#49 Beware of the bull
#49 Beware of the bull
This was the best January in ages. Quite a confusing feeling, since we're coming from one of the worst bear markets. Time to check fundamentals. Also, Bitcoin NFTs, boring tech and criticism
January is over; who would’ve thought this had been bitcoin’s best beginning of the year since 2013? Things have taken a drastic turn. We might not be in a sustained bull run, but it looks like a bull sprint, most likely pushed by alleviating news from the macro context. The FED rose rates in a predictable amount, and Jerome Powell’s words sounded dovish enough for investors to run to the markets. Not only crypto pumped: the S&P jumped 2,5% after the conference.
Things are getting hectic in crypto again, with projects pumping for good reasons, weak reasons, unclear reasons, or wrong reasons.
You’ve probably heard of Aptos (+300% in a month): once VC’s dearest., this L1 has an astronomical valuation but no significant activity from devs or users. There’s also the case of Canto -a DEX appchain that’s become the flavor of the month for reasons no one can figure out. But, at least in Canto’s case, TVL, active addresses, fees, and all relevant metrics have risen too. dYdX went +30% in the week and 170% in the month because the team delayed the private token unlock. Solana has risen 80% in a month, but much of that could be SOL recovering from a massive drop after the FTX drama. Optimism, one of the week’s winners (+40% in 7 days, +200% in 30 days), grew impressively in usage but then plummeted after an incentive program ended. They’ve since announced a relevant upgrade, but so have other projects.
No shade meant on any (or most) of these projects: they are all (or most) very respectable protocols with attractive value propositions and adoption. But we’re back in times where tokens feed on attention instead of fundamentals. So this is a reminder to Do Your Own Research and Curb Your Enthusiasm (CYE). Or maybe enjoy the ride. If you’re that kind of person, who are we to judge? But at least know what you’re doing. At least read what Charlie Munger has to say.
Talking about this issue’s content:
A Bitcoin dev has created the perfect NFT on the OG blockchain
Sudoswap’s airdrop is a sensible airdrop.
Account abstraction is one of those things that, if they work, you’ll enjoy without knowing you’re using them.
Regulation in the EU, or the tortoise and the hare
Charlie Munger thinks crypto is gambling (and not a security).
VCs have left the room for the moment.
We asked Dall-E for an aggressive running bull for this issue of INTERPOLATIONS.
⬡ Six Angles
We select six topics to illustrate the different angles from which we can approach crypto. We could choose dozens, but six is the atomic number of carbon… and otherwise, we’d be writing for ages.
1. Bitcoin | The perfect NFT is here
Bitcoin has been the unexpected arena of the latest debate around NFTs. Sneaky developer Casey Rodarmor realized that “inscriptions,” an extra space for data inside of a Bitcoin block, could store any type of digital asset and “merge it” with a Sat (1 Sat = 1 Satoshi = 0.00000001 BTC). A hidden feature in Bitcoin’s latest upgrade, Taproot allowed him to create an asset that’s “100% digital, immutable, and protected by the most trustworthy blockchain”.
The emphasis on 100% on-chain and immutable comes from the fact that most NFTs on Ethereum are neither. In most NFTs, the token itself does not hold the digital asset. Instead, they are linked to a URL where the asset is stored, which adds doubts to the ownership. Can that URL break? Where is the asset itself stored? Can someone change the direction where that ULR points? What if the hosting provider that keeps the asset goes broke?
Also, Ethereum NFTs, as well as those on most other layers, mainly rely on smart contracts for sales and distribution, which are generally upgradeable, hackable, and sometimes even degradable. Not in Bitcoin.
You would think the crypto community would be very excited to see this development. Well, think twice. Here’s a quick rundown of the two sides' main arguments against each other. TL;DR, bitcoin maxis don’t want silly stuff on their serious money chain.
2. Airdrops | Lessons learned
Airdrops are crypto’s most popular marketing tool. BLockchain’s transparency and traceability allow projects to target users based on their actual on-chain behavior. Airdrops are fun, but we did not always know how to use them. A famous piece of research by Messari revealed that the most profitable strategy for a user who receives an airdrop is to dump the token asap.
We have learned our lessons. Last week Sudoswap, an NFT marketplace skewed towards the degen side of things, airdropped its SUDO governance token to early contributors and liquidity providers (Sudoswap is the Uniswap of NFTs: it allows users to create and trade on liquidity pools.) But SUDO is locked and can only be transferred once the governance bodies decide. All the notoriety and engagement, with much less dumping of your token.
3. Tech | Account Abstraction / Delegation
Account abstraction is one of those boring technical features that could open the floodgates to extraordinary new use cases. If everything goes right and smoothly, no one will notice, but everyone will use it.
The quickest explanation: there are two “entities” that can interact with a blockchain: personal wallets (EOA or Externally Owned Accounts) and smart contracts (CA or contract accounts). Smart contracts can embed conditions into operations (if this happens, then do that). Still, in EOAs (where you are the E, the External agent managing the account), every time a user wants to do something, they must sign the transaction personally.
Account abstraction makes EOAs more similar to smart contracts by adding a layer of programmability over transaction validation. By abstracting the external agent. This would give developers leeway to improve security, efficiency, and user experience.
4. Regulation in the EU | “First mover” advantage
It’s hard not to smile when you read that “EU policymakers hope that a new comprehensive framework to regulate digital assets will give the bloc a first-mover advantage.” The EU has been working on its Markets in Crypto Assets for years and is expected to be up and running in late 2024.
We could think of it like the fable of the tortoise and the hare. The slowest regulation could win. European regulators believe (and so does CZ) that European law is poised to become the global standard.
This remains the best short explainer of MiCA:
5. Criticism | Munger does not like crypto
Charlie Munger, Warren Buffet’s right-hand man and investment legend, has something to say about crypto. Something concise to say. In five letters: “ban it,”
Munger, maybe unknowingly, has a strong position on a debate that crypto and regulators haven’t been able to resolve and comes to an exciting conclusion.
A cryptocurrency is not a currency, not a commodity, and not a security. Instead, it’s a gambling contract with a nearly 100% edge for the house.
Munger is not wrong, but he’s also 99. The world where he thrived is not the world we’re trying to build now.
6. Venture Capital | Money flow
The best January for bitcoin since 2013 was also one of the worst Januaries for crypto in terms of VC money.
Venture capital (VC) and other investments in privately held crypto startups amounted to $548 million last month, a huge drop from $6 billion in January 2022, according to data compiled by CoinDesk.
VC money has supported crypto in the worst times, precisely for the same reason it is abandoning the ship in one of the best beginnings of a year: because it’s slow. It was still paying bills during the worst times of the bear market, and it will be back if the bull run lasts enough. Although, to be honest, we hope it brings higher standards when it comes back into the game.