Polygon's Innovation Voyage and Bullish Hopes Amid Enigmatic Unknowns of Bitcoin

• Polygon to announce Polygon 2.0 tokenomics this week
• PwC study: Traditional hedge funds divided, crypto natives confident
• US government moves 10K Bitcoin ($300M+) tied to Silk Road seizure

Wrapped tokens no more, polygon's path to innovation

The crypto markets took a breather and traded in a thin range. The total market cap of the crypto universe stayed shy of $1.2 trillion and the bitcoin dominance continued to stay below the 50% mark. Among blue chips, bitcoin posted a modest weekly decline of 0.4% while ether dropped 2% week on week. Among other large cap coins, bitcoin cash seemed to lose momentum, only managing to post a gain of 3.9% this week.

Among the L2s, Polygon(MATIC) rallied 7.9% this week ahead of Polygon 2.0 roll out announcements, and the appointment of former chief legal officer, Marc Boiron, as the new CEO. The token faced a sharp drop in June after being classified as a security in the SEC's filings against Binance and Coinbase. The price action might be an indication that the community is hopeful that the leadership change and the CEO's legal background will help address regulatory concerns. Polygon's roadmap for Polygon 2.0 includes the announcement of a new tokenomics model this week. Polygon 2.0 upgrades the network into a zero-knowledge (ZK)-powered layer 2 network to facilitate the interconnectivity of independent blockchains and eliminate the need for wrapped tokens.

Polygon 2.0 aims to simplify the creation of new Polygon chains and enhance interoperability among them. One key feature is the introduction of a shared bridge, eliminating the necessity for wrapped tokens. Wrapped tokens, such as wrapped bitcoin (WBTC), enable the transfer of assets across different blockchains. However, on Polygon 2.0, native Ethereum tokens will be deposited into a central contract on the Ethereum mainnet. When users wish to utilize their tokens on various Polygon chains, the corresponding assets will be mapped to the deposited tokens on Ethereum. This mapping process eliminates the need for wrapping tokens and significantly improves the user experience.

A zero-knowledge proof is a cryptographic technique that allows for the demonstration of knowledge about something without directly disclosing the specific information. It provides a way to verify the truth of a statement without revealing the underlying details or data. With the implementation of ZK proofs, a party can prove their knowledge of a transaction's contents without directly revealing the known information, ensuring verification. In the upcoming system, both the original Polygon network and the new network will utilize ZK proofs to store validated transactions on the L1 (Layer 1) while adding the actual transaction data on the L2 (Layer 2). This combined approach will result in reduced costs and enhanced privacy for Polygon users.

Embracing bullish hopes and the enigma of known unknowns

According to a recent study released by PwC, it was revealed that although the number of traditional hedge funds investing in crypto assets has declined, those already involved have no intentions of reducing their exposure in 2023. Notably, nearly one third of traditional hedge funds identified tokenization as the primary growth area for the year, with one in four hedge funds actively exploring this avenue. Furthermore, crypto native hedge funds reached a consensus that the total market capitalization of the cryptocurrency space by the end of 2023 will surpass the figures from 2022. Additionally, the study found that 12% of crypto hedge funds are considering a potential relocation from the US to jurisdictions offering a more favorable regulatory environment for cryptocurrencies. It is worth noting that Asia continues to play a significant role in shaping regulatory pathways. The Financial Services Commission (FSC), the regulatory body in South Korea, announced on Tuesday that companies involved in issuing or holding cryptocurrencies will be required to provide comprehensive crypto disclosures in compliance with new accounting standards set to be implemented in January 2024.

After experiencing a period of rally fueled by positive news, bitcoin entered a consolidation phase this week in the absence of any major developments. However, looking ahead, there are several events on the horizon for the remainder of the year that could potentially impact the market. On July 12, a cryptocurrency wallet linked to the United States Department of Justice (DOJ) conducted a series of transactions, moving roughly 9,825.25 bitcoin, raising some concerns about potential sell pressure. However neither the bitcoin price saw a sharp drop or an uptick in volatility indicating markets might not be too worried about it. In march earlier this year, the government sold about 9,861.2 BTC for around $21,800 per token. According to the court documents the government planned to sell the remaining 41,500 BTC (of 50,000 seized BTC) in a series of four batches this year.

Separately, according to a tweet, the Mt. Gox repayment dates might be extended further (currently October 31, 2023) subject to approvals from Tokyo District Court. The extension will reduce the concerns on BTC sell supply coming to the market this year. It seems that from August onwards, we might start seeing decisions on bitcoin spot ETF applications. According to a Coindesk report, ARK Invest, in collaboration with 21Shares, filed for a spot bitcoin ETF earlier than Blackrock, and the next SEC decision due date is Aug 13, 2023. If positive developments occur regarding ETF applications later this year, it could potentially translate into increased demand and subsequently drive a positive price action for bitcoin heading into the year-end. Additionally, as the anticipated Bitcoin event draws closer (presumably four to five months away), it may further fuel market momentum. However, it's important to note that while the probability of a bullish market by the end of the year appears to be increasing, there are still many known unknowns that will determine the future course.

Macro pulse 

Tradfi assets experienced a surge in risk appetite following lower-than-anticipated US inflation figures, which reached a two-year low of 3%. US equities saw a rise of 0.6%, and oil futures witnessed a rally of 5.4% compared to the previous week. Concurrently, the US dollar index hit a 14-month low, registering a sharp weekly decline of 2.7% and the 10-year US treasury yields slipped by 8 basis points, while the Gold and Silver index soared by 7.1%.

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Note: Weekly (7 calendar day) performance figures are as of 8am SGT on July 13, 2023 

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