ETF's Destiny, Optimism on Base's Journey, and Banking the Unbanked

• Cathie Wood and Mike Novogratz express optimism for spot bitcoin ETF approvals
• Coinbase launches Base blockchain, an Ethereum L2 blockchain
• PayPal initiates stablecoin launch as part of ongoing advancements in crypto payment endeavors

Markets await ETF's fate and optimism on Base's chain of progress

Cryptocurrency markets saw modest increases with the total market capitalization approaching the $1.2 trillion mark, while bitcoin dominance remained above 49.5%. Among the blue chip names, bitcoin rallied 1.4% compared to the previous week, while ether posted a 0.8% weekly gain. Bitcoin's surge in the summer, triggered by the barrage of ETF application submissions, seems to have reached the point of exhaustion, leaving the markets in a state of watchful anticipation. As we approach the August 13 deadline for Ark's spot-bitcoin ETF application ruling, the momentum has slowed. In a recent interview, Cathie Wood conveyed her conviction that the US SEC is on the brink of granting approval for multiple spot-bitcoin ETFs. During the earnings call on Tuesday, Galaxy Digital CEO Mike Novogratz shared an optimistic perspective on bitcoin ETF approvals. He referenced resources from BlackRock and Invesco, and also said it's not a question of “if” but “when” one of the eight currently outstanding applications for a spot-bitcoin ETF will receive SEC approval.

Among the other majors, Chainlink rallied 4.7% this week. This surge was spurred by Coinbase L2 Chain Base's inclusion of Chainlink as a new partner, aiming to facilitate the seamless integration of popular DeFi applications onto the new blockchain. According to the crypto market data intelligence platform Santiment, crypto whales and sharks engaged in a buying surge of LINK tokens, accumulating $192.2 million worth of the decentralized oracle network's token within a span of less than four weeks. Concurrently, Chainlink's level of development activity on the GitHub development hosting platform experienced a remarkable boost during the same period. This surge in development placed Chainlink among the top five most actively developed assets in the past 30 days, as per Santiment's findings.

Base, an Ethereum layer-two (L2) blockchain created by Coinbase using Optimism's OP stack, maintains EVM compatibility facilitating the seamless deployment of Ethereum's EVM codebase and that of other compatible chains. While its public introduction occurred recently, Base has been accessible to developers for testing since July. Remarkably, it has garnered substantial attention, predominantly from a series of meme coins that have embraced the platform. Notably, before its public launch, the Base network had already amassed more than $150 million (at the time of writing) in deposits locked within its apps and protocols, as reported by the crypto analysis firm L2Beat. Although the launch of BASE has garnered positive attention from the market, there are several concerns regarding the blockchain's level of decentralization, limitations associated with roll-ups, and its reliance on the OP stack.

As per Base's terms of service, at the time of writing, Coinbase stands as the sole sequencer node responsible for processing transactions on the Base network. It's worth noting that Coinbase retains the authority to adjust and impose fees related to the use of the Coinbase Sequencer. A sequencer functions as a node that receives, records, and reports transactions within a rollup. This role also involves crediting funds to users' rollup accounts after validating deposit proofs on the rollup contract. Moreover, Coinbase operates the Base Bridge, facilitating the movement of crypto assets between Ethereum and Base.

Another limitation is the delay in transferring funds from the rollup to the L1. Optimistic roll ups operate under the assumption that all transactions on the chain are valid, reflecting optimism in the participants' honesty. Transactions are grouped together and sent to the L1 without immediate validation, employing a delay mechanism for security. This delay, known as the “challenge period”, grants optimistic rollups the time needed to rectify potentially fraudulent transactions. During this period, any user has the opportunity to challenge transactions deemed suspicious.

From margins to mainstream, banking the unbanked

Within the realm of meme coins, Shiba Inu surged 17.9% this week. The majority of this surge occurred after Bitpay announced Bill Pay, which empowers Bitpay users to directly settle their bills from their wallets using Shiba, among other available cryptocurrencies. According to the company statement BitPay Bill Pay allows users to make direct payments from BitPay's self-custody wallet application, streamlining the process. By downloading the BitPay app, linking their bills, selecting their wallet, and confirming payments, users gain a convenient method to address diverse payments. This spans various categories, encompassing credit card bills, mortgages, car payments, personal loans, and extends to over 5,000 service providers.

PayPal has unveiled its plans to introduce PayPal USD (PYUSD), an Ethereum-based USD stablecoin that's fully backed by U.S. dollar deposits, short-term U.S. treasuries, and similar cash equivalents. Issued by Paxos Trust Company, this stablecoin can be redeemed 1:1 for U.S. dollars, while also offering the flexibility to convert into other cryptocurrencies supported by PayPal. Users will be able to transfer, transact with others, and purchase foreign currencies using PayPal USD, and its compatibility will extend to Venmo as well. This recent announcement evokes memories of PayPal's pivotal move in late 2020 to embrace bitcoin, a decision that ignited hope for cryptocurrencies as feasible payment methods. The introduction of PayPal USD, an Ethereum-based stablecoin, undoubtedly marks a natural evolution along that trajectory.

Macro pulse

Among tradfi markets, US Equities declined 1% (vs. previous week) as the markets digested the mixed US jobs report and prepared for the forthcoming US inflation data. Oil futures soared 6.2% weekly with Saudi Arabia announcing an extension of its voluntary 1 million barrel oil supply reduction into September while also confirming the possibility of implementing even deeper cuts. Elsewhere, the US Dollar index fell 10 basis points, 10-year US Treasury yields slipped 7 basis points and the Gold & Silver index dropped 1% week on week.

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Note: Weekly (7 calendar day) performance figures are as of 8am SGT on August 10, 2023

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