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Flat Inflation and Decentralizing Ethereum’s Layer 2

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The Road Towards Decentralizing Ethereum’s Scaling Solutions Flat Inflation, Flat Bitcoin TON’s Meteoric Rise Powered by Telegram

• The Road Towards Decentralizing Ethereum’s Scaling Solutions
• Flat Inflation, Flat Bitcoin
• TON’s Meteoric Rise Powered by Telegram

Flat Inflation, Flat Bitcoin

Inflation in the U.S. slowed in May but not enough to prompt the Fed to cut rates. The Consumer Price Index (CPI) was unchanged month-over-month, rising 3.3% over the year, slightly below expectations of 3.4%. Following the CPI release, Bitcoin briefly surged 5% to near $70K before erasing gains after a hawkish Federal Open Market Committee (FOMC) statement.

The Producer Price Index (PPI) dropped by 0.2% in May, the largest decline since October 2023. Unemployment claims rose to a 10-month high, increasing from 229K to 242K, against an expected decline. These indicators suggest cooling inflation, even though there is more work to be done to reach the Fed’s 2% target. Bitcoin has mostly traded sideways over the past three months. Despite recent news and its rejection from the $70K level, investors should remember that its fundamentals remain strong. Institutional adoption, regulatory shifts, and its emerging role as a store of value, particularly in struggling economies, underscore its potential long-term trajectory.

Figure 1 – How Bitcoin Reacted to Last Week’s U.S. Macroeconomic Indicators

Source: TradingView, 21Shares

TON’s Meteoric Rise Powered by Telegram

The Open Network (TON) blockchain was initially developed by the Durov brothers of Telegram. Despite the regulatory hurdles leading Telegram to step back, the TON Foundation continues to innovate, making TON one of the most user-friendly decentralized platforms. TON’s close relationship with Telegram has been pivotal and a testament to the power of integrating social media with blockchain technology.

2024 has been a landmark year for TON, witnessing unprecedented growth and achieving multiple all-time highs, reaching just above $8 on June 14 and currently up 238% year-to-date. On top of that, TON has grown by over 4000% in total value locked this year to over $550M. TON’s growing dominance is further highlighted by TON surpassing Ethereum mainnet in daily active users, currently housing over 440K, almost 50K more than the smart contract platform giant. Even more impressively, TON currently processes almost 5M daily transactions, more than Ethereum and any of its scaling solutions!

Figure 2: The Growth of TON’s Daily Number of Transactions

Source: Artemis

The integration with Telegram, which boasts almost a billion users, has been a key driver of this success, offering its existing network a user-friendly interface to interact with the Web3 ecosystem, with several key features fueling TON’s meteoric rise. For example, Telegram Stars has played a crucial role in TON’s expansion. This initiative promotes TON-based applications directly within Telegram, allowing users to pay for digital services via in-app purchases. Furthermore, the initiative allows app developers to swap their stars for TON and subsidize their advertisements on the platform, making application development on Telegram more economically viable. Another important feature was the unveiling of a revenue-sharing system in Telegram, allowing channel owners to get 50% of revenue from ads displayed on their channel, paid out in TON, thereby bolstering user engagement and adoption.

A major driver of TON’s growth is its mini-app ecosystem within Telegram. This ecosystem includes a variety of applications designed to enhance user engagement and streamline blockchain interactions. For instance, Notcoin, a click-to-mine Web3 game, has garnered over 35 million sign-ups, demonstrating the platform’s ability to attract and retain a large user base. Additionally, the integration of Wallet, a TON-based platform with over 2.5 million users, has made managing digital assets as simple as using social media. Wallet’s seamless onboarding allows users to handle their assets directly within Telegram Messenger, and with TON Connect, it enables smooth communication between Wallet and other apps in the TON ecosystem, significantly lowering the barriers to entry.

TON’s serves as a gateway to onboard new user cohorts into the blockchain world, allowing direct interaction with Web3 systems while eliminating the need for users to navigate complex crypto infrastructures. This model echoes the success of WeChat, China’s leading super-app with over a billion active users, which integrates messaging, social media, and financial services seamlessly. Similarly, if TON onboards just half the user base of Telegram over the next few years, then it could contribute to doubling almost all crypto users, standing around 550M. Finally, the growth of TON highlights the significant impact of their approach, evidenced by TON eclipsing Ethereum in daily activity. However, it’s important to note that over 80% of Ethereum’s transactions now occur on its Layer 2 solutions, highlighting the evolving nature of its infrastructure towards a more modular framework. This dual-layer approach underscores the continuing innovation and adaptability within the blockchain space, with TON setting a new standard for accessibility and engagement.

