Crypto Lagging Equities | Recency Bias

Uniswap V4 | Polygon 2.0 | Releasing new tokens

Author

Decential Media
June 16, 2023

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:

  • Equities rage on while crypto stalls

  • Uniswap V4

  • a16z expands to the UK

  • Polygon 2.0

  • Re-releasing new tokens

Hey Everyone! We have a new email newsletter called The Beat. It started June 15, and The Beat can be delivered straight to your inbox with all the latest about where music meets web3. You can subscribe here.

The Latest

Oh, how I’d love to stop writing about regulation. Seriously, again? But okay, we’ll make this one brief.

The easy narrative, and general fear, is that continued aggression toward the crypto industry from U.S. regulators, members of Congress and President Joe Biden is driving blockchain firms to relocate outside the country. We’ve written about this fear here at Decential, and it’s real. But international regulations for any financial firm, crypto included, are at best a quagmire, to be nice to quagmires. Recent reporting we’ve done from Hong Kong, for example, shows no sprint from international web3 firms to relocate to the city state after it made its regulations more accommodative. It may also explain this story from the Financial Times that claims Hong Kong regulators are pushing banks to expand their digital asset offerings.

The U.S., for all its faults, is still the gold standard for where startups want to be based. It’s legal system, rule of law, case-law precedent and many other factors make the U.S. hard to compete with. But as we’ve seen with other accepted norms in recent years, all of that can change. Crypto could be Donald Trumped – don’t kid yourself. At least at this stage we have that quagmire that could be a temporary bulwark against a mass exodus of crypto firms from the U.S.

Time will tell, but let’s all check back on what Gary Gensler, Elizabeth Warren, Ron DeSantis and Joe Biden have, or haven’t, done to this incredible new industry in five years, shall we? — Matthew Leising, editor in chief, Decential Media

Where’s our correlation dept.

An equity bull market while crypto remains stagnant

Throughout much of 2022, Bitcoin’s increasing correlation to the stock market was the talk of the town. Tweets like these flooded the timeline, with wannabe statisticians constantly preaching that crypto is now just higher beta big tech. That isn’t too surprising, given how driven the markets in 2020-22 were by larger liquidity conditions. But one thing that shouldn’t be too surprising is that crypto traders only want correlation when it means crypto is going up.

While the S&P is back in a bull market, closing more than 20% higher than the recent bear market lows, crypto has been crabbing along despite all the regulatory events happening around us (so, yay?). However, crypto participants have a short attention span. We see equities being in a bull market and wonder why BTC is still trading at $26K. In reality, we’re just all poisoned with a disease called recency bias.

YTD, the S&P is up 13.79% and the NASDAQ is up 39.68%. In comparison, BTC is up 56.80%, while ETH is up 45.76%. Crypto has definitely outperformed the equity markets. However, if you narrow the time frame a little to the previous three months, the S&P is up 11.47% and the NASDAQ is up 18.77%, whereas BTC is only up 6.65% and ETH is up 5.58%. So, if anything, equities are actually spending time catching up to crypto’s YTD performance. 

One interesting point of the equities rally is that it is almost purely led by big tech. If it weren’t for the likes of Apple, Microsoft, Meta, and Nvidia, the S&P would actually be down for the year. Should we be worried? Maybe. AI and VR/AR, with the launch of Apple’s VisionPro, has definitely been a large narrative, and big-tech equities provide much better exposure to that than crypto.

Similarly, as tech companies become more and more progressive, they will likely pursue more web3 initiatives, which we like to call web2.5. Will that impact spill over into the space in terms of crypto prices? If you believe in most of crypto’s value accruing to the application layer, then no. That value would eventually accrue to the company’s stock listed in traditional equity markets rather than something like Ethereum. — Joseph Cooper, Decential Media

Crypto charting

Here's a deeper look into the economics and mechanics of web3 and crypto courtesy of charts by Pyth Data Association. To see more Pyth research click here.

The Much Anticipated Hinman Emails Were ‘Declassified’ $XRP

Most people believed that publishing the emails related to a 2018 speech by William Hinman of the SEC would give XRP a strong edge in its legal case against the SEC. While not a direct connection, the emails did show that SEC officials were deliberating on status of ETH and did not see a need to regulate it. XRP prices spiked after the initial news but gave up most of their gains soon after as the emails were considered less significant than thought.

Federal Reserve’s FOMC Rate Decision $SPY

The Fed decided to hold its benchmark rate with a unanimous 11-0 decision. Median rate forecasts rose to 5.6% by the end of 2023 - indicating that another hike might be around the corner. Most Fed officials believe there is room for rate cuts in 2024 with median rate forecast of 4.6% for end 2024. The S&P had a strong week before the announcement but gave up some of its gains immediately thereafter.

Quick Bits

Uniswap V4

  • On Monday, Uniswap launched V4, the next iteration of the revolutionary protocol. Much like web2, where everything becomes a marketplace or a platform, Uniswap is following the same route in becoming a “platform for DEXs.”

  • Users are the product, and Uniswap just provided a load of tools for developers to build with, including a new feature called hooks. Uni V4 has likely killed many new AMM-related projects by taking the best of many AMMs and packaging that into one offering.

a16z goes colonial

  • a16z currently has 3 offices in Menlo Park, San Francisco and New York. Their next office will be wildly different, located halfway across the world in the UK. In a surprising move, Prime Minister of the United Kingdom, Rishi Sunak, specifically endorsed the move.

  • This move was likely entirely driven by backward crypto regulation within the U.S. If capital, innovation, and the broader startup ecosystem leave the U.S., this could have significant ramifications for the U.S. as the startup capital of the world.

Polygon 2.0

  • Polygon has always been seen as a BD chain, forking out what was rumored to be nine digits for Starbucks Odyssey to be built on Polygon. All of that hype has died down, and in the depths of the bear market, it is safe to say much of that BD has failed. 

  • What happens when you fail in anything? Of course, you do a rebrand and relaunch. Polygon 2.0 promises to build the “Value Layer of the Internet,” whatever that means. I’m looking forward to seeing what “token evolution” means other than I’m probably going to screw over all existing token holders.

And last but not least

Re-releasing new tokens

Last week, Velodrome, the leading DEX on Optimism, announced a new initiative to develop and launch Aerodrome, aiming to be the leading DEX on Coinbase’s L2, Base. Aerodrome will have its own token, AERO. For those who want a bit of alpha, veVELO lockers will receive the only community allocation of 40% of the AERO token, but that’s not the main point today. An existing protocol launching on a new blockchain isn’t anything new. In fact, there are many protocols such as Uniswap, AAVE, and Lido, that have launched on multiple chains. What they haven’t done is launch a new token for each new chain where they expand.

A protocol creating a new token for every blockchain they launch on makes no sense to me. It’s as if I told you that Uber will have an IPO for every country they launch in. You can own UBER USA, UBER UK, and UBER JAPAN stock; they would all represent ownership of Uber in specific countries. This would be a corporate structure and likely an investor’s nightmare. However, crypto is different. Tokens are extensively used in crypto as incentives, often to attract liquidity. One could make the case that rather than diluting current token holders, it is much easier and makes much more financial sense to issue a new token. This has the benefit of giving the protocol more firepower to grow, and they could easily give existing token holders a portion of the new token. Perhaps the customizability of tokens (definitely not a security) does have a strong use case. — JC

Out of the Ether: Special NFT Edition

Have you read the definitive history of Ethereum? No? Well then get your special edition of Out of the Ether while you can. There are only 1,000 that were printed and each copy is an NFT that can be registered on the Lukso blockchain’s Universal Profile protocol.