Digital Assets Market & Industry Analysis

Today will see - or, by the time you read it, most likely has seen - the Dencun upgrade come to Ethereum. In truth, this was not something that we particularly planned to write about here; while Dencun is an important upgrade (and the realisation of many, many years of working and pivoting on the Ethereum roadmap), for reasons we'll get into, it seems like something of an odd choice for those not on the technical side of Ethereum (and the on-chain world in general) to fixate on. Nonetheless, we have had enough enquiries here, and there is paradoxically little enough to say on the market more generally right now (beyond 'ride momentum') that it seems worth spending some time explaining what it is, why it's important, and what it ultimately means for Ethereum going forward.

As we write this, crypto markets find themselves in something of an awkward spot, and we would be lying if we expressed any strong degree of certainty over what plays out over approximately the next two weeks or so. ETF flows, which had still been in the aggregate strong over the first few weeks of the products' existence, picked back up somewhat early this week (with a roughly $500m day on Monday).

Last week, when talking about near-term outlook for the market, we wrote: We have noted in the past that there has been a tendency for price to pivot off options expiry in either direction; with monthly expiry coming up on Friday, and with the tendency of the sort of money that was chasing ETF approval as a buy event to load up heavily on monthly options, we think that price action through Friday will probably be very telling of the month ahead. Our default case here is that we see a degree of stabilisation and possibly a small uptick over the weekend and into early next week. We should stress here that even if this does come through, we are talking about relatively limited upside potential (i.e. maybe to 43-44k on BTC and some overperformance on ETH) before we start to grind down again.

By the time you read this today, our expectation - and the expectation of the world at large - is that a number of spot BTC ETFs will have been approved by the SEC and have begun trading on US markets. Contrarians that we are, we have decided not to dedicate the lion's share of the research this week towards the ETF, simply because it feels like there is little left to write about. We have been covering the moves towards approval for months, and have laid out everything worth knowing in the pages here multiple times.

A modest positive print on the month for both BTC and ETH, especially BTC at +4%. This wasn't entirely unexpected, even in the context of our general and consistent bearish position on Q3 as a whole (which still ended -12% on BTC and -14% on ETH); as we noted in our piece on September 20th, our thinking was that market participants were likely over-indexing on the possibility of regulatory action in late September, and we did in fact see an extra +4% tacked on as of October 1st which probably wasn't insignificant (albeit also perhaps connected to the launch of Ethereum futures ETFs in the US the day after).

After a somewhat flaccid July, August has so far shaped up rather boringly for most crypto assets, as it tends to do. We revisit the outlook for BTC and broader crypto markets as we approach the halfway point of Q3.

Today saw the confirmation of one of the more interesting developments of the year in DeFi innovation with the Aave DAO vote on the GHO stablecoin. Proposed back in June 2022, GHO isn't the most original concept in the world - an algorithmic stablecoin built on multi-collateral systems and mintable from the get-go against ETH, GHO on launch hence operates very similarly to DAI - or, at least, DAI in its original form, given that it is now overwhelmingly backed by USDC (i.e. a centralised stablecoin with the risks associated with that)

Q2 has not exactly been lively for crypto. Our view coming into the quarter was that, in spite of the rally in mid-March, upside was likely to be capped and baseline directionality leaned negatively; markets were no longer in a state of panic, and had held up surprisingly well in the face of action like the Binance CFTC case (note that this was separate to the SEC case - the CFTC case did go along similar lines but came out in late March), but we felt that macro and general uncertainty provided a ceiling on growth, and that we were probably already close to that ceiling.

Work on Ordinals as a protocol has continued to take place - most notably with BRC-721E, a process for (one-way) bridging ERC-721 NFTs on Ethereum over to Bitcoin - and the congestion on May 10th did so far represent the peak of congestion...

Bitcoin-Ethereum correlation has recently dropped to some of its lowest marks in several years. While that drop has been overrepresented, it does bring up an important discussion about Ethereum in particular in the ‘ultrasound money’ era.

We have to start here with something of an anti-climax: the Ethereum Shapella hard fork tonight is unlikely to either be a major short-term event or a significant medium-term catalyst for the asset in either direction.

GBTC discount fell to lows of 47% on February 13th, not coincidentally at the same time as Bitcoin itself hit monthly lows just under $22,000