Markets crumbled in its first week after US regulators cracked down on Paxos, ordering it to halt minting BUSD. Bitcoin and Ethereum decreased by almost 6% and 10%, respectively, over the past week. Headwinds have affected Avalanche and Optimism the most, decreasing by 15.6% and 27%, respectively. What may be contributing to Optimism’s drop is the surprise token airdrop launched by the network on February 9, sending 11.7 million governance tokens to more than 300,000 wallets to distribute 19% of its initial governance token supply, as Ethereum’s scalability solution targets wider adoption to compete with its rival, Arbitrum. Maker DAO’s native token MKR was the biggest winner in last week’s rally, declining by 2.7%. The DAO’s resistance could be attributed to its blue-chip lending protocol, Spark Protocol, which it announced last week to compete with Aave. The DAO also integrated Chainlink for its DAI stablecoin, which is expected to accrue flows with the potential growth of investors’ appetite for decentralized stablecoins in light of the recent regulatory crackdown.

Figure 1: Weekly TVL and Price Performance of Major Crypto Categories

Source: 21Shares, CoinGecko, DeFi Llama. Data as of February 13 (close price).

Key takeaways

• Paxos halts BUSD minting in compliance with the Securities and Exchanges Commission in the latter’s latest series of crackdowns on unregistered securities.

• The Zhejiang testnet successfully simulated staked ETH withdrawals, and developers set February 28 as the target date for Sepolia.

• Aave’s decentralized stablecoin, GHO, is live on Ethereum’s Goerli testnet, while Tether’s USDT gains market share over USDC and BUSD.

• Bitcoin’s Taproot upgrade soars in adoption and opens the door for Bitcoin-native NFTs.

Spot and Derivatives Markets

Figure 2 – Total Bitcoin Liquidations

Source: Coinglass

Over the past week, we have seen the largest long squeeze in months of over $530M liquidated on Binance, OKX, and Bybit. This dynamic is an indication that there were more funds betting on Bitcoin, and the recent negative rally disappointed their positions on the back of the series of regulatory crackdowns on crypto companies in the US.

On-chain Indicators

Figure 3: Bitcoin Taproot Adoption

Source: Glassnode

Figure 3 shows that Taproot adoption surpassed 5% for the first time on February 1 and reached 17.68% on February 9. The sudden rise in Taproot adoption is attributed to the launch of a project called Ordinals, which enables Bitcoin-native NFTs. Created by Casey Rodarmor, Ordinals embed image-related data into the Bitcoin blockchain using the input field in Taproot transactions. The Taproot upgrade, activated in November 2021, makes it cheaper to store arbitrary data and allows users to store as much data as they like in a single transaction, as long as they pay for it and the total block size remains under 4MB. Before Taproot, one had to use multiple transactions or inputs to store large amounts of data.

The introduction of NFTs on Bitcoin can expand its use cases beyond a store of value asset and, perhaps more importantly, drive more demand for block space. The latter would increase fees, which would be a net positive for the long-term security of the network, especially as the emission of new BTC will end in 2140.

Next Week’s Calendar

Source: TradingView

From the Press

On February 8, we released the Global Crypto Classification Standard (GCCS) in partnership with CoinGecko. The term ”cryptocurrency,” still widely used, is a misnomer as cryptoassets can vary dramatically in nature, both as it relates to the asset (token) itself and the protocol behind it. The GCCS uses three levels of categorization to demystify the misconceptions around cryptoassets and shed light on commonalities and differences of this burgeoning asset class.

Read our full report here

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.