Thursday, 12 January 2023

Market Summary

Market Summary 12 January 2023

Bitcoin Price: US$ 17,943.26 (+2.88%)
Ethereum Price: US$ 1,389.39 (+4.03%) 


Bitcoin Update: Reflecting on 2022 and the Future

  • Despite bearish BTC price action throughout 2022, activity on the Bitcoin network has remained stable. The number of active Bitcoin wallets was flat in 2022, at ~4.5M — inline with the numbers from the past four years. Looking at a four year cycle, the active wallet count is even trending upwards slightly.
  • But at the same time, it’s clear that active address growth has been stagnant since roughly Q1 2021. That’s not what you would like to see given what market conditions were like in 2021. Active address levels have found a higher base than in the previous cycle, so we haven’t seen a significant exodus of users from the Bitcoin network. But we haven’t seen significant growth, either. Instead, we’ve seen active wallets on Bitcoin remain relatively flat throughout all of 2022. Even when they peaked in 2020, they barely surpassed the prior high from 2017.
  • Transaction counts were relatively stable throughout 2022, but have declined overall since the peak of the 2021 bull market. Notably, Bitcoin’s transaction count has failed to surpass its peak from 2017. The lack of growth could be partly due to the influence of the hodl narrative — people buying Bitcoin, sending it to cold storage, and never spending it. The lack of growth could also be caused by Lightning taking up some of the demand. Or, more concerningly, the stagnant growth could be Bitcoin failing to maintain its relevance in a market that is constantly producing new technologies and narratives. Either way, the lack of transactional growth in Bitcoin between 2018 and 2023 is a cause for concern.
  • Throughout 2022, we have seen Bitcoin flying off exchanges. The trend we see for Bitcoin and CEXs is that holders have been taking BTC off exchanges and into self-custody — especially after the collapse of FTX.
  • Self-custodied BTC is for holders, and could represent more of the Bitcoin supply disappearing into cold storage long-term. We see the same phenomenon when looking at total BTC on exchanges. Since January 2022, total BTC on exchanges declined from ~2.8M to ~2.2M, a decrease of 21%. 2022 was, hopefully, the year people started to understand the importance of self-custody.
  • These two phenomena — stable network activity in 2022 and net outflows from exchanges — suggest that Bitcoin has done quite well given the narrative shift this cycle. However, it is disappointing to see that, barring price, growth in network usage has been muted since the last cycle. It wouldn’t be surprising to see demand for BTC improve once the macro backdrop becomes more risk-on.


Solana Sees Resurgence in 2023 With Rise in Active Wallets

  • Since the beginning of 2023, total active wallets interacting with Solana DEXs have increased 83% from almost 45K per day to 83K per day.
  • Much of the increase comes from active wallets interacting with Radium, Jupiter, and Orca increasing 251%, 91%, and 62% respectively.
  • During the same period, total non-vote transactions on Solana have also increased 46% from $28M to $41M. Meanwhile, the SOL token price has increased 62% from $10 to $16 as well.
  • The network has experienced a resurgence in activity in 2023, but the increase in activity comes without any fundamental change or catalyst for the network.
  • Notably, the BONK meme token was launched on Solana in December 2022. The project went viral with a peak market capitalization of $151M on Jan. 5 and a top 24hr trading volume of $183M on Jan. 6.


Bitcoin CME Futures Draw Premium for the First Time Since FTX’s Collapse

  • The market panic that ensued after the collapse of Sam Bankman-Fried’s FTX exchange in early November seems to be abating.
  • The three-month bitcoin (BTC) futures listed on the Chicago Mercantile Exchange (CME), widely considered a proxy for institutional activity, are drawing a premium over the the cryptocurrency’s going spot market price for the first time since FTX went bust.
  • The renewed premium indicates that institutional activity is no longer concentrated on the short side. The CME futures fell into a record discount in mid-November as sophisticated traders took bearish bets to hedge against a deeper FTX-induced slide in the leading cryptocurrency.
  • Bitcoin, however, has been more resilient than expected over the past two months, with the downside capped at around $16,000.
  • The three-month CME futures traded at an annualized premium of 0.2%, while their Binance counterparts drew a premium of 2.4%.


