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How Markets Reacted to New US Credit Rating: What Happened in Crypto Last Week?
Consumer prices in the U.S. rose by 3.2% year-over-year in October, down from 3.7% in September, but still above the Fed’s 2% benchmark. Moody’s Investors Service has cut the US credit outlook from stable to negative. In response, long-term yields soared, which is not only an indication of investor confidence in the U.S. economy but also a proxy used by many to gauge mortgage rates and risk-on assets such as equity and crypto.
Bitcoin and Ethereum are down by 1.54% and 7.82% over the past week, respectively. Biggest winners of last week were Solana (27.56%), Avalanche (66.56%), and Optimism (3.45%). In this report, we’ll walk you through the top 4 trends to remember in markets this week: what drove Ethereum’s price to break the $2K mark before retracing after a bumpy downhill from August 15? We’ll also break down the new developments on Bitcoin that might bring streaming to the network, Kraken’s new Layer 2 blockchain, and Lido decentralizing its node-infrastructure operations.
Figure 1: Weekly Price and TVL Developments of Cryptoassets in Major Sectors
Source: 21Shares, CoinGecko, DeFi Llama. Close data as of November 16, 2023.
4 Things to Remember in Markets this Week:
Ethereum Rejoins the Race
The world’s largest asset manager, BlackRock, officially submitted an application for its iShares Ethereum Trust as a Delaware statutory trust on November 9, joining a handful of firms, including ARK Invest and 21Shares, who were the first to submit their application back in September. With BlackRock’s $8.6 trillion in assets under management, the news spurred optimism in the market, making Ethereum jump by 12.54% overnight, but fundamental developments should also be credited. Increasing base fees and burn rate have returned Ethereum to its June levels, signifying a revival of on-chain activity. As shown in the figure below, Ethereum has become deflationary over the past week, strengthening its worth. However, on November 10, around $41M worth of ETH was lost in over a $100M exploit on a crypto wallet belonging to the crypto exchange Poloniex. Crypto forensics firm Arkham Intelligence showed that the hacker had close to ~$42M on Friday night. In terms of market impact, it would take ETH $8M to move upwards or downwards by 2%. Therefore, the Poloniex hack could yield short-term selling pressure on ETH of about 10%, if the hacker liquidates their looted holdings instantaneously.
Figure 2: Ethereum’s Annualized Inflation Rate and Daily Change in Supply
Source: 21.co on Dune Analytics
Streaming on Bitcoin
Bitcoin developer Robin Linus introduced BitStream, a decentralized file hosting on Bitcoin, where users can upload unique files, enabling anyone to monetize their excess bandwidth and data storage capacities without relying on trust or heavy-weight cryptography. BitStream’s pay-to-download approach solves the problem of bandwidth costs that could skyrocket beyond the initial download revenue. It allows the server to charge for each download, ensuring that the revenue scales with the popularity and demand for the media, creating a balanced and profitable ecosystem. According to the whitepaper, the uploaded files would be fraud-proof, by splitting them into fixed-sized chunks and then hashed into a Merkle tree to derive a unique fileId. This development is yet another expansion to Bitcoin’s burgeoning use cases and would onboard a diversified audience. With BitStream’s promise, Bitcoin can capture the total addressable market of data storage, which stands at at least $230B. Although BitStream’s pricing scheme is not clear yet, decentralized data storage solutions, like Filecoin and Arweave, have been proven to be a lot cheaper than Google Cloud, Amazon S3, and its other centralized peers, varying by usage, as shown in the figure below.
Figure 3: Cost of decentralized storage vs. centralized storage in 2023
Source: State of Crypto issue 9, Coingecko
Kraken Looks to Build Their Own Blockchain
In their pursuit, Kraken is exploring potential partnerships with Polygon Labs, Matter Labs, or the Nil Foundation to establish a Zero-Knowledge-powered network, setting themselves apart from Coinbase. This move isn’t surprising, given Coinbase’s Base accrued ~$5.4M in profit since its launch, equating to around $20 million in annualized profits. Further, despite a recent decline in Base’s sequencer revenue and a 30% drop in AUM over the past weeks, the network still outperforms the rest of ETH scaling solutions in terms of hosting new applications, as shown in Figure 4, indicating a robust developer ecosystem posed to generate diversified income streams. While exchanges launching their networks is not new, the current trend of building atop Ethereum eliminates the necessity for launching a token, which strategically avoids regulatory scrutiny in the current environment. In light of this, we anticipate compliant exchanges to emulate this model and seize the opportunity to capitalize on a diversified income source in the upcoming cycle.
