Algo Capital - April Newsletter

Algo Capital - April Newsletter

Dear Readers,
In this month newsletter, we will talk about the Shanghai Upgrade of ETH and we will do it using the interview appeared on MoneyMag with our CEO Federico Corbari:

J: With the Shanghai upgrade, what changes in the Ethereum system?
FC: It's necessary to consider the Proof of Stake (PoS):
In September 2022, with the merge and the new ETH beacon chain, Ethereum adopted PoSdrastically reducing costs and energy consumption by about 99%, moving from Proof of Work, where validations were done by miners, to Proof of Stake, where validations are done within the system through staking.
This system also aims to increase decentralization, as all holders of at least 32 ETH can participate in PoS, while in the past, with PoW, mining setup costs were significant and requiring enormous power consumption.
Staking is somewhat equivalent to the Bond/Fix Income market, lending the system yours ETH and receiving a return in the form of an annual interest rate % on the staked capital, to participate in system validations.
The Shanghai upgrade is crucial for the ecosystem - until a few days ago, those who wanted to act as a "validator" had to permanently stake their ETH. The Shanghai upgrade allows, and here is the big news, to un-stake their ETH if they want to exit the mechanism, which means in fix income terms, having a shorter maturity at a very attractive interest rate.

J: What signal does it send to other cryptocurrencies?
FC: The upgrade of Ethereum, including the transition to Proof of Stake, sends a positive signal to other cryptocurrencies and the blockchain sector in general. This is because it shows that Ethereum is continuously working to improve its technology and keep up with the market and user needs. This can lead to greater trust and adoption by investors and users, not only of Ethereum but also of other cryptocurrencies and blockchain projects. Furthermore, Ethereum's upgrade could also push other cryptocurrencies to improve their technologies and develop new innovative solutions to remain competitive. Today, ETH is probably the most interesting blockchain for developing DeFi projects (layer2), and without a doubt, these upgrades put it at the forefront for traditional investors who want to enter the sector or exploit blockchain technology.

J: Why did Ethereum decide to abandon mining? What are the advantages?
FC: The advantages of PoS are multiple, particularly, a huge reduction in energy consumptionreduced entry barriers to become a validator instead of a miner, hence more decentralization. Furthermore, PoS (Proof of Stake), will increase scalability, and consequently, investment opportunities for traditional investors in new projects. Finally, ETH could become deflationary,meaning that the number of ETH "burned" for each transaction would be higher than those "mined" or created.

J: The most pessimistic analysts predicted a collapse of ETH at its launch, but it has returned to trading above $1,900. What are the medium and long-term predictions?
FC: Considering the last 24 months, it is challenging to make predictions. Certainly, the blockchain technology is working on many projects behind the scenes. A new narrative that I support is that the next step will be to bring the technology to everyday life, and when everyone benefits from the advantages of this technology, its real value will come to the fore. I often use this example:
With blockchain technology, we can consider ourselves in the Napster era and we will arrive at Spotify;”
it's difficult to say how, but this technology will allow such a evolution - certainly, we all have a computer in our pocket through our smartphones, and this will facilitate expansion and adoption.

J: How do inflation and interest rates influence cryptocurrencies?
FC: The macroeconomic market influences the prices of financial instruments, and cryptocurrencies are not immune to this.

J: Given the period of instability in the banking system, is it time to focus on digital assets?
FC: They are a fully-fledged asset class and a well-diversified portfolio should include digital assets, either by directly investing in cryptocurrencies, or possibly through professional financial operators and funds specializing in this sector.

J: In recent news, Ftx has recovered more than $7 billion in assets thanks to the appreciation of cryptocurrencies: is the cryptocurrency winter over? Or do we still need to be cautious?
FC: The halving is approaching, and new technologies developed in recent years are about to enter the market. It's difficult to say if the "crypto winter" is coming to an end, but there will certainly be some very interesting innovations in the near future.

link of the interview:

Digital Assets technologies are in constant (r)evolution; stay tuned to stay updated.