Weekly Top Stories - 11/15
This week in the newsletter, we write about recent Bitcoin price action and Trump transition team activities, a recent announcement on Ethereum’s second consensus overhaul upgrade, and Tether making moves in the tokenization space.
Subscribe here and receive Galaxy's Weekly Top Stories, and more, directly to your inbox.
Bitcoin Moons While Haters Swoon
Bitcoin reaches all-time highs above $93k as Trump trade takes hold. Bitcoin rallied aggressively this week, rising 40% in the 9 days since Nov. 4 to reach as high as $93,495 on Coinbase on Wednesday. Despite a strengthening dollar, Bitcoin rose in anticipation of favorable Trump administration policies and news of pro-Bitcoin nominees.
Specifically, Bitcoin owners Elon Musk and Vivek Ramaswamy were named to lead the new Department of Government Efficiency (DOGE). Cantor Fitzgerald CEO Howard Lutnick (who said he and Cantor execs own “shedloads of bitcoin” at Bitcoin 2024) appears to be making a last-ditch effort for Treasury Secretary (his Kalshi odds have risen from 1% to 52% since Nov. 12). Eloquent Bitcoin advocate RFK Jr. was named for Secretary of Health and Human Services. And talk of a Bitcoin “strategic reserve” has increased over the last week.
The House has now been called by networks for Republicans, marking a clean sweep of the White House and Congress, giving significant power to a Republican party that is increasingly pro-crypto. Fairshake PAC, the biggest pro-crypto political group, had nearly a perfect success rate in the candidates it backed, with Coinbase CEO and Fairshake backer Brian Armstrong tweeting that the group won 48 of 48 races.
OUR TAKE:
The market believes that a Trump administration and Republican Congress are very bullish for bitcoin and crypto, but lacks confirmation on which specific steps will be taken. In the absence of tangibles but with an expected pile of positivity in the future, risk is to the upside and investors are bidding to ensure they are positioned. It is hard to know how much Bitcoin you are meant to own in an environment like this, but most investors agree they don’t have enough.
A drumbeat is building for a national strategic bitcoin reserve, which Donald Trump referred to as a “national bitcoin stockpile” in his Bitcoin 2024 speech in Nashville last summer. Matt Huang, co-founder and general partner at major crypto venture fund Paradigm, wrote that “sovereigns can no longer afford to dismiss BTC.” Matthew Pines, national security expert and fellow at Bitcoin Policy Institute, said that “it seems like an idea whose time has come” and warned that “it could be a matter of urgency in the coming administration given how this is a global asset and other countries make look at this asset in a similar way… and we either anticipate that or we don’t.” Whether or not this happens, the idea is not being shot down by transition or Trump officials, and it merely adds to fears among allocators that they could be underweight.
Bitcoin has run tremendously over the last two weeks and pullbacks are healthy after such aggressive appreciation. The announcement of favorable nominees for Treasury Secretary and SEC Chair will provide additional fuel for the rally. Prediction markets suggest hedge fund manager Scott Bessent and Cantor Fitzgerald CEO Howard Lutnick are neck and neck for Treasury Secretary. Lutnick is a well-known bitcoin bull, but Bessent has said that he has been “excited about the president’s embrace of crypto,” that “crypto is about freedom,” and has praised bitcoin adoption as “cultivating a market culture in the U.S.”
SEC policy is less important for bitcoin but monumentally important for crypto and the crypto financial services industry. The crypto industry is not just looking for a progressive rulemaking approach on a go-forward basis, it also wants a rollback of the litigation-focused approach of the last few years. Of the potential nominees floated publicly for the role, Robinhood CLO Dan Gallagher is considered to be the most supportive of the industry. If Gallagher is named as the nominee, crypto markets are likely to react extremely positively in anticipation that a confirmed industry supporter would sit in the top seat at the world’s most prominent market regulator. – Alex Thorn
Unveiling the Beam Chain, Ethereum’s Second Consensus Overhaul Upgrade
On Tuesday, November 12, Ethereum Foundation Researcher Justin Drake unveiled an ambitious plan to overhaul Ethereum’s consensus protocol for a second time. Calling it the “Beam Chain”, he described how the current Beacon Chain (i.e. the consensus layer of Ethereum ever since the Merge upgrade) is in desperate need of a radical redesign for Ethereum to achieve its “endgame” state, which refers to a state of code ossification.
“The Beacon Chain is kind of old. The spec[ification] was frozen five years ago, and in those five years, so much has happened. .... With the benefit of hindsight, we now know what the mistakes we made with the Beacon Chain are, and we have a bunch of technical debt that is extremely sticky and tends to pile on over time and maybe now we have an opportunity to clear this technical debt. So, I'm suggesting putting the greatest and latest of the consensus layer roadmap in the Beam Chain,” said Drake during his keynote presentation at the Ethereum developer conference Devcon.
