Carbono Insights #75 | Crypto through rose colored glasses: regulation, EIP-4844, Coinbase, scalabilty and more

While we were entering the last days of yet another week of slumber, crypto was hit by a strike of doubt that turned the slight downward slope of the last weeks into a full step down.

Bitcoin and Ether are still up 60% and 40%, respectively, from the beginning of the year, but things have been pretty flat lately. Then, it suffered a ~10% loss. All of a sudden, BTC broke the 26k floor, and ETH lost the $1,600 mark momentarily.

The reasons are mixed. Probably an accumulation of bad news on a market that was expecting something to happen in any direction: a rumored sale of Bitcoin holdings by Tesla, the confirmation of bad macro news from the Chinese front, the anticipation of further interest rate hikes. According to Noelle Acheson, crypto investors are reacting to the economy just like gold and stocks investors, only they’ve done so slower because of their special characteristics: they tend to be more resilient to bad news and risk, and prone to HODLing.

Before the plummet, we had decided to write this newsletter about the events that give us reasons to remain optimistic facing the tedious market movements. Instead of changing the tone, we decided to stick with it in spite of everything because a), we’re bored of the bad news and b) volatility in the markets doesn’t have to translate to volatility in the newsletters.

So there we go: these are some of the things that keep our hopes and excitement up.

1. Regulation | The show must go on

There are many battles playing out in the great regulatory war between crypto and authorities, and a few scuffles here and there. There’s the SEC against Ripple, trying to set a precedent on whether or when cryptos are securities. The first round was won by Ripple, but the victory may be short-lived since the judge’s verdict has some holes that the SEC and a few crypto insiders have already pointed out.

Then there are the Coinbase and Binance wars. In both cases, the SEC has accused the two centralized exchange giants of being unregistered securities exchanges and then some. Binance has fought back. The exchange has “filed for a protective court order against the U.S. Securities and Exchange Commission, saying the regulator’s requests for information were ‘over broad’ and ‘unduly burdensome.’” (Reuters)

Coinbase, on the other hand, is winning the reputational combat, since their compliance with the law keeps getting acknowledged by regulators, like their recent approval from the National Futures Association to offer futures trading to eligible US investors (more on this below).

Last but not least, is the ETF battle. While the SEC keeps delaying their decision on a spot bitcoin ETF, Europe has approved their first, and reputable firms are filing for Ethereum futures ETFs, with good prospects. Both are potential wins for the crypto side that can undermine the SEC’s case against a spot bitcoin ETF in the US.

2. Ethereum | EIP-4844

In the near future, we’re set to see the implementation of EIP 4844 within Ethereum’s last upgrade, Dencun. Dencun’s EIP-4844 will introduce an upgrade known as proto-danksharding.

To give you some background, sharding is a central aspect of Ethereum’s scalability plan. Sharding is a scalability technique that involves splitting the network into smaller, parallel chains (shards) to improve transaction throughput and network performance. Danksharding, and protodanksharding, are earlier iterations of sharding (proposed by devs Dankrad Feist and Protolambda, respectively), that will introduce initial versions of this innovation. The latter will be included in Ethereum’s next upgrade.

The major breakthrough brought by EIP-4844 involves the incorporation of “blobs,” a fresh method of organizing data within blocks. This advancement is poised to bolster the capacity and scalability of Layer 2 solutions (L2s). Blobs come with a predetermined capacity and a specific lifespan. After a set period, the data within the blobs disappears, thus reducing the demands on processing and memory resources on Ethereum.

The primary impact of EIP-4844 lies in streamlining operations within Layer 2. Considering the highly competitive landscape of the current cryptocurrency arena, where new advancements regularly arise in the realm of L2 solutions, it’s conceivable that EIP-4844 might further invigorate an already significant trend.

3. FTX | Sam Bankman-Fried will go to jail

I know it might seem wrong to be happy about someone going to jail, but in the case of SBF’s incarceration, it feels like cryptocurrency is being proven right. Sam Bankman-Fried, the young trader responsible for building and blowing up FTX, caused harm to crypto’s reputation, similar to how Bernie Madoff harmed Wall Street. What’s interesting is that the crypto community was quick to disassociate from him based on evidence, while traditional media initially bought his innocent pose, and politicians were slow to respond, while they figured out what to do with his donations ($100M according to the latest reports).

4. Scalability | More and more flavors of L2s

While Base’s launch is still warm and rakes in excellent user metrics, more contenders in the scalability race are lining up:

• Linea, the zero-knowledge L2 built by ConsenSys (the team behind MetaMask) just launched on Mainnet. Linea is expected to launch an airdrop sometime since they’ve put a lot of emphasis on decentralized governance.
• Scroll, one of the strongest technical developments in the roll-up space, has entered its final testnet stage.
• Debank, one of the most popular wallet explorers, launched its own Layer 2, built with the OP Stack. Binance, too, has used this development framework to build and launch their opBNB, a scalability solution for their proprietary chain, BNB chain.

5. Partnerships | Ledger and PayPal

The leading cold wallet manufacturer, Ledger, and PayPal, the payments company recently turned stablecoin issuer, have closed a partnership deal. Together they will enable US citizens to purchase Bitcoin and Ether.

If there are two companies capable of simplifying the process of onboarding new users into crypto, PayPal, and Ledger are excellent candidates.

6. Trading | Coinbase will launch futures trading

After obtaining approval from the National Futures Association, Coinbase is now allowed to offer futures trading to eligible US customers. As happens with every regulatory news, this is being interpreted as a win against the SEC’s witchhunt in some ways. While the SEC considers Coinbase a purveyor of unregulated services, many other agencies keep endorsing its business.

But maybe most importantly, this means that one of the leading exchanges worldwide is now offering another alternative to spot trading for sophisticated investors to get exposure to crypto.