Macro – Crossing the Rubicon
1. Donald J. Trump and the purpose of no return. 3 phrases, “Strategic Bitcoin Stockpile”. It was theorized by many Bitcoiners for years, some would even say dreamed of, and it occurred simply final week. Truthful to say that Bitcoin has certainly crossed some type of Rubicon on Saturday, some extent of no return the place all the things can immediately speed up. The wrongdoer? – goes by the identify of sport principle. Nations world wide, from this present day ahead, need to take this concept of a Bitcoin reserve significantly or face the implications of being left behind. If enacted, the US will personal round 1% of the overall bitcoin provide.
From the attitude of different international locations, this technique can be powerful to copy because the US principally bought this bitcoin without cost (by what may more than likely be thought of unlawful and immoral means). Competing nations can be confronted with the daunting/unattainable job of accumulating tons of of hundreds of bitcoins with out paying an enormous premium for it. That is the place Bitcoin mining turns into a matter of nationwide safety. On the again of that announcement from Trump, Michael Saylor additionally laid out a framework for nation-state adoption of bitcoin as a treasury asset (Tips on how to do it sensibly and why it is sensible) in entrance of 10+ senators. A good suggestion whose time has come is unstoppable.
2. Establishments are right here. The identical sport theoretics apply for establishments. If nation-states are accumulating Bitcoin, firms should do the identical. Nation-state accumulation principally ensures value go up over the long run, which implies dollar-denominated company treasuries will undergo in relative phrases. It turns into a vibrant line denominating winners and losers. Transferring a part of the treasury into BTC will not even essentially make you a winner, it’s going to be the baseline requirement to compete. Anybody who does not do it should simply be left behind. “It’d make sense simply to get some in case it catches on”
3. Retail remains to be absent. Because the chart beneath describes, retail stream measured by the 30-day change in whole switch quantity for transactions beneath $10K, is at a 3-year low. Regardless of BTC being lower than 10% away from ATH.
Whereas the convention was an inevitable success by way of retail participation, it might seem that retail consumers are both exhausted, already all-in or not prepared to purchase further BTC at these costs. One other doable rationalization for this was the general feeling all through the convention of “ready for the following catalyst”.
UTXO Alpha Day – The primary of many for Enterprise Capitalists
1. We’re blessed to help the very best folks. UTXO Administration was internet hosting its inaugural investor day, UTXO Alpha Day, on the Bitcoin 2024 convention. We assembled tons of of capital allocators, entrepreneurs, institutional traders, and angels for the occasion, the place we explored yield-bearing belongings in Bitcoin, the panorama of recent Bitcoin layers, and the emergence of Bitcoin as the final word treasury asset. The occasion was a hit and an ideal reminder that Enterprise Capital is firstly about distinctive people all competing to deliver new utility to Bitcoin. BTC Startup Lab additionally hosted an unimaginable mixer occasion on Friday the place we had the pleasure of assembly many various traders and founders. I left the occasion with the sensation that Bitcoin founders are a uncommon breed that have to be welcomed by the US with open arms. Their focus may be very a lot on constructing and gearing up for a Bull market – anticipate all the things to occur suddenly when Bitcoin decisively breaks its earlier ATH.
One of many essential takeaways from the convention was that investor urge for food for Yield methods native to Bitcoin is rising past what we initially anticipated. Once we discuss idle capital, most individuals have a tendency to consider the thousands and thousands of BTC sitting in wallets, nevertheless, final week it turned clear that the chance is equally engaging to crypto traders presently allotted on completely different blockchains. TVL is mercenary within the present setting and lots of discussions we’ve had got here from traders both trying to swap from Bridged BTC (WBTC for instance) on different blockchains to Bitcoin L2’s, or from traders in search of extra engaging alternatives than Ethereum or Solana-based cash as the motivation campaigns of bitcoin tasks usually yield engaging present returns and uneven upside.
