Crypto Equities On A Rampage. Will It Stop?

The corporations are coming I BTC ETF inflows | DCG valuation doubles | Solana Mobile Chapter 2

Author

Decential Media
February 16, 2024

Decential Media
A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

  • The corporations are coming

  • Crypto equities

  • BTC ETF inflows

  • DCG valuation doubles

  • Ripple acquires Standard Custody

  • Solana Mobile Chapter 2

Hey Everyone! We have a new email newsletter called The Beat that can be delivered straight to your inbox with all the latest about where music meets web3. You can subscribe here.

The Latest

The corporations are coming

When I first started writing about blockchain in 2015 a credible debate was being had over whether a private network could succeed in the way the public Bitcoin and then Ethereum blockchains had succeeded. A public chain is supported and maintained by mostly pseudonymous people and organizations with the chain’s output there for all to see. In a private system, all parties are known to each other and trusted to be part of the network; its output is for the members only (most likely to shield bank and customer trading activity.)

That debate has been pretty decisively won by the public blockchain folks, and one long-time advocate of this approach has been Paul Brody. He’s been the global blockchain leader at the consulting giant EY since 2016 and I distinctly remember interviewing him for my book Out of the Ether due to his early and staunch advocacy for corporations to use public chains like Ethereum. In 2019, when we had this conversation, that was not a popular belief on Wall Street or in other C-suites that were hip to the chain.

So this is all to set up what Paul told me earlier this week. And let me say here right up front, I am as wary of touting the next big blockchain breakthrough as the next crypto hack. I want to see what’s built, what’s being used and what people want from this tech, not necessarily another promise that the industry’s breakout moment is just around the corner. It doesn’t feel early if you’ve been following this space for nine years.

But anyway, as Paul said, many of his biggest clients are building applications that will utilize the public Ethereum blockchain but shield their transaction details using a high-falutin’ cryptographic technique called zero-knowledge proofs. These proofs allow a transaction to be verified as accurate without revealing anything about the underlying details, thanks to the “mind boggling” cryptographic tricks used, Zooko Wilcox, the man synonymous with ZK proofs, told me in 2017.

This bodes well for the future of Ethereum and for all of defi and web3 tech. Brody made clear these projects aren’t something we’ll see this year, but they are in the works. The lack of privacy has always been both a boon and a bane on blockchain, but if giant corporations are finding ways to utilize Ethereum yet retain privacy that’s a development we should all be cheering. – Matthew Leising, editor in chief, Decential Media

Quarterly earnings dept.

Crypto equity earnings

Crypto equities have been on an absolute tear. It’s almost as if Wall Street didn’t realize that we’re already well into a bull market and that the spot BTC ETF approval was the most positive catalyst ever. One notable crypto equity that has significantly outperformed is Cleanspark, which is up roughly 100% in the past week. The main reason for the outperformance? Their Q4 earnings announcement on February 8th.

The Bitcoin mining company’s quarterly revenue increased from $27.8M to $74.8M YoY, representing an increase of 165%. Net income rose from $-29M to $25.9M YoY, and EPS jumped from $-0.46 to $0.14. Adjusted EBITDA came in at $69.1M from $-2M YoY. To say this was a small earnings beat is an understatement. EPS beat by 158% on the back of significantly lower costs. It’s evident that Wall Street sell-side equity analysts are asleep at the wheel again. This one was as obvious as it gets.

We mentioned recently that Cleanspark has made some significant mining infrastructure investments, with their mining capacity now up to 12.5 EH/s. It also has a strategic call option to purchase 160K Bitmain S21 miners to get to 50 EH/s. A rising tide lifts all boats, which is very much what happened with other crypto miners, who rallied from 30% to 50%. I expect this to be the beginning of a wider rally as BTC grinds upwards and the street rerates all these miners with a significant multiple expansion.

