Carbono Insights #98 | Last issue before the halving: Bitcoin, Ethena, institutional investors and tokenization
This will probably be the last newsletter we publish before the halving happens. The halving is a regular, predictable milestone in Bitcoin, where the minting of new BTC during the mining process is reduced to half. It usually has a strong effect on the asset price. There are not enough precedents to assert with certainty what will happen this time (every halving has happened in a totally different context), so it’s hard to tell what BTC will do. More on this below.
But besides BTC price action, the main topic since January, we’re seeing more and more exciting things happening in the space. Some of them are even on the Bitcoin blockchain.
In this issue, we cover Runes, an innovation that might trigger a token summer on Bitcoin. We explain Ethena, the new start in the Ethereum ecosystem, with a brilliant token design for a yield-bearing USD synthetic asset. We also touch base on institutional movements: Venture capital coming back to the space and the progress of tokenization.,
The halving is coming. Are we excited or not?
With the latest Bitcoin halving less than 10 days away, anticipation grips the crypto community. This halving, occurring approximately every four years, slashes the rate at which new Bitcoins are created by half. The reward miners earn diminishes, reducing the rate at which new BTC enters circulation. This straightforwardly affects BTC supply, and given the historical trend of increasing demand for BTC, each halving event has consistently resulted in price hikes.
“In each of the three (3) previous halving events, the price at the end of the year in which the halving occurred exceeded the price at the occurrence of the halving, including the halving event that happened during the most recent bull market during 2020–2021.“ Forbes — How will this halving affect bitcoin?
However, amidst this optimistic narrative, voices of caution emerge. Arthur Hayes, a charismatic crypto figure and billionaire, intends to stay away from Bitcoin for a while. He points out that the halving coincides with a period of tighter dollar liquidity, potentially fueling a sell-off of crypto assets. Hayes’ decision to abstain from trading until May underscores concerns about broader economic factors, including government measures impacting the USD supply.
Hayes is a highly technical and verbose writer. If you have the time and guts, Heatwave is the post where he explains everything. For an abridged and simplified version, click here.
Ethena, the new kid on the block
Ethena is one of the most successful protocols to appear this year. It has been grabbing attention lately for a couple of key reasons, making it the talk of the town in crypto circles.
Recently, a buzz surrounded the airdrop of its token, $ENA. This wasn’t your run-of-the-mill airdrop; it was more like a boutique event, rewarding genuine engagement with the protocol through a points system.
Even more recently, Ethena recently made waves by accepting Bitcoin as collateral for minting its synthetic asset, USDe.
But let’s rewind a bit. What exactly is Ethena, and why is it causing such a stir?
Ethena brings together some of the most tried-and-tested concepts in crypto and packages them into a product that generates yield transparently and trustworthy. It draws from the wells of stablecoins, staking, and perpetual futures trading to create its flagship product, USDe.
Initially marketed as a stablecoin, Ethena had to pivot and rebrand as a USD-based synthetic asset. USDe may resemble a stablecoin at first glance due to its dollar peg, but its mechanics set it apart from the usual conversion of dollars into tokenized equivalents.
Ethena uses ETH, and now BTC, to create a delta-neutral USD position with a positive carry.
Delta neutrality is the state of a portfolio where the overall change in the value of the underlying assets does not significantly impact the portfolio’s value. In plain English, this means that its portfolio holds ETH (let’s leave BTC out for the moment, for the sake of the explanation) in a way that is not affected by the price of the assets, yet it generates yield anyway.
- Ethena holds ETH
- Ethena stakes half its ETH. Staked ETH yields a 3–4% thanks to staking rewards
- Ethena then takes a short position for the value of the remaining half. Short positions earn hefty fees thanks to funding rates (the payments exchanged between long and short positions in perpetual futures contracts)
- Ethereum’s price changes? Ethena doesn’t really care because its revenue is not linked to the asset but to the staking rewards and the funding rate.
Ethena has reached $2.25B in TVL, granting it a position in the top 20 protocols by value locked.
VC are back in town
Venture capital is tiptoeing back into the crypto playground, drawn by the siren song of Bitcoin’s revival after a year of playing coy.
Things are heating up, with news VCs like 1ks (who raised a $75M fund just this month), Galaxy planning a $100M crypto fund and Paradigm, who publicly steered away from crypto in their website, removing direct references to it from their web homepage, leading rounds again.
Every type of inflow into crypto has a different purpose, a different speed, and a different effect in crypto. Native crypto investors, like degens, are constantly moving around, burning trends and leaving. The current ETF inflows are expected to be slow and steady since mainstream investors to whom ETFs are geared are not willing to spend too much time managing their funds, but their capital does not have much mobility within the crypto space (meaning, once it settles in BTC, it stays there). VC money can sometimes be fast, sometimes even harmfully so, such as degens’, but in general, it comes to stay and helps build in the longer term. It is used to hire or expand on a longer time frame.
For a deep dive into how much money is currnetly flowing towards crypto, and where it seems to be going, make sure to check out this thread by Koryo.
Trading on narratives: why, and which ones?
In the world of crypto investment, attention plays a huge role. Sometimes, it’s like a big gambling game, with hype being the main tool to rope in unsuspecting investors, banking on the hope that there’s always a “greater fool” willing to buy in.
But not everything is shady in crypto. There’s something honorable about “narrative investing.” Narratives attract capital because they speak about values and missions, and people are also drawn to them. It’s all about figuring out which stories stick and using that to suss out the good investment opportunities. So, if you’re curious about the whole attention game in crypto, check out this tweet from CoinGecko
Runes: Bitcoin-based tokens on steroids
Last week, we mentioned how Bitcoin was becoming more and more Ethereum-like in terms of capabilities. One of the outcomes of this evolution was the appearance of BRC-20 tokens, an experimental protocol emulating ERC-20, the standard for Ethereum tokens.
Well, the Runes protocol is about to take the BRC-20 vision to a new level. Designed by Casey Rodarmor, the visionary behind inscriptions and Ordinals, Runes promises to revolutionize the creation of tokens on the Bitcoin network. With claims that Runes surpass the capabilities of its predecessor, BRC-20, in terms of minting and trading efficiency, anticipation is high for their impending launch.
Scheduled to coincide approximately with the upcoming halving event, Runes is expected to debut around April 20th, marking a significant milestone in the crypto calendar.
Details around Runes are still scarce. The only way to approach them at the moment is by engaging with some Ordinals collections, which have announced that will mint and distribute Rune equivalents of their NFTs as soon as the gates open. Make sure to check out projects like Runestones, RSIC, or Rune Pups in Magic Eden, the place to stop for your Ordinals shopping.
Asset tokenization FTW
The tokenized U.S. Treasury debt market is experiencing significant growth, surpassing $1 billion in market value for the first time. These tokenized Treasuries, which are digital representations of U.S. government bonds, can be traded as tokens on public blockchains like Ethereum, Polygon, Avalanche, and Stellar. This market has seen a nearly tenfold increase in value since January last year and an 18% surge since BlackRock’s Ethereum-based tokenized fund BUIDL announced on March 20th.
The tokenization of real-world assets (RWAs) is considered one of the most significant contributions that crypto can make to the world of traditional finance. Even BlackRock CEO Larry Fink has pointed out this trend as one of the key factors to consider in the future of finance. In the current interest rate context, RWA tokenization enables the bringing of yields from traditional financial products into crypto while adding liquidity and ease of trading with blockchain technology.
