#63 The miseducation of crypto
There are contradicting narratives coexisting in crypto these days. There's the serious banking alternative storyline, and the drunk on memecoin mania.
Weird times in crypto these days. Inflation is still high but has slowed down to the point that hopes of rate decreases are starting to rise. It seems certain that the banking crisis has more victims to take, and the US is approaching D-day, where D stands for credit Default. Uncertainty around the global financial system is usually met with raises in crypto, but not this time. Last week bitcoin bounced off the $30k ceiling. It has to do with the strength of the dollar but also with the fact that Bitcoin's network has been lately congested by the memecoin mania imported from Ethereum.
Ethereum itself has been through rare technical hiccups probably related to necessary fine-tuning after Shapella. That would explain why it's also been struggling in price itself, in spite of going through a peak in activity. Even though NFTs seem to be going through a depression, except for the occasional intervention from Elon Musk, decentralized exchanges are on fire. The reason:
There are contradicting narratives in crypto these days. There's the one that says that crypto is a serious actor in the financial industry, bringing innovation against the gloomy backdrop of the macroeconomy. Then there's the memecoin mania that makes crypto look like a drunk college student.
Weird times in crypto these days, when we cannot tell what direction things will take next week
In today’s issue of Carbono Insights:
Memecoin mania takes over Bitcoin
Where is the ETH? Staking and burning are on a streak
Lido V2 takes unstaking to the finish line
Tether releases attestation report
The SEC makes JPMorgan agree with crypto
Big market makers escape crypto claiming regulatory concerns
1. Bitcoin | BRC-20 is a playground
BRC-20 tokens were introduced by developer Domo in early March and peaked later in the month, once the $PEPE tsunami unleashed the memecoin wave. Lately, BRC-20s have been responsible for slowing the network, trading millions in jpegs, and generating fees for miners.
In the context of a constant reduction of BTC emissions, Bitcoin will do well to find alternative ways of paying for security. BRC-20 tokens will probably not be the solution, but they’re probably a step in the right direction.
Read an extended article about BRC-20 tokens here
Deep dive into the details through this thread.
https://twitter.com/JamesonMah/status/1654138848702775297
2. Ethereum | Ultrasound money
It’s been one month since Shapella, and the best thing we can say about it is that it all went so smoothly that hardly anybody talks about it.
Shapella was the Ethereum upgrade that activated withdrawals of the ETH locked in Ethereum’s Proof of Stake consensus mechanism. Before Shapella, we were all worried about its effect on ETH supply and prices. We wondered if there would be a massive sell-off event and whether staked ETH would increase, decrease or stay the same.
As was expected, the first days saw great outflows of ETH from the Beacon chain from investors realizing wins or losses and validators switching jobs. But the trend soon reverted, and new deposits already outpace withdrawals, as the ratio of staked ETH walks steadily towards 17%. Also, there was never a sell-off event.
To accompany the increasing pace of ETH staking these last weeks, memecoin season poured gasoline on Ethereum’s burning machine. Since August 2021, a significant portion of Ethereum’s fees, charged in ETH, are destroyed. And it’s been party time for fees due to the feverish trading of memecoins.
The “ultrasound money” narrative for ETH is as strong as ever. The increasing amounts of ETH being locked and a temporary peak in burn rates have led to the steepest decline in supply.
3. Ethereum staking | Lido V2 deployed
Lido is the leading liquid staking provider, with over 30% of the staked ETH locked in its smart contracts. But even after Shapella went live one month ago, Lido’s validators could not withdraw their funds. This ends today, when the community finally approved proposal #156 for the implementation of Lido’s V2.
A second, smaller version of Shapella is happening today, with over 6M ETH becoming liquid. So the staking race gets interesting again.
https://twitter.com/LidoFinance/status/1655656843501355009
4. Stablecoins | Tether’s attestation report
Looking at the chart of stablecoin market caps, you can almost tell when USDC (blue line) and BUSD (orange line) started to go awry. The former was collateral damage to the banking crisis, and the latter is dying of regulatory pressure. And you can also see who was the winner here: the purple line, USDT.
Tether’s lack of transparency around USDT is its moat. Nobody knows what regulators can supervise them, so they seem safe from organisms like the SEC or the CFTC, and there’s little known about their reserves' whereabouts, making them look immune to banking crises.
USDT recently published its attestation report, enhanced with new categories in its reserves list. We’ve learned, for example, that it held $1.5 billion of bitcoin on its balance sheet and $3.4 billion of gold.
Tether slowly walks toward transparency, so they’re getting the best of both worlds. They look safe enough to investors, and they gradually appease regulators.
5. Regulation | The SEC makes weird couples
The SEC has unlocked a new superpower: turn JPMorgan into a pro-crypto institution.
The reason for this weird behavior is the SEC’s proposed regulation for “qualified custodians.” The Securities Exchange Commission recently unveiled a proposal to update the law applied to custodians, and, in brief, they demanded two things from crypto-custodians:
Some conditions for qualification include the segregation of customer funds and documentation, accountability, and auditing responsibilities. Still, it applies only to certain institutions, including banks and trusts but excluding, among others, exchanges. Advisors that trade crypto-assets in a trading platform would be breaking the law. The SEC has something to say about staking, stablecoins, and custody.
Even JPMorgan thinks the SEC’s position of being too broad. The regulatory proposal is now in the commentary phase, and JPMorgan has joined first-tier crypto companies and organizations in providing criticism.
6. Markets | Jump Crypto and Jane Street are leaving crypto
Jane Street Group and Jump Crypto, among the world's largest market-making firms, have decided to reduce their involvement in cryptocurrency trading due to regulatory uncertainty. Jump Crypto will halt activity in the US, Jane Street is also scaling back its cryptocurrency operations globally.
Jump and Jane are not losses to mourn. They were shady actors in the space, with opaque ties with projects like Terra and FTX. So the only thing to worry about now is the size of the hole they leave behind.
https://twitter.com/UnlocksCalendar/status/1656057521205919751