Worries of Market Downturn as New Variant Emerges

Hello and welcome to the newest issue of Overbit Insights.

According to the Financial Times, cryptocurrency miners in Kazakhstan are experiencing significant electrical shortages due to a rise in mining.

As miners pour in from China, which cracked down on cryptocurrency earlier this year and prohibited crypto-based transactions in September, Kazakhstan has been dealing with an overburdened electrical grid. According to the Financial Times, over 87,849 “power-intensive” mining rigs have crossed the border from China to Kazakhstan.

Despite its small size, Kazakhstan currently ranks second in the world for crypto mining, just behind the United States, according to research from the University of Cambridge.

In response to the disruptions, the country’s Ministry of Energy said that new mining farms would be limited to utilising no more than 100 megawatts for the next two years but later reversed this decision for authorised miners.

According to the Financial Times, the Kazakhstan Electricity Grid Operating Company has also warned that in order to alleviate power shortages, it will begin restricting electricity to 50 government-registered crypto miners.

The growth of “Grey miners,” also known as unregistered miners who unlawfully mine for cryptocurrency, is being blamed by Kazakh officials for the energy crisis. Kazakhstan will begin requiring real miners to pay up in 2022 better to distinguish registered miners from “Gray” miners and alleviate power problems. Legitimate miners will be charged 1 Kazakhstan tenge per kWh, according to the country’s plans.

Closing out this week’s edition of Overbit Insights, we take a look at some of the market concerns stemming from news of a new covid variant.

Fears of a new, significantly mutated strain of the coronavirus, first found in South Africa, are causing digital currencies to fall in lockstep with other risk assets.

On Friday, Bitcoin plunged along with other assets, reaching a seven-week low and entering what some are calling ‘bear market’ territory. Bitcoin fell to $53,549 at one point, its lowest level since early October. With that move, the cryptocurrency has lost 20% of its value since hitting an all-time high of nearly $69,000 earlier this month.

Ether, the second-largest cryptocurrency, dropped more than 10% to $4,059, while XRP sank 9.9% to a little under 95 cents.

The United Kingdom and other countries have temporarily halted flights from six African countries in reaction to the virus. Investors and market commentators had likened this move to the beginning of the pandemic when travel was initially restricted, and the market went into a freefall.

Global markets indeed behaved similarly on Friday, with European stocks likely to have their worst day in over a year and U.S. stock futures falling dramatically.

With U.S. Treasury yields falling dramatically, investors are fleeing risky assets for the relative safety of Treasuries.

Time will tell whether this flight to risk-off in the markets is temporary, as it was in March 2020, or whether this is a signal of a longer-lasting trend switch.

Thanks as always for reading Overbit Insights!

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