Research Round-Up: October

A look at last month’s top headlines and market commentary.

by Fidelity Digital Assets

Fidelity Digital Assets’ Research Director Chris Kuiper and Research Analyst Jack Neureuter provide additional commentary and market insights in this short on-demand video.

Market Commentary

Area chart showing Bitcoin and Ether one returns as of September 30, 2022.

Source: Coin Metrics, 09/30/2022.

It was a rather uneventful month for the price of bitcoin as it traded sideways for most of September. All attempts to stay above the $20,000 mark have been repeatedly thwarted as bitcoin closed September around $19,500, down roughly 2% overall. Ether had a rough month, falling approximately 9% since the day of “The Merge,” a long-awaited upgrade from proof-of-work to proof-of-stake, and falling 14% over the entire month of September. While both digital assets and other risk assets have generally been in a downtrend, it is worth noting that ether was down approximately 12%, when priced in bitcoin, for the month of September. In this month’s Research Round-Up, we cover how crypto mining is getting cleaner, ether issuance post-merge, and more digital asset news and market data.

Line chart showing Ethereum Market Cap Ratio of Bitcoin as of September 30, 2022.

Source:  Coin Metrics, 09/30/2022.

News and Editorial

A curated list of the most relevant news and developments along with our two Sats.

Payments Shop Strike Raises $80 million

Strike is a mobile payments app that facilitates instant transactions via the Bitcoin Lightning network. Jack Mallers, the CEO of Strike, is using the Lightning network to attempt to revolutionize global payments. The Series B funding round was led by Ten31, a venture capital firm that describes itself as “Bitcoiners supporting bitcoiners.”The funding round follows new auspicious deals, including a partnership with Shopify (an e-commerce platform), NCR (a point-of-sale provider), and Blackhawk (a payments company).2 Could this new network eventually rival Visa? Morgan Stanley seems to think so!3

Our Two Sats:

Using bitcoin for payments is arguably the main purpose behind the creation of Bitcoin. Many critics suggest Bitcoin has failed already because it processes roughly seven transactions per second, not nearly enough for a currency intended for global adoption. However, Bitcoin advocates often refute this claim by pointing to the Lightning network. While the Lightning network — a layer-2 protocol built on top of Bitcoin — is still in a nascent state, its adoption has been steadily increasing as users start up their own Lightning nodes and exchanges implement “Lightning withdrawals,” allowing users to withdraw funds instantly with little to no fee. This is the biggest difference between something like Visa Direct, which offers real-time settlement of payments, and Lightning, which offers real-time settlement with nominal fees and is independent of a centralized party. Of course, in the case of using Strike, there is a third-party involved until your funds are received in your “wallet.”

Nuclear and Gas are Fastest Growing Energy Sources for Bitcoin Mining

On September 27, the Cambridge Centre for Alternative Finance released an update to its mining-related data source called the Cambridge Bitcoin Electricity Consumption Index (CBECI). It found that fossil fuels accounted for the majority of Bitcoin’s electrical mix as of January 2022, while sustainable energy sources accounted for 38%. Back in 2020, coal accounted for 40% of Bitcoin’s total electricity consumption and hydropower accounted for 34%. Comparatively, early 2022 data shows that coal usage declined to 37% and hydropower fell to 15%, while use of natural gas and nuclear energy has increased (13% in 2020 to 23% in 2021 and 4% in 2021 to 9% in 2022, respectively). The update also showed that greenhouse gas emissions related to bitcoin mining have decreased by 14% compared to the estimated 2021 emissions, representing around 0.1% of total global greenhouse gas emissions.4

Our Two Sats:

The new CBECI data is certainly encouraging and optimistic, as many regulators and prospective investors frequently cite environmental concerns as a barrier to adoption. With natural gas and nuclear energy increasingly powering mining operations, the resultant effect of lower greenhouse gas emissions should not be understated, especially when considering the total hash rate is currently at all-time highs. Some reports suggest that mining bitcoin using vented methane can take 13 times more emissions out of the environment than coal puts into it and some estimates project bitcoin mining may become a carbon-negative endeavor by the end of 2024, a very exciting prospectus for a more sustainable future.

Bitcoin Still Dominating Total Payments on BitPay Despite Bear Market

While bitcoin payments as a proportion of total BitPay transactions have been declining during the so called “Crypto Winter,” it is still the most widely transacted cryptocurrency on the platform and makes up more than 50% of all sales. Overall BitPay transactions have climbed from roughly 58,000 monthly transactions in 2021 to around 67,000 monthly transactions in 2022 so far.5

Our Two Sats:

This is another positive development for adoption and usage of bitcoin in the industry despite the drawdowns in cryptocurrency markets. With BitPay at the forefront of cryptocurrency payment service providers globally, we would expect other similar services to be exhibiting continued payment usage as well, which is exciting to see despite the decline in bitcoin’s price.