Figure 4: Deployment of New Applications Across ETH Scaling Solutions
Source: Artemis
Lido is Decentralizing its Node-Infrastructure Operations
Lido DAO, the largest non-custodial staking provider, approved two proposals to adopt Distributed Validation Technology. DVT refers to a mechanism spreading out key management and signing responsibilities across multiple parties to reduce single points of failure and increase validator resiliency. That said, Lido will integrate DVT modules with Obol and SSV protocols, which is set to introduce a more diverse profile of node operators beyond its current list of 38 Validators and help address a key concern around centralization. This is a key development as Lido stirred a debate since it’s close to accounting for a third of staked ETH (see Figure 5),; it could have undesired influence over the network’s validation process and block production. Thus, this implementation is crucial to ensure the diversification of the protocol’s node operators and increase their reliability in case of validator failures or attempts of censorship. Conversely, SSV and Obol networks represent new primitives, so it’s essential to remain vigilant regarding any unforeseen vulnerabilities they could introduce.
Figure 5: Dominance of Entities Staking on the Ethereum Network
Source: 21co at Dune
What You Should Pay Attention To
US Credit Outlook: From Stable to Negative
Citing political polarization and fiscal deficits, Moody signals negative indicators for the U.S. economy, lowering the credit rating from stable to negative. 10 and 30-year Treasury yields rose on Monday, taking a toll on investor portfolios and making it more expensive for the government to borrow more money. In the case that the U.S. government doesn’t honor its federal debt of $33.7 trillion, the country might be paving its way to a recession. Although the bull run of Bitcoin can be likely triggered due to speculation around a potential spot ETF in the U.S., the weakening of credit ratings and sticky inflation strengthens Bitcoin’s narrative as a hedge against currency debasement.
Figure 6: 30-Y Treasury Bill Yields Plotted Against Bitcoin’s Performance (YTD)
Source: Yahoo Finance
NEAR Announcing Multiple Partnerships Aimed at Closer Alignment with Ethereum
First, Near Foundation unveiled a collaboration with Polygon Labs, marking a significant stride in building a zkWASM prover. In other words, the partnership enables WASM-based networks to validate their settlements on Ethereum, tapping into its battle-tested security guarantees. For context, WebAssembly (WASM) is an alternative operating system to Ethereum’s EVM, offering data efficiency and a versatile toolkit supporting languages like Rust and C++, and powers platforms like Solana, Cosmos, and Near.
This collaboration is pivotal as it provides developers on Polygon CDK with expanded choices for building customizable networks beyond Ethereum’s EVM constraints and using technologies like sharding that are not yet feasible on Ethereum. Finally, the integration facilitates access to Ethereum’s robust liquidity via Polygon’s shared layer, offering a strategic advantage to external non-EVM entities lacking this capability. In essence, this implementation fosters interconnectivity and interdependence between incompatible blockchain operating systems. The synergy also has the potential to propel Polygon’s ZK-EVM user base, enabling it to bridge the gap with both Ethereum and Near networks, as shown below in Figure 7.
Figure 7: Active Daily Users of Near vs Polygon ZK-EVM vs Ethereum
Source: Artemis
Near also revealed its NEAR DA, a new data availability solution offering ETH scaling networks (L2s) like Arbitrum and Optimism, a cost efficient means for posting data. For context, traditional blockchains combine all key functions such as settlement, consensus, execution and data availability, which make networks inefficient as they grow in size. Thus, the modular approach instead focuses on separating few intensive processes, like posting data on Ethereum to prove their validity, in order to help L2 streamline their operations.
In the case of Near, it’s expected to be 8000x cheaper to post data on the network than on Ethereum, specifically it would cost rollups ~$26 to post 100KB of call-data on Ethereum versus $0.0033. Near is now the second protocol offering the modular approach after Celestia announced their mainnet deployment at the end of October. This is a crucial development to help scale the Ethereum ecosystem further and diversify away from the monolithic architectures that are more complex and less flexible.
Comparatively, Near inked a partnership with EigenLabs, the company building the re-staking primitive on top of Ethereum. As a refresher, restaking refers to repurposing staked ETH to validate the security of other applications and networks. With this in mind, Near is building a fast-finality rollup solution, powered by Eigen’s Active Validator Service (AVS), or restakers, to enable near-instant transaction finalization, surpassing the current time frames of hours or days, and is 4000X cheaper than current options. This would ensure that rollups can inherit the security of Ethereum via re-staking, while benefiting from Near’s faster settlement guarantees and help address the fragmentation of liquidity amongst ETH L2s with a cross-rollup communication system in the process. These key developments align with our thesis of a multichain future, with projects seamlessly utilizing various networks in a trustless manner for their distinctive benefits, making infrastructure imperceptible to end-users, while Ethereum continues to wield significant influence in fueling the ecosystem.