The Road Towards Decentralizing Ethereum’s Scaling Solutions

Arbitrum and Optimism, the two leading Ethereum scaling solutions, released key technical upgrades to address the lack of decentralization on the Layer 2 level. To grasp the significance of these upgrades, it is essential first to examine the fundamental differences in transaction processing between Ethereum and its scaling solutions.

Ethereum has over a million validators, which ensure that if a suspicious transaction is submitted by a dishonest operator, other validators can check for fraudulent activity by cross-checking it against their own ledger copies. If the transaction doesn’t conform to the network’s state, it’s rejected and doesn’t get included in the blockchain. This decentralized architecture makes it less likely for a single entity to control the network, increasing its resilience to attacks and censorship attempts.

In contrast, Ethereum’s scaling solutions typically rely on a single validator (sequencer) to aggregate transactions on the L2 and post them on Ethereum for settlement, thereby boosting efficiency by allowing for faster and cheaper processing. Despite their largely centralized approach, users can still dispute transactions through fraud proofs, a feature that some networks have only now started to adopt. We’ll delve deeper into this aspect next.

Figure 3: The Flow of Transaction Between L2s and Ethereum

Source: Jarrodd Watts

While this setup increases Ethereum’s throughput, it reintroduces a significant issue the industry sought to overcome: a single point of failure. This problem was starkly illustrated by the recent exploit on Linea, a prominent L2 network. The hack targeted Velocore, a leading decentralized exchange (DEX) on the network, leading the attacker to withdraw approximately $2.6M before the network’s foundation halted block production. By shutting down the sole sequencer, the network effectively censored transactions. Although the action was taken to minimize damage to Velocore’s users, the event highlighted the poor decentralization of Ethereum’s scaling solutions, which can be easily shut down by a single entity. Thus, the recent technical upgrade released by the Optimism and Arbitrum teams came at a critical time.

Namely, Optimism released the long-anticipated fraud-proof system. A dispute-resolution mechanism allowing any user to contest the validity of transactions submitted by Optimism’s foundation sole sequencer. Before this upgrade, a security council made up only of chosen respected members of the broader Ethereum ecosystem operated on a multi-signature system that had the power to approve upgrades and contest transaction validity if they thought it was fraudulent. However, anyone can now participate in contesting transactions, while the security council will remain intact and intervene in emergencies if needed for the foreseeable future. Similarly, Arbitrum proposed to launch its Bounded Liquidity Delay (BOLD) solution. This permissionless dispute resolution mechanism enables anyone to contest the validity of transactions submitted by the sequencer, similar in principle to Optimism’s fraud-proof system. The main difference for Arbitrum is that the network will no longer rely on a security council, thus effectively becoming the most decentralized L2 across the entire Ethereum scaling ecosystem.

All in all, despite Linea’s hack that exposed the Achilles heel of the scaling solutions security, Layer 2 networks now account for nearly 80% of Ethereum’s transactional activity. Moreover, they have just collectively achieved a milestone of 256 TPS, underscoring the urgent need to bolster the resilience and robustness of Ethereum’s infrastructure as scaling solutions become increasingly vital to the network.

Figure 4: The Growth of Ethereum’s Ecosystem Users

Source: GrowThePie

This Week’s Calendar

Source: Forex Factory, 21Shares

Research Newsletter

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.

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Bitcoin Survives Bear Trap

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Bitcoin has witnessed some heavy price turbulence after breaking the $71K mark in early June. Since then, it lost almost 21% in value scraping the key level of $55K in the first week of July.

Bitcoin has witnessed some heavy price turbulence after breaking the $71K mark in early June. Since then, it lost almost 21% in value scraping the key level of $55K in the first week of July.

Figure 1 – Bitcoin Price

Source: Glassnode

However, since last Friday, Bitcoin has gained $7K and is now trading around the $64K mark. But why has it been such a turbulent time for Bitcoin?

Factors Contributing to the Selling Pressure

• Bitcoin Miner Activity

• German Government Sell-Offs

• Mt. Gox Repayment Program & Bitcoin Exchange Liquidity

Bitcoin Miner Activity

The BTC selling pressure was earmarked by miner activity, after selling 30K BTC in June. This sell-off marked miners’ BTC reserves at the lowest in a decade, just over 1.8K BTC.

Figure 2 – Bitcoin Miner Balance’

Source: Glassnode

Miners have however reduced their activity on-exchange, which should calm fears further. In June, miners were moving an average of around 50 BTC or just under $3M per day to exchanges, which has now slowed down, as shown below.