The four main objectives of the Beam Chain are:
Faster blocks (i.e. 4 seconds instead of 12 seconds)
Faster finality (i.e. single slot finality)
Chain snarkification (e.g. use of zkVMs to prove Ethereum state data)
Quantum security (e.g. use of hash-based cryptographic signature schemes)
Since the unveiling of the Beam Chain, the community response has been mixed. In response to an X post by Prysm developer Terence Tsao defending the Beam Chain idea, Geth developer Peter Szilagyi shared concerns about what the Beam Chain would mean for existing consensus layer (CL) teams. “If you get new beam teams to do it [the Beam Chain], CL clients will revolt that you’re obsoleting them ... It’s not that simple,” he wrote. The cofounder of Delphi Labs Jose Maria Macedo wrote on X that the Beam Chain announcement was “disappointing” and that Ethereum Foundation developers were not thinking big enough. Gnosis Co-founder Martin Koppelmann also criticized the proposal for not being ambitious enough. Pseudonymous developer “Functionzero” who advises for the Euler Finance project said the proposal was “tomfoolery”.
OUR TAKE:
There are more questions than answers at this point about what the Beam Chain means for the future of Ethereum. Pertinent questions that remain unanswered about the idea include: How feasible is a second overhaul to the CL of Ethereum given the protocol’s current complexity? How far along are research and development efforts for the Beam Chain? Given this, how likely is it that the current proposal will undergo heavy revisions between now and the time of implementation? How will the Beam Chain proposal be funded? What impacts will it have on Ethereum's short-term development roadmap? What impacts will it have on stakers and Layer-2 rollups?
Luckily, Drake himself acknowledged the Beam Chain is a long-term, moonshot goal for the Ethereum protocol and his intent in presenting the idea at Devcon was primarily to garner support and contributions from the Ethereum community to earnestly start exploring answers to some of these questions. The Beam Chain is by no means akin to the next Merge upgrade or as some have dubbed it, “Ethereum 3.0”. There is not enough consensus and support for the idea yet for it to be considered the official endgame vision for the protocol. As evidenced by the early feedback on the proposal shared by Ethereum Foundation developers and other community stakeholders publicly on X, not everyone agrees Beam Chain is a good idea.
Though Drake is a prominent figurehead in the Ethereum community and certainly has enough influence to gain help in exploring ambitious ideas like the Beam Chain, he does not have the power to make it a reality on Ethereum without the support of a diversity of client teams and network stakeholders. Further, unlike minor changes to the protocol, a complete overhaul of consensus like the Beam Chain will require years of sustained development and near unanimous support from the community to pull off because this is exactly what it took for developers to successfully pull off the Merge upgrade, Ethereum’s first major consensus overhaul that transformed Ethereum from a proof-of-work to a proof-of-stake blockchain.
Ethereum developers have always been extremely ambitious in stretching the limits of what blockchains can do. The Beam Chain announcement but more broadly the announcements and ideas presented throughout the entire Devcon conference this year prove that Ethereum developers are more ambitious than ever about the future of Ethereum. A blockchain without ambition is dead. Ethereum, on the other hand, is very much alive. - Christine Kim
Tether Tokenizing the World
Tether announces the launch of an asset tokenization platform called Hadron. Hadron is designed to allow businesses, funds, and governments to easily convert assets into tokens, such as "stocks, bonds, commodities, funds, and reward points." Through Hadron, Tether offers the tooling needed for managing the full life cycle of tokenization including compliance (KYC/AML), risk management, secondary market ecosystem monitoring, and blockchain reporting. While launching as a private beta, Hadron by Tether supports multiple smart contract platforms as well as Liquid by Blockstream, which is built on Bitcoin.
“We believe Hadron by Tether will significantly improve the financial industry," according to Tether CEO Paolo Ardoino. "By leveraging all Tether’s technology – which today has already secured 125 billion dollars – we’re making asset tokenization easier, secure, and scalable. Our goal is to create new opportunities for businesses and governments, while also making the digital asset space more accessible and transparent.”
OUR TAKE:
Tether, one of the world's most efficient and profitable businesses, is quickly expanding into new business lines to become a crypto conglomerate. Since 2022, Tether built a P2P chat platform (Keet), ventured into renewable energy and bitcoin mining, and made a strategic investment in AI/data storage (Northern Data Group). Given Tether's track record with building out the most popular stablecoin and tokenized gold asset (XAUT), the new tokenization should see plenty of demand from new businesses and enterprises looking to quickly enter the crypto space.
