M6 Labs Bitcoin Weekly

BTC Bonds Coming, Uni V3 & BTC, Inscriptions Cybersecurity Risk?

GM! After last week's intense activity, the market has pulled back, leading to a significant number of liquidations, estimated in the hundreds of millions. The spotlight was on Bitcoin's burgeoning ecosystem, particularly highlighted by the price movements of Ordinals and similar projects. Now, let's delve into the details and uncover the latest developments in the market!

Bitcoin is just getting started, Anon. Don’t fade the ecosystem currently being built out.

Bitcoin News & Metrics

  • Uniswap V3 has expanded to the Bitcoin sidechain Rootstock, potentially bringing deeper liquidity and more DeFi use cases to the crypto industry by combining Ethereum-based Uniswap's smart contract capabilities with Bitcoin's security.

  • Nostr Assets, ORDI Holders, check if you're eligible & claim your $TREAT / $TRICK airdrop now.

  • El Salvador’s newly launched Bitcoin visa program has already reportedly attracted $153M within a week.

  • El Salvador's Bitcoin 'Volcano Bonds' Receive Regulatory Approval for Q1 2024 Issuance 

  • Bitcoin's inscriptions have been flagged as a cybersecurity risk by the US National Vulnerability Database (NVD). This highlights a security flaw that, if exploited, could lead to increased blockchain spam, affecting Bitcoin's performance and fees, especially in relation to the Ordinals Protocol introduced in 2022.

  • Bakery Swap announces IDOs for BRC projects, starting with Bitcoin Cats.

The Bitcoin market has experienced a whirlwind of activity, marked by significant sell-offs and price fluctuations. Key developments include a notable sell-off by short-term Bitcoin holders, contributing to a substantial transfer of around $2B worth of Bitcoin to various exchanges. This event is particularly significant as it's the largest sell-off by short-term holders in the last year and a half. 

These investors, defined as those who have held Bitcoin for under 155 days, split their sell-off activities between periods of losses and gains: $1.1B was moved at a loss, while $900M was transferred during more profitable times.

This sell-off coincided with a dramatic dip in Bitcoin's value. At one point, the market leader fell to a low of $40K, marking a 7.5% drop. This downturn represents one of the most significant single depreciations of Bitcoin in 2023, only surpassed by previous lows in March and August.

Adding to the market dynamics, Bitcoin's open interest, a critical metric in the derivatives market, fell by 5% within a 24-hour frame. This shift reflects a growing divergence between major exchanges like Binance and the CME. Specifically, Binance saw a significant decrease in its open interest share, signaling a shift in market dynamics. Despite these ups and downs, investor sentiment has remained surprisingly stable, with indicators like the Fear & Greed Index showing a continued 'Extreme Greed' state among market participants.

Inflows: Digital asset investment products have seen 11 consecutive weeks of inflows, reaching $43M, but this marks a decline compared to previous weeks. Short positions have also gained traction due to price appreciation and perceived downside risks.

  • Europe leads in digital asset inflows with $43M, while the US follows with $14M (half of which is in short positions). Hong Kong and Brazil, however, experienced outflows of $8M and $4.6M, respectively.

  • Bitcoin remains a major focus for investors, attracting $20M in inflows, contributing to a year-to-date total of $1.7B. Short positions in Bitcoin also gained $8.6 million in inflows, likely due to concerns about the sustainability of current price levels.

  • Ethereum has seen a turnaround with six consecutive weeks of inflows totaling $10M, despite previously experiencing year-to-date outflows of $125M.

Key metrics in the futures and options markets indicate that sophisticated traders are shifting their attention from BTC to ETH, suggesting the potential for Ethereum to outperform Bitcoin in the near future. Bitcoin has recently seen a strong rally, gaining over 60% in the quarter, while Ethereum has lagged behind, with a 35% gain. 

  • Notably, money is flowing into Ethereum futures at a faster rate than into Bitcoin. The notional open interest in Chicago Mercantile Exchange's cash-settled ether futures contract has increased by 30% in the past five days, outpacing Bitcoin's growth.

  • The premium in ether futures relative to the spot index price is now 5% higher than that of Bitcoin, indicating growing interest in Ethereum.

  • These metrics imply that Ethereum may catch up to Bitcoin in terms of performance in the coming weeks, as Bitcoin potentially takes a breather.

The dynamics of Bitcoin transaction fees have shown significant trends. Miners, who traditionally relied on block rewards for revenue, are increasingly dependent on transaction fees due to the ongoing reduction in block rewards.

  • The arrival of Inscriptions caused a surge in transaction fees in 2023, surpassing the less than $200M recorded in 2022, and reaching an estimated $500M. 

  • The introduction of Inscriptions or BRC-20 tokens has led to a noticeable increase in these fees. 

  • In May, miner fee revenue peaked at 43%, with block rewards contributing 57% of the total. Among these fees, Inscriptions accounted for an impressive 61%. In November, there was a significant rise in the proportion of Inscriptions as a percentage of Bitcoin fees, with BTC miner revenue from fees reaching 20%, and Inscriptions representing between 20% and 40% of these fees.

Bitcoin's hash rate has decreased by approximately 8% from its all-time high, with the 7-day moving average dropping from 507 EH/s to around 470 EH/s. The decline in the hash rate has coincided with a decrease in the difficulty adjustment, which recently came close to being flat. 

  • This drop in difficulty adjustment offers a reprieve to miners who had faced six consecutive positive adjustments. 