Ethereum Upgrade Could Make It Harder to Lose All Your Crypto

  • Ethereum developers are hard at work trying to make its blockchain more user-friendly.
  • On Ethereum, users have the ability to create two types of accounts: External Owned Accounts (EOA) and Contract Accounts (CA). The two account types differ in terms of how they initiate transactions over Ethereum’s network.
  • EOA’s, the typical account-type for Ethereum users, are the type of account you use if you have used a wallet provider such as MetaMask and Coinbase Wallet.
  • With an EOA, users are given a pair of keys: a public and a private key. Anyone can send funds to an EOA using its public key. But only the account’s owner – whoever has access to the account’s private key, which should be kept secret – can actually initiate transactions from the account.
  • CAs, better known as “smart contracts,” are like mini computer programs that live on the Ethereum network. These accounts are controlled by code – not private keys – but they cannot initiate transactions themselves; an EOA needs to send a transaction (which you can think of like a message or instruction) to a CA in order for it to make transactions of its own.
  • The problem with EOAs comes down to human error. “One key has complete admin control over your account,” said Gazso, the co-author of the EIP 4337. “If you lose it, too bad, you’ve lost all control over your account forever.”
  • If you lose a private key to an EOA account, there is no help desk or key recovery process (like a “password reset” button) that can help you regain access to your funds.
  • Under account abstraction, user accounts could be programmed to include social recovery systems where several people – each with a key of their own – have the ability to return an account to its owner should the owner lose access to the private key.
  • One could also create “multisig wallets” that hand account ownership over to a group – requiring multiple different parties to sign off on transactions as a sort of extra layer of security.
  • Accounts under AA could also avoid some of the other hard-coded limitations of EOAs. They could, for instance, define how users pay gas fees. Currently, under EOAs on Ethereum, users have to pay gas in ether (ETH). But with AA one can choose to use a different cryptocurrency to pay gas with (like DOGE), or you can assign someone else (like a parent or friend) to pay gas fees.


Binance Wins Seventh Approval in Europe, Registers With Swedish Regulator

  • Binance has registered with Sweden’s Financial Supervisory Authority, making the Nordic country the seventh European jurisdiction in which the crypto exchange has been granted approval.
  • Swedish residents will now be able to buy and sell crypto in euros, access Binance’s staking service and use the exchange’s Visa card, among many other services, Binance announced on Wednesday.
  • The registration in Sweden follows Binance’s registration in France, Italy, Lithuania, Spain, Cyprus and Poland.
  • At the Crypto Finance Conference in St. Moritz on Wednesday, Binance CEO Changpeng Zhao said the crypto exchange intends to continue its scaling plans, with goals of increasing its headcount by 15% to 30%.
  • Zhao said that Binance grew from 3,000 to 8,000 people in 2022. This would mean the exchange is in stark contrast to many of its peers that have been downsizing employee numbers in recent months, a trend likely to continue in 2023.


China Includes Digital Yuan in Cash Circulation Data for First Time

  • The People’s Bank of China included the country’s digital currency in calculations of the amount of currency in circulation in December, a first for one of the early adopters of a central bank digital currency (CBDC) and the world’s second-largest economy, according to data released by its central bank on Tuesday.
  • “Starting from December 2022, e-CNY in circulation has been included in the amount of currency in circulation,” the central bank report said. At the end of December e-CNY amounted to 13.6 billion yuan (US$2 billion).
  • Cash and bank reserves held by the central bank, a measure of money supply known as M0, grew at 15.3%, the fastest pace in 11 months, to 10.5 trillion yuan in December, with the digital yuan representing only 0.13% of the total. The addition of the e-CNY caused no “notable changes,” the PBOC said.
  • China was among the first countries to develop a CBDC, entering into projects with other nations and the Bank for International Settlements, an association of 61 central banks from around the world. Its pilot scheme involves as many as 26 large cities and 5.6 million merchants, according to a report by the South China Morning Post (SCMP).


FTX locates $5 billion in cash and liquid crypto, contemplates sale

  • FTX’s new leadership says it has located $5 billion in cash, liquid cryptocurrency and liquid investment securities, two months after the troubled crypto exchange filed for bankruptcy protection.
  • FTX attorney Andy Dietderich said the firm located the assets during a bankruptcy court hearing in Delaware on Wednesday morning. The $5 billion does not include the $425 million in crypto that is in the custody of the Securities Commission of the Bahamas, Dietderich noted. The lawyer did not elaborate as to whether that included the over $450 million of Robinhood stock belonging to Sam Bankman-Fried, which the U.S. government laid claim on last week as the former FTX CEO awaits trial on fraud charges. 
  • “We are engaged in a complex effort now to recreate petition date claim values for every customer. We are building financial statements from the ground up using the general ledger and bank transaction records rather than the previous incomplete and unreliable financial statements of the debtors,” Dietderich said. “This will put us in the position to describe the financial results of the debtors accurately for the first time.” 


