Adding to ETH

ByteFolio Update 59 | ByteTree's Crypto Leaders;

ByteFolio brings together ATOMIC, ByteTrend and Token Takeaway to create ByteTree’s model portfolio, known as ByteFolio. This is a selection of crypto tokens, which are weighted according to their risk/reward characteristics. ByteFolio has a modest turnover and will not suit traders. It will appeal to investors who wish to diversify beyond bitcoin, with the aim to beat it.

ByteFolio once again tracks sideways, as does the cryptosphere. News has been thin on the ground, although the US debt ceiling resolution generated some noise from the “money-printers go brrrr” brigade. Not that there was ever going to be any other outcome. Debt ceilings always get resolved because the alternative is calamity. Thank goodness for hard money to provide some sort of benchmark.

Trade in ETH

We have been closely monitoring the ETH/BTC cross, where a “flag” pattern has been clearly evolving. Because of the way that ETH is evolving, our suspicion is that this would break to the upside. So far, the signs are good. For this reason, ByteFolio will add 10% to the ETH position at the expense of BTC.

There are a few reasons for the improved fundamental view of ETH. First is that the fee picture has been strong, as you see from the rising 8- and 30-week moving averages (below). The amount people are prepared to pay to use any sort of facility is a good guide to its worth.

Second, the move to liquid staking has been an unqualified success. The activation queue length is now over 38 days, while the withdrawal queue length is just under six days.

Meanwhile, the rise in fees/network demand means more ETH is being “burned”. According to Ultra Sound Money, this makes ETH deflationary at the moment. In other words, more tokens are being destroyed than created.

The net result of all this is that, according to Staking Rewards, stakers can make an adjusted return of over 9% per annum at the moment. The adjusted rate is the annual reward plus/minus the deflation/inflation of supply. That’s a great return for those prepared to buy and hold, in theory. Unfortunately, you have to stake a minimum of 32 ETH (~US$60,000 worth) at the moment, which explains the popularity of platforms like Lido Staking (where they take a decent chunk of the underlying value).

Still, growing network activity, the strengthening validation model and higher rewards are all very positive for ETH holders.

At the moment, ETH represents just under 20% of the system value, with BTC at around 46.6%, according to CoinMarketCap. This move will reduce BTC’s weighting in the portfolio from 67% to 57% and take ETH from 27.9% to 37.9%.

Action:

Buy ETH to 37.9%, sell BTC to 57%.

Movers

Binance (BNB)

Binance, the world's largest cryptocurrency exchange, has paused deposits and withdrawals of British pounds (GBP) for new users. The move comes after Binance's fiat partner, Paysafe, announced that it would no longer be able to provide GBP services to Binance users.

Paysafe's decision is likely due to regulatory pressure from the UK government. The UK's Financial Conduct Authority (FCA) has been cracking down on cryptocurrency exchanges in recent months, and Binance is one of the exchanges that has been targeted. Binance has said that it is working to find a new fiat partner to provide GBP services to its users. The pause of GBP deposits and withdrawals is a setback for Binance, which has been trying to expand its operations in the UK. However, the exchange remains the largest cryptocurrency exchange in the world, and it is likely to continue to grow in popularity despite the regulatory challenges.

Shakers

Radix (XRD)

Radix is a Layer-1, smart contracts development platform particularly focused on revolutionising the DeFi industry. It aims to address the technological barriers that restrict the growth of DeFi by constructing a purpose-built, Layer-1 protocol designed to fulfil the long-term requirements of DeFi on a global scale for the next century. Its upcoming upgrade, Babylon, which is scheduled for launch in July 2023, will finally enable the deployment of Scrypto (Radix’s native programming language) code on the Radix network, bringing comprehensive DeFi capabilities to Radix. It’s an example of more specialised public blockchains, which makes sense but is nonetheless entering a highly competitive environment relatively late. However, it is definitely one to keep an eye on. You can read more about Radix and its native token XRD, in our latest Token Takeaway.

Worldcoin (WLD)

Worldcoin, co-founded by Sam Altman, CEO of OpenAI, is a project that aims to build a global network for identity and finance. Recently, in a Series C funding round led by Blockchain Capital, Tools For Humanity, the team behind Worldcoin, raised $177m, adding to their $100m fundraiser from last year. The project's objective is to create a Global ID powered by zk-technology, establish a globally distributed token (WLD), and develop a universal payments system. The funds raised will be utilised for bot detection, research and development, and expanding the project's ecosystem.

Worldcoin's approach has generated some concerns as it involves scanning individuals' irises using a small device called "The Orb" in exchange for tokens. The device captures an iris picture and generates a unique encoding called an "iris code," with the original biometric data immediately destroyed. For information on how Worldcoin works, have a look at Spencer Bogart’s (Blockchain Capital) recent article.

Despite some concerns from critics, Worldcoin has already amassed 1.7 million sign-ups from people worldwide. It is rare that a project yet to be fully launched has that many sign-ups, showcasing that people are eagerly anticipating Worldcoin’s launch, which is set for the first half of 2023.

Litecoin (LTC)

Like Bitcoin, from which it was hard forked, the Litecoin halving occurs every four years when the reward for mining a block of Litecoin is halved. This means that there will be less Litecoin available to mine, and the supply will collapse. The last Litecoin halving occurred on 10 August, 2019, when the price was pretty much where it is today. Bitcoin, in the meantime, has risen three-fold. It’s a classic example of the virtues of buying and holding the highest quality assets in this space.

The next Litecoin halving is expected to happen on 4 August, 2023. There has been talk that it would be a good trade ahead of the event, much as has been the case with BTC in the past. It worked to an extent in 2019, but disappointed thereafter, and in our view it’s a pretty low-quality punt in this market. In terms of usage and adoption, the fundamentals are nothing to write home about. As illustrated above, the fees have gone nowhere in five years. Avoid.

ByteFolio Performance

ByteFolio Asset Allocation