Ethereum and the Future of Crypto

Crypto’s Pivotal Moment

On September 6th, 2022, Ethereum, the world’s largest and most popular public blockchain, deployed a long-awaited upgrade to its main network. This upgrade, called “The Merge”, has been many years in the making. The merge will migrate Ethereum from its currently energy intensive crypto-mining based “Proof of Work” consensus mechanism to a crypto-validator based “Proof of Stake” mechanism for securing and running the blockchain.

This is one of the most noteworthy events in the history of Ethereum, as moving to proof of stake is expected to reduce the Ethereum blockchain’s energy requirements by 99%. This upgrade also lays the foundation for future upgrades that will improve scalability, resulting in faster and cheaper transactions.

The emission of Ether (ETH), the network’s native cryptocurrency, is also expected to become deflationary after the merge, which will reduce issuance of ETH per block to only ~1,600 ETH per day, dropping total new ETH issuance by ~90%. Given that most crypto applications and smart contracts are built on Ethereum, and ETH is required to execute transactions on the blockchain, this is expected to increase the ‘buy’ pressure on Ether as a digital asset.

Even though the developers pushed code changes on September 6th, the final migration is set to happen when the first block based on Proof of Stake consensus is added to the Ethereum chain. Depending on transaction volumes, this is expected to take place sometime between September 10th and 20th.

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Source: https://ethereum.org/en/upgrades/merge/

At Mudra Capital, we have been closely following all activities and conversations in the Ethereum community regarding this highly anticipated milestone. We have also adjusted our portfolio to ensure our funds have the appropriate amount of exposure to Ethereum, balancing both upside potential and downside risk from “The Merge”.

The Future of Digital Assets

On August 27th, the Mudra Capital team attended the Indian Institute of Technology (IIT) Bay Area Conference held in Santa Clara, California.

The event was an excellent forum to spread the word about Mudra Capital and we shared the spotlight with many other technology industry leaders who had also sponsored the event. The event was a fantastic opportunity to share our point of view of crypto and what the future holds in store for digital assets.

Pawan took the stage in one of the morning sessions and presented key trends and outlook on crypto. You can watch his presentation in full here.

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Market Highlights

The month of August continued to see an elevated level of volatility in both equities and crypto markets, influenced by macro factors and speculation on interest rates. A rally in crypto markets earlier in the month saw Bitcoin crossing the $25,000 mark, but since then the Fed’s pledge to continue imposing interest rate hikes has wiped $1.25 Trillion from the US equities market and sent Bitcoin plummeting to below $20,000.

An additional factor for the downside pressure in crypto markets was the US Treasury’s announcement that they are adding cryptocurrency mixer Tornado Cash to the government list of individuals and entities blacklisted for violating sanctions. This is an unprecedented move, as it would be the first time that an open-source software – Tornado Cash, which helps keep cryptocurrency transactions private – has made the list of sanctioned entities.

These sanctions have led to a ripple effect across the industry with many protocols, businesses, and applications choosing to comply with the sanctions and subsequently blacklisting any addresses and digital assets that have used Tornado Cash.

The month of September will continue to be quite eventful as the markets keenly watch for the release of inflation data, interest rate announcements and outcome of the highly anticipated Ethereum upgrade.

Mudra Outlook

At Mudra Capital, despite the short-term volatility, we continue to maintain a positive long-term outlook on the potential of digital assets to outperform equities. We expect this to happen once the macro conditions improve and the industry starts getting a clear and transparent regulatory framework. Many large institutional players, including Brevan Howard and, most recently, Blackrock, are investing in crypto, and it is only a matter of time before we begin to see widespread institutional adoption of digital assets.

In the meantime, the current bottoming out of the market is providing lucrative buying opportunities for various high quality digital assets that are currently massively undervalued.

As a reminder, at Mudra Capital, we offer three thematic funds that cover the entire spectrum of digital assets across the Crypto/Web3/Blockchain sector.

All of our investment products are open funds and currently accepting accredited investors, both individual and institutional, who are looking for exposure to the asymmetric growth potential of digital assets.

What We Are Reading

Ethereum Foundation’s updates on the merge

Crypto Pulse reveals continued interest in crypto

US Treasury’s crackdown on Tornado Cash

McKinsey Report on Value Creation in the Metaverse

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