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ByteFolio Update 55 | 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.
April was a flat month for crypto. Not even the failure of another US bank could drive prices out of the trading range we have been in for the last six weeks. For the time being there is a lack of leads, particularly as the market awaits central bank interest rate decisions. That said, the recent drop in the oil price, undoing all the gains from OPEC’s cut only a month ago, and several signs of slowing economic activity elsewhere will disarm the inflationistas. That’s probably good news for crypto. It’s hard to know whether central bankers are more terrified of inflation or deflation, but the latter plays havoc with the debt mountain that needs servicing. Any sniff of some sort of loosening and crypto should benefit.
Putting aside macro speculation, a more useful focus for longer-term investors is on adoption and usage. In this regard, the picture is broadly positive.
As far as bitcoin is concerned, the transaction count has risen substantially, as shown below. The average size of transactions, however, has reduced, but the fees have gone sharply higher. This means people are paying higher fees for smaller transactions. We suspect this is related to greater ordinals/NFT activity. It’s both good and not so good. Good because the network is busy, but not good because high fees tend to choke off activity. Still, a busy network is a valuable network. It also makes the case for scaling solutions, such as Stacks (STX).
Source: ByteTree Terminal
Source: ByteTree Terminal
In the case of ETH, we see fees have been steadily rising this year, and the long-term moving average is now starting to turn positive again. Again, this is healthy.
Despite all the new business activity, however, we see weakness in activity on the Polygon chain, both in terms of the number of transactions and the value of transactions. That said, note how the bottoming of the two-week moving average (Spend 2, blue (lower chart)) has coincided with good buying opportunities. MATIC’s recent price performance has been weak, but this comes after a stellar run at the start of the year, and, as reported in the MOVERS section, we continue to see positive developments. We’re still happy to own it for the longer haul, at this stage.
However, we can no longer ignore the weak price action of Chainlink’s token, LINK. Relative to both BTC and ETH, it has fallen to zero stars on ByteTrend. The market is trying to tell us something. The proceeds will be switched into BTC, which continues to dominate.
Source: ByteTree Terminal
Sell LINK to zero, switch proceeds to BTC
As mentioned above, we’ve seen transactions take off on the Bitcoin Network. They now stand at an all-time high. As seen below, the activity took off at the start of the year, with the news on Ordinals, a way of transcribing more data onto the blockchain. What some might have initially considered something of a fad has legs. We think it might be a sign that people are using Ordinals to build other apps (Mark found this one by way of example). It’s super-interesting because it expands bitcoin’s use case into far more than just a form of digital gold. It raises the potential that it becomes the security and settlement layer for a new smart contract and application ecosystem.
Franklin Templeton announced that its OnChain U.S. Government Money Market Fund (FOBXX) is now supported on the Ethereum blockchain through Layer-2 blockchain Polygon. According to the investment firm, this move marks the first time that a US-registered mutual fund has used a public blockchain to process transactions and record share ownership. The fund invests at least 99.5% of its assets in government securities, cash and repurchase agreements and aims to provide a steady income for its holders. The use of blockchain-integrated systems is said to offer operational efficiencies, increased security, and faster transaction processing.
Polygon has also announced a new partnership with Google Cloud that will help developers build and grow their Web3 products and decentralised applications (dApps) on their Ethereum-based Layer-2 blockchain. Google Cloud will be a “strategic cloud provider” for Polygon protocols, bringing its Blockchain Node Engine to the ecosystem, which will allow developers to focus on building on the protocol while retaining complete control over where nodes are deployed. Polygon President Ryan Wyatt said that the partnership with Google Cloud aims to increase transaction throughput, enabling use cases in gaming, supply chain management, and DeFi, and will pave the way for more businesses to embrace blockchain technology. Additionally, the partnership will help Polygon advance its zero-knowledge innovation strategy, potentially making transactions cheaper and faster.
