“That’s Our Two Satoshis” - Notes From The EthCC[7] Conference

Jeff Dorman, CFA
Jul 22, 2024

Thats Our 2 Satoshis Logo

Screenshot 2024-07-22 at 7.40.01 AM
Source: TradingView, CNBC, Bloomberg, Messari
 
Biden out / Harris In – Crypto Still Wins
The crypto selloff in the first week of July seemed to be a head fake, and we pointed out the many parallels between July 2024 and July 2021, including why July 2024 was likely to end positive despite the rough start.  That seems to be playing out after yet another double-digit rally last week.  Of course, 2021 had little to do with Presidential elections.
 
President Biden has officially dropped out of the U.S. Presidential race and has endorsed Kamala Harris.   After receiving several other key endorsements and a lot of donations, it seems likely that she will ultimately be the Democratic nominee.  Polymarket predictions betting markets currently price her odds at 82%
 
Source: Polymarket
 
The crypto reaction to the news was muted.  A very minor selloff occurred immediately following Biden’s announcement but recovered quickly back to the day’s highs.  Republicans, and therefore Trump, are still heavy favorites to win the presidency, and that has been viewed as very pro-crypto.  As our friends at Cumberland said in their weekly note to clients:
 
“The politics here matter.  BTC bounced hard last week, not just because a Trump presidency seemed more likely after the assassination attempt on his life, but also because it became clearer what a Trump presidency would mean for the crypto industry.  The nomination of JD Vance was probably the more significant headline for the crypto industry; he comes from a tech background and has close ties in the industry, and crypto is clearly on his radar.  Bitcoin has become a talking point of the Trump campaign, and Trump will appear this week at Bitcoin 2024 in Nashville.  This has even generated speculation that a Trump administration would create a US strategic reserve of BTC.  Even without an agenda specifically supportive of crypto, Republican success at the ballot box is being seen as supportive of crypto price.  Mark Cuban published a tweet highlighting that a Trump presidency would result in lower taxes, which would be inflationary and could trigger a repricing of BTC.”
But even if the Democrats ultimately win in November, the fact that it will not be Biden is also being viewed favorably.  As we mentioned many times, the Biden administration made one of the dumbest miscalculations in history, alienating 50 million or more American voters with their stance on crypto while winning no extra voters due to this stance.  Kamala Harris and the team must know this.  She comes from Silicon Valley, and it is likely that her running mate will be pro-tech as well.  And since it has become increasingly clear over the past few months that crypto will, in fact, be a swing-vote issue this fall, it is highly unlikely that Harris and company will stick with the Biden/Warren/Gensler party line that has caused so much turmoil in recent months.  The Democrats now have a chance to reverse some of the antics that have caused so much hatred toward them from the crypto community.  While this may not ultimately be enough to win, and there are many crypto folks who will never vote Democratic again after the past 4 years, there is a path here where Democrats do become more friendly.  
 
Regardless, it is pretty clear that crypto has already won, no matter what happens this fall.  It is absolutely on the main stage (figuratively and literally this week at Bitcoin Nashville), which is why the selloff in June and early July just simply made no sense.  While prices may once again get ahead of themselves in the short run, it’s pretty clear that momentum is on this industry’s side.  Oh, and the ETH ETF is launching this week too, and we continue to see a large rotation out of large-cap tech stocks and into small/mid-cap names. Exposure had been very light to small/mid-cap stocks due to the underperformance over the past nearly three years (similar to crypto). Still, as this risk-on tone changes, small-cap tech stocks and crypto will benefit. 
 
General Impressions from our trip to ETH CC 7 in Brussels
Arca’s own Michal Benedykcinski attended ETH CC in Brussels earlier this month, and came away with the following views:
 
  • ETH CC doubled in size from last year’s edition – 6,000 confirmed attendees with 500 side events. Yet again, most of the action was at the side events, so even though ETH CC sold out, the main venue was poorly attended.
  • The event felt less developer-heavy than ETH Denver, with a higher percentage of attendees in Business Development and Marketing or investors (i.e. VCs, family offices, institutional investors) mostly from Europe and Asia.
  • The theme of allowing attendees to experience seamless on-chain commerce persisted. Many event-adjacent vendors accepted hands-on Coinbase commerce for coffee or “phygital” sneakers/streetwear. There were faster check-out experiences with euro stablecoins via Stripe. 
  • There were still plenty of promising projects, with categories ranging from Stablecoin/RWA solutions for agriculture to mobile plug-ins for UI/UX abstraction to hyper-localized sector-specific DePIN plays.
In terms of narratives that seemed to be building momentum: 
  • Decentralized AI –It felt like every day was DeAI day, and it was definitely a theme that was in vogue among developers, investors, and regular conference attendees. These were heavily skewed towards decentralized computing (train models and perform inference), decentralized data (input to train models, augment generation, prompt inference, and fine-tune), and only very limited cases of consumer application builders were in attendance.
  • Stablecoins—This was arguably the second most popular theme throughout the week. Not only was Circle a big presence, but Stripe hosted dedicated workshops and gatherings, demonstrating its continued appetite to grow the segment to be ubiquitous. This track had the most engagement from European Parliament members who attended, showing a lot more progressive regulators on the other side of the pond.
  • Consumers—While all investors want them and are raising funds to build new consumer applications, hardly any builders are spending significant time on them, pointing to a major tension in the coming months. Will the newly raised capital flow to application builders or go back to infrastructure plays?  
  • DePIN—Emerging as a potential infrastructure play disguised as a consumer product, DePIN was very popular among investors. The founders who stood out came to Web3 with some real operational/ execution chops.
  • Node sales galore—So many private rounds recently closed in gaming, and DeAI is realizing they have no liquid funds on their cap table and are marching for slaughter with their upcoming token generation events. So now there is a rush to sell their projects to liquid funds to address the clear know-how gap and to generate real buying pressure once a token becomes publicly traded. 
Perhaps equally notable were the people and topics that were NOT present at ETH CC.  There was very little political engagement, which seemed like a lost opportunity given the proximity to the European Parliament.  While most politicians were vacationing in the South of Europe in July, it still seemed as if the organizers did not try to engage much.  Only stablecoin discussions had regulatory accents, but they were still sparse. Zero Knowledge did not feel like a particularly prime investor target elsewhere. Events dedicated to ZK had more somber tones as they realized time horizons to technology maturity are longer than everyone may have once thought. This may prove to be a cautionary tale for the current deAI craze, which is so reminiscent of ZKPs just a few years ago.
 

 

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
 
 
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