Nyheter
How Will Solana’s Token Upgrade Boost Adoption Rate?
The year started with, first, a regulatory landmark for Bitcoin, second, a reminder that inflation hadn’t cooled in December and that a downturn in the economy might still be underway in Europe. In this monthly review, we’ll discuss the following trends shaking the market:
• All Eyes on Rate Cuts, Albeit Sticky Inflation
• Bitcoin Warms Up to its Wall Street Moment
• Solana Flirts with Compliance, Unveils Token Standard
• Ethereum Solidifies its Presence
• Layer 2s Roll Up Sleeves Ahead of Settlement Layer Upgrades
All Eyes on Rate Cuts, Albeit Sticky Inflation
Europe’s annual inflation increased by 3.4% in December. The European Central Bank (ECB) decided to keep the three key interest rates unchanged, bracing itself for a downtrend expected to continue in 2024. With energy inflation in the negative since May 2023, food inflation remains sticky at 6%. With more than 500 ships already taking a detour, unrest in the Red Sea is one of the factors the ECB fears will affect consumer prices if the conflict persists. If not, rate cuts could commence in June.
In the U.S., investors expected the first of three signaled rate cuts to happen as early as March. However, the country’s annual inflation increased by 3.4% in December, the most in three months. Housing, clothing, and car prices are the major contributors to the sticky inflation that has dimmed rate-cut expectations. On January 31, the Federal Open Market Committee (FOMC) decided it would keep interest rates steady. Given inflation is well above the Fed’s 2% target, it indicated that it isn’t ready to cut rates.
On the upside, unemployment claims have dropped to 187K, the lowest since September 2022 – which could clear out recession fears. On that note, the U.S. equities market has been moving sideways in January, dropping after the Fed’s rates decision; the S&P 500 and Nasdaq Composite have increased by ~2% and ~2.7%, respectively, over the past month.
Bitcoin Warms Up to its Wall Street Moment
Seeing $4.6 billion in volume on the first day of trading, 11 spot Bitcoin exchange-traded funds (ETFs) were finally approved in the U.S. even to flip silver, becoming the world’s second-largest commodity by assets under management. While spot Bitcoin products have been present on European stock exchanges for the past five years, their introduction in the U.S. marks a significant milestone. Valued at $45 trillion, American markets are nearly three times larger than their European counterparts, valued at $13 trillion. This paves the way for much broader adoption, solidifying crypto as a legitimate asset class that can seamlessly integrate into the traditional portfolios of the largest asset managers in the world.
Since launch, more than $29 billion have been traded on the products, with total inflows surpassing $1 billion. After successfully switching from a closed-end fund to a spot product, Grayscale’s ETF saw more than $5 billion in redemptions, with nearly a billion being attributed to FTX’s estate bankruptcy liquidations. The underlying asset in question, however, had a bumpy monthly performance. As shown in Figure 1, Bitcoin broke the $49K mark and declined shortly after to $43K, dipping by 3.6% in January. This drop can be due to inflationary pressures and profit-taking measures – especially those linked to bankruptcy proceedings.
Figure 1: Spot Bitcoin ETF Flows
Source: 21Shares
Solana Flirts with Compliance, Unveils Token Standard
Increasing by ~300% in 2023, Solana picked up the pace at the end of January thanks to the airdrop of WEN, a new “meme coin” listed on Jupiter, Solana’s largest decentralized exchange, which released its own governance token on January 31, potentially inviting even more hype to the network. New addresses have surged by 52.5% since WEN’s airdrop. Frenzy aside, there’s more to unpack on Solana’s backend.
On January 24, Solana unveiled token extensions, a set of features to enhance Solana’s existing token standard, Token2022. The upgrade, which introduces 13 new standards in total, includes the ability to introduce confidential transfers to shield transfer amounts for privacy purposes, an interest-bearing standard to generate royalties on tokens, and permissioned tokens that implement access control for specific users and entities. These enhancements are tailored to meet the demands of businesses seeking to construct sophisticated and adaptable tokens that adhere to regulatory standards.