Hong Kong to Only Offer ‘Highly Liquid’ Cryptocurrencies for Retail Trading: Report

  • Hong Kong’s securities watchdog, the Securities and Futures Commission (SFC), announced plans to propose a subset of tokens it would allow for retail investors’ trading, according to a report from Reuters, as it continues to establish a new regulatory regime for the city. 
  • The move, announced at this year’s Asian Financial Forum, aims to make Hong Kong more friendly to crypto startups and focus on investor protection. 
  • The decision to allow retail trading in cryptocurrencies would replace the previous regime set up in 2018 that restricted access to crypto to institutional investors who had portfolios valued over HK$8 million ($1 million).


Robinhood to Delist Bitcoin SV, Market Sell Remaining User Balances

  • Stock trading app Robinhood warned Wednesday it would soon end support for Bitcoin SV (BSV), with plans to delist the coin later this month.
  • Robinhood users will no longer be able to buy, sell, or transfer Bitcoin SV after Jan. 25, according to a company update. Any remaining BSV in customer accounts after that will be automatically sold with users credited accordingly.
  • “We have a rigorous framework in place to help us regularly review the crypto we offer on Robinhood,” the company stated. “While we do not discuss the process for assets on an individual basis, based on our latest review, we’ve decided to end support for Bitcoin SV.”


Top NFT Artists Are Launching Projects on Instagram and Selling Out in Seconds

  • Instagram is one of the largest social media platforms in the world, with around 2 billion monthly active users. Early last year, its parent company Meta Platforms began testing out non-fungible token (NFT) sharing, allowing select users to connect to their digital wallets and showcase NFTs that they either created or bought.
  • The feature gained traction as NFT creators and collectors saw future opportunities to present their digital assets to a wider audience of Web3-curious consumers. Some even suggested that Instagram’s planned support could help NFTs finally reach mainstream adoption because of its expansive reach.
  • … But attracting a Web3-native audience poses more challenges. Would seasoned NFT collectors be interested in purchasing assets sold on a highly centralized, Web2 platform? In addition, Instagram in-app purchases are subject to steep fees between 15% to 30% from Apple and Google, resulting in a smaller profit for sellers.
  • Despite this, early NFT sales on the platform have been a success, with collections selling out quickly. Instagram’s strategy of recruiting well-known NFT artists to tout the new feature has worked in two ways – it enticed NFT collectors and helped to bridge the gap between Web2 and Web3 users.


Amazon Web Services Taps Avalanche to Help Bring Blockchain Technology to Enterprises, Governments

  • Cloud-computing platform Amazon Web Services will work with Ava Labs to try to bring wider adoption of blockchain technology by enterprises, institutions and governments, the two companies announced in a blog post Wednesday.
  • The partnership will make it easier for developers to launch and manage nodes on the Avalanche blockchain, as AWS will support for Avalanche’s infrastructure and decentralized applications (dapps).
  • Ava Labs also plans to add “subnet” deployment, a network within a network, to the AWS Marketplace, enabling both individuals and institutions to easily launch custom subnets.
  • “It has been a huge boon for both individual and enterprise developers to be able to spin up nodes and test networks on the fly with AWS in whatever legal jurisdiction makes the most sense for them,” Emin Gün Sirer, founder and CEO of Ava Labs, said in the blog post.
  • Although the partnership with Ava Labs is AWS’ first partnership with a blockchain project, several other blockchains, including Ethereum and other smaller ones, already use AWS to power their networks.
  • AVAX, Avalanche’s native token, is up 13.5% to $14.55 in the last 24 hours.


El Salvador Passes Law Paving the Way for ‘Volcano Bond’

  • The Legislative Assembly of El Salvador approved on Wednesday a law for the issuance of digital assets other than bitcoin. Included in the legislation was a legal framework for the issuance of a bitcoin-backed bond, also known as the Volcano Bond.
  • In November 2021, El Salvador President Nayib Bukele announced that the Central American country – which earlier that year established bitcoin (BTC) as legal tender – was planning to raise $1 billion via bitcoin-backed bonds. The proposed paper soon became known as Volcano Bonds as the money was to go towards – among other things – seeding a bitcoin mining industry reliant solely on renewable energy, including that generated by the country’s active volcanos.
  • Although initially planned for March 2022, the bond issuance had to be postponed several times, mostly due to last year’s brutal bitcoin bear market. The digital assets bill was finally introduced in the Legislative Assembly at the end of November 2022, where Bukele’s party, Nuevas Ideas, has a large majority. Sixty-two legislators voted for the law today, and 16 voted against.
  • In a statement released Wednesday, Bitfinex stated that it “will be an infrastructure provider for what it says should really be termed the “Volcano Token” – “a digital token which would help El Salvador to raise capital to pay down its sovereign debt, direct funds towards the creation of Bitcoin mining infrastructure, and fund the construction of ‘Bitcoin City’.”

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