Figure 3 – Bitcoin Transfer Volume from Miners to Exchanges

Source: Glassnode

On top of that, on-chain data shows the 30-day moving average of Bitcoin’s hash rate is starting to close the gap with the 60-day moving average, for the first time since May. This indicates miners are experiencing lower income stress, which typically signals a market bottom.

Figure 4 – Bitcoin’s Hash Ribbon Indicator

Source: Glassnode

As a result, miner reserves have slowly started to pick back up, as shown in the first figure. This could indicate that the miner sell-offs post-halving, due to reduced profitability, have tapered off which is another reason to be cautiously positive.

German Government Sell-Offs

The German Goverment had been in the process of completing the sale of 50K BTC seized from a pirating website, Movie2k, which was worth approximately $3B when the sell-offs started.

Figure 5 – German Government Holdings

Source: @obchakevich on Dune Analytics

Bitcoin had a shaky June and July. However, in the week Germany sold almost 80% of their holdings, 40K BTC or $2.2B worth, Bitcoin’s price remained fairly resilient, a testament to its strength in adverse market conditions. That being said, according to data from Arkham Intelligence, the German Government engaged via OTC trades, to minimize potential slippage and market impact.

Figure 6 – Bitcoin Price (7 July – 14 July)

Source: Glassnode

Nevertheless, the conclusion of these sell-offs is positive for Bitcoin, as it removes a significant dark cloud from the market, and demonstrates the asset’s resilience.

Mt. Gox Repayment Program

However, Bitcoin faces selling pressure due to the upcoming Mt. Gox repayment program. Starting in July 2024, Mt. Gox began repaying approximately $9B worth of assets to its creditors, who have been waiting for over a decade since the exchange’s collapse in 2014.

Figure 7 – Mt. Gox Holdings

Source: @21co on Dune Analytics

Of the approximate 142K BTC held by Mt. Gox, 139K BTC is left to be reimbursed, equating to approximately 2% being paid back as of today, indicating a slow sale rate. However, yesterday Mt. Gox shuffled almost 96K BTC between their wallets, which contributed to the renewed FUD, as they prepare to distribute the reimbursements. While the repayment sum is very large, it is unlikely that these creditors will sell off their BTC immediately, given their long-term belief in the crypto industry given their involvement a decade ago, and the potential capital gains tax implications associated with the asset. The selling pressure is further diluted by the fact that reimbursements will likely occur on different days across different exchanges.

Bitcoin Exchange Liquidity

Despite, Bitcoin’s apparent survival. Let’s take a closer look at how the remaining BTC could affect the market. 139K BTC or $8.93B worth remains for Mt. Gox to restore to creditors, who may end up selling their assets. To gauge the market impact of this, it may help to look at Bitcoin’s liquidity on exchange. Presuming they aim to sell their BTC, the sell-offs will likely occur by trading with a fiat pair (BTC/USD) or a stablecoin pair (BTC/USDT or BTC/USDC). The top 5 most liquid exchanges are listed below, with their respective liquidity depths in dollar and BTC terms (assuming July’s average price of $59K).

Figure 8 – Centralized Exchange % Depth

Source: Coingecko

As to not mitigate the market impact, the sell-offs are likely to occur across several exchanges. The five most liquid exchanges need around $72M outflows, on a given day to have a 2% downward price swing. The potential sell-offs are contingent on creditors finally receiving their assets from Mt. Gox, which is happening very slowly. Furthermore, it is doubtful that once received, they will sell all their BTC immediately, and as such any price action is largely resulting from the negative market sentiment associated with this event.

On-Chain Metrics

Despite the negativity surrounding the market, looking on-chain could help uncover dynamics that might make investors feel positive, and we propose 3 different indicators to look at.

The Market Value to Realized Value Ratio (MVRV) is a metric that assesses Bitcoin’s market valuation relative to its realized value, helping identify market tops and bottoms.

    A high MVRV indicates overvaluation and a potential market top, while a low score indicates undervaluation and a potential market bottom.

    Figure 9 – Bitcoin MVRV Score

    Source: Glassnode

    The current MVRV is around levels seen at the end of December 2020, just before Bitcoin rallied from $11K to around the $60K mark. This is also similar to the levels seen towards the end of last year, before the ETF craze which drove Bitcoin to a new all-time high of $75K in early March. Given these historical precedents, this MVRV level suggests a potential for significant upside, making it an opportune time for investors to consider entering the market.

