By Marcus Sotiriou, Analyst at UK-based digital asset broker Global Block
Bitcoin rose overnight to $39,000, as the crypto market remained in a state of uncertainty. There are bullish and bearish catalysts on the horizon, but I think the short term risk is dominant.
On the plus side, founder Terra Do Kwon said Luna Foundation Guard plans to add $1.2 billion of Bitcoin to its reserves starting this week to make UST’s stablecoin more stable and reduce the risk of UST losing its stake. Do Kwon said, “If any confusion remains at this point, we will continue to increase the reserves until it is mathematically impossible for a fool to claim the risk of the ministry of finance for UST.” He has hinted that they are planning to increase their Bitcoin reserves to $10 billion in the future.
However, the current risks in the market are quite significant. The European Union (EU) has proposed a legislative framework to regulate cryptocurrencies called Markets in Crypto Assets (MiCA). An earlier draft of the MiCA framework proposed a ban on crypto services that rely on unsustainable consensus mechanisms, starting January 2025. This provision was overturned after a strong backlash from the industry.
Nonetheless, the new draft includes a similar proposal. It said that crypto assets “must be subject to minimum environmental sustainability standards with respect to the consensus mechanisms used to validate transactions”, referring to cryptocurrencies that use Proof of Work. In addition, energy-intensive cryptocurrencies must “set up and maintain a phased rollout plan to ensure compliance with these requirements”. Ethereum plans to move from Proof of Work to Proof of Stake, but Bitcoin is unable to make this transition. Therefore, Bitcoin will be affected by this law. Voting took place around 1pm UK time.
The crypto community has reacted quickly to pressure from legislators to oppose the proposal. Paris legislator Pierre said, “MEPs have taken a hard line on crypto assets, thinking that they are protecting citizens. In fact, this version embarrasses our competitiveness while, at the same time, President Biden has signed a law calling on the US to fully embrace this new ecosystem.” I agree with Pierre, and if there is a majority in favor of the proposal, I think the EU will give another country a chance to fully embrace the crypto revolution.