Can't see the pictures? Select "Enable all message content" or view this message in your browser.
*Ninepoint Digital Asset Group, is a division of Ninepoint Partners LP.
(8 Day Change as of Jan 13, 2022 9:50AM ET)
Bitcoin Price: $19,014  12.98%
DeFi Total-Value-Locked: $42.5B
Ethereum Price: $1,411  13.06%
Crypto Market Cap: $908B
Bitcoin Range: $16,757 - $19,115
BITC.U Close: $5.65 (as of Jan 12, 2023)
Ethereum Range: $1,260 - $1,439
BITC.U NAV: $5.62
Bitcoin Dominance: 42.38% 1.60%
BITC.U Premium: 0.53%

Crypto Market Struggles Continue: Layoffs and Bankruptcies Plague Industry

The cryptocurrency market has faced significant bearish pressure over the past year, leading to a total capitalization of under $900 billion after reaching an all-time high of $3 trillion in 2021. Many companies, including exchanges, have filed for bankruptcy or collapsed, causing a contagion effect and deterring new investors. In response to the market downturn, exchanges including Coinbase, Kraken, and Bybit have laid off staff, with over 26,000 layoffs in the industry in the first eleven months of the year. Other companies such as Swyftx, Lemon Cash, and Unchained Capital have also reduced their workforce due to the lack of a clear recovery horizon in the market. On Monday, Coinbase announced it was laying off 950 employees or 20% of the exchange’s workforce. The stock rose after the news, tracking other traditional technology firms like Amazon and Google who have cut staff.

Judge Rules: Celsius Earn Program Funds Belong to Lending Platform

A recent ruling by Judge Martin Glenn has determined that the funds in the Celsius Earn program, totaling over $4 billion, legally belong to Celsius as per their “unambiguous” terms of use. If the funds are found to belong to the debtor, they will be distributed according to a Chapter 11 plan for unsecured creditors. The court has granted Celsius an extension until February 15 to present a Chapter 11 restructuring plan. Additionally, the ruling has allowed for the sale of $18 million worth of stablecoins in the Earn program, as Celsius has shown a valid business justification for the sale.

DCG and Genesis Global Capital Targeted in U.S. Authorities’ Probe

Cryptocurrency company Digital Currency Group (DCG) is being investigated by the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) for internal transfers between DCG and its subsidiary crypto lending firm, Genesis Global Capital, according to a report by Bloomberg. The authorities have already requested interviews and documents from both companies, and the SEC is conducting a similar early-stage inquiry. While no indictment has been brought against DCG and no information has been provided by either agency, a spokesperson for DCG has stated that they have "no knowledge of or reason to believe" in the investigation. DCG owns several subsidiaries, including Grayscale Investments, CoinDesk, Luno, and Foundry.

How Web3 Borrows from Traditional Finance

By Alex Tapscott

Many Web3 proponents tout the ‘frictionless and efficient’ nature of value transfer. While it’s true that transactions in Web3 settle instantly (or nearly instantly) and peer to peer value transfer enables greater economic freedom and autonomy online, they are not free!

Bitcoin users pay a hidden fee in the form of the ‘inflation rate’ of new Bitcoin getting created to incentivize the “miners” to contribute vast computing power to secure the network. Ethereum holders “stake” their ETH to the network to help secure it in exchange for a “yield.” Matt Levine of Bloomberg once wrote an insightful (and humorous) piece describing how these so-called “stakers” are a lot like lenders in traditional finance. By tying up their ETH as stakers, they are effectively lending money to the network to maintain a decentralized ledger of transactions, earning a reasonable rate of interest in return. The staking yield helps capitalize a decentralized network where previously a bank or other company would have played the same role. The punch line of the article was basically, “leave it to crypto people to reinvent…interest!” Levine still concedes that what Ethereum is doing is also genuinely innovative.

Well, if you thought reinventing interest was amusing, hold my beer! Because now Web3 is reinventing…earnings! On last week’s DeFi Decoded, Andrew Young, my co-host, described how 2023 will be the year when investors start to look more closely at so-called “protocol revenue.”

Potocol revenue typically refers to the revenue generated by a decentralized protocol or decentralized application through the collection of transaction fees or other charges on the network. For example, Uniswap, a decentralized exchange (DEX) built on Ethereum, charges a small fee on each trade made on the platform. Compound, a decentralized lending platform that allows users to borrow and lend cryptocurrency, generates revenue through interest charged on loans. MakerDAO, a decentralized platform that mints the DAI stablecoin, also charges a small fee. The revenue generated by these protocols is often used to cover operating costs and to fund development of the protocol or platform, accruing over time to a ‘DAO Treasury’ which is basically an on-chain wallet that functions like a bank account.