That said, the upgrade strategically places Solana in a prime position to assume a more influential role in tokenization, enhancing the network’s ability to meet the diverse needs of enterprises effectively. Additionally, this development is crucial as it establishes Solana’s competitiveness in a domain that was captivated by Ethereum over the past two years. A degree of dominance is attributed to Ethereum’s reliance on a set of customizable standards, such as ERC3643, which can be explored further in our tokenization report. Finally, the network’s increasing enthusiasm and widespread adoption become evident when analyzing its daily active users, illustrated in Figure 2 below.
Figure 2: Comparison of Daily Active Users between Leading Smart Contracts and Scaling Platforms
Source: 21Shares, Artemis
Ethereum Solidifies its Presence
Following the eagerly awaited approval of the BTC Spot ETF in the United States, Ethereum began overperforming, potentially signaling what might unfold next in the market. Namely, investors may have started to speculate on a Spot Ethereum ETF, as Ethereum could be in a favorable position due to the existence of an ETH futures ETF in the U.S. – a reminiscent feature of Bitcoin’s position ahead of the SEC approval. This belief prompted the second-largest cryptocurrency to surge by 15% shortly after the approval, only to retrace those gains in the subsequent days. However, the anticipation surrounding the next U.S. ETF approval is not the sole source of excitement for Ethereum, especially as the network approaches its next major upgrade.
Dubbed Dencun, the network’s refinement aims to slash gas fees for Ethereum’s scaling solutions by nearly 90%. This will be achieved by introducing what’s known as data blobs, a novel data container that efficiently carries substantial amounts of data at a lower verification cost. This breakthrough is poised to significantly reduce settlement costs for rollup networks such as Arbitrum, Optimism, and Polygon.
With the successful completion of the first dress rehearsal on the Goerli Testnet, the path is now paved for two additional trial runs on January 30 and February 7, leading to a mainnet deployment expected in late March. This upgrade is pivotal, standing out as a key driver of excitement around Ethereum and its extensive ecosystem of scaling solutions, as evidenced by the network’s surging daily transactions reaching a multi-year high in Figure 3 below.
Figure 3: Daily Transactions on Ethereum
Source: Glassnode
Layer 2s Roll Up Sleeves Ahead of Settlement Layer Upgrades
For instance, Polygon intensified its focus on the modular Chain Development Kits (CDK) solution, allowing businesses to craft their own adaptable blockchains as a strategic move to advance its tokenization initiatives. A notable example is Libre, a CDK-based protocol tailored for institutions that provides compliant issuance and automated lifecycle management of alternative investments. Hamilton Lane and Brevan Howard are its inaugural adopters.
Furthermore, Polygon pushed ahead with its vision for shared liquidity by introducing AggLayer. A solution that aims to interconnect all CDK-based networks through ZeroKnowledge proofs, facilitating unified liquidity across its ecosystem. This development positions Polygon distinctly in comparison to similar modular networks such as Arbitrum and Optimism. Finally, Polygon unveiled that its zkEVM network has been upgraded into a Type2 EVM-compatible network, meaning that developers can now deploy their code on Polygon zkEVM exactly as it is on Ethereum without any additional auditing or modifications necessary.
Conversely, Arbitrum announced that its custom blockchain development solution, Orbit, will enable networks built on top of its framework to designate their tokens as gas currencies, a departure from the conventional reliance on ETH once they fulfill a specific criterion. This upgrade ensures that networks utilizing Orbit can establish utility for their tokens, accompanied by advanced features like gas subsidy. The remarkable flexibility provided by Orbit places Arbitrum on equal footing with platforms like Cosmos, making it a more appealing choice for developers seeking flexibility in their blockchain development decisions. However, even if users choose to transact with alternative currencies on Arbitrum-based networks, potentially reducing demand for ETH in user transactions, it’s important to highlight that Arbitrum’s validators (sequencers) are still required to settle transactions on Ethereum using ETH. This implies that the demand for ETH as a settlement currency won’t be significantly diminished for networks that opt for this method.
