“That’s Our Two Satoshis” - A Running Diary from ETH Denver

Jeff Dorman, CFA
Mar 4, 2024

Thats Our 2 Satoshis Logo

Screenshot 2024-03-04 at 10.51.23 AMSource: TradingView, CNBC, Bloomberg, Messari
Continued inflows = more numbers go up
BlackRock's Bitcoin ETF (IBIT) topped $10 billion in assets after only 37 days on the market; the fastest ETF to reach this milestone. Trust me, I don’t want to talk about the Bitcoin ETFs anymore either, but they are just so damn impressive that it’s hard to avoid.  As Eric Balchunas of Bloomberg reported, IBIT only makes up 0.2% of BlackRock's ETF lineup but now accounts for 42% of its net flows this year.  Similarly, FBTC makes up only 2% of Fidelity's ETF lineup but has accounted for 64% of its net ETF flows this year. The numbers are just downright silly.
On January 16th, we wrote: 
“Wall Street, to date, has been largely unable to profit off of blockchain’s growth and success. They write research, they trade a few crypto stocks here and there, and earn a few advisory fees on bankruptcies and IPOs, but for the most part have not been able to participate in the profits.  The ETF is at least a step in the right direction in terms of focus and attention.  And once they get a taste for the excitement and revenue potential, the real growth can begin.”
And that was assuming all of Wall Street immediately participated in the new ETFs.  Yet, many large asset managers and RIAs decided to sit out the initial days of the Bitcoin ETFs. That turned out to be a huge business mistake.  Naturally, Bank of America, Merrill Lynch, and Wells Fargo all came to their senses last week, announcing that they will begin to offer these products to their wealth management clients.  And more are likely to follow.  Dogmatic stances fall pretty fast when profits are available. 
Amidst this continuous bid for spot Bitcoin, it’s hard to be bearish.  Yet some continue to try.  During Bitcoin’s 22% run higher last week, traders attempted to short BTC at $55,000, adding fuel to the fire as they were quickly liquidated and forced to cover when the market marched higher.  Volatility rose along the way, as offer-side liquidity evaporated when BTC tagged $64,000, and then just 20 minutes later, fell to $59,000 as levered longs were washed out.  But even on a flush-out like that, the bids were relentless.  There are signs that retail is getting more engaged too, as the Coinbase app crashed last week amidst 10x more activity than normal. This was a frequent occurrence during the 2021 bull market. 
While all of the inflows have been into Bitcoin, the rest of the industry is also heating up quietly.
ETH Denver was a smashing success, too
Several of Arca’s research and portfolio team members recently attended ETH Denver 2024.  We’ve attended this event in years past, and each time, our team has reported on the themes and trends that they felt were most likely to permeate the broader market. 
The sprawling format of the ETH Denver hackathon and conference and hundreds of side events, workshops, and meetups make it impossible for even the most ambitious attendee to do it all.  We were fortunate to have our portfolio team in the trenches of Mile High City, and their account gives us a sneak peek at developments shaping the crypto industry in the coming months.
Katie Talati, Arca’s Director of Research, and Michal Benedykcinski, Senior Vice President of Research, summarized the event as follows:
ETH Denver has evolved from a niche developer conference to an all-encompassing industry festival in the seven years since its inception. It became unmissable for those seeking to catch up on the latest trends, get ahead of new product announcements, and connect with leading projects pushing blockchain's social and technological boundaries. This year’s edition eclipsed the attendance record of the prior year with a reported 20,000 hackers, builders, investors, and crypto enthusiasts.  Although attendance was high, it still isn’t as corporate as Consensus (argubly crypto’s largest conference), where you see people in suits walking around, and a plethora of service providers.  That said, we noticed many more TradFi attendees from large firms such as Fidelity, Franklin Templeton, and Blackrock. 
Gone are the days when ETH Denver was an exclusively Ethereum Mainnet-focused conference. Billions of dollars have poured into infrastructure investments over the last decade, and the 300,000 square foot venue with adjacent arena was bursting at the seams with booths from new scalability solutions, zk projects, oracles, and wallets, among other infrastructure projects. Perhaps most notable compared to the prior year’s edition was a rather conservative décor of booths with less swag and prizes for the attendees. This points to a rationalization of marketing spend, but also, perhaps the rapid turn in the market caught most teams off guard. The conference was mostly planned when crypto was still in a bear market, so many top projects weren’t prepared for such a fast turnaround. 
The mood was electrifying, and the prevalent optimism was noticeable among industry vets and newcomers alike. Welcome newcomers with a noticeable presence were BTC-focused builders and investors, who had their parallel track pointing to a renaissance of activity on top of the asset that started it all.
AI Craze
It’s been just over a year since the public launch of Chat-GPT, and the intersection of crypto and AI (artificial intelligence) was on full display at ETH Denver. The sheer number of AI-specific events and workshops dwarfed other big themes. The convergence of crypto and AI holds a great number of promising use cases:
  • Smart contract audit automation for spotting and patching security holes
  • Cryptographically establishing data provenance and keeping deep fakes at bay
  • Securing data privacy ingested by large language models
