MCS Crypto News - Issue #6

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Ethereum (ETH), the world's second-largest cryptocurrency, is currently navigating an intriguing phase in its development, marked by shifting economics driven by changing transaction fees:

📊 Fee Decline and Inflationary Turn 📊

Ethereum's network fees have plummeted to levels reminiscent of 2022. Transfers on the network now cost an average of $1.83, while token exchanges via Uniswap come in at around $4.17.

This fee decline is a direct result of dwindling on-chain activity attributed to factors such as declining NFT sales, meme coin trading, and reduced utilization of Telegram bots.

💹 Understanding Inflation Mechanism 💹

Ethereum's recent transition to an inflationary state is a noteworthy departure from its prior deflationary narrative. To grasp the significance, let's delve deeper into the fee burning mechanism:

• Tokens Created (Inflation): Ethereum employs a unique method to secure and maintain its network known as Proof of Stake (PoS). In this system, new Ether tokens are "minted" or created with each new block to reward network validators, often referred to as stakers.

  These validators play a crucial role in confirming transactions and ensuring the network's security. The creation of new tokens as block rewards is akin to a form of inflation, as it introduces additional Ether into circulation.

• Gas Fees and Transaction Fees: To interact with the Ethereum blockchain, users need to pay fees, commonly referred to as gas fees. These fees serve a dual purpose: firstly, they incentivize network nodes, including miners and validators, to process transactions and smart contracts.

  Essentially, gas fees compensate the participants for their computational efforts and the resources required to maintain the network. Secondly, gas fees act as a security measure, deterring malicious actors from overloading the network with spam or frivolous transactions.

• Fee Burning Mechanism: A significant development in Ethereum's economic model is the introduction of a fee burning mechanism. When users pay gas fees to execute transactions or interact with smart contracts, a portion of these fees is "burned" or permanently removed from circulation.

  This mechanism serves several purposes. It reduces the overall supply of Ether, making it more scarce and potentially increasing its value. Additionally, fee burning addresses long-term concerns about inflation, offering a balance to the network's dynamics

• Deflation: In a deflationary setup, Ethereum typically burns more tokens than it creates. reducing the total supply. This is considered bullish for the token's price. This happens when network activity is high, and more ETH is being burnt than is being minted.

• Inflation: Conversely, when network demand decreases, as we're currently observing, fewer tokens are burned, and more are created, leading to an increase in the total supply. While this may seem like a concern, it's essential to note that Ethereum's inflation is currently relatively small.

🌟 The Potential of Ethereum's Fee Burn Mechanism 🌟

Ethereum's journey to this inflationary phase required a unique set of circumstances. It took a significant decrease in network activity to trigger this change. As time goes on, and network activity increases, Ether should become very deflationary. Note that Fidelity expects network fees to more than triple by 2030.

💡 Positive Benefits of Fee Burning 💡

In a high network activity scenario, the fee burn mechanism could have several positive effects on Ethereum:

• Supply Control: Ethereum's supply may remain more stable, avoiding extreme price volatility.

• Value Appreciation: A controlled supply could lead to potential value appreciation over time, benefiting long-term holders.

• Incentives for Activity: The mechanism can incentivize increased network participation and security as fees burned become a portion of transaction costs.

Ethereum's evolution into an inflationary state presents a unique opportunity to explore new dynamics within the crypto space.

As activity increases in the years ahead, watch for ETH to become deflationary and greatly benefit it’s long term holders. 🌐🚀

MicroStrategy, the world's largest corporate holder of Bitcoin, continues to make headlines with its latest cryptocurrency acquisition:

📊 Big Bitcoin Buy 📊

In a recent SEC filing, MicroStrategy revealed its acquisition of approximately 5,445 Bitcoin, totaling $147.3 million in cash. The average purchase price per coin, inclusive of fees and expenses, was approximately $27,053. This purchase took place between August 1 and September 24.

💰 Impressive Holdings 💰

With this addition, MicroStrategy's Bitcoin holdings have grown to an impressive 158,245 Bitcoin, acquired at an average price of approximately $29,582. The aggregate purchase price for these holdings stands at $4.68 billion.

💡 Confidence Amid Market Challenges 💡

MicroStrategy embarked on its cryptocurrency journey in August 2020, with co-founder Michael Saylor citing inflation hedging as a primary motivation.

At the time of writing, Bitcoin is trading just above $26,100, down 1.7% for the day. This means the fiat value of Bitcoin held on MicroStrategy's balance sheet is currently around $4.1 billion.

MicroStrategy's consistent accumulation of Bitcoin underscores its confidence in the cryptocurrency as both a store of value and a long-term investment. However, despite this ongoing commitment, the firm currently faces a market where Bitcoin has experienced fluctuations.

📈 Financial Performance 📈

In Q1 2023, MicroStrategy reported its first profitable quarter since 2020, driven primarily by a one-time income tax benefit. This profitability continued in the second quarter, with $22.2 million in net income, despite a $24.1 million impairment charge on its Bitcoin holdings.

🌐 Bitcoin's Growing Appeal as Sound Money 🌐

While MicroStrategy's ongoing Bitcoin accumulation captures headlines, it's part of a broader trend. Increasingly, companies and entities are seeking sound money and assets, potentially driving significant demand for Bitcoin over time.

📈 Slow Then Sudden 📈

This demand may initially appear gradual, as businesses and institutions cautiously explore Bitcoin's potential. However, it has the potential to become a "slow then sudden" phenomenon.

As more people, companies, governments, and institutions recognize Bitcoin's value as a store of wealth, a tipping point may be reached where interest surges exponentially.

🏦 Institutional and Government Involvement 🏦

Institutional involvement, such as investments by hedge funds, asset managers, and pension funds, can amplify this effect. The entry of major players into the crypto space further validates Bitcoin's status as a legitimate financial asset.

As governments and central banks worldwide navigate economic uncertainties, Bitcoin's appeal as a decentralized, borderless asset may grow. Countries exploring digital currencies could also indirectly boost interest in cryptocurrencies.

The fear of missing out on the next big thing can lead to rapid adoption. When a critical mass perceives Bitcoin as a sound, inflation-resistant asset, the rush to accumulate it may be swift and substantial.

Miles Deutscher’s watchlist - Click the post to read about more projects.

SmarDex and ImmuneFi launch a HUGE bug bounty program. Find a bug in the code? Get paid.

Not crypto related, but ChatGPT can now see, hear, and speak. We really are living in the future.

Coin Bureau’s weekly news video is live. Check it out - they’re one of my favorite crypto Youtube channels.

Crypto is flocking to China. Mark my words, Asia, not the US, will lead the next bull run.

Pantera Capital thinks more legitmacy and reasonable pricing of assets is coming to crypto.

That’s all for today. We’ll be back tomorrow with MCS Crypto 101 - Issue #6.

Thank you so much for subscribing to Make Crypto Simple.

Chris Schawel


^{The content provided in this newsletter is for entertainment purposes only and should not be construed as financial advice. All information, including but not limited to market analysis, price predictions, and investment strategies, is purely speculative in nature. We strongly recommend conducting your own research and consulting with a qualified financial advisor before making any investment decisions. We are not responsible for any losses incurred as a result of the information presented in this newsletter.}