To recap, with Ethereum’s gas fees peaking at an average of 156 GWEI (around $6.5) in 2023, the Dencun upgrade couldn’t have come at a more opportune moment to streamline the user experience for those preferring to remain within Ethereum’s ecosystem to benefit from its network effects and liquidity advantages. This is a reality that we at 21Shares believe will inspire Ethereum competitors to contemplate transitioning to Layer 2 solutions. This thesis can be further explored in our market outlook for 2024.
This strategic shift enables ETH alternatives to tap into Ethereum’s vibrant and sticky user base and provides an opportunity to maximize profits by leveraging the network’s coveted blockspace. This point holds particular relevance for networks like Solana, which presently face challenges in achieving profitability due to the network’s minimal fees and high levels of subsidization.
With that in mind, the business model success of scaling networks is clearly illustrated in Figure 4 below, highlighting their ability to generate substantial profits even after the costly data submission on the Ethereum mainnet. Nevertheless, the responsibility lies in scaling solutions to distinguish themselves and incorporate a range of features that appeal to the distinct use cases within their respective networks.
Figure 4: Monthly Net Profits of Ethereum Scaling Solutions
Source: GrowThePie
Next Month’s Calendar
Source: 21Shares, Forex Factory
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
• $TRUMP & $MELANIA: The launch of both memecoins dominated headlines, with $TRUMP reaching a $73B fully diluted valuation. These launches are indicative of a late-stage bull market, often characterized by speculative exuberance.
• Solana Continues to Outperform: Solana reached an all-time high of $286, cementing its role as the leading blockchain for retail activity due to its high performance, low costs, and user-friendly ecosystem.
• Solana Remained Robust: Despite congestion and the rate of failed transactions rising by 20%, the network remained stable compared to prior years, avoiding outages even under unprecedented demand.
• Bitcoin Quietly Hits ATH: Ahead of the inauguration, Bitcoin surged to a new ATH just shy of $109K, largely under the radar amidst the memecoin frenzy.
• DeFi Momentum Builds: Trump’s World Liberty Fund continued its aggressive crypto accumulation, totaling $350M in cryptoasset holdings. This signals potential regulatory leniency for DeFi under the new administration.
• A New Crypto Era Dawns: With crypto-friendly cabinet nominees, initiatives such as the Bitcoin Strategic Reserve (BSR), a Presidential Crypto Council, an SEC-driven crypto task force, and moves to simplify regulations, the administration signals its intent to foster innovation while solidifying the U.S.’s leadership in the cryptoasset industry.
The crypto market surged in anticipation of Trump’s inauguration, especially following the launch of his official memecoin, $TRUMP, in the early hours of Saturday. The token’s fully diluted valuation soared to $73B, attracting around 850K holders and significantly boosting Trump’s net worth in Solana-based assets. Following this, First Lady Melania Trump introduced her own memecoin, $MELANIA, on Sunday. It briefly reached a market cap of approximately $2B before experiencing a 75% retracement, as seen below in Figure 1. The frenzy surrounding these tokens propelled Solana to reach an ATH of around $286 as investors rushed to buy the asset and participate in the ecosystem. However, it’s important to remember that this level of market exuberance typically signals the late stages of a bull market, warranting a more strategic approach from investors. Nevertheless, while vigilance is called for, it’s crucial to recognize that markets still have room for growth, particularly as asset prices often exhibit explosive upside movements in the latter stages of a bull market.
