World's First Bitcoin Development Firm, Chainlink(ing) Beta, and the ETH ETF Quest

• MicroStrategy makes its case as an alternative to spot bitcoin ETFs
• Prometheum sets its sights on offering ether custodial services
• Ark and 21Shares amend spot ether ETF with cash creation/redemption policy

World's first bitcoin development company and chainlink(ing) the beta

The cryptocurrency markets maintained their positive momentum for the second consecutive week, with a few alts leading the way. The total market capitalization of the crypto universe recorded a weekly increase of 11%, hovering around the $1.7 trillion mark. Meanwhile, bitcoin's dominance in the crypto sphere slightly declined this week, remaining above 51%. Among the large cap names, bitcoin saw a 4.1% rally, while ether outperformed with a 6.2% weekly gain. In the realm of US-listed spot bitcoin exchange-traded funds (ETFs), daily inflows persisted this week. As of the end of February 6, these ETFs have accumulated net inflows of $1.56 billion since their debut last month. However, while the daily outflows from the Grayscale Bitcoin Trust (GBTC) are decelerating, the overall daily net inflows in the ETF universe are also waning.

MicroStrategy's stock (MSTR) has suffered since the launch of the spot bitcoin ETF products, falling over 25% year-to-date even as the price of bitcoin is about flat. MicroStrategy shook off weaker than expected fourth quarter earnings with a bold conference call focus: bitcoin. Dubbed "the world's first bitcoin development company", MSTR's presentation showcased its unwavering commitment to bitcoin's advancement. Amidst debate on whether investors might opt for bitcoin ETFs over MSTR, the company pitched itself as the premier choice. Their case? MSTR investors wield active control over capital structures and can leverage the company's innovative prowess. Unlike ETFs which passively hold crypto assets, MSTR offers a dynamic approach. Other factors cited include lower management fees, MSTR's cash generation capability, and access to attractive debt deals.

Among the leading alts, Chainlink’s LINK token has surged ahead, boasting an impressive 22.4% uptick compared to the previous week. Behind this rally lies an intriguing development: a mysterious whale has quietly amassed LINK tokens, withdrawing a substantial 2.7 million tokens from Binance across 49 newly created wallets. This enigmatic entity, potentially representing institutional interest, has sparked curiosity and speculation within the crypto community. Adding to the intrigue are the sudden movements observed in previously dormant wallets, resulting in a record spike in the "Age Consumed" metric. Santiment suggests that the sudden circulation of these older LINK tokens has significantly bolstered the recent surge in price. Moreover, LINK's futures open interest reached a record high of $592.29 million this week. LINK’s funding rate remains positive, indicating bullish market sentiment and a higher demand for long positions. Despite the lack of news in the market in 2023, Chainlink witnessed a substantial uptick in the adoption of its Cross-Chain Interoperability Protocol (CCIP) technology for tokenizing real-world assets (RWA) which underscores Chainlink's reputation as a favored choice among investors seeking to capitalize on high-beta momentum trades during broader upswings in the crypto market.

Cue Quest, ETH ETF applications and gamma squeeze whispers

Amid mounting anticipation of potential market catalysts, attention is squarely focused on the spot ether ETF applications. Prometheum Inc., notable for being the sole US-registered crypto securities platform, recently disclosed plans to introduce ether as its inaugural digital asset custodial offering for clients. This announcement coincided with ether's surge past $2,400 to a two-week high on Wednesday, spurred by revisions made by asset managers Ark Invest and 21Shares to their joint spot ETH exchange-traded fund filing.

The updated S-1 paperwork submitted to the US Securities and Exchange Commission (SEC) outlines a cash creation and redemption mechanism—a structure that mirrors the regulatory agency's preference for spot bitcoin ETFs approved in January. Moreover, the revised document introduces the concept of staking ether through "one or more trusted third-party staking providers", hinting at potential strategies to enhance fund holdings and earnings.

According to The Block's data, ether options trading volume surged to an all-time high in January, with a notable concentration of Call options featuring a strike price of $2,500 for the February 23 expiry on Deribit. The recent breach of the $2,400 levels for ETH has ignited discussions on the possibility of a gamma squeeze—a scenario in which dealers, who are short gamma, face increased short delta exposure as the spot price rises. This compels them to buy back assets to maintain delta neutrality, potentially triggering aggressive buying pressure and driving the market higher.

The complexities surrounding ether spot ETF applications differ from those of bitcoin. While the SEC has explicitly stated that BTC is not a security and therefore falls outside its regulatory purview, the Commission has been more reserved regarding ETH's status, leading to uncertainty about its regulatory jurisdiction. However, the Commodity Futures Trading Commission has definitively classified ETH as a commodity.

Macro pulse 

Among TradFi assets, Oil futures experienced a 2.5% decline, contrasting with a 3% surge in US equities compared to the previous week, printing new all-time highs predominantly driven by the technology, consumer discretionary, and communication services sectors. On Wednesday, the US government successfully auctioned a record $42 billion worth of 10-year notes at a yield lower than initially projected. This move served to alleviate investor concerns following a recent market downturn, signaling confidence in the Federal Reserve's potential future interest rate cuts. However, despite market sentiment, four additional Federal Reserve officials have indicated that they do not perceive an immediate need to lower interest rates, at least until May. Additionally, the US Dollar index saw a modest 0.7% increase, and the yield on the 10-year US Treasury note rose by 19 basis points. Conversely, gold and silver prices declined by 1.6% on a week on week basis.

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*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on February 8, 2024 

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