Markets continued to tumble on the back of regulatory headwinds in the US and speculation around the soaring transaction fees on the Bitcoin network, signaling unprecedented congestion. Bitcoin and Ethereum fell by 5% and 1% over the past week following the continued banking crisis. One of the biggest winners of last week’s rally was Stacks, which saw an 8.6% increase in returns and an 8% jump in total value locked (TVL) as its use case echoed louder on the back of Bitcoin’s rising transaction fees. In the application layer, Lido accrued the most TVL of 1.4% on the back of ETH inflows in anticipation of its staked ETH withdrawals expected to happen this month.
Figure 1: 7-Day Price and TVL Developments of Cryptoassets in Major Sectors
Source: 21Shares, CoinGecko, DeFi Llama. Close data as of May 8, 2023.
Key takeaways
• The surge in Ordinals inscriptions contributes to Bitcoin network congestion with rising transaction fees.
• Speculation drives BTC outflows from centralized exchanges like Binance, which briefly paused BTC withdrawals.
• Bitcoin continues to grow beyond the store-of-value use case and enters the realm of Decentralized Finance with a new-yet-basic token standard, BRC-20.
• Bitcoin is experiencing its CryptoKitties moment with BRC-20 tokens as Ethereum did during the ICO craze of 2017-2018; this congestion crisis laid the foundation for decentralized applications and scaling solutions.
What happened?
• March 2023: An anonymous on-chain analyst named Domo created BRC-20, a token standard for minting tokens or “inscriptions” that carry text strings on Bitcoin.
• Domo minted $ORDI, which stands as the largest BRC-20 of $73M in market capitalization.
• NFT inscriptions surged on Ordinals, 4.5M at the time of writing
Figure 2: Number of Ordinal Inscriptions’
Source: 21shares on Dune Analytics
• Total transaction fees soared and temporarily exceeded the block subsidy reward of 6.25 BTC for the second time in history.
Figure 3: The Percentage of Fees Accrued from Bitcoin Ordinals
Source: 21shares on Dune Analytics
May 7:
• Speculation spread on Twitter around the reason behind soaring transaction fees; some concluded that the network was under a “Denial of Service attack.”
• Others have immediately rebuffed that conclusion, arguing that the rise in transaction fees is due to the increased demand for the Bitcoin network. However, selling pressure on BTC still increased by 3% overnight.
• Binance paused BTC withdrawals twice on Sunday, for two hours each, due to record-high pending transactions.
May 8:
• Binance resumed withdrawals and announced transaction fees adjustment while exploring integrating the
Lightning Network.
What to expect?
Bitcoin’s growth beyond a Store-of-Value (SoV)
With the recent advancements driven by Ordinals and BRC-20 tokens, Bitcoin is now becoming a platform capable of hosting various use cases beyond payments. The developments surrounding Ordinals will change the public perception of Bitcoin as a stagnant blockchain and introduce novel concepts to help drive talent and innovation to the largest crypto asset by market capitalization. Inscriptions could be the catalyst needed to help trigger the explosive growth of scalability solutions that enable the Bitcoin network to reach its full potential and start offering revenue streams for miners who can’t rely solely on new Bitcoin emissions, as the last bear market has shown. We can argue that Bitcoin is experiencing its CryptoKitties moment with BRC-20 tokens like Ethereum did during the ICO craze of 2017-2018, which then laid the foundation for DeFi and scaling solutions.
Increased Appetite for BRC-20 Token Standard
Although most of the new tokens are meme-coins, to reflect the broader meme craze, it’s only a matter of time until more fundamentally sound applications and use cases enter the market. For example, a forked version of Uniswap V2 on Bitcoin is already deployed, allowing anyone to trade seamlessly and 24/7 Bitcoin-based cryptoassets. We also predict blockchains designed as simple payment networks could introduce comparable standards to onboard more on-chain activity onto their platforms. Litecoin community has already taken the lead with its inauguration of LTC20, a fork of the BRC20 standard, to experiment with asset fungibility on top of its mainnet.
Further, we expect Tier-2 exchanges to list BRC-20 tokens to benefit from their early speculative adoption, although most lack utility so far, and investors should remain cautious. For instance, Gate.io and Crypto.com listed ORDI, the native token of the protocol used to create Bitcoin NFTs, to take advantage of the asset’s surging traded volume, recording close to $100M. We may expect more innovation inspired by the Ethereum ecosystem. Interlay Labs, the company behind the BTC-based DeFi protocol, has already proposed BRC-21, a new token standard that allows for a more sophisticated implementation of tokens like minting and redeeming. An innovation that would introduce the concept of native tokenization on Bitcoin, like US dollar stablecoins.