  • The current difficulty level stands at 67.31T, with only one more adjustment expected by the end of 2023. 

  • In 2023, there have been 7 negative adjustments compared to 19 positive adjustments, and it remains to be seen whether the upcoming final adjustment will tip the balance to 20 positive adjustments for the year.

Bitcoin's price showed significant volatility during the week, reaching a new yearly high of $44.6k before undergoing a sharp correction back to $40.2k. This price action indicates that the crypto market is currently experiencing fluctuations, which can be attributed to various factors.

  • Despite Bitcoin's impressive gains in 2023, certain indicators suggest a potential slowdown in its upward trajectory. On-chain pricing models like the Active Investor Realized Price and Mayer Multiple indicate that Bitcoin's fair value might currently be in the range of $30k to $36k, implying that the recent rally might have outpaced fundamental support.

  • The NVT Price model, which assesses Bitcoin's fundamental value based on its utility as a settlement layer for USD-denominated value, has signaled potential overvaluation. This is particularly notable through the NVT premium indicator, which experienced a sharp spike during the recent rally, suggesting a degree of "overvaluation" relative to network throughput.

  • Short-Term Holders (STHs), who tend to be more active in the market, have taken profits in response to the recent price appreciation. This behavior by STHs has likely contributed to the recent sell-off in Bitcoin's price, indicating that these investors may be cashing in on their paper gains.

Various metrics, including profit/loss ratios and realized profit/loss by STHs, show that STHs have been actively participating in the market. This increased activity among STHs may signal a saturation of demand, as they are capitalizing on their profits and potentially reducing their exposure to Bitcoin.

In summary: The on-chain data suggests that Bitcoin may be facing resistance following its strong performance in 2023. Investors are closely monitoring the behavior of Short-Term Holders for potential signs of market exhaustion, as shifts in STH activity can have a significant impact on Bitcoin's price dynamics.

Bitcoin Ecosystem Update

Top BRC-20 performers by an increase in market cap over the last 7 days. Source: Dropstab.

Latest funding rounds among BRC-20 Projects. Source: Dropstab.

Taproot and Lightning Network Developments: A significant advancement was the introduction of Taproot Assets on the Lightning Network, marking the beginning of the multi-asset era for the network. 

  • This development enables the issuance of digital assets and stablecoins on the Lightning Network. UXUY, a decentralized exchange, has been actively involved in these developments, supporting Bitcoin Taproot assets and launching related services like Taproot Assets block explorer. 

Expansion of Asset Offerings on Binance: Binance has listed the BRC-20 project Sats (1000SATS), introducing new spot trading pairs such as 1000SATS/USDT, 1000SATS/FDUSD, and 1000SATS/TRY.  

  • In a bid to make innovative assets more accessible, Binance has set the listing fee for SATS at 0 BNB. Additionally, the platform plans to offer 1000SATS as a borrowable asset for isolated margin trading, further diversifying its trading options. This initiative is part of Binance's efforts to rebuild its reputation amidst recent allegations of fraud and misconduct.

  • Influenced by the inclusion of BRC-20 SATS on Binance, the Bitcoin Ordinals market achieved a record-breaking trading volume of over $36 million on December 12th. Notably, 85% of this trading volume was attributed to OKX. Simultaneously, the on-chain transaction volume of SATS surpassed $21 million, reaching an all-time high.

Source: Dune.

Historical Sale of Ordinals Inscription: An Ordinals inscription from the Honey Badgers collection was sold for an impressive 10.4 BTC, equivalent to around $450K. This sale, facilitated through the Solana-based NFT marketplace Magic Eden.

Additionally, the renowned auction house Sotheby's recently hosted the first public sale of works from a Bitcoin Ordinals collection titled “BitcoinShrooms” created by the digital artist Shroomtoshi. This event marks a historical moment in the fusion of art and blockchain technology, further showcasing the potential of Bitcoin Ordinals​​.

Notable BRC-20 Tokens and Projects: Among the emerging BRC-20 tokens, several have gained attention and are listed on tier-1 exchanges. Examples include BANK and BISO, which have shown market presence with their unique offerings, and ALEX $B20, which is part of the ALEX B20 ecosystem, a BRC-20 Orderbook DEX. 

Liquidium, a startup, has secured $1.25M in pre-seed funding for its Bitcoin Ordinal-based lending platform, marking a significant development in the Bitcoin lending sector. The funding round received support from prominent investors, including Bitcoin Frontier Fund, Side Door Ventures, Actai Ventures, Sora Ventures, Spicy Capital, UTXO Management, and strategic angel investors.

  • Bitcoin ordinals involve embedding non-fungible tokens (NFTs) onto individual satoshis, making each satoshi a unique digital artifact capable of carrying distinct data or digital assets.

  • Liquidium's innovative lending model utilizes Bitcoin ordinals as collateral, diversifying Bitcoin's utility and introducing a new dynamic to digital lending.

  • The funding will provide Liquidium with resources for platform development and refinement, focusing on creating a secure and user-friendly lending platform based on Bitcoin ordinals.

Splitgate's Integration with Bitcoin: The popular PC game Splitgate has integrated Bitcoin's Lightning Network, offering players a novel way to earn Bitcoin. This integration represents a significant convergence of traditional gaming with crypto, and specifically BTC. 

Ordinals still confusing you? Dive into this latest thread put together by members of the Cryptopragmatist team. 

Be sure to also check out the second thread for further Ordinal-related educational content.

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