Cryptocurrency update: Bitcoin still struggling

Bitcoin is still finding it difficult to break away from the $42,000 level with the Fed’s hawkish pivot providing impetus for a crypto sell-off.

Cryptocurrency update

Can Bitcoin break out of the $42,000 range?

A hawkish Fed and a sagging equities market are both weighing hard on Bitcoin and the wider crypto market.

Bitcoin has basically stayed stuck around the $42,000 mark for the past week or so, following on from the Fed’s rate hike hints, as well as a drop in US tech stocks.

At the time of writing, Bitcoin was in the midst of another sideways churn. Up 0.8% on the day, BTC was trading for about $42,161. Not much progress across the week.

For the world’s most popular crypto token, 2022 has not been the best of years. According to Coindesk research, BTC is now down 8.7% year-to-date. Other coins are performing the same, such as Ethereum, which has dropped 13% on a year-to-date basis.

At the moment, much of this churn can be attributed to an early year sell-off. There are expectations that the Federal Reserve could raise interest rates as early as March. Investors look like they’re dumping their risky assets in line with the incoming hike.

Bitcoin is some 37% off its all-time high. Volatility is nothing new in crypto markets, but it may pick up following the Fed’s hawkish pivot. But what would constitute a huge crash in assets like equities or crude oil, such drops are par the course for digital tokens.

The fear and greed index is up by a couple of points, with a score of 24, but it’s still firmly in the red. The Bitcoin bear market rolls on.

Bitcoin Fear and Greed Index is 24. Fear
Current price: $41,968 pic.twitter.com/ZDBTTvEpyE

— Bitcoin Fear and Greed Index (@BitcoinFear) January 20, 2022

EU puts crypto mining under the environmental spotlight

We’ve long talked about the environmental impact of crypto mining, especially networks which run on power-hungry Proof of Work (PoW) blockchain networks. Now, the EU appears to be putting the heat on digital token miners, raising its potentially harmful impact once more.

Erik Thedéen, Vice-Chair of the European Securities and Markets Authority (ESMA) has called for a bloc-wide ban on PoW mining with miners moving towards a Proof of Stake model.

Proof of Work systems basically require all participants on a blockchain to verify transactions. The computing power needed to generate tokens is massive, hence why mining operations are usually large-scale clusters of computers and servers tied together. The net result is high power consumption.

Bitcoin and Ethereum currently both run on PoW networks, although Ethereum is in the process of transitioning to a PoS system.

Proof of stake slashes the number of network uses needed to verify transactions.  That drops the amount of power required to generate digital coins, thus liming mining’s enverionmental damage.

In 2020, Bitcoin mining alone used more power than Sweden. As a Swede himself, it’s no wonder Thedéen is keen to push miners towards more sustainable methods.

“We need to have a discussion about shifting the industry to a more efficient technology,” Thedéen told the Financial Times. “The financial industry and a lot of large institutions are now active in cryptocurrency markets, and they have [environmental, social and governance] responsibilities.”

There are currently no indicators that Bitcoin will move to a Proof of Stake blockchain solution in the future. Expect the conversation around the token’s sustainability and energy consumption to increase going forward.

Andreessen Horowitz looking for $4.5bn for new crypto fund

Venture capital firm Andreesen Horowitz is aiming to raise $4.5bn in capital for a new cryptocurrency investment fund.

The firm has told prospective investors it is looking for an initial $3.5bn to build a crypto investment funds. Andreesen Horowitz already raised $2.2bn in June for its Crypto Fund III, the largest sum raised for a digital token fund to date.

The other $1bn is to invest in seed funding for crypto and digital finance startups.

The new crypto fund would be the industry’s largest, overtaking the $2.5 billion raised by Paradigm in November.

It comes just weeks after Katie Haun, an a16z partner, said she was leaving the company to start her own venture capital firm.