2. Enterprise Capital information about Bitcoin stays restricted. Because it was highlighted in the newest Galaxy report on Blockchain Enterprise Capital, the urge for food for crypto funding has steadily elevated YTD however stays nowhere close to the highest of Q1 2022. From the report: “In Q2 2024, enterprise capitalists invested $3.194bn (+28% QoQ) into crypto and blockchain-focused firms throughout 577 offers (-4% QoQ).”
Whereas it is a good signal for the area, Bitcoin investments solely represented 3.1% of whole deal stream or $96.4M in Q2 2024 whereas Bitcoin market capitalization constitutes above 55% of the entire crypto market.
We imagine that this development will rapidly reverse as the character of the uneven alternative that Bitcoin Defi / Infrastructure represents turns into unattainable to miss. One doable rationalization for the present lag in Bitcoin VC funding is that technical information of Bitcoin mechanics shouldn’t be as equally distributed amongst VCs as it’s for the remainder of crypto. Bitcoin analysts are few in quantity and the Bitcoin area has been traditionally closed to VCs as the dearth of programmability of Bitcoin hindered its attractiveness. We additionally anticipate this to vary quickly as the motivation to know the ins and outs of Bitcoin in a much less crowded market will deliver further technical expertise (builders included).
3. We’ve bought the Alpha. Henry Elder from UTXO highlighted throughout Alpha Day all of the ways in which conventional traders ought to take into consideration deploying on-chain Bitcoin capital. Some takeaways:
BTCfi is in its infancy and could be broadly organized into 3 classes: sidechains, Layer-2 chains and metaprotocols.
- Sidechains are presently a lot easier to launch than true Layer 2s, so it’s no shock that the sidechain panorama is probably the most developed and mature BTCfi ecosystem, because the merchandise and instruments have already been developed over the previous a number of years on Ethereum. These ecosystems additionally profit from the extremely developed safety auditing infrastructure that already exists for Ethereum and its related L2s.
- Layer 2s: Aside from Lightning Community, these merchandise are largely nonetheless within the improvement stage and every implement distinctive and novel technical options to hyperlink safety to Bitcoin.
- Bitcoin metaprotocols that use the bitcoin chain immediately and are probably the most bitcoin-native classification. They use bitcoin-native belongings and the related particulars of their operations are encoded immediately into bitcoin blocks, though they have to be decoded utilizing customized indexers. Arch Community is an instance of a metaprotocol that helps BTCfi purposes, however Ordinals, BRC-20s, and Runes are additionally metaprotocols, they merely help BTCfi belongings.
The one actual Layer 1 choice to construct on prior to now has been Ethereum and some different blockchains. Bitcoin now provides another that’s economically safer, credibly impartial, and probably provides superior technological safety, as properly, by dint of a decrease assault floor than Ethereum. Legacy tasks can take away billions of {dollars} of annual bills and/or inflation by transferring to a proof-of-stake mannequin utilizing BTC or an L2 immediately on prime of Bitcoin, whereas getting higher safety and sustaining a excessive diploma of technological and cultural independence.
Bitcoin L2’s – The cool children on the block?
1. L2’s had been the focal point. With no shock, L2’s had been the discuss of the city in Nashville. BitcoinOS (Grail) introduced their new rollup protocol by verifying a proof immediately on Bitcoin (BitVMX had achieved one thing comparable just some days earlier on testnet). Bitlayer and lots of others had been huge sponsors of the convention, usually internet hosting a few of the coolest afterparties all through the week. All of this to say, the momentum was positively in favor of L2s (largely sidechains as Janusz from Bitcoin Layers can be clever to insist upon). I anticipate this development to develop as these tasks look to onboard extra tasks to their platforms within the hope of constructing a group moat sufficiently sturdy to resist the intense degree of competitors within the area. Nevertheless, at 80+ and counting, it turned obvious that the hype can be brief lived for a lot of. Persons are largely conscious of the primary gamers in Asia and the US, however the others will stay behind the fog of battle except they create new improvements to the desk. An necessary second through the convention was additionally Cathie Wooden on the primary stage speaking about Bitcoin L2s with Alyse Killeen. This may very well be a sign that bigger institutional gamers are eager about coming into the area (Franklin Templeton DA additionally held a personal occasion with a number of VC companies, together with UTXO).