DeFi and other Web3 applications which make money should not surprise anyone. Web3 founders are a capitalist bunch like any other group of entrepreneurs. But do the native tokens of the applications who generate the most earnings, see the best returns? Not necessarily. In DeFi specifically, many projects offered eye-watering ‘token rewards’ to attract users and liquidity to the platform. This can be a powerful way to scale your project, however it is a double edged sword. Let’s say a hypothetical ‘Protocol XYZ’ has 10 million tokens outstanding and it makes $10 million in protocol revenue in year one. Protocol revenue per token is $1.00 ($10/10). By year two, there are now 11 million tokens and $10.5 million in revenue. Protocol revenue is now about 95 cents, less than before. Hence, if the issuance of new tokens increases more than the growth in protocol revenue than the “revenue per token” declines. This makes any new issuance of tokens “dilutive” to revenue per token, rather than “accretive.”

Starting to sound a little familiar? Public companies routinely tap the equity markets, raising capital by issuing new shares. With the same earnings as before but with more shares, earnings per share declines (at least in the short term). Although, if the company takes that money and launches a new product or acquire another company, then it can be accretive to earnings. Protocol revenue per token is basically Web3’s answer to earnings per share. Andrew pointed this out on the podcast, arguing that successful projects will grow revenue more than their new token issuance, making it accretive to existing holders. His point was also that offering ‘liquidity rewards’ which basically means massive dilution long-term, will be unsustainable. Instead, quality projects will build a moat around their functionality, not just liquidity. To dive in deeper to this subject, check out last week’s episode of DeFi Decoded.

Author’s Note: The January 5th edition of Digital Asset Digest essay titled “Is Ownership Always Good? Challenging One of the Core Arguments of Web3” and the December 1st edition of Digital Asset Digest essay titled “Does Web3 Create Perverse Incentives?” both included paragraphs that were substantially similar. We apologize for the error.

Solana Survived! Plus: 2023 Crypto Predictions (Part 2)!
On this episode, Alex and Andrew briefly summarize the situation with Solana. It turns out reports of the death of the once-ascendant Layer 1 blockchain were premature. Then, Alex shares his four Web3 predictions for 2023. First, enterprise adoption of Web3 will accelerate rather than slow down. Second, DeFi will grow beyond the insular crypto community because of better reputation scoring and the integration of real assets. Third, Web3 gaming will drive the next wave of digital asset adoption. New Web3 games will make earning and owning a nice to have rather than the point of the game. Fourth, the U.S.  will pass a major law around crypto. Alex is cautiously optimistic the blockchain caucus in the U.S. congress and the Web3 lobby can steward this towards a reasonable outcome, but it comes with plenty of risks. Tune in to hear more!
Source: glassnode
#1 – Maturing Bitcoins and Accumulation Dominance: A Look at the Value Days Destroyed Multiple
The Value Days Destroyed Multiple has dipped back into low levels, indicating a dominant accumulation phase with maturing bitcoins. This metric compares recent spending to the yearly average and helps depict market tops and bottoms. The recent uptick in activity seen in November due to the FTX collapse has returned to previous levels, suggesting that the market is not currently overheated. Low values below 0.75, the green-shaded areas, are often seen during prolonged market downturns and periods of accumulation; this graph suggests we are in a bear market, like the patterns seen in previous market cycles.
Source: glassnode
#2 – Reserve Risk at an All-Time Low: What Does the Future Hold for Bitcoin?
The Reserve Risk framework is showing signs of undervaluation and a potential accumulation phase, as indicated by high confidence levels among long-term holders, low prices, and a rising unspent opportunity cost. This pattern is often seen during bear and early bull markets, but we have never seen Reserve Risk at such low levels. This makes it challenging to accurately forecast the future of such uncharted waters, but it is an interesting metric to monitor moving forward.
Source: the block
#3 – Bear Market Woes: Bitcoin's On-Chain Volume Plummets 80% in Past Year
Bitcoin's On-Chain Volume, a measure of economic activity on the blockchain, has plummeted nearly 80% over the past year to $2.5 billion as of January 7, 2023. This decrease can be attributed to bear market conditions and major failures like the FTX collapse, and the last time such low levels of volume were seen was in September 2020. The significant drop in On-Chain Volume may indicate a prolonged bear market period.