ETH Staking Technology (DVT)
Following on from the Shapella upgrade, which enabled liquid staking, it’s worth reminding investors that the work doesn’t stop there. Next off the innovation pipeline is the idea of Distributed Validator Technology (DVT). It’s important because it helps address one of the concerns of the move to a Proof of Stake (PoS) consensus mechanism, namely that PoS was likely to make Ethereum more centralised by concentrating staking into a small number of giant pools. DVT mitigates this risk by, effectively, spreading the risk of a small validator being “slashed” because of, say, a power outage. In essence, a lot of the advantages that professional stakers enjoy versus private stakers will be removed. Furthermore, by allowing small holders to pool resources (the minimum staking amount is 32 ETH), it has the potential to further improve the resilience of the ecosystem.
Render Network (RNDR)
In our quest to find unique web3 projects that solve real-world problems, we stumbled upon the Render Network. This decentralised 3D rendering platform offers cost-effective, secure, and efficient rendering services for creators worldwide. The platform is powered by RNDR tokens, which allow global node operators to monetise their unused GPU computing power. This distributed network of nodes creates an infrastructure that can handle high volumes of rendering tasks at a fair cost. Render's distinctive approach to cloud rendering eliminates the need for costly hardware, decreases the costs for creators, and enhances security and privacy. It also offers seamless integration with 3D software and industry-standard rendering engines, making it accessible to creators of all levels. Moreover, RNDR scores a 5-star trend on ByteTrend relative to BTC, USD and ETH. You can read more about Render in our latest Token Takeaway.
On 3 March, the NEAR blockchain announced that it is officially transitioning into a Blockchain Operating System (BOS). BOS is aimed to allow users to frictionlessly discover and access all of Web3’s features and tools. With this transition, NEAR becomes more than just a Layer-1 blockchain, offering a more efficient and developer-friendly environment. Additionally, Monthly Active Accounts (MAA) on NEAR have increased significantly towards the end of 2022. To further boost its ecosystem's growth, the NEAR Foundation launched NEAR Horizon, an early-stage web3 accelerator, with the help of partners such as Dragonfly, Pantera, and Fabric Ventures. NEAR's transition into a BOS and its growing MAA indicate the blockchain's commitment to onboarding 1 billion users to Web3.
PancakeSwap's decentralised autonomous organisation (DAO) is close to concluding a community vote on reducing block rewards for CAKE tokens emitted by the protocol. Currently, nearly 58% of the DAO community is in favour of an "aggressive reduction". The proposal aims to move CAKE towards a deflationary model by slashing rewards paid to traders and stakers by over 68% and dropping CAKE emissions rates by 94%. The high inflation rate has been a concern for some time, and now the DAO has decided to cut emissions aggressively.
Regulation (Hong Kong)
At the end of February 2023, the Securities and Futures Commission (SFC) in Hong Kong released a proposal to regulate crypto trading platforms. The regulation would require all crypto trading platforms, including pre-existing ones, to apply for a licence to trade, making crypto fully legal for retail investors. The proposal followed a consultancy period throughout March, with the new licencing regime scheduled to take effect on 1 June 2023. It appears that this new regulation is on track, as the SFC announcedlast week that the crypto license guidelines would be released in May. This is a hugely positive step towards Hong Kong becoming a crypto hub in the East.
What’s an even more encouraging factor is that the proposed regulation is backed by Chinese state-owned entities and mainland Chinese institutions will also be able to take advantage of Hong Kong as a crypto hub. As mentioned in a recent ByteFolio update, China has had a complex relationship with crypto, having outright banned all digital assets in late 2021.
With the regulatory crackdown in the US, crypto institutions are now shifting their attention to more regulatory-friendly areas in the world. The EU’s recent approval of the MiCA bill has already drawn attention from companies like Coinbase. Additionally, yesterday it was announced that Coinbase is launching an international exchange, commenting that:
“it is committed to the U.S., but observed that countries worldwide are increasingly moving forward with responsible, crypto-forward regulatory frameworks as they attempt to position themselves as crypto hubs.”
Hong Kong looks likely to be next on the radar.