News Quick Hits

  • Lightning Labs releases alpha version of their Taro asset protocol.6
  • Lightning Labs raises $70 million to bring stablecoins to the Bitcoin Network.7
  • Bitcoin reaches historic milestone of 5,000 days online.8
  • South Korean authorities order the freezing of $67 million of bitcoin tied to Do Kwon.9
  • Canadian Mining Company Hut 8 surpasses 8,000 bitcoin held as it deposited all of its bitcoin mined in August into custody, rather than selling them.10

Data to Watch

Data we are currently keeping an eye on and our commentary.

Bitcoin Hash Rate Remains near All-Time Highs.
Dual-axis line chart showing the price of bitcoin versus the bitcoin hash rate as of September 30, 2022.

Source:  Coin Metrics, 09/30/2022.

On September 11, Bitcoin hash rate hit a new all-time high as mining rigs continue to come online. Bitcoin’s block reward, currently 6.25 bitcoin ($120,890 at the time of writing),11 subsidizes miners’ energy bills. But, with the price of bitcoin still approximately 70% below previous all-time highs and continuing to trade sideways between $19,000 and $22,000, the question is, how long can miners afford to participate? Such a contraction in prices leads to a drastic reduction in margins for miners. Could it be that their energy source is so cheap that there is no reason to shut down or will miners eventually be forced to sell more bitcoin, raise capital, or eventually shut down inefficient rigs?

Is Bitcoin Exchanging Hands?
Dual-axis chart showing liquid and illiquid supply of bitcoin from September 2014 to September 2022.

Source:  Coin Metrics, 09/30/2022.

Charted above is our interpretation of liquid and illiquid supply of bitcoin. By looking at the last time a bitcoin has moved, we can begin to see a trend and get a sense of how the markets feel about the current price. Historically, when the price of bitcoin moves up, we see the liquid supply increase as traders begin to take profit. Also, when the price quickly falls, like in May and November 2021, we typically see liquid supply rise slightly. However, almost a year out we can see that the liquid supply has shrunk 10%, totaling 34% today. This decrease in liquid supply means that even with market outlooks appearing to worsen each day, bitcoin holders are not budging. Using this metric, September 25 marked the highest level of illiquid supply in the last 10 years, totaling nearly 66%.

Ethereum’s Method of Distribution
Dual-axis chart showing Ether’s method of issuance since its inception in 2015 to September 28, 2022.

Source:  Coin Metrics as of 09/28/2022.

After Ethereum’s astonishing switch from a proof-of-work consensus mechanism to proof-of-stake, we were curious about the overall issuance of ether tokens. At its inception in 2015, ether was distributed in an initial coin offering, commonly referred to as the “pre-mine,” to anyone with bitcoin available to pay for it. As you can see above, the pre-mined tokens accounted for 100% of the total supply; the only way to acquire ether after that point was to buy it from someone who already held it or mine it using proof-of-work. One year after the initial offering, the proof-of-work or “mined” tokens came to represent just under 12% of the total supply.  A year after that, it increased to roughly 22%, and it currently accounts for approximately 42% of total supply. After the switch of consensus mechanisms, we can see ether issuance through proof-of-work falling to zero and the proof-of-stake issuance starting to appear, although very subtly. While the current issuance through proof-of-stake is a small fraction of the original issuance, it will be interesting to watch as the issuance rate changes and potentially goes negative due to the fact a small amount of ether is “burned” with every transaction. New issuance will now always fall into the hands of those who already own ether and are staking.    

Speaking of Issuance Post-Merge
Dual-axis chart comparing the net daily supply change and cumulative supply change of ether since The Merge from September 15 to September 30, 2022.

Source:  Coin Metrics as of 09/30/2022.

Now using proof-of-stake, the total issuance of ether is a fraction of what it used to be using proof-of-work. This is occasionally referred to as “the triple halvening” by the Ethereum community. Combine the issuance cut with an earlier upgrade (EIP-1559) that added a burning mechanism and you have the perfect formula for a deflationary supply. That is, as long as there are enough transactions happening in which burning can take place. Above, we calculate the net daily supply change as the total issuance of ether less burned supply.  So far, ether’s daily issuance averages around ~772 per day amounting to roughly 9,700 new ether tokens to-date post-Merge, compared to what would have been approximately 150,000 new ether had the network remained on a proof-of-work mechanism. While we haven’t seen a deflationary trend just yet, September 27 marked the first day post-merge where the net issuance of ether was negative. We could see more negative issuance days like that as ether adoption grows and new use cases bring more users to the network.

Area chart showing the daily net issuance of ether from September 1 to September 30, 2022.

 Source:  Coin Metrics as of 09/30/2022.

The catalyst known as “the triple halvening” can be seen more clearly in the chart above. The switch to proof-of-stake caused net issuance to fall off a cliff but hasn’t brought ether completely into deflationary territory as some speculated would happen. September 27 marked the first deflationary day since The Merge as 83 more ether were burned than issued. Going forward, demand for block space will be the driving force that determines whether ether will continue to trend in a deflationary direction.


Christopher Kuiper, CFA, Director of Research, Fidelity Digital Assets

Jack Neureuter, Research Analyst, Fidelity Digital Assets

Matthew Hogan, Research Analyst, Fidelity Digital Assets

Daniel Gray, Research Analyst, Fidelity Digital Assets












11Data Source: as of 09/30/2022

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