The Market
Big macro week last week. March’s headline inflation came out last Thursday at 3.5%, up from 3.2% in February and topped estimates of 3.1%. As crypto macro strategist Noelle Archeson pointed out, the Super Core Inflation, the Fed’s preferred measure of inflation, which strips out food, energy and shelter effects, also showed signs of acceleration. As a result, tradFi institutions are quickly adjusting their rate cut forecast from a June rate cut just a week ago to no sooner than Q3. The market is taking some time digesting the impact of the hot inflation print, as BTC initially held up well compared to the stock market but started a sharp selloff over the weekend, which was then exasperated further when the Iranian drone attack on Israel started.
Bitcoin’s dual value proposition as alternative store of value and a proxy to the crypto market is being tested this week. The inflation and geopolitical tension between Iran and Israel could help boost Bitcoin’s value prop as digital gold. However, lower rate cut expectations and worry of escalation of the Iran-Israel conflict are creating selloffs in risky assets overall. BTC briefly dipped below $62K after the drone attack, but came back to the $64K range on Sunday.
The macro headwinds have caused as much as ~10% selloff for the total crypto market over the weekend. We discussed previously how BTC experienced 20-30% corrections on its way to the last ATH. The total crypto market also experienced a ~50% pull back between its two peaks in May and November 2021. We don’t think the crypto market is heading back to winter, especially with thriving product development efforts in the Solana, Base and Bitcoin ecosystems. But the market could stay volatile and create opportunities for a better entry point for fresh capital.
On the fundamental side, with the halving in one week, many Bitcoin ecosystem projects plan to launch tokens or have major upgrades by that time, we are seeing a spike in the Bitcoin ecosystem TVL for a selected list of projects covered by DeFillama.
Map Protocol, a Bitcoin L2 aiming to serve as the interoperability layer between Bitcoin L2s and other chains had its TVL grow to pass $100M in a week, mostly driven by the incentive program on its Hiveswap DEX, showing the potential for Bitcoin L2 projects to attract capital.
We also see Ordinals inscriptions picking up again in April, with total ordinal inscriptions surpassing 65 million, futher indicating risk appetite picking up in the Bitcoin ecosystem.
Historically BTC tops when the realized HODL wave, i.e., the percentage of long term holders’ realized value is lower than 10%. We are currently at 40.6%. With the upcoming halving and the thriving BTC ecosystem, we think there is more room for BTC price to go up, before the Alt Season kicks in.
In fact, according to Blockworks, if the market follows historical cycle performance trajectory, we are about 30-40% into the bull cycle, with about one year left to reach the cycle top.
TradFi Update
We haven’t been providing many TradFi updates due to the numerous exciting developments in the crypto space. However, it’s worth noting that Blackrock has finally entered the tokenization arena with a big launch of its tokenized money market fund called BUIDL. There are 30 tokenized money market or Treasury funds on the market, but BUIDL stands out for two reasons:
BUIDL is the fastest asset gatherer with $291M in inflows within three weeks of its launch. Not surprising given Blackrock’s stature in the asset management industry.
Source: RWA.xyz
2. Circle has enabled a smart contract functionality that allows BUIDL holders a near-instant, 24/7 off-ramp to USDC. This makes it frictionless for protocol treasuries to manage their assets on chain. It’s important to note that the on-ramp process is still permissioned, as the fund is structured as a private fund open only to Qualified Purchasers.
There was also a notable development in regulation last week with the SEC issuing a Wells Notice to Uniswap. While we don't know the exact details of the accusations against Uniswap, we can refer to the August 2023 case when an SDNY judge established a legal precedent stating Uniswap as a open-source developer, should not be held liable for the actions of third party protocols listed on it. As we’ve mentioned before, considering it’s an election year and as more crypto related companies are prepared to challenge SEC in court, regulation remains the biggest risk to crypto.
DeFi Update
Solana developers quickly rolled out a fix for the congestion issue we reported on last week. Anza, the developer of Solana’s Agave validator, has released a new version of client software on the Devnet and has requested validators implement it on the test net and assist in analyzing its effectiveness. Our researcher @0xbenharvey has aptly linked the Solana congestion issue to numerous cars rushing to pass through a toll road simultaneously. Due to heavy traffic and the lack of a prioritization mechanism, even cars willing to pay a higher fee are unable to proceed through the congestion. The fix can be compared to installing a traffic controller at the gate, bringing order to the traffic based on their priority fees as they pass through.
According to the Solana Foundation, the congestion issue is a known technical debt that is slated to be addressed on their roadmap. The rapid growth in the Solana adoption has generated more transactions than the combined total of the rest of the top 15 blockchains. The congestion serves both as a stress test and a catalyst to speed up Solana’s technical development. We expect the fix to be in effect next week. If Solana can emerge from this crisis stronger, demonstrating that its high performance is sustainable, there is much growth potential ahead.
Top 100 MCAP Winners
Toncoin (+5.8%)
WhiteBIT Coin (+4.9%)
NEO (+2.9%)
LEO Token (+0.1%)
Tether (+0.0%)
Top 100 MCAP Losers
Wormhole (-54.5%)
CORE (-49.9%)
Uniswap (-44.3%)
SUI (-41.3%)
dYdX (-40.7%)
About Decentral Park
Decentral Park is a founder-led cryptoasset investment firm comprised of team members who’ve honed their skills as technology entrepreneurs, operators, venture capitalists, researchers, and advisors.
Decentral Park applies a principled digital asset investment strategy and partners with founders to enable their token-based decentralized networks to scale globally.
The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.
