Ember Nuggets #2

What are Ember Nuggets?

Ember Nuggets will be a weekly update with commentary from the management team on what’s happening within the crypto market - news, developments, market trends, and more.

Nugget 1: Ethereum Upgrade (EIP-1559)

EIP-1559, also known as the London Fork, was released 8/5/21 to make Ethereum transactions more efficient. The upgrade changed the incentive structure for miners, and put simply, improved the user experience when it came to paying gas fees. The upgrade has made gas fees more predictable and transparent for user transactions. Furthermore, the upgrade added deflationary pressure on ETH supply by burning a portion of gas fees. As of 8/30/21, 142,800 ETH have been burned representing $459mm in value and reducing the net issuance rate to 4.1%. EIP-1559 does not make ETH deflationary, but a step towards curbing monetary supply until ETH 2.0 launches - long-run we expect these changes to create an upward price pressure on ETH as supply decreases with increased network utilization.

What has been burning the most gas over the past month?

OpenSea (NFT) and UniSwap (DEX)

Nugget 2: Visa, Steph Curry and NFTs

Visa purchased their first NFT, CryptoPunk #7610, which is one of 3,840 female punks, for $150K. CryptoPunks is widely considered one of the first NFT projects on Ethereum. Launched in 2017 by Larva Labs, CryptoPunks are a collection of 10,000 images, with randomly generated characteristics making each image unique. The most expensive CryptoPunk ever sold was #3100 on March 11, 2021 for 4.2K ETH ($7.58mm). The current floor price for CryptoPunks has reached ~118 ETH ($381K). Over the past 4 weeks, 203.8K ETH ($637mm) worth of CryptoPunks have been sold and 466K ETH ($1.18B) since inception.

Steph Curry, All-Star NBA player on the Warriors, is now a part of the Bored Ape Yacht Club, purchasing 1 of 10,000 Bored Apes pictured below for 55 ETH. Bored Ape Yacht Club (BAYC) NFTs have been some of the best-selling NFTs over the past few months with CryptoPunks and Art Blocks. The floor price of an Ape today is roughly 45 ETH.

NFTs may be a fad but the resurgence in demand and mainstream adoption will help create some stability in the space.

Nugget 3: What does the Infrastructure Bill mean for Crypto?

The Infrastructure Bill that recently passed the Senate included language to tax crypto. The provision led to a delay on the final vote for the bill as the crypto community organized and pressured Senators to amend the provision to ensure it did not stifle crypto-innovation in the US. Unfortunately, the amendment failed a key vote and the bill passed with the original language in place.

The reason for push back and concern?

Current language would identify anyone who provides "any service effectuating transfers of digital assets on behalf of another person" as a “broker” in the eyes of the IRS for tax reporting purposes. The language of the bill, if interpreted literally, is overly burdensome for developers, miners, stakers and node operators (to name a few). In essence, a miner would be on the hook to provide reporting on trades/transfers that are recorded on a block that their hardware may have “mined” which is not technologically feasible. In layman's terms, John and Susan split the dinner bill and John venmos Susan $10 – under the tax provision John would need to report venmo transactions and issue a 1099.

Thank you for reading!

Harsharn Singh
Investment Associate | Ember Fund