Figure 4: Breakdown of Bitcoin Marketplaces and Wallets by Processed Volume
Source: Domo on Dune
Growing Attention Towards Scalability Solutions
Figure 5: BTC Average Fee Per Transaction in $
Source: Blockchain.com
We expect more development across the broader scaling infrastructure, such as Stacks, RSK, Liquid, and Rollkit. Scaling solutions are necessary to improve the user experience seamlessly without paying high transaction fees.
We could also expect renewed developer engagement and funding to solve Bitcon’s most crucial problems. On the flip side, it’s possible to expect a community divide where on the one hand, the most conservative participants may want Bitcoin to remain simple. In contrast, others would try to push the boundaries of innovation. The latter received some support already with Lightning’s Taro protocol helping with general token issuance on Bitcoin instead of RGB, which is more relevant for supporting complex financial applications.
Miners’ Revenue to Flourish with Rising Use Cases
Although the explosion of Ordinals has effectively crippled the network via its unusable elevated fees, the development has greatly benefited Bitcoin miners. Before 2023, transaction fees barely made up to 4% of miners’ revenue due to the lackluster demand on the Bitcoin blockspace. However, if the recent speculative wave doesn’t slow down in the near term, we could expect miners’ profit margins to continue to grow incrementally. This should particularly help miners build a cash buffer to weather the uncertainty in the U.S., considering it is their largest stronghold after the miner departure from China in 2021.
For reference, transaction fees have surged by 1,500% from $1.2 to ~$15 in a week. As seen below, Bitcoin miners have generated close to $40M during just the first week of May from transaction fees, a level last seen in June 2021 amidst the last bull market. This is a remarkable milestone as it shows the potential of Bitcoin as a globally trusted settlement layer for a complex ecosystem of applications, combined with being a non-state monetary system.
The practice of validators, including, excluding, or reordering transactions to extract the most value from fees, otherwise known as Maximum Extractable Value (MEV), could happen to Bitcoin if the network continues to process high-value transactions. There needed to be more incentive for validators to participate in this toxic economic behavior as the Bitcoin network was primarily limited to a simple payments network without any complex logic before 2023.
However, the innovations introduced by Ordinals and BRC20 indicate that more value will be transferred across the network as a function of the issued fungible assets market value. That means miners will be incentivized to reorder transactions from the highest fees to the lowest to profit off this activity. That said, we anticipate that MEV will take place on the Bitcoin network first since most scalability platforms haven’t reached mass adoption.
Potential Resurgence of Increased Block Size Debate to Scale Bitcoin
Figure 8: Bitcoin Mempool Congestion
Source: mempool.space (as of 12 PM, May 9, 2023)
As the Bitcoin network processes five transactions per second on average, the vast influx of demand is crippling the network’s ability to continue processing transactions promptly due to the staggering backlog of 410K pending transactions. The congestion driven by the BRC20 craze might drive some of the community to push once again the idea of increasing Bitcoin block size to accommodate for a higher number of transactions.
Figure 9: Bitcoin Block Size
Source: 21shares on Dune
Block-size wars are a trend that took off in 2017 when the contentious debate brought forward multiple Bitcoin forks, with Bitcoin Cash being the most notable. That said, there’s a strong case against adopting this approach as it reduces BTC’s decentralization since it becomes costlier for nodes to store the entire blockchain history due to its rapidly growing network size. May that be, dissidents could still push the idea of forking BTC, analogous to how Ethereum was forked into multiple protocols following the merge last September, despite lacking any significant community support. However, we don’t expect bifurcated networks to hold any value aking to ETH’s recent forks post the Merge.
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
Den nya ETFen, med fokus på att vara en Indo-Stillahavs-ex-Kina försvars-ETF, riktar sig mot exponering mot regionala försvars- och säkerhetsföretag. Med denna lansering kompletterar HANetf sitt utbud av försvarsstrategier.
HANetf har meddelat den planerade lanseringen av en ny Indo-Stillahavs-ex-Kina försvars-ETF, som utökar sitt utbud av tematiska investeringsprodukter som svar på ökande geopolitiska spänningar och regionala militära uppbyggnader. Den nya ETFen, som förväntas noteras i juli 2025, kommer att följa Indo-Stillahavs-noterade företag som är verksamma inom försvar, flyg- och rymdfart och säkerhet.
Denna lansering kommer att utöka HANetfs befintliga försvarsfokuserade utbud, vilket inkluderar Future of Defence UCITS ETF (ASWC) med mer än 2,6 miljarder dollar i förvaltat kapital, och Future of European Defence UCITS ETF (8RMY), som för närvarande förvaltar över 130 miljoner euro. Med detta drag strävar HANetf efter att ge investerare den bredaste tillgången till försvarsinvesteringsverktyg i Europa.