Figure 1: TRUMP & MELANIA Price Performance
Source: 21Shares, Dune
Despite $TRUMP’s questionable tokenomics and potential risks for inexperienced investors, its launch likely signals a shift toward a more crypto-friendly regulatory environment under the new administration. Further, the token’s controversial success highlights memecoins’ role as an effective tool for onboarding crypto newcomers. Unlike complex blockchain projects, memecoins offer a simpler entry point into the crypto world. They can serve as a ”trojan horse,” attracting retail investors with their accessibility and cultural appeal. This initial engagement can then potentially lead users to explore more sophisticated aspects of the crypto ecosystem, including decentralized finance (DeFi) applications and AI-based projects.
That said, their extreme volatility poses significant risks as inexperienced traders may suffer losses from the tokens’ wild price swings, potentially discouraging them from further engaging with crypto.
Despite the mixed short-term and long-term effects, last week’s events revealed a clear beneficiary: Solana. Thanks to its high performance and low costs, the network has now cemented its position as the go-to platform for retail activity. Despite intense usage over the weekend, it avoided typical outages seen in 2022 and 2023, demonstrating improved stability. While some applications, like Coinbase and Phantom, faced challenges with unprecedented demand, causing temporary transaction failures to increase by almost 20%, as seen below, Solana’s network remained robust compared to previous years. What’s worth remembering is that Solana’s resilience during this surge of activity, marked by zero outages, bodes well for its ambitious goal of becoming the ”NASDAQ on the Blockchain.”
Figure 2: Solana Failed Transaction Rate
Source: 21Shares, Dune
It’s worth noting that Solana’s robust performance during this activity surge, handling up to $45B in transactions on January 20 without any outages, demonstrates the network’s progress towards their North Star of becoming ”NASDAQ on the Blockchain.” This feat is particularly impressive when compared to Nasdaq’s average daily volume of $120B, underscoring Solana’s growing capacity to handle significant financial throughput.
As depicted below, even with a significant fee increase, Solana maintains cost-effectiveness, reinforcing its appeal to retail users. However, it’s crucial to look beyond its association with speculative activities. The network is now making significant inroads in diverse sectors, demonstrating its versatility and real-world utility. Notable examples include Decentralized Physical Infrastructure (DePIN) projects like Helium, Render, and HiveMapper; AI initiatives such as Griffain and Ai16z; and tokenization efforts supported by traditional financial institutions, including Franklin Templeton, Hamilton Lane’s SCOPE, and Ondo Finance. This broad spectrum of applications underscores Solana’s potential as a robust platform for innovation across multiple industries.
Figure 3: Solana Transaction Fees
Source: 21Shares, Dune
Similarly, Trump’s endorsed DeFi initiative, World Liberty Financial, has steadily expanded its cryptoasset holding over the recent weeks. In its latest round of acquisitions over the weekend, the project added $47M in ETH and WBTC and $4.7M each in Aave, LINK, TRX, and ENA to its portfolio. This takes the total amount of World Liberty’s holdings up to $350M worth of cryptoassets. It is worth noting that the yet-to-launch protocol is staking ETH with Lido, further echoing the idea that Trump is bullish on DeFi and that the industry will likely grow under his administration.
In this context, despite widespread anticipation, crypto was not mentioned in President Trump’s inaugural address or a leaked Republican policy document outlining national priorities. This omission contrasts with earlier speculation that crypto would become a central focus of the administration. However, it’s crucial to maintain a long-term perspective: Trump’s administration remains one of the most crypto-friendly globally, as evidenced by key pro-crypto appointments and proposed policies. In the following sections, we will explore these initiatives and their potential impact on the digital asset industry.
Bitcoin Strategic Reserve
While it may have gone under the radar, BTC also reached a new ATH, just shy of $109K, ahead of Inauguration Day. Relatedly, Trump’s administration has proposed creating a Bitcoin Strategic Reserve (BSR) to position Bitcoin as a critical financial and strategic asset, similar to gold reserves. The reserve would utilize approximately 80K Bitcoin seized by the U.S. Marshals, redirecting these assets into national holdings rather than auctioning them. Expanding the reserve to a rumored 1M BTC would require Congressional approval for market purchases or over-the-counter acquisitions, potentially funded by U.S. gold reserves.
