🔮Sol & Base Activity, CBDC Adoption, ETH ETFs, German Selloff, Mempool Sniping

Weekly Update

Less than a week after narrowly dodging a bullet, former President Trump accepted the GOP nomination for president and announced Ohio Senator J.D. Vance as his running mate. Vance, who has previously disclosed owning a substantial amount of Bitcoin, has consistently advocated for crypto-friendly policies, including efforts to repeal SAB121, critiquing SEC Chairman Gary Gensler, and proposing legislation to overhaul digital asset regulation. Trump's VP pick, coupled with his upcoming speech at the Bitcoin Conference in Nashville, underscores his administration's potential to create a more favorable environment for digital assets. While rumors of a "National Strategic Bitcoin Reserve" remain speculative, they highlight the administration's strong pro-crypto stance. 

Yesterday, President Biden's withdrawal from the 2024 presidential race sent a ripple of anxiety through digital asset markets, causing a swift >2% drop across the board. However, the market quickly rebounded after Biden endorsed Vice President Harris, providing increased certainty about the democratic nominee. Markets continue to view Trump as a likely winner against Kamala, with Polymarket giving Trump a 65% win probability. 

The highly anticipated new spot ETH ETFs are set to launch tomorrow, with flow expectations ~20-40% of the substantial $655m seen during the BTC ETFs' January launch, which had an average daily net flow of $104m. Increased volatility is generally expected after launch, as market participants interpret early flow data. Some analysts have noted that ETH price should be more sensitive to ETF inflows than BTC due to significant portions of ETH total supply being locked in staking, bridges and smart contracts.

The Federal Reserve has also hinted at potential rate cuts amid slow growth and inflation trends, with markets predicting a 95% chance of a 25 basis points cut by September. In terms of majors, Bitcoin's price is back to over $65K, a 19% increase from its intra-month low, despite selling pressures from German authorities and Mt. Gox. The price stability is supported by BTC ETF inflows and an anticipated $16 billion redistribution from the FTX estate.

Top Stories

Solana Activity Soars, Market Cap Snores

Over recent weeks, Solana's network activity has surged, with the 7-day moving average of daily non-vote transactions hitting 46 million, the highest since January 2022, nearly doubling from late April 2024. This increase, driven by the booming "memecoin" economy, contrasts sharply with Solana's market capitalization, which stands at $67 billion—down 20% since April 2024 and over 25% from its all-time high in early April. With 1.45 million active daily addresses, each averaging over 30 transactions, Solana showcases a robust network, yet the market cap decline suggests skepticism about whether this activity reflects genuine user adoption or is driven by automated bots and speculative trades. Despite improved infrastructure handling the high activity smoothly, the market appears cautious, not fully appreciating the transaction surge as indicative of long-term value.

Source: Solscan

Mempool Sniping Plagues Bitcoin Ordinals

The Bitcoin network faces a significant rise in "mempool sniping," a form of front-running that impacts Ordinals and Runes trading. Sophisticated snipers exploit Bitcoin’s mempool by intercepting queued transactions to outbid others. This practice prevents less experienced traders from winning bids, though it doesn't result in direct financial loss. On July 10, a high-profile sniping battle cost a Bored Ape Yacht Club founder over $5,800 in fees without securing the desired token. The problem has escalated, with hundreds of daily snipes. For example, 220 snipes worth 3.9 BTC ($247,000) were recorded in one day. Users began to raise concerns about mempool sniping last year as Ordinals and Runes gained popularity. Solutions are emerging, such as Magic Eden's automatic bidding feature, but the issue persists, highlighting the need for a more robust Layer 2 infrastructure. Some experts believe that advanced tooling and features like bulk offers on Ordinals collections could also help mitigate the problem.

Base's Surge in Activity and Popularity

Base, a Layer 2 solution, recently achieved all-time highs in both transaction count and active addresses, surpassing other optimistic rollups like Arbitrum and Optimism. On July 15th, Base recorded 3.28 million transactions, climbing to 3.52 million by July 19th, with an average daily increase of 1.8%. Similarly, active addresses rose from 567,000 to nearly 650,000, averaging a 3.5% daily gain. This surge led to a significant spike in fees, reaching $177K on July 20th and totaling $967K for the week. Base's success, partly due to support from Coinbase, has made it the most popular optimistic rollup in transaction count and active addresses. However, it still lags behind Arbitrum in total value locked (TVL), with $1.77 billion compared to Arbitrum's $3.25 billion. The recent popularity of the memecoin MIGGLES, launched on ape.fun and promoted by Coinbase, has been a key driver of this surge, with MIGGLES reaching a market cap of nearly $120M and daily trading volumes of $150M.

