Coinbase: Finding the Next Crypto Catalyst

原文标题：Monthly Outlook: Searching for the (Next) Crypto Catalysts

原文作者:David is

Original source: Coinbase

Compiler: Lynn, Mars Finance

At first glance, while on-chain innovation has reached unprecedented levels and is constructive for the space in the long run, we believe macro factors are likely to play an important role in the near term.

gist

• While Bitcoin halving has historically sparked a bullish trend, these cyclical rallies are often accompanied by other ecosystem catalysts that provide an additional boost.
• A growing talent pool, sophisticated development tools, and increasing blockchain scalability have made broader verticals a catalyst for this cycle, although the liquidity channels for inflows appear to have shifted from venture funding to spot ETF inflows.
• In the near term, we expect Bitcoin's dominance to remain at a higher level as the broader macro environment will be more risk-averse and liquidity injected through ETFs is unlikely to shift to higher-beta assets.

In addition to the Bitcoin halving, which we detailed earlier, the market is looking for new catalysts to sustain the 1Q24 rally sparked by the approval of the US spot Bitcoin ETF. The continued growth in stablecoin issuance and the growth in total value locked (TVL) of DeFi protocols indicate continued strong on-chain activity. At the same time, continued platform innovation at the Layer 1 (L1) and Layer 2 (L2) levels, coupled with improved wallet tools to provide a better user experience, forms the basis for some of the narratives that we believe will be most relevant in the coming months.

That said, we think short-term activity is more likely to be driven by macro factors, although crypto fundamentals remain strong overall. These factors are largely exogenous to cryptocurrencies, including heightened geopolitical tensions, rising long-term interest rates, reflation, and rising national debt. Indeed, this is highlighted by the recent rise in the correlation of altcoins with BTC, demonstrating BTC's anchoring role in the space, even as BTC cements its position as a macro asset.

While cryptocurrencies have historically been largely seen as asset class risk, we believe Bitcoin's continued resilience and the approval of spot ETFs have created a polarized group of investors (especially Bitcoin) – one who views Bitcoin as a purely speculative asset, the other as "digital gold" and hedges against geopolitical risks. In our view, given the broader macro risks, growth in the latter camp partly explains the reduction in the magnitude of the pullback we have seen so far this cycle.

Pattern after the halving

Previous halvings are often thought to trigger a cyclical bullish trend, although the immediate impact of the halving appears to be largely unimportant in the short term. In fact, BTC fell 19% in the month following the 2016 halving and remained largely unchanged for more than two months after the 2020 halving (see Figure 1). Similarly, we don't expect the upcoming halving to be a trading-intensive story, although we think its relevance in flows is therefore overlooked – out of $63,000 in BTC, the halving equates to a $10.3B reduction in BTC issuance per year, with US spot BTC ETF net inflows of $12.4B to date, offsetting BTC outflows by a similar amount.

In fact, we believe that increasing access to a broader capital base through spot ETFs, coupled with new supply-side dynamics,. However, if the previous cycle is any indication, this may take several months to fully materialize. The top after the halving occurs between 350 and 550 days after the event (see Figure 2), although the timing of this cycle is already different. Against the backdrop of spot ETF inflows, Bitcoin reached an all-time high more than a month before the halving, and we expect Bitcoin to deviate further from the previous time trend.

However, the halving isn't just good for Bitcoin. As the industry matures, constructive narratives in parallel cryptocurrency verticals often occur after halvings as well. After the 2016 halving, the boom in initial coin offerings (ICOs) brought the market into 2017. Similarly, the summer of 2020 kicked off the rise of decentralized applications (dApps) like Uniswap and Maker, kicking off nearly two years of experimentation in DeFi primitives and other early products.

Source of liquidity

With the advent of new tools and use cases, the number of cryptocurrency verticals today has swelled tenfold. Block space has never been cheaper, and the number of "things to do" on-chain has never been greater. Social apps like Farcaster are poised for early adoption, while a range of well-designed blockchain games are starting to go live. Enabling developers to deploy a more seamless onboarding journey, and DeFi primitives continue to expand into areas such as liquidity re-staking and novel on-chain derivatives. At the same time, tokenization projects across different financial products and jurisdictions are making significant progress, and the overlap between on-chain financialization and off-chain physical assets continues to grow. This is largely driven by the phenomenal growth of infrastructure infrastructure built during the bear market.

In our view, this could lead to a different pattern in this cycle, where more different sub-sectors outperform at the same time (rather than industries concentrating on one or two major themes). Especially in the world of independent applications with increasing technical complexity (where blockchain components are abstracted from users), the differences between tokens and revenue models are becoming more and more wide. This breadth has given rise to new forms of revenue streams that were not normally available in previous cycles. For example, BonkBot, a telegram bot that works with the BONK community, regularly incurs overcharges on a daily basis (with a peak daily fee revenue of $1.4 million).

We further believe that the distinctions between crypto verticals in this cycle may lead to more pronounced capital rotation between sectors. In fact, we've seen some signs through the early focus on (AI) projects, and the subsequent excessive focus on meme coins and restaking.