Figure 4: Theoretical Bitcoin Strategic Reserve If 1M BTC Held Since 2016
Source: 21Shares, Coingecko
The BSR would classify Bitcoin as a strategic asset, held for at least 20 years and only sold to address U.S. debt. Advocates argue this could hedge against inflation, stabilize the dollar, and leverage Bitcoin’s appreciation to reduce national debt. Additionally, it could trigger a global race among nations to accumulate Bitcoin, driving its price higher and positioning the U.S. as a leader in the emerging digital economy. However, such a move would require significant regulatory changes and face challenges like volatility and opportunity costs.
Presidential Crypto Council
Trump’s administration plans to form a presidential crypto council of about 20 industry leaders, including CEOs and founders of major crypto companies. This advisory group would provide insights into the digital asset landscape and help shape innovation-friendly policies while addressing regulatory concerns. Rumored members include Michael Saylor (MicroStrategy), Brian Armstrong (Coinbase), Jeremy Allaire (Circle), Charles Hoskinson (Cardano/Ethereum), and Brad Garlinghouse (Ripple). The council aims to ensure crypto regulation reflects real-world challenges and opportunities, demonstrating the administration’s commitment to industry engagement and positioning the U.S. as a global blockchain leader.
SEC Repeal of SAB 121
A key rumored executive order from Trump’s administration involves repealing SAB 121, an SEC accounting rule requiring companies to treat client cryptoassets as balance sheet liabilities. This repeal would:
- Reduce operational risks for firms
- Encourage broader institutional participation
- Accelerate crypto service adoption in finance
- Signal a business-friendly regulatory approach
By easing regulatory friction, this move could enhance U.S. crypto firms’ competitiveness and position the country as a global leader in cryptoasset custody and management.
SEC and CFTC Joint Collaboration on Crypto Market Structure
Another key executive order reportedly under consideration by Trump’s administration involves directing the SEC and CFTC to collaborate on a crypto market structure bill, building on the foundation laid by the FIT21 framework. This initiative aims to establish a unified regulatory framework for digital assets, addressing long-standing jurisdictional ambiguities that have left cryptoassets caught between classifications as securities or commodities. The bill would create clear and consistent rules by fostering cooperation between these two agencies, reducing regulatory uncertainty, and fostering innovation.
Ending Operation Chokepoint 2.0: Restoring Banking Access for U.S. Crypto Companies
Trump’s administration plans to address the FDIC’s debanking of crypto companies and end ”Operation Chokepoint 2.0,” a controversial initiative that restricted banking access for the crypto industry with the likes of Kraken, Coinbase, Signature Bank, Paxos, and Binance.US all sharing a similar experience. The administration aims to restore fair treatment and financial access for crypto companies by instructing federal agencies to cease discriminatory practices. This move would provide stability, attract institutional players to the U.S. crypto market, and reaffirm the administration’s commitment to fostering a competitive financial environment.
SEC’s Shift in Stance Could Pave the Way for Expanded Crypto Spot ETPs
A revamped SEC under the new administration is set to redefine crypto regulations, legitimizing the industry and fostering innovation. Clear and fair rules would signal that the U.S. is open for business, attracting top talent and projects. This regulatory clarity is expected to unlock institutional capital as traditional finance gains the confidence to invest in digital assets with legal protections. The SEC’s progressive stance increases the likelihood of approving multiple spot crypto ETPs, enabling broader adoption and integration into traditional investment portfolios. This shift validates the crypto industry and positions the U.S. as a leader in financial innovation. Further, the newly established crypto-focused task force led by Commissioner Hester Pierce is designed to establish clear regulatory guidelines, practical registration paths, and sensible disclosure frameworks for crypto companies. Thus, this new body could help approve a broader range of ETPs.