2. Rollup groups are on the forefront of Bitcoin analysis. One thing that turned very clear to us after assembly the groups at Alpen, Bitlayer, and Citrea is the extent of technical analysis underway within the Bitcoin area. The paradigm shift from BitVM has catapulted a few of the brightest minds within the area towards exploring the frontiers of Bitcoin script and Zero-Data Proofs. The work being achieved now will doubtless onboard the following million customers to Bitcoin, with belief assumptions that would fulfill a majority of customers.
The principle takeaway from these discussions was that, though the joy round rollups is warranted, many challenges persist. In first place, the price of posting Information Availability to Bitcoin. Whereas that is bullish for miners, the race is on to offer probably the most optimum answer whereas preserving the flexibility for customers to belief the least quantity of intermediaries within the course of (trust-minimized options). One other takeaway is that these groups are making ready to launch new technical paperwork to the general public, bringing new understanding of how they’re planning to design bridges for these rollups.
3. Lightning aux oubliettes (An oubliette – from the French oublier, that means ‘to neglect’ – is a basement room which is accessible solely from a hatch or gap in a excessive ceiling). Apologies for the clickbait title, however for all intent and functions, Lightning was successfully memory-holed from everybody through the convention as folks centered all their consideration on Trump and new shinier objects (sidechains). Alex B from Bitcoin Journal raised the problem as he was talking throughout Alpha Day “I don’t suppose I’ve heard one individual point out Lightning but”.
Forgotten perhaps for a couple of days, however actually not useless. As soon as charges spike once more (this isn’t an if however a when) I’m sure that Lightning might be on the middle of each dialogue once more (“Can I get a few of that inbound liquidity bro”).
In any case, the Lightning area continues to develop and enhance, gradual and regular fashion. Simply earlier than the convention, Lightning Labs introduced (lastly) the discharge of Taproot Property on Lightning. My response to the announcement:
Lightning-fast, trustless swaps, natively on Bitcoin (producing Yield for nodes). Folks at all times say that being too early is similar as being flawed, however within the case of Lightning I imagine that is the absolute best end result for capital allocators. Positive Lightning doesn’t have the degens, it doesn’t have the tradition, but it surely does have the superior token customary and community impact. Most of the folks I talked to on the convention are inclined to oppose Runes/BRC-20s to Taproot Property, I believe they’re complementary. Exactly as a result of one has the group, and the opposite has the means to supply that group enormous value financial savings and sooner transaction settlement (in a very trustless manner).
Subsequently, the most important takeaway for me was that investing on the intersection of Runes/Bitcoin native belongings and Lightning infrastructure will turn into very highly effective as demand will naturally stream towards these tasks (Joltz and LnFi are nice examples that come to thoughts).
Mining – Is it even mining anymore?
1. Hashprice is not the important thing to turning into a worthwhile miner – it’s “we’re constructing an AI pilot undertaking”. It has turn into obvious all through my discussions with miners and analysts alike that the one catalyst propping up miners presently has nothing to do with mining and all the things to do with capital allocation. Miners are selecting to allocate sources to AI and HPC, whereas traders are selecting to allocate sources to miners with probably the most publicity to those comparatively new verticals. There are a couple of causes for this shift:
Put up halving, miners are struggling to take care of engaging margins as transaction charges generated from Ordinals and Runes have been (up to now) disappointing. This has led many to think about various sources of income, ideally one thing high-margin, predictable in time, and appropriate with current infrastructure. AI is the proper match.
Markets are additionally generously rewarding miners with AI publicity because the marginal impact of hashrate procuration bulletins pressured miners and analysts to rethink how publicly listed firms ought to be valued.
Whereas this development, largely attributable to Core Scientific and Iris, could seem like waning in favor of a return to sanity, many current on the convention are betting on promoting their out there capability at a premium to AI/HPC firms.
