Commentary

Bitcoin's Insatiable Hunger, Ethereum's Dencun Discount, and the Euphoria Onset

Week in Review

Commentary
Commentary

Bitcoin's Insatiable Hunger, Ethereum's Dencun Discount, and the Euphoria Onset

Introduction

Week in Review

  • Spot bitcoin ETF net inflows cross record $1 billion in a single day
  • Grayscale plans low-fee GBTC spinoff, the Bitcoin Mini Trust
  • Coinbase announces plans to sell $1 billion in debt to institutional investors

All time high or all the time high(er)?

The crypto market maintained its bullish momentum, with the total market capitalization of cryptocurrencies surging by an impressive 10.8% over the week. The bitcoin dominance continued to hover around 52%. 

Among blue chips, Bitcoin printed fresh highs posting an impressive 10.6% weekly gain, while ether's performance was more subdued, recording a modest 4.9% weekly gain. 

US-listed Bitcoin spot ETFs continue to attract substantial investor interest, with Tuesday witnessing a record-breaking daily inflow exceeding $1 billion. Since their inception on January 11th, 2024, total net inflows have surpassed $11.8 billion, with BlackRock leading the pack by a significant margin. Recent reports indicate that the total assets under management (AUM) of the BTC ETF universe are nearing $60 billion, while their Gold counterparts hover around $98 billion. This places the former just approximately 58% shy of Gold's AUM, a remarkable achievement in just a couple of months since these investment products entered the market.

Eric Balchunas, an ETF specialist at Bloomberg Intelligence, is optimistic on the question of survival on any of the 10 BTC ETFs. According to his post, even the lowest-ranked Bitcoin ETF in terms of AUM, WisdomTree’s BTCW, manages a healthy $74 million, positioning it among the top 15% of the 108 ETFs launched in 2024. 

GBTC remains the largest among the ETFs in terms of AUM. However, it has also experienced significant daily outflows, largely attributed to bankruptcy liquidations and concerns about its relatively high cost compared to peers. As of the end of 13th March since January 2024, GBTC has experienced capital outflows exceeding $11.4 billion, while the other 9 ETFs have seen total net inflows surpassing $23 billion. 

In response to these challenges, Grayscale plans to introduce a low-fee version of the ETF, seeking approval from the U.S. Securities and Exchange Commission (SEC) to spin out a percentage of GBTC shares to seed the new product, according to a recent filing. 

If approved, the new product, the Grayscale Bitcoin Mini Trust, would offer existing GBTC investors lower total blended fees without requiring them to pay capital gains tax to transition into the new fund. Capital gains realization has been a concern for GBTC shareholders due to the existing product's high fees compared to competitors. While the specific fees for the Grayscale Bitcoin Mini Trust are not yet disclosed, according to a Coindesk report, Grayscale indicated that they will be competitive with some of the low-cost bitcoin ETFs in the market.

Gala royale, Ethereum's Dencun discount, and the onset of Euphoria

In the gaming sector, GALA emerged as the frontrunner with an impressive 70.9% surge week on week. This surge follows Gala Games' recent announcement of a collaboration with Alienware and Amazon Web Services (AWS) to host a hackathon event at the 2024 Game Developers Conference (GDC), featuring a substantial prize pool of $1 million. The 24-hour event, open to both in-person and online participants, will leverage Gala's GalaChain SDK to develop blockchain projects for games such as Spider Tanks and Legacy. 

Meanwhile, in the memecoin arena, dogwifhat (WIF) garnered significant attention with a remarkable 43.1% rally compared to the previous week. This surge has propelled WIF to become the 4th-largest meme coin, following a successful community fundraising effort for the Las Vegas Sphere showing.

Transitioning from financial markets to blockchain technology, Ethereum has activated its highly anticipated "Dencun" upgrade, aimed at catalyzing growth on layer-2 networks such as Arbitrum and Polygon by reducing data fees. 

Despite the upgrade, the price of ether (ETH), Ethereum's native cryptocurrency, showed little movement, indicating that markets may be awaiting a stable period post-launch. A significant aspect of the upgrade involves the introduction of "blobs," a new data storage solution on the blockchain. These blobs have a dedicated space separate from regular transactions and are offered at a lower cost. 

Considered Ethereum's most significant upgrade in almost a year, this development marks a pivotal moment in the blockchain's evolution, addressing its high transaction fees and potentially sparking competition among major layer-2 networks to capitalize on the scalability improvements. The Arbitrum Foundation's X account has announced plans to leverage blobs starting Thursday US time, while the layer-2 network Starknet has confirmed the commencement of data blob submissions. This rollout signifies a proactive approach by leading blockchain projects to embrace the latest advancements and enhance their scalability solutions. While many developers applaud Dencun for its potential to enhance Ethereum's affordability, others express concerns about potential long-term risks. The upgrade prioritizes empowering Layer 2 solutions, but questions linger about whether this approach provides a lasting solution.

Many have attempted to address the inefficiencies of Ethereum by launching alternative Layer 1 solutions, and the momentum in this direction is palpable. According to reports, venture capital firm Paradigm is actively involved in discussions to secure over $200 million in investments for Monad Labs, a Layer 1 blockchain project. Paradigm has signaled its commitment by pledging $150 million for Monad Labs' next funding round, valuing the company at $3 billion. 

Meanwhile, capitalizing on the favorable market conditions following a crypto rally, Coinbase has announced plans to issue $1 billion in debt to institutional investors. The notes, maturing in 2030, could increase Coinbase's liabilities by up to $1 billion, bringing its total debt to $4 billion. Upon maturity, investors have the option to convert the notes into Coinbase's Class A stock, cash, or a combination of both. Additionally, investors may have the opportunity to purchase an additional $150 million worth of notes within the first 30 days of the sale. 

Coinbase isn’t the only crypto company attempting to borrow money for its business amid a strong digital assets market. Following its recent $800 million debt raise, Microstrategy is gearing up to sell an additional $500 million of its debt to further bolster its BTC holdings, amidst the surging cryptocurrency market that has propelled the token's price past $70,000. The new debt offering will take the form of senior notes, with a maturity date set for March 15, 2031. Microstrategy announced on Wednesday that investors will receive interest payments twice a year. Additionally, buyers have the flexibility to convert part or all of the notes into cash.

With Bitcoin hitting new all-time highs, wealth transferring to new hands, memecoins soaring, major firms leveraging debt deals, and celebrities such as Drake advocating crypto, it seems like the onset of Euphoria.

Macro pulse 

In the week's market action, US equities showcased resilience, surging 1.2% from the prior week, printing new highs as the CPI release failed to significantly alter rate cut expectations. Meanwhile, Oil futures experienced a moderate uptick of 0.7%, bolstered notably by Wednesday's surprise drop in US crude stockpiles and reports of refinery disruptions in Russia. 

Elsewhere, the US Dollar index retreated by 0.6% and the 10-year US Treasury yield climbed by 8 basis points while the Gold & Silver index exhibited strong performances, rallying by an impressive 5.3% collectively over the week.

*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on March 14, 2024 

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