Tether offers a large distribution network including integrations with nearly 20 blockchains. One notable part of the announcement is Tether's mention of Liquid, the Bitcoin sidechain. Paolo Ardoino mentioned on X "We're getting great feedback from current beta users (governments and institutions) regarding Liquid, especially because of support for confidential transactions." While its distribution network is an advantage over other platforms, Tether will face increasing competition from yield-bearing stablecoins and tokenized money market funds like Blackrock's BUIDL, which will be expanding to five new blockchains (Aptos, Arbitrum, Avalanche, Optimism, and Polygon) according to an announcement made on Wednesday this week. Looking ahead, it's becoming clear that the evolution of the tokenization market will expand cross-chain to many blockchains, not just on Ethereum. - Charles Yu
CHARTS OF THE WEEK
On November 13, 2024, bitcoin reached a new all-time high of $93,495 on Coinbase. As it works through price discovery, checking in on the cost-basis of network participants and the relative profitability of coins can offer a signal of where the profit may be taken and new levels of support and resistance are set. As of November 14, 2024, the market price of BTC was $90,400; the realized price of the network (the network-wide cost basis) was $34,300; the long-term holder (LTH) cost basis, or the average price at which coins aged more than 155 days were last moved, was $25,000; and the short-term holder (STH) cost basis, or the average price at which coins aged less than 155 days were last moved, was $68,700.
The market value to realized value (MVRV) ratio is a measure of bitcoin’s market price to the network-wide realized price and serves as a proxy for the network-wide average profitability of coins. For example, an MVRV of 2 is an indication that the market price of BTC is two times greater than the network-wide realized price and the network is 100% in profit on their coins in the aggregate; and so on.
Bitcoin’s push over $90,000 on November 13, 2024, put the 14-day moving average of the MVRV ratio at 2.24. The ratio has only been higher than this level throughout 22% of bitcoin’s history using this moving average, however, it is still 15.2% lower than where it was when BTC made the $73,800 high in March of this year. The difference is partially due to the extended run-up that led to the high in March, which started at the cycle bottom of $16,000 in December 2022.
The MVRV ratio has been trending down throughout bitcoins life as the price becomes less volatile and the upward swings become less exaggerated. With the MVRV of 2.64 set in March, it can be a sign that the relative point of profitability at which gains are realized is around this level.
Other News
Bitwise acquires Attestant in expanding Ethereum staking push
Polymarket founder raided by FBI after Trump Win, company says
BlackRock expands tokenized fund BUIDL beyond Ethereum to 5 new blockchains
Trump taps Dogecoin fan Elon Musk to Lead DOGE Agency with Vivek Ramaswamy
MicroStrategy now holds nearly $23 billion in bitcoin with the latest buy
Mt. Gox moves 2,500 bitcoin after extending repayment timeline
Legal Disclosure:
This document, and the information contained herein, has been provided to you by Galaxy Digital Holdings LP and its affiliates (“Galaxy Digital”) solely for informational purposes. This document may not be reproduced or redistributed in whole or in part, in any format, without the express written approval of Galaxy Digital. Neither the information, nor any opinion contained in this document, constitutes an offer to buy or sell, or a solicitation of an offer to buy or sell, any advisory services, securities, futures, options or other financial instruments or to participate in any advisory services or trading strategy. Nothing contained in this document constitutes investment, legal or tax advice or is an endorsementof any of the digital assets or companies mentioned herein. You should make your own investigations and evaluations of the information herein. Any decisions based on information contained in this document are the sole responsibility of the reader. Certain statements in this document reflect Galaxy Digital’s views, estimates, opinions or predictions (which may be based on proprietary models and assumptions, including, in particular, Galaxy Digital’s views on the current and future market for certain digital assets), and there is no guarantee that these views, estimates, opinions or predictions are currently accurate or that they will be ultimately realized. To the extent these assumptions or models are not correct or circumstances change, the actual performance may vary substantially from, and be less than, the estimates included herein. None of Galaxy Digital nor any of its affiliates, shareholders, partners, members, directors, officers, management, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information or any other information (whether communicated in written or oral form) transmitted or made available to you. Each of the aforementioned parties expressly disclaims any and all liability relating to or resulting from the use of this information. Certain information contained herein (including financial information) has been obtained from published and non-published sources. Such information has not been independently verified by Galaxy Digital and, Galaxy Digital, does not assume responsibility for the accuracy of such information. Affiliates of Galaxy Digital may have owned or may own investments in some of the digital assets and protocols discussed in this document. Except where otherwise indicated, the information in this document is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. This document provides links to other Websites that we think might be of interest to you. Please note that when you click on one of these links, you may be moving to a provider’s website that is not associated with Galaxy Digital. These linked sites and their providers are not controlled by us, and we are not responsible for the contents or the proper operation of any linked site. The inclusion of any link does not imply our endorsement or our adoption of the statements therein. We encourage you to read the terms of use and privacy statements of these linked sites as their policies may differ from ours. The foregoing does not constitute a “research report” as defined by FINRA Rule 2241 or a “debt research report” as defined by FINRA Rule 2242 and was not prepared by Galaxy Digital Partners LLC. For all inquiries, please email [email protected]. ©Copyright Galaxy Digital Holdings LP 2024. All rights reserved.