    Net Unrealized Profit/Loss (NUPL) indicates the difference between investors’ unrealized profits and losses to assess market sentiment, with positive values suggesting profit-dominant sentiment and negative values indicating loss-dominant sentiment.

      This metric is another reason for positivity. Currently, Bitcoin’s NUPL is in the optimism/denial phase, indicating moderate unrealized profits among investors. This suggests that market sentiment is cautiously optimistic, after recent price stagnations led NUPL to drop, and belief to be wiped away. That being said, this is a healthy consolidation for the asset and potentially allows it to spur on.

      Figure 10 – Bitcoin Net Unrealized Profit/Loss

      Source: Glassnode

      1. Fear and Greed Index measures market sentiment, with values ranging from 0 (extreme fear) to 100 (extreme greed). It helps investors gauge whether the market is overly bearish or bullish, indicating potential buying or selling opportunities.

      Figure 11 – Bitcoin Fear and Greed Index

      Source: Glassnode

      The Bitcoin Fear and Greed Index was often in the ‘Fear’ region during June and early July. However, this was a positive sign, as it was near levels we had not seen since September 2023, when the asset was trading at $26K, which preceded a historical price rally. Over the weekend, the Fear and Greed Index sprung to Greed levels, suggesting we might be on track for another parabolic run.

      Conclusions

      • Bitcoin’s turbulence has stemmed from significant selling pressures, particularly the Mt. Gox repayment program.

      o The impact of these sell-offs is moderated by Bitcoin’s strong exchange liquidity and potential ETF inflows.
      • The dark cloud of the German Government sell-offs is out of the way.

      • On-chain metrics suggest the potential for a bullish reversal, indicating now might be an opportune time for investors to consider entering the market.

      For investors looking to invest in Bitcoin via a regulated investment vehicle, the following ETPs are available on the European market:

      Figure 12 – Top 10 European Bitcoin Products by Assets Under Management Product Ticker

      Source: Bloomberg, Data as of July 16th, 2024.

      Avg. Daily Spread 20D (bps): refers to the best daily average bid/ask spread over the last 20 days across European exchanges.

      This Week’s Calendar

      Source: Forex Factory, 21Shares

      Research Newsletter

      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.

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      00X0 ETC investerar i industrimetaller och hedgas i euro

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      WisdomTree Industrial Metals - EUR Daily Hedged (00X0 ETC) är en fullständigt säkerställd, UCITS-godkänd Exchange Traded Commodity (ETC) utformad för att ge investerare en total avkastningsexponering mot Industrial Metals terminskontrakt som valutasäkras i EUR.

      WisdomTree Industrial Metals – EUR Daily Hedged (00X0 ETC) är en fullständigt säkerställd, UCITS-godkänd Exchange Traded Commodity (ETC) utformad för att ge investerare en total avkastningsexponering mot Industrial Metals terminskontrakt som valutasäkras i EUR.

      Denna ETC syftar till att replikera Bloomberg Industrial Metals Sub Euro Hedged Daily Total Return Index (BUINDET) genom att spåra Bloomberg Industrial Metals Sub Euro Hedged Daily Excess Return Index och tillhandahålla ränteintäkterna justerade för att återspegla avgifter och kostnader förknippade med produkten. Till exempel, om Bloomberg Industrial Metals Sub Euro Hedged Daily Total Return Index stiger med 1 % under en dag, kommer ETC att stiga med 1 %, exklusive avgifter. Men om Bloomberg Industrial Metals Sub Euro Hedged Daily Total Return Index faller med 1 % under en dag, kommer ETCen att falla med 1 %, exklusive avgifter.

      Index

      Bloomberg Industrial Metals Subindex Euro Hedged Daily Total Return, indexet är utformat för att återspegla rörelsen i priset på terminskontrakten för industriella metallråvaror (som kontinuerligt rullas enligt ett förutbestämt rullande schema) som används i Bloomberg Commodity IndexSM samt att införliva en valutasäkring mot rörelser i EUR/ USD växelkurs. Valutasäkringen ombalanseras dagligen.

      Ett terminskontrakt är ett avtal om att köpa en vara till ett överenskommet pris, där leverans och betalning ska ske vid en bestämd tidpunkt i framtiden. Terminskontrakt avyttras i allmänhet strax innan kontraktets löptid löper ut och nya kontrakt ingås för att undvika att ta emot faktisk leverans av varan i fråga (en process som kallas ”rullande”), så att kontinuerlig exponering för råvaran upprätthålls.

