Source: TradingView, CNBC, Bloomberg, Messari
This week’s edition was written by Katie Talati, Head of Research at Arca, and Christopher McPherson, Analyst at Arca
Hawkish Fed and OG Whales
Price action was lower last week, almost universally across digital assets. Mixed earnings from tech giants, a slightly hawkish Fed (despite an expected rate cut), and continued selling from some of crypto’s OGs were enough to weigh further on an already skittish market. Last week, we wrote about the changing of the guard in crypto —from cypherpunks and young developers to Wall Street’s behemoths, signalling a bit of a maturation. Jordi Visser took this idea one step further, arguing that this transition is similar to an IPO, as early founders and investors cash in as new investors step in.
Anecdotally, the large selling from Bitcoin whales is a good example of how this market is changing. Five years ago, the big Bitcoin miners and OG whales would load up on puts, then start dumping Bitcoin, knowing that wallet tracking and the price impact from their selling would make them a fortune on their puts before they bought it all back. Today, OGs sell billions in a clip, and the price of BTC barely moves. That’s actually the bull case. The Bitcoin market is much bigger and more diversified now, so the old tricks don’t work anymore.
Granted, it also means legacy crypto native traders and investors have less edge, because none of us really understand what drives Bitcoin price action anymore, which likely leads to the dichotomy in sentiment (i.e. new buyers over the moon bullish, and old traders sad and depressed). Bitcoin is simply no longer part of “crypto”. It has graduated. Most people just don’t want to admit it, especially businesses that rely on Bitcoin as a unique asset.
The bigger problem is that the other areas of crypto outside of Bitcoin are either awful assets (no value capture whatsoever), or are great assets but don’t go higher because they are not being pitched/sold correctly. The areas that are awful still get too much attention because retail traders and even some funds still hope they can catch lightning in a bottle, and once in a while it actually works, so they keep trying (see ZEC most recently). Whereas the areas that are actually producing a tremendous amount of value can’t attract enough capital or interest to truly outperform the market because the gatekeepers (largely exchanges) would rather peddle misinformation than build a smaller, but more robust secondary market of real assets. This industry would likely be 1000x better if Robinhood or some other broker just focused on the best-in-class assets (like HYPE, PUMP, BNB, and some DeFi projects) and even some other projects that are actually unique (like a TAO or certain DePin assets). Unfortunately, so much of this industry has hitched its persona and/or business model to VC-backed trash, dinosaur coins (like XRP, XLM, LTC, BCH), and the um-teenth dead Layer 1, making it impossible for them to pivot. Take PayPal, for example, which still only offers 4 assets (BTC, LTC, BCH, and ETH, and more recently added LINK and SOL).
As a result, this maturation process isn’t evident in price action across the entire industry, as the market continues to fail to differentiate between assets in the short-term. There just isn’t a deep enough liquid token investor base to differentiate during periods of broad selling or broad buying in short-term intervals, especially when market makers move all assets together. However, there is quite a large dispersion in price action over longer periods of time, and this dispersion would be even greater if the gatekeepers focused more on investor education.
The New ETFs Are a Double-Edged Sword
Meanwhile, crypto continues to move two steps forward and one step back as digital assets are equitized. ETFs are a double-edged sword. On the one hand, crypto ETFs attract more capital from non-crypto-native investors and bring crypto into everyday mainstream investing conversations. On the other hand, jamming a T+0 real-time settlement instrument with features far superior to stocks into an antiquated T+1 ETF box isn’t really moving crypto rails forward. Almost every discussion in the market now focuses on the ETF flows and DATs. These ETFs are sucking all human and financial capital away from the rest of the market.
The latest wave of crypto ETF launches occurred last week, with the first spot crypto ETPs debuting following the SEC’s approval of generic listing standards in September. The launches reflect a direct benefit of the new listing framework, which enables national exchanges to list qualifying spot crypto and commodity-based ETPs under standardized criteria, streamlining the path to market for eligible assets. Issuers also leveraged the SEC’s procedural guidance, which allows registration statements to become effective automatically after a 20-day waiting period, provided the delaying amendment is removed.
Amongst last week’s ETF launches was the long-awaited launch of the first spot Solana ETF with staking, along with the opposite of “long-awaited launch” for HBR and LTC ETFs. Bitwise’s BSOL attracted $116 million in inflows in its first week of trading, while the HBR and LTC ETFs showed little activity at all, with zero flows on day 1 and only a few million dollars worth of flows thereafter. The takeaway is obvious - an asset with no demand does not all of a sudden create demand simply because it gets repackaged into an equity shell. Still, an asset with some demand can be jump-started by targeting the equity buyer base.
Though it’s worth noting that SOL still underperformed the market last week.
Source: Coinbase
Token Holder-Friendly M&A
A common criticism of crypto is that token holders have no rights, compared to stocks. We have, of course, rebutted this claim numerous times over the past 7 years, showing countless examples of tokenholders using activism, governance, and social pressure to exercise their rights, as well as examples of founding teams simply doing the right thing because they are aligned with tokenholders. Yet this negative misperception persists, even though we just saw 2 more examples last week.
Pump.Fun (PUMP) made its first acquisition, funded by its $1 billion+ corporate treasury (which has grown both due to organic cash flows and its PUMP token raise earlier this year). The acquisition was for an advanced on-chain trading platform called Padre. At the time of the announcement, the PADRE token had a market cap of about $5.5M, a tiny microcap compared to Pump.Fun’s war chest and market cap. The PADRE token rocketed higher immediately by over 2x in a few minutes, but then crashed down by -90% because there were no details on how PADRE holders would be recognized in this transaction. PADRE holders and the crypto community at large slammed Pump.Fun and the Padre team for failing to protect PADRE token holders during the transaction. As expected, Pump.Fun came out two days later, saying they had taken a snapshot of all Padre holders just before the announcement (a very cool feature of blockchain record-keeping) and that each holder would receive an equal amount of PUMP tokens in USD. A couple of interesting takeaways from this event:
- PADRE holders ultimately gained in value, as they were made 100% whole and could liquidate their PADRE holdings for additional benefit.
- Dilution via inflation from incentives and token unlocks destroys 95% of tokens. But dilution can be value-additive when selectively deployed for growth, much like public equities issuing new shares for growth initiatives.
- Foundations for L1 and L2 tokens, which typically have massive treasuries, should consider acquiring products that are already well-loved rather than giving grants frivolously to pre-product/seed-stage teams.
Good move by Pump Fun, great outcome for PADRE, and another example of how aligning tokenholders with founders and the long-term growth and health of an entity protects token holders a lot more than Delaware Law and the courts.
Similarly, this past week, Clanker, a token launchpad on the Layer-2 Base, was acquired by Farcaster, Base’s preeminent on-chain social media platform. Details around the acquisition are sparse; however, going forward, all fees collected by Clanker will be used to buy and hold the CLANKER token. In addition, all CLANKER previously collected through fees were burned, and the Clanker team’s own token holdings are locked in an LP pool to increase token liquidity. Farcaster does not yet have a token (although one is eventually expected), so the terms of the final deal may not yet be finalized. Last month, Clanker also received an acquisition offer from Rainbow Wallet, which culminated in the Clanker team publicly repudiating the deal. The CLANKER token rose 120% since the acquisition announcement.
Again, another great outcome for token holders via M&A, despite the lack of formal rights or courts.
Of course, there was barely any coverage of these two events, as naysayers would like to pretend still that laws cover you better than common sense and alignment.