Regionala försvarsutgifter accelererar i Indo-Stillahavsområdet
Indo-Stillahavsområdet bevittnar en betydande förändring i försvarsställningen, vilket speglar utvecklingen i Europa. I ett tal vid Shangri-La-dialogen i Singapore uppmuntrade USA:s försvarsminister Pete Hegseth sina allierade i Asien att efterlikna Natos försvarsutgiftsstrategi. ”Nato-medlemmar lovar att spendera fem procent av sin BNP på försvar – till och med Tyskland”, sa han och underströk omfattningen av Europas upprustningstrend.
Mot bakgrund av ökande geopolitiska spänningar ökar länder som Indien, Japan, Sydkorea och Taiwan snabbt sina försvarsbudgetar och driver på för större självförsörjning inom vapentillverkning. Viktiga händelser inkluderar:
• Indien fördelar 75 procent av sin försvarskapitalbudget till inhemska företag.
• Japan planerar sin största militära uppbyggnad sedan 1950-talet, med målet att spendera 2 procent av BNP på försvar senast 2027.
• Sydkorea siktar på att erövra 5 procent av den globala vapenmarknaden senast 2027 genom utökad export.
• Taiwan ökar försvarsutgifterna med nästan 50 procent sedan 2015, inklusive investeringar i inhemska drönar- och motdrönarsystem.
Den kommande ETFen kommer att följa ett transparent, regelbaserat index och investera i företag med säte i Indo-Stillahavsområdet som genererar betydande intäkter från försvarsrelaterad verksamhet.
Indo-Stillahavsområdet håller snabbt på att bli det geopolitiska tyngdpunkten för 2000-talet. Från Taiwan till Indiska oceanen driver ökande spänningar och en förskjutning mot försvarssjälvförsörjning en historisk upprustningscykel. Precis som våra NATO- och europeiska försvars-ETFer har hjälpt investerare att få tillgång till den nya realiteterna inom global säkerhet, erbjuder denna strategi riktad exponering mot företag inom Indo-Stillahavsområdet” sade Hector McNeil, medgrundare och VD för HANetf.
iShares Europe Equity Enhanced Active UCITSETF EUR (Acc) (EUEE ETF) med ISIN IE00000EF730, är en aktivt förvaltad börshandlad fond.
Den börshandlade fonden investerar minst 70 procent i aktier från Europa. Upp till 30 procent av tillgångarna kan placeras i private equity-instrument, värdepapper med fast ränta med investment grade-rating och penningmarknadsinstrument. Värdepapper väljs utifrån hållbarhetskriterier och en kvantitativ investeringsmodell.
Den börshandlade fondens TER (total cost ratio) uppgår till 0,25 % p.a. iShares Europe Equity Enhanced Active UCITS ETF EUR (Acc) är den enda ETF som följer iShares Europe Equity Enhanced Active-index. ETFen replikerar det underliggande indexets prestanda genom fullständig replikering (köper alla indexbeståndsdelar). Utdelningarna i ETFen ackumuleras och återinvesteras.
iShares Europe Equity Enhanced Active UCITSETF EUR (Acc) är en mycket liten ETF med tillgångar på 10 miljoner euro under förvaltning. Denna lanserades den 31 juli 2024 och har sin hemvist i Irland.
Investeringsmål
Fonden förvaltas aktivt och syftar till att uppnå långsiktig kapitaltillväxt på din investering, med hänvisning till MSCI Europe Index (”Riktmärket”) för avkastning.
Det betyder att det går att handla andelar i denna ETF genom de flesta svenska banker och Internetmäklare, till exempel DEGIRO, Nordnet, Aktieinvest och Avanza.
BNP Paribas Easy € Overnight UCITSETF följer resultatet för Solactive €STR Overnight Total Return Index. €STR återspeglar kostnaden för osäkrade eurolån över natten från banker med säte i euroområdet. Det är den genomsnittliga räntan för lån som tas ut under en dag.
UBS EUR AAA CLO UCITSETF förvaltas aktivt och investerar huvudsakligen i europeiska CLOer (Collateralized Loan Obligations) med AAA-rating. Dessa är buntar av företagslån med rörlig ränta.
Produktutbudet inom Deutsche Börses ETF- och ETP-segment omfattar för närvarande totalt 2 483 ETFer, 202 ETCer och 261 ETNer. Med detta urval och en genomsnittlig månatlig handelsvolym på cirka 25 miljarder euro är Xetra den ledande handelsplatsen för ETFer och ETPer i Europa.