      Kontrakten som köps kan vara dyrare än kontrakten som säljs, vilket skulle få en investerare i råvaruterminer att göra en ytterligare förlust. Denna marknadstrend kallas ”contango”. Alternativt kan kontrakten som köps vara billigare än de som säljs, vilket skulle resultera i en ytterligare vinst, känd som ”backwardation”. Denna prisskillnad kallas vanligtvis ”rullavkastning”. Eftersom rullavkastningen ingår i beräkningen av indexvärdet kan det därför ha en positiv eller negativ inverkan på indexets värde beroende på om det finns contango eller bakåtgång. ETC kommer också att påverkas eftersom dess värde baseras på indexets värde.

      Handla 00X0 ETC

      WisdomTree Industrial Metals – EUR Daily Hedged (00X0 ETC) är en europeisk börshandlad råvara. Denna ETC handlas på flera olika börser, till exempel Deutsche Boerse Xetra och Borsa Italiana. Av den anledningen förekommer olika kortnamn på samma börshandlade fond.

      Det betyder att det går att handla andelar i denna ETP genom de flesta svenska banker och Internetmäklare, till exempel DEGIRONordnet, Aktieinvest och Avanza.

      Börsnoteringar

      BörsValutaKortnamnISIN
      Borsa ItalianaEUREIMTJE00B78NPW60
      XetraEUR00X0JE00B78NPW60

      Största innehav

      RåvaraVikt %
      COMEX Copper35.60%
      LME Aluminium26.60%
      LME Zinc17.50%
      LME Nickel13.68%
      LME Lead6.62%

      Innehav kan komma att förändras

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      AINJ ETP spårar INJ och skapar staking intäkter

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      21Shares Injective Staking ETP (AINJ ETP) med ISIN CH1360612134 är 100 procent fysiskt uppbackad. 21Shares Injective Staking ETP (AINJ) spårar prestanda för INJ samtidigt som den skapar staking intäkter som återinvesteras i ETP för förbättrad prestanda. Medan blockchain-nätverk vanligtvis är siloförsedda, stöder Injective Protocol sömlösa interaktioner över stora nätverk, vilket möjliggör ett unikt utbud av finansiella produkter och tjänster. 21Shares Injective Staking ETP erbjuder ett enkelt, reglerat och transparent sätt att dra nytta av nätverkets växande betydelse inom decentraliserad finans (DeFi).

      21Shares Injective Staking ETP (AINJ ETP) med ISIN CH1360612134 är 100 procent fysiskt uppbackad. 21Shares Injective Staking ETP (AINJ) spårar prestanda för INJ samtidigt som den skapar staking intäkter som återinvesteras i ETP för förbättrad prestanda. Medan blockchain-nätverk vanligtvis är siloförsedda, stöder Injective Protocol sömlösa interaktioner över stora nätverk, vilket möjliggör ett unikt utbud av finansiella produkter och tjänster. 21Shares Injective Staking ETP erbjuder ett enkelt, reglerat och transparent sätt att dra nytta av nätverkets växande betydelse inom decentraliserad finans (DeFi).

      Fördelar

      Innovativ teknik: Injective erbjuder ett avancerat DeFi-ekosystem med funktioner som noll gasavgifter och omedelbar slutgiltig transaktion, vilket förbättrar användarupplevelsen på finansiella kryptoapplikationer.

      Staking med lätthet: Med AINJ kan investerare få tillgång till r med fördelen av professionell riskhantering samtidigt som de undviker behovet av att direkt låsa tillgångar.

      100 % fysiskt uppbackad: 21Shares Injective Staking ETP är 100 % fysiskt backad av den underliggande INJ och förvaras i kylförvaring hos ett institutionellt förvaringsinstitut, vilket erbjuder ett bättre skydd än depåalternativ som är tillgängliga för enskilda investerare.

      Nyckelinformation

      Handla AINJ ETP

      21Shares Injective Staking ETP (AINJ ETP) är en börshandlad kryptovaluta (ETP) som handlas på Euronext Amsterdam.

      Euronext Amsterdam är en marknad som få svenska banker och nätmäklare erbjuder access till, men DEGIRO gör det.

      Börsnoteringar

      BörsValutaKortnamn
      Euronext AmsterdamUSDAINJ NA
      Euronext ParisEURAINJ FR

      Produktinformation

      Namn21Shares Injective Staking ETP
      Lanseringsdatum9 juli 2024
      Emittent21Shares AG
      Förvaltningsarvode2,5%

      Handelssymboler

      KortnamnAINJ
      Valor136061213
      ISINCH1360612134
      ReutersAINJ.S
      WKNA4AHQC
      BloombergAINJ BW

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