substation or a wind or solar farm.

“Renewable energies that cannot be shipped, such as wind and solar energy, urgently need this capability,” he said. “Putting this technology in one place would be of great help.”

Rhodes didn’t reject the idea that mining bitcoins to balance electricity supply and demand can be a net benefit in terms of carbon emissions. But he said it depends on how this affects the shipping of different power plants.

“It can have a positive impact on emissions when operated properly,” he said. “It can also increase emissions when it doesn’t.”

Ameren’s executives did not specify how long the pilot would last or how its success would be defined.

However, Rojas, who leads Ameren’s research and development work, said the results so far are promising and he sees the potential to use bitcoin mining modules for grid balancing on the same scale as energy storage in California with 20 to 80 megawatts per location .

“Something similar could happen with that,” he said. “It’s that scalable.”

For now, the utility is content with keeping the project running unchanged.

So far, Ameren has mined about 20 “coins” and produces a new one about every 15 days.

The utility said it doesn’t care about the volatility of Bitcoin, which peaked above $ 63,000 in April and has hovered around $ 44,000 in recent weeks. That is still over 300% more than last year.

Rather, it sees the mining process itself as the primary value that is being created and bitcoins as a by-product.

“The goal is not to mine crypto,” said Wood. “It’s really running a data center that happens to be producing crypto.”

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US Senator Calls On SEC Chairman To Provide Regulatory Clarity On Cryptocurrencies – Regulation Bitcoin News

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A US senator has asked the chairman of the US Securities and Exchange Commission (SEC), Gary Gensler, to provide clear guidance on cryptocurrency regulation. The Senator stated that in many enforcement actions, “the SEC has failed to identify the securities involved or the reasons for their status as securities, which would have provided much-needed public regulatory clarity.”

US Senator wants the SEC to provide clear guidelines on crypto regulation

Senator Pat Toomey, ranked member of the U.S. Senate Committee on Banking, Housing, and Urban Development, wrote a letter to SEC Chairman Gary Gensler on Friday regarding the regulation of cryptocurrencies.

His letter followed Gensler’s testimony before the Senate Banking Committee last week. Toomey began:

I’m writing to address the concerns I raised at the hearing about the need for regulatory clarity around emerging technologies such as cryptocurrencies, including stablecoins.

“In order for investors to benefit from a fair and competitive market, regulators must proactively provide rules on how to get to industry,” the Senator said that the SEC “has instead adopted a strategy of regulation through enforcement in this area.” To date, the commission has launched more than 75 enforcement actions against the crypto industry, fines and penalties totaling more than $ 2.5 billion against crypto companies and individuals.

At the Senate hearing, Gensler extolled “the SEC’s success in pursuing crypto-related enforcement measures.” Toomey noted, however, that “in many of these enforcement actions, the SEC failed to identify the securities involved or the reasons for their status as securities, which would have provided much-needed public regulatory clarity.”

SEC Commissioner Hester Peirce is also concerned about the SEC’s approach to crypto regulation. She criticized her own agency in August for taking an enforcement-oriented approach to crypto regulation.

The Senator from Pennsylvania noted that the SEC’s approach was tied to Gensler’s belief that “the likelihood is pretty slim” that a given cryptocurrency platform has no securities. For example, Gensler told Senator Elizabeth Warren at the hearing that the Nasdaq-listed crypto exchange Coinbase (Nasdaq: COIN) could have dozens of tokens, which could be securities.

Recently, Coinbase was forced to abandon its plan to launch a loan product after the SEC threatened legal action and the company alleged it had received no explanation from the regulator. In the meantime, the security guard is in an ongoing proceeding with Ripple Labs and its executives as to whether XRP is a security.

Senator Toomey emphasized:

The SEC has a responsibility to do more than just provide probabilistic estimates.

The Senator concluded his letter with a list of questions for Gensler to answer for additional guidance on crypto regulation.

What do you think of Senator Toomey asking SEC Chairman Gensler to provide clear guidance on crypto regulation? Let us know in the comment section below.

Photo credit: Shutterstock, Pixabay, Wiki Commons

Disclaimer of Liability: This article is for informational purposes only. It is not a direct offer or solicitation to make an offer to buy or sell, or a recommendation or endorsement of any product, service, or company. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author are directly or indirectly responsible for any damage or loss caused or allegedly caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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Crypto plunge a wake-up call — and tax opportunity — for investors

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A detail of the statue of Satoshi Nakamoto, a presumed pseudonym of the inventor of Bitcoin, in Budapest, Hungary.

Janos Sorrow | Getty Images News | Getty Images

The price of popular cryptocurrencies like Bitcoin and Ethereum fell on Friday after Chinese officials stepped up crackdown and essentially ruled crypto illegal.

Government intervention, while substantial, does not necessarily mean that financial advisers believe investors should run into the mountains. But it’s another reminder that crypto holdings are subject to wild fluctuations in price, they said.

“I wouldn’t call this the end of the world,” said Leon LaBrecque, accountant and certified financial planner with Sequoia Financial Group, based in Akron, Ohio. “It’s just a wake-up call.”

“This should be in recognition of the fact that it is a volatile asset and that all the ups and downs are a match,” he said.

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This volatility opens up opportunities for tax planning that may only be a few months away, advisors said, depending on the Democrats’ final compromise on federal tax law.

Bitcoin prices had fallen 6% to around $ 42,000 at 3 p.m. ET Friday afternoon. Ether, the second largest digital currency, fell more than 8% to around $ 2,890.

The People’s Bank of China terrified investors after declaring all crypto-related activity illegal. These activities include, for example, trading services and foreign exchanges. This is the latest move in the country’s wider crackdown on digital currencies.

The ban on Bitcoin and other cryptocurrencies can be of concern for current and prospective investors as the government limits buyers for a significant segment of the world’s population, advisors said. And other governments are likely to have additional regulations as well, they said.

But these can’t make much of a difference in terms of long-term prices. A daily slump in crypto costs, which may feel significant at this point, is likely just part of a longer-term price correction towards an average price, advisors said.

“Will government regulation make cryptocurrencies volatile? Yes,” said Wayne Wilbanks, managing principal and chief investment officer at Wilbanks Smith & Thomas Asset Management in Norfolk, Virginia. “Will it make crypto redundant? No.

“I don’t think China’s regulation, or even US regulations, will make that much of a difference in the long run,” he added.

Bitcoin, for example, is still up around 40% year-over-year despite the slump on Friday. (It’s far from its April high of around $ 63,000, however.)

To this day, volatility is a signature of cryptocurrencies. This year, for example, prices have fluctuated sharply after tweets from Tesla co-founder and crypto enthusiast Elon Musk.

Advisors usually recommend that investors allocate a small portion of their portfolio (anything that they would lose entirely) because of the risk involved.

Tax advantage

Investors can take advantage of recent volatility, according to Jeffrey Levine, CFP, Accountant and Chief Planning Officer at Buckingham Wealth Partners in Long Island, New York.

Equity, crypto and other investors can “reap” investment losses for a tax advantage. Basically, you can sell a lost investment (e.g. Bitcoin) and use the loss to destroy the gain on a winning investment elsewhere in your portfolio.

This “tax loss harvesting” reduces (or eliminates) the capital gains tax owed on the estimated value of an investment sold.

However, unlike stock investors, crypto investors who are sold out can quickly buy back into the same or similar digital currency. As a result, if the volatile asset price recovers shortly thereafter, they can receive the above tax benefit as well as a portfolio benefit.

House Democrats proposed closing this crypto loophole after this year to reform tax law.

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