The Market
Bitcoin had a bit of a roller coaster ride last week as it dipped below $39,000, the lowest level seen since December, and then bounced back to $42,000 on Friday. On the surface, the volatility seems to be driven by spot ETF flows, as GBTC bleeds more than $500M a day since the spot ETF approval, causing net outflows earlier last week, despite record-setting inflows into other spot ETFs. The outflow seemed to slow down on Friday, resulting in a positive net inflow again into the spot BTC ETF suite. As we mentioned in the previous week, real institutional money that can drive substantial inflows to the spot BTC ETF will come slowly as the ETFs becomes available on additional platforms.
The encouraging macro data reported last Thursday could be a bigger driver for BTC price support. The US 2023 Q4 GDP came at a blistering 3.3%, far exceeding the street’s expectation of 2%. In the meantime, Core PCE inflation is below 2% on a 6-month annualized basis, indicating robust economic growth has not increased inflation, which is very encouraging. While it’s widely anticipated that the Fed will keep rates unchanged in next week’s FOMC meeting, we will have more color on their outlook for monetary policy in2024. The futures market is assigning a 99.5% chance of a rate cut by June 2024, which we think is likely barring any inflation shocks. Adding to the encouraging macro backdrop is the monetary policy decision from China. They announced last week a bigger than usual rate cut of 50bps as well as reducing the reserve ratio requirement for banks.
From a technical perspective, the $4.5B BTC option expiration last Friday might have helped drive the price to the max pain point of $41,000. BTC has its highest volume profile between $42,000 and $43,000 since the spot ETF launch, we expect $42,500 to be a critical resistance level to watch as the market readjusts its expectations for BTC performance with ETF flow and macro data.
According to Crypto.com’s recent research report, there are 580 million crypto owners, equivalent to ~8% of the world population, indicating 5.8X growth from January 2021 when crypto owners first crossed the 100 million mark. Note this estimation is based on on-chain data only. We expect the spot BTC ETF will bring more mainstream investors into crypto, without the need to set up their own wallet. We are not particularly worried about TradFi taking over crypto as some people feared, given we consider the ETF as the best educational tool for mainstream investors to learn about crypto by putting their own money at risk and being forced to educate themselves on how blockchain can change how we do business in the future, just like how I went down the rabbit hole from my TradFi seat in 2017.
DeFi update
Solana has just introduced the “Token Extension” feature, adding powerful functionalities at the base protocol layer without imposing a burden on the developers and the existing ecosystem. We believe this will significantly boost Solana adoption. Why?
Customization
There are 13 extensions currently available. They allow developers to customize at the token issuance level (mint extension) and the account level (account extension). For example, “Transfer Hook” allows calling specific programs with each transfer, enabling, for example, compliance logic on token transfers. “Permanent delegate” allows unlimited delegate privileges over any account for a mint, which could be used for permissions. “Confidential transfers” allow confidential transfers between users without revealing the amount of the transfer, which adds to privacy. “Transfer fees” enables fee logic on each transfer, similar to how account abstraction works for Ethereum. Think of this development as permissioned blockchain + account abstraction + privacy together, and you'll understand how powerful they can be.
Enterprise use case
Token extension allows users to build permissioned tokens on a permissionless blockchain without compromising security or scalability. It’s ideal for enterprise use cases and addresses the issue of siloed enterprise/private blockchains many Web2 institutions were deploying. Instead of relying on interoperability solutions to bridge across different chains, permission can be implemented at the token logic level rather than at the blockchain level. The end result allows enterprises to build their own compliance logic and permission level, while enjoying the security and high performance of the Solana blockchain.
Ease of development and integration
Since the extensions are built into the core protocol layer, devs can easily create customized tokens with advanced functionalities without having to write bespoke code. More importantly the tokens will automatically be supported by existing wallets and other Solana protocols without having to ask for additional permission. We think this will drastically reduce development time and allow developers to roll out faster pilots and reduce testing and auditing costs.
While everyone is focusing on the price action of Solana, we appreciate the team’s continuous focus on shipping functions and product improvements. We consider Token Extension as a critical improvement to help Solana gain market share, especially in institutional use cases.Solana has built a loyal community of individual developers and users due to its best-in-class technology and polished user interface. With Token extension, we see great potential for institutional adoption that would drive Solana's TVL to the next level. We already see stablecoin issuers such as Paxos and GMO Trust using this functionality.
As Ethereum puts the modular infrastructure to the test, we think Solana's monolithic approach and killer UI will continue to win market share. Not to mention, Firedancer could improve the chain fundamentals by multiples. We prefer Solana's design approach by owning the vertical stack, allowing parallel execution and providing a selected set of critical functions at the base protocol level to enable powerful development by users. Ethereum's modular approach gives users many choices but is also open to liquidity fragmentation and costly user acquisition. We believe that with Solana's simple but elegant approach, better UI experience, and unified liquidity, there is a real chance for Solana to surpass Ethereum in this cycle.
Top 7d Gainers and Losers
Top 100 MCAP Winners
Manta (+59.57%)
SUI (+26.57%)
Helium (+21.93%)
Ronin (+15.83%)
Fras Share (+12.36%)
Top 100 MCAP Losers
ORDI (-15.04%)
WOO (-11.26%)
Chainlink (-8.9%)
Toncoin (-8.22%)
Ethereum (-8.20%)
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.