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Ember Nuggets

July 2021

What are Ember Nuggets?

Ember Nuggets will be a mid-month update with commentary from the Investment team on what’s happening within the crypto market -- news, developments, market trends, and more.

Before we dive into the nuggets, some notable moments from this week:

  • Bitcoin showing early signs of a potential reversal, testing a floor of $29K and reaching a high of $32K today
  • FUD around the unlock of Microstrategy’s GBTC seems to be waning. 16,240 BTC had their 6-month lockup expire and Bitcoin’s price held up relatively well. It was the largest tranche to unlock, and subsequent lock-up expirations are expected to have less of an effect.
  • The B-Word Bitcoin Conference:
  •     Jack Dorsey: “My hope is that bitcoin creates world peace”..
  •     Elon Musk holds Bitcoin and Ethereum, while Tesla and SpaceX have bitcoin on their balance sheet.
  •     Cathie Wood reiterated her stance that Bitcoin will serve as a hedge against inflation in certain market conditions

Nugget 1: DeFi has cooled off for now...

After surging in May, activity and investment in DeFi has cooled off and returned to levels seen in January to April. This is quite evident with ETH gas price trends, which peaked at a median transfer price of $26.70 in May to roughly $0.54 today. Slowdown is further supported by activity seen on DEXs which have seen overall trade volume decline 70%. Looking at data from The Block, we see DeFi revenue currently pacing at $135mm, down from $373mm seen in May.

Overall, the DeFi market overheated in May and the recent correction is a healthy one, especially for long-term growth and sustainability. The big picture trend remains positive as solid projects continue to build, innovate and launch more robust products into the market.

Nugget 2: Is Polygon the BSC killer?

Binance Smart Chain (BSC) was launched by Binance to compete with ETH, in hopes of providing faster transactions at a lower cost. BSC’s growth was driven by its compatibility with ETH, coupled with low fee environments for crypto developers and traders to interact with. Polygon, originally planned as an L2 solution for ETH, has come out running this year. More of a partner than a competitor to the ETH community, Polygon has seen explosive growth, especially with exorbitant fees and congestion seen on the ETH network in recent months. Polygon’s TVL has reached 44% that of BSC and continues to close the gap.

Polygon has been well received by the community with new partnerships and developments from large players in the crypto world. We believe Polygon could be a dominant platform in the future of DeFi.

Nugget 3: Circle IPO via SPAC is positive for crypto in the US.

Circle recently announced plans to go public via SPAC this month with a $4.5B valuation through a merger with the blank check company, Concord Acquisition Group. Earlier this year, we saw the first crypto company go public in the US. Coinbase (COIN) listed on the NASDAQ and saw its market capitalization settle around $86B after the first day of trading. Coinbase’s S1 filing and later, its successful IPO, shows US regulators indirect approval of crypto-related businesses. The Circle announcement is another public endorsement of crypto-businesses and net bullish for the sector. If nothing else, at least it provides some comfort that it is unlikely that the US will be banning bitcoin, especially when it is allowing companies that deal with the asset to go public.

Thank you for reading!

Harsharn Singh
Investment Associate | Ember Fund

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