This view is supported by the sluggish level of crypto fundraising (relative to previous cycles). It reduces the primary avenue for new liquidity for high-beta assets. The average amount raised in 2024 is still below $1 billion per month, and even below 2017-18 levels, which are about a quarter of 2021-22. The decrease in funds is both a by-product of the severe impacts of previous cycles and part of a macro pullback. Private markets generally shrank in 2023, with the total amount of capital raised by venture capital funds hitting a six-year mark

The relative lack of financing raises the question of how to inject liquidity into the sector. Spot ETFs were undoubtedly one of our main avenues before. They have access to a broader pool of capital, from Registered Investment Advisors (RIAs) to potential distributions from other managed funds. BlackRock, for example, has developed a plan to include spot bitcoin ETFs in its global allocation fund. However, these capital inflows are limited to BTC (and possibly ETH in the future) and are unlikely to flow further down the risk curve. If there are no significant changes to this market structure, we believe Bitcoin's dominance will remain high for some time.

On the other hand, we believe that the main means of injecting altcoin liquidity (outside of leverage) comes from the net growth of stablecoins. Stablecoins participate in the majority of the 2.6% of the average daily trading activity on decentralized exchanges (DEXs) and are further traded by many centralized exchanges (CEXs). Although the total market capitalization of stablecoins is still below its peak in 2022, the total issuance of USDC and USDT has broken through record highs and is sustained. If we strip out the impact of the now-defunct TerraUSD on the total market capitalization, the stablecoin as a whole is actually close to its previous all-time high.

Think big

While we expect the rise of endogenous catalysts in crypto in the future, we believe the macro picture will play a more important role in the near term. In fact, after the previous halving, macro tailwinds are also important, perhaps even more so than crypto-native catalysts. The main impact of the 2012 halving was due to the Federal Reserve's quantitative easing program and the U.S. debt ceiling crisis. Similarly, in 2016, Brexit and the controversial US election may have sparked fiscal concerns in both the UK and Europe. The COVID-19 pandemic in early 2020 also led to unprecedented levels of stimulus, driving a significant rise in liquidity.

We believe this cycle is no different, and that today's macro environment is equally important for Bitcoin and the broader cryptocurrency. Leverage has fallen sharply recently following the intensification of the conflict in the Middle East, which has reset the funding rate to near zero. The ongoing war on the front lines between Ukraine and Russia, as well as tensions in the South China Sea, also paint a global picture fraught with uncertainty. In our view, the growing importance of global geopolitics in the broader trend of deglobalization and reshoring could be a defining macro feature of this cycle. This is especially true in a risk-off environment. The correlation between Bitcoin and most other cryptocurrencies has consolidated upwards after some decoupling during the 1Q24 rally after an uncertain market direction.

Bitcoin's correlation with gold continued to rise in March and April due to concerns about rising inflation, which also indicates Bitcoin's growing status as a sensitive macro asset in the absence of crypto-specific catalysts such as spot ETF approvals. This behavior is promising given Bitcoin's claim as a store of value, although we think this claim has actually been reinforced in the recent bear market.

Bitcoin saw a strong bid during the uncertainty over the U.S. debt ceiling in January 2023 and the regional banking crisis that followed in March of that year. The price appreciation of the compression (as experienced in the last 6 months) may distort this signal to some extent as it introduces an element of speculation and excitement. Nonetheless, we still believe that Bitcoin's value as a geopolitical hedging tool has so far contributed to more aggressive bargain buying, with maximum drawdowns capped at 18% (compared to more than 30% in previous cycles).

In addition, the rise in the level of US Treasuries is another topic of concern for Bitcoin supporters. The Congressional Budget Office forecasts that $870B will be spent in 2024 to service the national debt, up from the $658B recorded in 2023. Of course, we think this is worrying and is driving an inversion of the bond yield curve – with higher interest rates for a long period of time likely to be fiscally unsustainable as Treasuries need to be refinanced.

That is, even if the pace of the US debt burden continues to accelerate, it is possible that the US will get out of debt by growing (or balancing the budget by reducing spending or raising taxes, although this seems unlikely in the short term by the middle of the upcoming elections). Stronger-than-expected GDP growth and high employment data are likely to increase overall tax revenues. While we don't think the current growth rate can fully offset the increased debt burden, it is not fully discounted either. Risks such as geopolitics, inflation and Treasuries combine to form the macro backdrop for this cycle.

conclusion

All else being equal, the Bitcoin halving is inherently a constructive event, although we believe that the macro environment and tangential breakout crypto verticals have historically played a significant role in catalyzing cyclical bull runs. While this process has historically taken several months, it will vary from cycle to cycle – we believe that changing market structures may contribute to some of the uniqueness of this cycle as major ETF inflows and venture capital decline.

We further believe that the last cycle cemented Bitcoin's sensitivity to global liquidity after the COVID-19-induced stimulus. However, global mobility no longer appears to have increased at the same rate and has taken a back seat, with more substantial instability, both domestically and abroad. In light of this, we believe that the upcoming cycle will focus on testing the Bitcoin store of value narrative, supported by a broader decentralized crypto catalyst across different verticals.