Trump Cabinet Members
While Trump’s proposed appointees are yet to go through Senate approvals, here’s a quick overview of key pro-crypto members.
• Robert F. Kennedy Jr. (Secretary of Health and Human Services): A Bitcoin advocate who views it as the ”currency of freedom” and hedge against inflation, with most of his net worth invested in Bitcoin.
• David Sacks (Crypto and AI Czar): Early Bitcoin investor and backer of projects like Solana and dYdX, bringing deep expertise to blockchain innovation.
• Paul Atkins (Chair of the SEC): Former SEC commissioner with extensive experience helping crypto-native companies navigate regulatory compliance.
• JD Vance (Vice President): A Bitcoin supporter and venture capitalist with investments in blockchain startups and a crucial advocate for pro-crypto legislative initiatives.
• Elon Musk (Co-Head of D.O.G.E): A vocal supporter of blockchain innovation, holding Bitcoin, Ethereum, and Dogecoin, with Tesla’s $1.5B Bitcoin investment under his leadership.
• Vivek Ramaswamy (Co-Head of D.O.G.E): A vocal crypto advocate and co-founder of Strive Asset Management, Ramaswamy launched the Strive Bitcoin Bond ETF, proposed backing the U.S. dollar with Bitcoin, and champions clear regulations and wallet protections to drive innovation and financial freedom.
• Howard Lutnick (Secretary of Commerce): CEO of Cantor Fitzgerald, managing Tether’s U.S. treasury portfolio while acquiring a 5% stake, and holds personal Bitcoin investments worth hundreds of millions.
• Scott Bessent (Secretary of the Treasury): Founder of Key Square Group, Bessent advocates for balanced crypto regulations and has made sizable personal investments of $250K–$500K in Bitcoin ETPs.
For a deeper dive into their backgrounds and potential impact, check out our full breakdown on our latest blog.
All in all, while Trump did not address crypto in his inauguration speech or through executive orders, he has already begun appointing key figures supportive of the industry. Thus, he is starting to follow through with his promises. It seems he’s headed towards fostering a pro-crypto environment that provides a clearer path for companies to operate within the U.S.
Nevertheless, with the exuberant market activity we’ve seen in the last few days, it’s an opportune time for investors to stay mindful and ensure their positions remain aligned with their long-term objectives and risk tolerance.
What’s happening this week?
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
Trump 2.0: The Art of the Crypto Deal
Börshandlade produkter som ger exponering mot AAVE
UIW1 ETF ger exponering mot socialt ansvariga företag i Europa
Fidelity International-studie avslöjar att investerare förblir engagerade i ”E”, ”S” och ”G” men hinder kvarstår
I förra veckan gjorde SAVR årets första återbetalning av fondprovisioner
De mest eftersökta ETFerna i december 2024
Post-election rally cools at year end
De bästa ETFerna för värdeaktier
BlackRock slår rekord med lanseringen av bitcoin ETF
Hector McNeil kommenterar Trumps krav på Natos försvarsutgifter
-
Nyheter3 veckor sedanDe mest eftersökta ETFerna i december 2024
-
Nyheter2 veckor sedanPost-election rally cools at year end
-
Nyheter3 veckor sedanDe bästa ETFerna för värdeaktier
-
Nyheter3 veckor sedanBlackRock slår rekord med lanseringen av bitcoin ETF
-
Nyheter4 veckor sedanHector McNeil kommenterar Trumps krav på Natos försvarsutgifter
-
Nyheter3 veckor sedanBuffertstrategin på Nasdaq-100 med december 2024/2025 som ny målperiod
-
Nyheter4 veckor sedanValour PYTH SEK spårar priset på kryptovalutan PYTH
-
Nyheter2 veckor sedanHANetfs Tom Bailey om utsikterna för koppar och uran
