🟣 ETF Wars

Gm, and happy New Year!

We’re starting off the year right with BTC pumping to over $45k, a new local high, and hopefully a yearly low. This move higher was certainly driven by expectations that the ETF will be approved “as soon as Tuesday or Wednesday” this week, according to a Reuters source.

The CME BTC Futures are trading at a ~2.5% premium to spot, showing that TradFi is certainly getting ahead of the announcement. BTC miners are also rallying after a large sell-off across the board last Friday.

According to the ETF chads at Bloomberg, we can expect there to be some latency between the approval and when trading goes live, and that this will be “measured in days not weeks,” although it certainly could extend longer. I tend to trust these guys when it comes to the ETF process, so I’m personally expecting it to take under two weeks.

As we enter into live trading of these ETFs, the feud to gain significant market share will certainly become fierce. We’ve already seen competition to create liquidity through the offering of low fees, with Fidelity offering 39 bps and Galaxy taking no fees for the first six months and the first $5B in assets.

ETF providers are also doing what they can to create a perceived level of adoption, as this makes it more likely for people to trust the specific provider’s ability to maintain liquidity over time. They are naming huge Authorized Partners (APs) like Jane Street and J.P. Morgan, and in some cases, how much those partners are willing to commit, with Bitwise mentioning $200M in interest coming from APs.

The marketing battle is also starting to heat up, with compelling advertisements and commercials coming from different players within the vertical, such as Bitwise recreating the Dos Equis “most interesting man in the world” style ads, Hashdex appealing to the Boomers who did not understand the internet in its early days, among others. I can already see the texts from friends and family as these commercials are all over the Super Bowl in February.

I’m excited to see how this ETF competition plays out, as the battle itself, regardless of the outcome, will be good for increased crypto adoption in the U.S. among both institutions and retail.

Let’s have a great week y’all!

 - Westie

On Sunday, the price of Tellor (TRB), an Oracle protocol, was manipulated. The token began trading at ~$260 at the beginning of the day and reached as high as ~$625 in the evening, quickly dropping to ~$180 as the day came to an end. At least one major crypto protocol suffered from the manipulation—that being Synthetix. Synthetix has open interest caps in place to safeguard the platform, adjusted by the Spartan Council (the central governing body of the protocol), but due to what some are calling an oversight, the TRB cap was tied to the number of tokens instead of a specific U.S. dollar-denominated value. Therefore, the cap had ballooned to ~$13M as the TRB price has been increasing in recent months.

Consequently, SNX stakers that act as the counterparty for traders incurred ~$2M in losses following the incident as short positions were opened as the price spiked. Kain Warwick, the founder of Synthetix, Tweeted his thoughts about the incident on Monday, saying that he has “been rekt harder than this many times so my personal response is kind of meh.” Warwick’s lackluster response likely derives from the fact that the incurred losses are relatively small in comparison to the value that gets channeled to stakers. For the year 2023, the total SNX staker PnL was c. +$19.3M, even after accounting for the ~$2M losses.

Furthermore, Warwick said that a Risk Council needs to be introduced, and if he’s voted into the Spartan Council for the next epoch, he’ll make such a council a major goal to get through governance. The ~$2M lost by SNX stakers is again a good reminder of the fact that DeFi protocols come with several types of risks, and it’s often impossible to reliably predict all of the factors that could go wrong. In other words, black swan events for my TradFi boomers in the back.

With the Solana hype train continuing to chug along, investors have started looking for new opportunities within the high-TPS vertical. One such opportunity is parallelized EVMs. As such, Sei has received a lot of attention, and the token has pumped ~115% in the past two weeks. At an FDV of ~$7.5B, the L1 could still have a lot of room to run.

Longer on the risk curve is NeonEVM, a parallelized EVM built on Solana. There doesn’t seem to be much happening on Neon currently, but at an FDV of ~$3.3B (up 195% in the past 14 days), investors are now willing to yeet money into the project as a narrative play on parallelization.

Onchain users searching for an even higher market beta play with more degeneracy have turned their attention to SEIYAN. SEIYAN has become the main meme token on the Sei blockchain and is currently trading at a market cap of ~$36M, having increased by ~190% in the past week. Although the price has grown quite massively, there could still be a lot of potential here if anything comparable to Solana’s BONK plays out.

Lastly, Monad is set to launch its public testnet in Q1 2024, and the project has received a lot of attention from all types of crypto users. Monad is a parallel execution EVM L1 that claims to be able to reach 10K TPS with 1-second block times and single-slot finality. It’s worth keeping an eye on the project during the coming months, as it has already built a robust community, and it’s well-positioned to benefit from the parallelized EVM narrative. 

Having said all of that, this is not financial advice, and as always, do your research chiefs and chieftesses.

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The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.