Source: Dune

Regulation

Global CBDC Adoption Faces Hurdles Despite Extensive Trials

According to the Atlantic Council's CBDC tracker, 134 countries, representing 98% of global GDP, are investigating central bank digital currencies (CBDCs), but citizen adoption remains low. China’s digital yuan (e-CNY), despite various incentives since 2019, sees state employees quickly converting it to fiat currency. India's digital rupee encounters similar issues. In the Caribbean, the Bahamian Sand Dollar, DCash from the Eastern Caribbean Currency Union, and Jamaica’s JAM-DEX have all seen minimal usage. Nigeria's eNaira has also faced poor adoption rates. The Federal Reserve Bank of Kansas City reports that people seek practical applications for CBDCs and prefer their integration with the global financial system rather than as standalone systems. China recently signed a memorandum with Kazakhstan for CBDC collaboration, reflecting this need. Additionally, CBDC wallets may require connections to bank accounts for interest accrual, and users demand transaction privacy assurances. These factors complicate the widespread acceptance and use of CBDCs.

Source: Atlantic Council

German Bitcoin Sale Nets €2.6 Billion Amid Criminal Investigation

German law enforcement's "emergency sale" of nearly 50,000 Bitcoin netted €2.6 billion ($2.88 billion), marking an unprecedented haul. Seized in January during an investigation into piracy and money laundering involving German and Polish nationals, the funds will be held in custody until the trial concludes. Despite the Bitcoin's value being approximately $2.1 billion at seizure, market conditions during the June 19 to July 12 sale led to a higher net gain. Authorities coordinated with Bankhaus Scheich to ensure a market-friendly sale, utilizing exchanges like Kraken and Coinbase, and OTC firms like Flow Traders. Despite volatility dropping Bitcoin's price as low as $55,000 on July 4, it later recovered to trade higher. The prosecutor's office justified the rapid sale due to potential significant value loss, adhering to legal requirements. This case highlights the challenges and impacts of liquidating large crypto assets within volatile markets.

BlockFi Begins Repayments to Creditors Amid Bankruptcy Recovery

Bankrupt crypto lender BlockFi will start interim crypto distributions to its 100,000 creditors this month, processing through Coinbase. The repayments follow BlockFi's Chapter 11 bankruptcy filing in November 2022, triggered by significant exposure to the collapsed crypto exchange FTX and its trading arm, Alameda Research. BlockFi, once valued at $3 billion, faced regulatory challenges and settled with the SEC for $100 million over its lending product. The restructuring plan for BlockFi, which received 90% approval from voting creditors, led to its emergence from bankruptcy in October 2023. While wallet customers have begun withdrawing funds, BlockFi Interest Account (BIA) and loan customers are still awaiting their repayments. The company estimates that BIA holders could recover between 39.4% to 100% of their funds, contingent on FTX bankruptcy outcomes and BlockFi's equity in Robinhood. The process and exact amounts remain uncertain due to ongoing legal complexities.

Ethereum ETFs Set to Launch

Ethereum-based exchange-traded funds (ETFs) are set to begin trading as early as July 23, 2024, marking a significant milestone. The U.S. Securities and Exchange Commission (SEC) has provisionally approved applications from major asset managers, including BlackRock, VanEck, and Franklin Templeton. These spot Ether ETFs are expected to bring substantial capital inflows, potentially increasing Ethereum's valuation and liquidity. Initial projections estimate net inflows could reach up to $5 billion within the first six months, with the total value of U.S.-based spot Ether ETFs possibly reaching $13-$15 billion by the end of 2024. This launch follows the successful introduction of spot Bitcoin ETFs earlier this year and reflects growing mainstream acceptance of digital assets. The approval and upcoming launch could further solidify Ethereum's position as a leading platform for decentralized applications and smart contracts, integrating digital assets into traditional financial markets. See similar: Grayscale's GBTC spinoff into BTC mini trust will happen on 31 Jul'24

Other Domestic Regulation Updates

• Trump to Speak at Bitcoin Conference Despite Assassination Attempt
• Binance US entities get judge's sign-off to invest customer assets in US Treasury bills
• Binance US receives court approval to invest customer fiat deposits in US T-Bills
• Bernstein says 'Goldilocks scenario' is emerging for bitcoin miners amid 'Trump factor'
• SEC Approves ProShares and Grayscale Mini Spot Ether ETFs

Other International Regulation Updates

• South Korea's Ruling Party Proposes to Delay Crypto Taxes by Three Years
• Europe Passes North America in Crypto Startups in H1; APAC Pulls to a Close 3rd
• OKX Joins Binance in Crackdown on VIP Discount Abuse
• State-Backed Chinese Insurer to Advise Swiss Crypto Fund on APAC Expansion
• Hong Kong Regulator Warns 7 Unlicensed Exchanges
• BitMEX, Execs Plead Guilty to U.S. DoJ Charges of Violating Bank Secrecy Act

Pain & Gain

Pain

• Analysts Say Solana Spot ETFs Are Still a Long Shot
• Indian Crypto Exchange WazirX Halts Withdrawals After $230 Million Breach
• Indian crypto exchange WazirX exploited for over $230 million

Gain

• Bitcoin Bridge Coming to Telegram-Linked TON Blockchain
• Real World Asset Sector Outperforms on Growing TradFi Tokenization Effort