🔑CryptoKey Newsletter | State of the Industry

CryptoKey Newsletter

Why are we here? Epic keynote speech from Erik Voorhees at the Blockworks Permissionless conference in Austin, TX last month. An inspirational reminder of why crypto is hope for a better future:

Bitcoin ETF Updates

Despite some encouraging performance across the crypto markets over this past year, prices have continued to chop around a narrower trading range in recent months. The macro landscape remains increasingly uncertain as the Fed is between a rock and hard place, dealing with the delicate relationship between interest rates and persistent inflation that has unsettled markets.

Fundamentally, my opinion is that the medium-long term investment thesis for the major coins grows stronger by the day. If you have been actively paying attention to the crypto industry throughout the bear market, it is clear that innovation and positive momentum has not skipped a beat despite all of the deleveraging and regulatory headwinds. Looking at the bright side, the bear market assists in wiping out the fraud and grifters, allowing the true builders and those with conviction to emerge stronger on the other side. That said, the short-term price action could certainly use a catalyst (or two) to help nudge the next inevitable bull market into motion.

A spot Bitcoin ETF approval would certainly kick things into gear as it would unlock a massive wave of new capital into the market.

Although there have been many Bitcoin Spot ETF applications from other firms in the past, all have been denied by the SEC for various vague and arbitrary reasons. However, it appears that BlackRock entering the game has kicked things into gear, with ETF application approval record at a staggering 575-1. CEO Larry Fink is one of the most powerful and influential people in the world and without a doubt has close ties with just about every regulator and agency in the US (and around the world for that matter). 

Although the SEC has kicked back several delays at the most recent deadline, a spot Bitcoin ETF seems to be all but certain by the end of 2024.

“Multiple, if not all, will launch at once” as the SEC will likely try to avoid being a kingmaker and cherrypicking the first. Competition among these products will be fierce as it will be a race to zero in terms of fees.

“(We) will fight like cats and dogs to win Market share” -- Mike Novagratz referring to Galaxy and all others who are working to bring their products to market.

Real World Assets (RWA)

Another area of crypto that has been attracting a ton of attention lately are Real World Assets. Real-world assets (RWAs) in the are essentially any assets that exist in the physical world that can be tokenized and traded on a blockchain. This includes a wide range of traditional assets such as real estate, commodities (e.g., gold, oil, silver), art, bonds, loans, intellectual property and much more. To tokenize an RWA is to create a digital representation of the asset on a blockchain. This can be done by creating a smart contract that represents the asset and its ownership rights. Once the asset is tokenized, it can be traded and transferred on the blockchain just like any other cryptocurrency. The total addressable market for RWAs is enormous and could facilitate tens of trillions of dollars in value to move on-chain in the coming decade.

Below are a few highlights from a recent McKinsey study noting the potential of RWAs:

• Tokenization has reached an inflection point. While crypto has been under substantial pressure since 2022, companies in financial services, retail, music, gaming, media & other sectors continue to explore and adopt the technology.

• Tokenization Steps:

  • Asset sourcing

  • Token issuance and custody

  • Token distribution and trading

  • Asset servicing and data reconciliation

• 5 Major Benefits of Tokenization

  • Improved capital efficiency - Shorter settlement times generate significant savings in high-interest rate environments such as the current cycle.

  • Democratization of Access - Additional liquidity from the fractionalization of assets.

  • Operational Cost Savings - System automation via smart contracts lowers cost of services such as securities lending and repos. Can also enable the automation of rebalancing in real time.

  • Enhance compliance, auditability, & transparency - Asset issuers can automated compliance checks by embedding specific compliance-related actions into tokenized assets.

  • Cheaper and more nimble infrastructure - open sourced blockchains continue to evolve, allowing for fast adoption and continuous innovation.

CoinBASED

The crypto exchange Coinbase has launched its own layer-2 blockchain called Base, built on top of the Ethereum network. In an effort to enable the next wave of crypto adoption by promoting on-chain activity and development, Coinbase has beefed up its product stack in an exciting way with this new release. Built using Optimism’s OP stack, Base inherits a secure and scaleable foundation that allows for fast and inexpensive transactions. Base will allow users to interact with hundreds of decentralized applications, providing a platform for testing new and innovative products while tapping into Coinbase’s massive existing user base.

It is no secret that crypto has a relatively complicated technical barrier to entry for the typical person and the UX is certainly a work in progress. The practice and concept of crypto self-custody are enough to turn off even the moderately savvy technology folks or otherwise risk-tolerant investors.

However, crypto adoption has come a long way since the inception of Bitcoin and continues to grow like a weed, despite these areas of weakness. Coinbase in my opinion, has single-handedly brought more users into crypto and done more for the industry than any other player in the space, at least in the United States. In an ecosystem that is often plagued by bad actors and frequently blasted with alarming (and frankly, misleading) headlines from mainstream media, trust and legitimacy are more important than ever and Coinbase has become the gold standard in that regard.

That said, immersing the next hoard of crypto participants and to-be degens is no easy feat, but if anyone is going to be able to execute their vision, my money is on Coinbase. Finding legitimate use cases for crypto is a never ending challenge for the industry. Much of the hype surrounding the space is based solely off of speculation and finding the next token or project that is “going to the moon”. Speculation is not inherently bad, innovation and the progression of new technology and civilization is often only possible through the means provided via speculation from investors. Taking a bet on something that ends up changing the world SHOULD allow you to get rich. However if crypto is going to completely revolutionize the financial industry and propel us into the next renaissance, we need to have more utility than trading monkey JPEGs or dog coins.

After experimenting with the initial iteration, Base is surprisingly easy to use and has made certain functions such as bridging ETH to different wallets and minting new NFTs, relatively straight forward.

Friend.tech

Friend.tech, a new decentralized social application launched on the Base network, allowing users to trade ‘keys’ (tokenized shares) of individuals’ personal twitter accounts. Owning these ‘keys’ grants holders access to a private chat room associated to that particular account. The price that these keys trade at is calculated using a formula determined by the number of unique holders, increasing in value as this number grows. More or less, Friend.tech allows you to speculate on the future value of your favorite celebrities, friends or even enemies.

The popularity of the app has exploded since it launched on August 10th and has suprassed $11 million in fees generated. The platform has attracted celebrties and athletes such as Steve Aoki and Grayson Allen, expanding reach outside of the crypto-native degen crowd.

This is an exciting development as the crypto ecosystem can certainly use more applications to bring outsiders in, and on-chain.

I also can’t help but think of the Bond villian, Le Chiffre from Casino Royale, who would destroy publicly traded companies after placing large short positions against them. Hopefully there won’t be any sinister shorting or sabatoge of popular DJ’s or NBA players, but it is certainly an interesting possibility to contemplate as we navigate this new technology.

Stay bullish!

-Tommy Sullivan