This week in The Context, we look at the Bitcoin halving, ETFs in Hong Kong, and three new products from three big firms.
[Halving Fun Yet? 🎳]
The Bitcoin blockchain this week will cut in half the rewards given to miners—from 6.25 BTC per block to 3.125 BTC per block.
What Journalists Said 🧑💻:
The advent of Bitcoin ETFs in the U.S. means many retail investors have exposure to Bitcoin whether they know it or not, wrote Mat Di Salvo (Decrypt). They should understand that this quadrennial “milestone is baked into the protocol’s code” and has historically led to an increase in token price by restricting supply. 📈
The token price may go up, but the Halving could send mining companies’ profits down, 📉 wrote Ben Strack (Blockworks). Though the 2020 Halving didn’t alter the mining landscape much, there are more players now. Don’t be surprised if the sector consolidates.
There are three ways miners might replace those lost earnings, said Kyle Torpey (Investopedia): 1) the price of Bitcoin goes up; 2) they start making more in transaction fees from Ordinals and Bitcoin Layer-2 networks, which are relatively new; and/or 3) they use all that equipment to expand operations into energy production.
PR Perspective 🔎:
The Bitcoin Halving is the event that keeps Bitcoin deflationary and scarce. Holders like it because the price goes up. But this isn’t necessarily great PR for an asset often accused of being backed by nothing—it looks like Bitcoin is conjuring value out of thin air. Moreover, any price bump may be partially priced in. If this proves to be a sell-the-news event, crypto skeptics will crow, “I told you so.”
[Exchange-Traded Fun 🔄]
Hong Kong’s Securities and Futures Commission granted three firms conditional approval to offer Bitcoin and Ether exchange-traded funds (ETFs). 🇭🇰 [Crypto ETFs allow people to buy and sell securities that track the price of a token—without having to buy the actual crypto.]
What Journalists Said 🧑💻:
If any of these firms go through with their plans, Hong Kong would be the first place in Asia to accept BTC and ETH spot ETFs “as a mainstream investment tool,” wrote Summer Zhen and Jason Xue (Reuters). 🔨
Hong Kong’s ETF embrace could open the door for other Asian countries, 🤗 wrote Daniel Kuhn (CoinDesk)—it may also be a “harbinger of things to come in mainland China, which banned virtually all crypto activity in 2021.” 🇨🇳
Expansion into China would be a big deal, but Hong Kong is just one island. 🏝️ That means ETFs won’t move the needle like Bitcoin ETFs in the U.S. did, explained Niamh Rowe (Fortune): “Hong Kong’s ETF market was worth about $50 billion—compared with some $8.87 trillion in the U.S.—at the end of the first quarter.”
Why It Matters 🔎:
Hong Kong, a semi-autonomous city, has pushed to become a web3 hub even as mainland China has effectively banned crypto trading. There are a lot of geopolitical implications at play here, but Hong Kong could be a not-so-virtual sandbox for China to try out some ideas. Though Bitcoin ETFs in the U.S. provide a model, the U.S. Securities and Exchange Commission appears to be against Ethereum ETFs. Hong Kong could be a testing ground before the tools hit mainland China’s billion-plus residents.
[Fun Comes in Threes 3️⃣]
Worldcoin is releasing a layer 2, 🌐 crypto exchange OKX is launching its own rollup, 🧻 and rival exchange Kraken announced a self-custody wallet. 🦑
What Journalists Said🧑💻:
Welcome, OKX, to the “exchange change club,” wrote Macauley Peterson (Blockworks). X Layer, built with Polygon’s tech, joins Coinbase’s Base as an exchange-built scaling solution. It should soon be able to “host a wide array of dapps.”
Worldcoin, meanwhile, is building its L2 on the OP Stack favored by Base. “The setup,” said Sam Kessler (CoinDesk), “will allow World Chain to offer users cheaper fees than they'd get by transacting directly on Ethereum.”
Finally, Kraken has taken a page out of Coinbase and OKX’s playbooks and developed a self-custody wallet. Why? “In many jurisdictions, self-custody wallets are not subjected to the same rules that apply to money transmitters, such as exchanges, as they do not natively process fiat money transactions,” wrote Zhiyuan Sun (Cointelegraph). ☀️
Why It Matters ⁉️:
Crypto firms must keep innovating to 1) remain relevant and 2) stay in the news. Coinbase, with its self-custody wallet and L2 that can host dapps, begins to look like a one-stop-shop for crypto holders. Kraken and OKX, both major exchanges, can’t let it hog the spotlight. But new technology can also serve a pragmatic function, as Worldcoin’s lower-cost World Chain demonstrates. Sometimes, the biggest benefit is making users’ experience better.
[Tweet Of The Week]
Credit: @TheJackForge
[DeFi Definitions]
A segment exploring one particular aspect of DeFi. View previous entries here.
This week: ‘’Halving” by Ruth De Freitas.
The Bitcoin halving is an event that occurs approximately every four years (coming up this week), where the reward for mining new Bitcoin blocks is halved. This means that the number of new Bitcoins created and earned by miners for adding transactions to the blockchain is reduced by 50%.
The halving is a part of Bitcoin's design to control inflation, ensuring that the total supply of Bitcoin will never exceed 21 million. This event is significant because it can influence Bitcoin's price and mining profitability, and it emphasizes the scarcity of Bitcoin as a digital asset.
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Andrew Wickerson, Tiffany Mac Sherry, Liam Quinn, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and brands through impactful storytelling. Find out more about us here.