But many projects combine AI and crypto superficially or are simply opportunistic pivots to appeal to an undiscerning investor.  Some of the most ambitious use cases that caught our attention were those integrating AI inside the crypto tech stack. Smart contract developers will access truly open and permissionless AI models on-chain, paving the way for a wide-ranging innovation we haven’t seen to date and already being pioneered by projects like Bittensor (TAO). In the more immediate future, AI integrations are already improving the speed and security of coding smart contracts and we see them as important innovation enablers. Similarly, crypto has a lot to offer AI from incentivizing data collection and training of AI models to scaling encryption in a privacy-preserving manner. The scarcity of AI talent in crypto remains one of the biggest hurdles. 
Talk DePIN to Me
Decentralized physical infrastructure (DePIN) made its thematic debut at ETH Denver, with a full day’s worth of talks and workshops. Many projects graduated to a full exhibit with live demos during the main show later in the week. It was one of the fan-favorite categories discussed among builders and investors alike. Leveraging existing physical infrastructure makes these products much more tangible and the value proposition less elusive. Whether it’s incentivizing users to set up mobile hotspots (Helium - HNT), mapping your neighborhood while driving (Hivemapper - HONEY), or sharing your spare computing power (Render - RNDR), many of the projects revisit the peer-to-peer ethos of the space while often giving new purpose to otherwise idle resources. Some of the early projects in this category will likely lead the charge for raising consumer awareness of what new types of services can be enabled by crypto primitives. If you would like to learn more about the projects mentioned above or get a quick primer on DePIN, visit our DePIN resources page
The swell in investor interest in DePIN has also reinvigorated some of the incumbents at the infrastructure layer, most notably decentralized storage projects like Filecoin (FIL) and Arweave (AR). The latter timed their announcement of AO during the conference and teased their aspirations of going beyond pure permanent storage provision to a more programmable operating system.  Naturally, AR was one of the best-performing tokens last week, with a +90% week-over-week gain.  
One subcategory of DePIN we’ll be tracking very closely this year after seeing some product demos are decentralized compute projects that have an opportunity to scale significantly should they be able to support the power-hungry workloads of AI-model training.
DeSci Experiments
Denver also explored the pillars of decentralized science - from community and culture, to novel funding mechanisms. While not as popular of a theme among investors, judging by the attendance, we were inspired by the wide-ranging participation from academia, biotech, and pharmaceutical industries, who were engaged in a five-day marathon of panels and workshops. Some more thought-provoking discussions examined how decentralization empowers new models for data access, compute resources, and open science publishing. We heard about the first fully funded DeSci DAO study and learned of recent R&D breakthroughs made possible by novel economic mechanisms. Some up-and-coming areas of development are uniquely suited to the decentralized approach that DAOs enable, such as treatments for conditions that do not require FDA approval  (i.e. hair loss). The ability of a DAO to bring individuals with a vested interest in finding the cure could unlock a new model for funding, testing, and development. Big pharma is already taking note of the potential of decentralized research as the vast majority of funding earmarked for R&D is tied up in development alone. One of the areas where researchers and DAO contributors had big hopes was a convergence of DeSci (funding) x DePIN (storage) & ZK (privacy) in solving the medical data bottlenecks. That’s a multi-billion dollar opportunity that crypto primitives are uniquely positioned to unlock.
Elsewhere, our team noted that DeFi might be hated as an investment, but it’s still alive and well as a product suite. We were encouraged to realize how many people are still working on DeFi projects and are excited about DeFi solutions, considering the market has been pretty barren for new projects and new money. Liquid staking/restaking is obviously a big beneficiary of this.
Real World Assets (RWAs) projects seem to be trying to move away from tokenized T-bills, as there’s still a lot of appetite in this realm to bring off-chain assets online. It seems like we’ll see more of this shift, and we should welcome it as a positive innovation to bring more dollars into the space.
Regulation was not as talked about as it was in 2023, and instead, a focus on UX.  Although we haven’t seen any tangible solutions in action yet, projects and investors we spoke to seem to realize the UX in the space is a problem and something that needs to be tackled ASAP. 
Anecdotally, we spoke to 4 people who just left their jobs to start a crypto fund from scratch. While perhaps naive as to how much work it is to do this, it is clear that there is an appetite to fund new ventures.  Many funds are scrambling to put money to work before the market moves too much higher, while those just launched are praying for a flushout.
All told the Arca team found the conference constructive, more than “fun”. It's worth noting that people seemed to be fully engaged in the conference since it marks the beginning of a bullish market, and everyone was eager to generate alpha and outperform their 2021 profit and loss targets. 


And That’s Our Two Satoshis!
Thanks for reading everyone! Questions or comments, just let us know.

The Arca Portfolio Management Team
Jeff Dorman, CFA - Chief Investment Officer
Katie Talati - Director of Research
Sasha Fleyshman - Portfolio Manager
David Nage - Portfolio Manager
Wes Hansen - Director of Trading and Operations
Michal Benedykcinski - Senior Vice President, Research
Nick Hotz, CFA - Vice President, Research
Kyle Doane - Vice President, Trading
Alex Woodard - Associate, Research
Christopher Macpherson - Research Analyst
Andrew Masotti - Associate, Trading and Operations
To learn more or talk to us about investing in digital assets and cryptocurrency
call us now at (424) 289-8068.

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