Bookmarks
• Insights from our last newsletter were featured on CoinDesk.
• In collaboration with ARK Invest, 21Shares is listing 5 products in the Chicago Board Options Exchange.
• Get a digital copy of State of Crypto issue 10!
Next Week’s Calendar
These are the top 3 events we’re monitoring for next week.
• November 17: UK Retail Sales, European Central Bank’s President Christine Lagarde speaks
• November 21: FOMC Meeting Minutes
• November 23: Flash manufacturing and services PMI data for Germany, France and the UK.
Source: Forex Factory
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.
As April winds down, markets remain on edge, with escalating tariffs and renewed trade tensions keeping volatility in focus. In this summary of our full-length newsletter, we spotlight gold and gold equities, both of which have surged to record levels. We also take a step back from the day-to-day noise in crypto to explore the broader shifts in the regulatory landscape in our latest Whitepaper and present Celestia in detail. Finally, we assess how Moat indexes have held up and evolved amid the turbulence.
Your VanEck Europe team wishes you a great read.
Featured Articles
🥇 Are Gold Mining Equities Regaining Attention Amid Rising Gold Prices?
Gold & Gold mining equities tend to shine during stress periods
Source: VanEck, World Gold Council.
Gold has attracted renewed interest from investors amid concerns about inflation, currency volatility, and overall market uncertainty. Gold mining companies have recently reported improved profit margins and cash generation, with some initiating share buybacks and maintaining relatively strong balance sheets. Despite these developments, many continue to trade below their historical valuation averages.
While historical trends indicate that gold and gold mining equities have outperformed during certain periods of market stress, these patterns may not repeat under different economic conditions. Performance can be influenced by a range of factors including interest rates, central bank policy, geopolitical developments, and investor sentiment.
→ Read more
⚖️ Whitepaper Highlights: How New Crypto Regulations May Shape the Future
Cryptocurrencies are entering a new era. With the re-election of Donald Trump and the implementation of the European Union’s Markets in Crypto-Assets (MiCA) regulation, digital assets are moving into a landscape defined not just by innovation, but also by regulatory clarity.
MiCA’s structured and transparent approach aims to promote legitimacy, safeguard investors, and enhance trust in digital asset markets across Europe. It could also serve as a blueprint for other jurisdictions looking to regulate crypto effectively.
→ Read the Whitepaper Highlights
⛓️ Introduction to Celestia
Most blockchains, like Ethereum or Bitcoin, are monolithic which means they perform all major functions (consensus, data availability, and execution) on a single layer. This design ensures security but according to new modular networks, limits scalability and flexibility.
The modular blockchain thesis, which Celestia is leading, proposes separation of layers and respective responsibilities in the network.
→ Read more
Note: This article in not accessible to our UK readers.
🌊 Riding the Gold Wave
Chasing the Vein: Fund Flows into Gold Miners
Source: Mining.com. Data as of 21 March 2025. Note: Data covers 493 funds with combined assets under management of $62 billion.
U.S. equity markets experienced significant declines during the month of March. Meanwhile, spot gold price recorded new all-time highs, surpassing the $3,000 per ounce mark on 14 March and closing at a record price of $3123.57 on March 31, a 9.30% ($265.73) monthly gain. As of 31 March, gold prices have risen by 93.61% over the past five years (1). Investors should keep in mind that past performance is not representative of future results.
The gold miners, as represented by the NYSE Arca Gold Miners Index (GDMNTR), outperformed significantly, up 15.51% during March (2). This gain reflects both their operational leverage to rising gold prices and market perceptions of relative value. However, gold miners can also be subject to heightened volatility, operational risks, and sensitivity to commodity price swings.
While gold and gold equities may serve as diversifiers in a portfolio due to their historically low correlations with many asset classes, investors should remain mindful of the inherent risks, including price volatility, currency movements, and shifts in investor sentiment that can lead to rapid reversals in performance.
→ Read more
🌪️ Moat Stocks Weather Tariff Tumble
Market turbulence in March weighed on stocks. The Moat Index was not immune to the market turmoil, as it declined along with the broad U.S. equity market ending the month lower. However, the Moat Index showed resilience relative to the S&P 500—thanks in part to defensive sector resilience and underweight exposure to mega-caps.
At the same time, the SMID Moat Index lagged small and mid-caps in March. Smaller U.S. stocks were also impacted by global trade tensions and economic growth concerns with the broad small- and mid-cap benchmarks falling during the month. However, year-to-date, the SMID Moat Index remains ahead of the broader small- and mid-cap markets.
This is a preview of our monthly ETF insights email newsletter.
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(1) Source: World Gold Council, ICE Data Services, FactSet Research Systems Inc.
(2) Source: Financial Times.
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