Source: TradingView, CNBC, Bloomberg, Messari
The Newly Launched ETH ETFs
The equity drawdown and violent rotation out of big tech pushed the Nasdaq down -8% from its July 10th peak. While crypto has not been immune to this move, it’s certainly holding up better than expected, given the magnitude of the equity move. Part of that resilience was due to the Bitcoin Nashville conference. Many short-term speculative longs and call buyers looked to catch a move higher around Trump's speech Saturday but did not succeed. While short-term traders were disappointed, Trump's speech was objectively very bullish. Trump announced the U.S. would have a 'strategic national Bitcoin stockpile and that billions of U.S. government-owned BTC would not get sold. Trump also announced he would remove SEC Chairman Gary Gensler if elected, which led to a small positive reaction in DeFi tokens. In terms of volatility markets, this was yet another 'event' that was over-implied and under-realized.
Outside of the Trump speech, most of the week revolved once again around ETFs. The newly launched Ethereum spot ETFs surpassed expectations. Combined, the BTC and ETH ETF launches this year have been the
most successful ETF launches in history. By volume, these ETFs have performed in line with the upper range of expectations, as the new ETH ETFs saw $1.1 billion in trading volumes on Day 1 (roughly 20% of BTC ETF day 1 volumes), resulting in $107 million of net inflows (inflows into Bitwise, Fidelity, Blackrock, Van Eck, et al was offset by $484 million of outflows from Grayscale's ETHE Trust).
The price of ETH is following a similar downward trajectory as BTC in the first days since ETFs were launched. BTC traded down for 2 weeks post-ETF launch (roughly -15%), and then rose roughly +90% in the months that followed. If you expect ETH to do something similar, we could be looking at all-time highs in a few months.
Source: TradingView
We mentioned many times over the past 6 months that the newly launched BTC and ETH ETFs were a
double-edged sword. On the one hand, it’s a necessary step towards increased adoption and awareness for investors. On the other hand, it’s a giant step backward in terms of moving to an on-chain world. Further, it is sucking all attention and volume away from other areas of the crypto market. The past few weeks have been eye-opening for the rest of the digital assets market, which is suffering from major liquidity crunches. The lack of liquidity has ripped the band-aid off of underlying problems and exposed some oft-overlooked themes.
The Arca research team has seen a few notable developments across both the public and private markets recently:
- Bitcoin Ordinals feel like high risk / high reward at present. The BTC Nashville conference last week highlighted some of the bullish undertones, as well as the large amount of infrastructure being built out to support this growth. One project we like is Oyl Wallet, a Bitcoin wallet designed to enable seamless trading of Ordinals, BRC-20, and Runes all within the wallet.
- Meanwhile, sell-side dynamics continue to shift and churn, given the market uncertainty in the 2nd quarter, which has bled into the 3rd quarter. Sell-side research shows that over $250 billion in alts (nearly 40% of the entire alt market cap) will be unlocked over the next three years. A few notable unlock delays recently have come from XAI Games (XAI) and Worldcoin (WLD). While this does little to help the demand side of the equation, it alleviates some downside pressure and shows a willingness of teams to do right by investors.
- There is growing resentment regarding node sales. The ICO replacement aims to sell pass-through token instruments to the public, get a token in the hands of liquid participants, and grow KPIs via node deployment in tandem. Unfortunately, these are typically half-baked and low-effort. As we’ve written about recently, the new issue market is completely broken, and changes need to be made.
There is a strong desire for consumer decentralized applications (a broad term). L1s have ecosystem funds used to incentivize KPIs on the chain, and VCs have a good story to pitch on investing in dApps to substantiate the infrastructure investments of the last vintage. This really isn’t a desire problem. It’s a product problem. Good products take time to build and require stable infrastructure, which has only been true for the past year or so.
- Gaming is picking up some traction in closed circles as teams are doing QA tests. Our research team has tested and enjoyed many games over the past few months, and Arca Gaming and NFT Portfolio Manager, Sasha, Fleyshman, dives deeper into this sector
Web3 Gaming is Moving Faster Than Many Know
Written by Sasha Fleyshman, Portfolio Manager at Arca
I've played more Web3 video games in the past few weeks than anytime prior. Operators like YGG Esport, WolvesDAO and Moku have been driving users to new games, and I think it's time to wake up and smell the roses. Some of the games we’ve played include:
- My Pet Hooligan – fantasy Action Shooter
- Parallel - TCG
- The Machines Arena - Top down 3PS
- Immortal: Gates of Pyre - RTS
- Bornless - Horror FPS Extraction
- Illuvium - Open World plus autobattler
- The Mystery Society - social deduction
Gameplay has significantly improved over the past 18 months. Gone are the days of GameFi skinned DeFi apps, and instead, true games with solid game loops are entering the arena. Users are the linchpin in gaming in general, but even more so in Web3 gaming. It is crucial to get early users. Many games at this stage are built by first IP, pre-product, and startup studios. This is an enormously high mortality industry, and without the proper buildout of traditional publisher pathways, grassroots efforts are key.
We’ve noticed that many games are suffering from empty lobbies. This is not a criticism of gaming protocol companies like Ronin, Immutable, Avalanche Solana, and others, though. These protocols serve as the liaison in a new gaming sector devoid of traditional publisher pathways. Currently, they act as an incubator, service provider, and marketing agency. They also provide cap intro, business development connectivity, and, in general, act as the 'fixer' to many of the problems an early-stage startup faces when trying to go to market. This is very valuable. Over time, there is hope that distribution will also fall under their purview.
Web3 gamers and web2 gamers have a very small overlap. We've seen this manifest into "web3 gamers aren't gamers". But this is not true. It comes from the true observation that what makes web3 games tick is not the same as what makes web2 gamers tick. It requires a multi-pronged approach:
- Web3: token/asset utility, product design, social influence, sources/sinks, brand, 'bigger picture'
- Web2: Server load, UX/UI, gameplay loops, replayability, lore, 'dopamine drip'
Fragmented UX/UI has been a detriment to gaming for a while. Having to download Testflight apps and PWAs, as well as .exe files, has been a barrier. But now, games are found on Epic Games, Steam, App Store, and chain launchers. This is a win.
Games face a tough situation. They want to mobilize their web3 base, which typically requires a token launch and/or some web3 asset activation. However, this muddies the KPIs, making it hard to discern where your 'natural KPIs' come from and who is just there for the 'work'. Games that want to go to market with no incentives and stand behind their gameplay/product lose some web3 interest but don't necessarily gain web2 interest. They are already cautious about entering our landscape (pre-existing biases – some founded, some unfounded). The best token launches in gaming historically came from organic gameplay, with a token dropped only after product market fit was found. I find this to be the highest success method, but it requires a slower product rollout, which some can't afford.
There will be many success stories in gaming over the coming years. Projects are quick to latch on to a model that was successful for another (P2E, P2A, etc), but I don't think it's one size fits all. Find what fits your community and drive your own models.
The best post-launch gaming assets in this space seem to have one commonality… they constantly communicate with their user base. Behind the scenes, user engagement, lore, and culture are how you build a sticky core user base.