Similarly, on the earnings lineup, Robinhood announced their Q4 earnings late Tuesday afternoon. Crypto transaction revenue came in at $43M, while overall transaction-based revenue increased 8% YoY to $200M. However, monthly active users were down 4% to 10.9M. Robinhood has been expanding significantly into Europe having introduced their product in the United Kingdom last November and launching crypto trading in the EU last December. Time will tell if they are able to recreate the DOGE heroics and GME mania of the last cycle in this upcoming bull run. — Joseph Cooper, Decential Media

Quick Bits

BTC ETF inflows

  • BTC ETF inflows are on a rampage. The net cumulative flows for the 10 Bitcoin ETFs have doubled in the past three days to over $3B. As a point of comparison, it took the Gold ETF $GLD 2 years to reach this point. I could use $500M in daily net inflows for the rest of the year.

  • On another note, Blackrock’s BTC ETF, IBIT, is now fourth in overall year-to-date flows, only being outcompeted by S&P and NASDAQ ETFs. I don’t think anyone is quite ready for the amount of inflows we are about to see for the rest of the year.

DCG valuation

  • Digital Currency Group announced that the company’s 2023 valuation has doubled to $4.4B, up from $2.2B in 2022. This comes on the back of a 59% increase in YoY revenue.

  • However, there is some slight overhang in the form of the New York attorney general tripling her accusations against Gemini and DCG, and are now seeking $3B in restitution from the two firms.

Ripple acquires Standard Custody

  • Ripple has agreed to acquire Standard Custody & Trust Company, an enterprise-grade regulated platform for digital assets. This could signify Ripple’s commitment to regulatory compliance and also a desire to strengthen its overall product offering.

  • With the ETF inflows, it is evident that the institutions are coming, and with that, many existing regulations limit how they can custody assets. We’ll likely see more M&A over the next few months as everyone wants to position themselves and their services before more demand appears.

And last but not least

Solana mobile reaches 100K pre-orders

By all accounts, the first Solana Saga phone was a flop. The initial production run of 20K units barely sold out, and when it did it was only really due to memecoin activity in the form of BONK airdrops, and users who were purchasing the phone to make money. Despite that, Solana has decided to double down on its mobile strategy and launch Solana Mobile, Chapter 2. Currently, users have the opportunity to purchase the phone in a Founder Window, which has a price tag of $450. The phone will ship in 2025.

With the Solana ecosystem hype and dreams of airdrops for having purchased the phone, Solana Mobile Chapter 2 has quickly hit 100K preorders in less than 30 days, far surpassing the previous milestones set by Chapter 1. So, what’s next for Solana now that they are leaning into their mobile strategy? Well, not much. Solana, the foundation, can only do so much. It’s up to developers who will build innovative mobile applications to drive usage and further adoption. Who might these developers be? It could include consumer payment companies like Beam that want to make crypto to cash easier. Or it could be a company like Shopify, which has Solana Pay integrated and wants to utilize that to drive a mobile shopping experience. Or it could be a DeFi perps DEX that creates a mobile app to allow us degens to gamble on our phones. The possibilities are endless, but one thing is for sure. We shouldn’t simply bet on more airdrops to drive mobile adoption.

So why is Solana leaning into this mobile strategy? For starters, mobile phones have incredibly high penetration rates in developing countries, which are likely areas where crypto can have the highest positive impact. For example, the M-PESA mobile money service in Africa has allowed users to transmit nearly $300B+ a year. Expanding such services built on blockchain rails to the global stage would be a clear value add. Perhaps the more important factor here is the mobile duopoly, Google/Android and Apple. These two companies collectively own every single mobile phone in the world, either through hardware, the operating system, or, most importantly, the app store.

If you didn’t know, Google and Apple both have a take rate of 30% on in-app payments. So every time you make a payment purchasing some in-game item to level up faster, the game developer only gets 70% of it while Apple/Google receives 30%. And that take rate is non-negotiable given that Apple & Google are, well, Apple & Google. How close is Solana from disrupting this duopoly with Solana Mobile? Impossibly far. But we might as well give it a shot because crypto is ultimately about minimizing the middleman and reducing the rent extraction that is rampant across big tech today. — JC

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.