Nonetheless, different catalysts for mining development turned obvious final week, together with the considerably surprising progress in ASIC design effectivity (Bitdeer specifically concentrating on 5J/TH in 2025) and the return of institutional financing for miners led by Cantor Fitzgerald saying a $2 Billion financing enterprise anticipated to develop properly past that. That is necessary as a result of, not like through the 2021 mining cycle the place miners largely relied on ASIC-backed loans to boost capital, capital markets have been closed to miners since then, forcing them to depend on extremely dilutive ATM choices. This announcement may very well be the turning level for miner financing through the 2025 cycle.
2. The Commoditization of Blockspace is turning into a actuality. I had the possibility to attend the launch get together of Alkymia, hosted by Blockspace Media. For these not aware of Alkymia, their newly launched platform lets you take a directional guess on Bitcoin transaction charges. That is the newest addition to a collection of instruments permitting miners to stabilize their revenues whereas permitting exchanges, protocols, and merchants to hedge transaction price volatility dangers. As blockspace turns into extra useful, the complexity of transacting on-chain will develop, giving an edge to specialised actors understanding the nuances of Bitcoin’s mempool.
Mempools had been additionally a giant matter of dialogue final week as the extra programmability of Bitcoin and the introduction of Rollups may introduce some types of MEV or MEVil to the protocol (extra about this beneath). Understanding the potential of MEV on Bitcoin was a giant concern and our funding in Rebar Labs has by no means made extra sense. Whereas we’re nonetheless early in these discussions, common consensus among the many folks I talked to was that MEV on Bitcoin might be completely different from ETH, with much less centralization dangers and extra accessible alternatives for all miners.
3. The spirit of Matt Corallo’s speech was ignored. Being scheduled to talk proper earlier than the longer term president of the USA isn’t a straightforward train. Nevertheless, Matt laid out probably the most basic rules that make Bitcoin what it’s at present in a superb manner that may deserve extra consideration.
Specifically, his framing of the blocksize wars – in entrance of many hundreds of listeners – was spot on. This era of Bitcoin’s historical past was not a lot in regards to the dimension of blocks because it was in regards to the means of governance – who decides the when and what of change to the code?
The start of a solution was discovered instantly after 2017 – miners and firms don’t. The post-conference euphoria that adopted BTC++ earlier this 12 months may function an exemplary reply – builders/technical commentators don’t. The one stakeholders left within the Bitcoin triumvirate of governance are customers, and whereas customers finally need to cooperate with miners and builders to cement of change of code into the blockchain, they continue to be the gatekeepers of undesirable change to the protocol. Bitcoin shouldn’t be the code, it’s not the blockchain, it’s not even the foreign money – Bitcoin is a consensus amongst customers.
So, after greater than 22,000 folks confirmed up in Nashville to study extra about Bitcoin, what did we study from them?
Speaking with some Nashville natives and worldwide guests, right here’s what I may collect:
- Change is thrilling and most of the people have a positive view of current proposals imagined to deliver further performance to Bitcoin. Most don’t perceive what they may change or how they work. Instructional content material that’s accessible to everyone seems to be sorely missing.
- UX is the primary concern that at all times comes up in some type of style. I’m primarily deriving this from making an attempt to orange-pill Uber drivers (I believe they could hate us now!) and restaurant/bar employees. Most individuals know Bitcoin, have heard of it, and have purchased some earlier than. The most typical factor was folks holding it on mobile-focused platforms like Money App and didn’t perceive the right way to request a deposit to their handle (Lava has an ideal pockets making Bitcoin extra accessible to customers). Above all the things else, I believe the following improve to Bitcoin ought to make it simpler for folks to self-custody their bitcoin – which is coincidentally what is required for them to later work together with L2s and apps. I do imagine that specializing in infrastructure funding might be paramount this cycle.
I hope you want this recap. In case you are a Bitcoin Builder or an investor fascinated with studying extra about what we do at UTXO, please attain out to us on X or immediately on our web site.
To finish on a constructive observe, let’s not neglect to focus on a few of the hopium math offered by Michael Saylor through the convention, predicting a BTC value of $13M by 2045. You’re day by day reminder that you simply’re most likely not bullish sufficient.
