In this episode of Bell Curve, which took place on April 19, 2024, Michael, and Vance discuss $BTC correction, memecoins, Runes, profitability, and more. Read our notes below to learn more.
Background
- Michael Ippolito (Host) – Host of Bell Curve
- Vance Spencer (Guest) – Co-Founder of Framework Ventures
$BTC Correction Thoughts
- Michael says that altcoins have experienced significant losses compared to $BTC in recent times. The current correction is not limited to crypto but extends to general markets like the S&P.
- Vance says that two narratives are prominent: uncertainty around interest rate cuts and political factors influencing market sentiment. Political dynamics, particularly in battleground states, impact market perceptions. Market dynamics may shift based on election outcomes, with implications for asset prices.
- He adds that altcoins, especially AI coins, have faced substantial declines due to market saturation and demand-supply dynamics. He expects a paradigm shift in altcoins towards unique categories with less replicable fundamentals.
- Vance compares past market cycles and reveals typical price patterns that may indicate future trends. Recent price surges linked to $BTC ETF developments are a significant catalyst for market movements.
- He adds that outflows from $BTC ETFs raise concerns about broader market corrections but also resilience within the crypto space.
- Vance says that it is challenging for altcoins to breach certain market capitalization thresholds due to financial gravity. He advises caution against artificially inflating coin value post-TGE as it may lead to premature selling pressure.
- He attributes the unusual performance of Solana early in the cycle to specific market dislocations.
Bitcoin Memecoin Barbell
- Vance says that $BTC is thriving while memecoins and other altcoins are struggling due to a pattern recognized by crypto natives. They anticipate the sequence of market movements: $BTC rises, followed by $ETH, Blue Chip DeFi, other altcoins, and finally memecoins. Crypto natives are skipping ahead in this sequence based on past experiences rather than wealth creation mechanics. This behavior reflects a focus on pattern recognition rather than immediate gains.
- He adds that the size of assets like $BTC at 1.25 trillion makes it challenging for price movements to occur easily. As prices increase, substantial inflows of $20 to $50 million per day may be necessary to sustain prices.
- Vance says that changes in administration, such as favoring Trump according to betting odds, could lead to industry expansion by a significant factor. Long-term strategies should consider political narratives like interest rates and presidential races, which can influence market sentiment over months.
- He adds that price movements drive narrative creation; when prices rise or fall, people seek explanations retroactively for these shifts. Current market trends suggest that factors like deficits and elections hold more sway over markets compared to interest rate fluctuations.
- Vance says that maintaining a long-term investment plan amid macroeconomic uncertainties is crucial for navigating short-term fluctuations driven by sentiment swings. Market volatility often stems from short-term sentiment shifts influenced by various factors; focusing on long-term goals helps navigate these fluctuations effectively.
Runes Launch
- Vance says that Runes allows the creation of token standards akin to ERC-20 on Ethereum within Bitcoin’s limitations due to a lack of smart contracts.
- He adds that Runes are a way to overcome Bitcoin’s constraints by enabling functionalities similar to Ethereum’s ERC-20 tokens. They have sparked significant activity on the Bitcoin blockchain. Magic Eden‘s success in shifting from Solana to Bitcoin due to the ordinals’ popularity is important. This shift has revitalized their market share on Solana as well.
- Vance says that different perspectives exist regarding inscriptions; some view them as spam while others see potential in driving narratives and use cases within the crypto space. He makes comparisons between NFTs and memecoins concerning liquidity inefficiencies in speculating with NFTs requiring specific buyers, unlike AMMs for meme coins.
- He adds that speculation is driven by wealth creation in $BTC, $ETH, and other tokens, leading individuals to seek further gains through limited asset options. As individuals become more accustomed to risk in established assets like $BTC and $ETH, they venture into newer assets with potential growth opportunities despite perceived risks. Early adoption of assets such as $LINK highlights the need for a certain mindset to explore high-risk ventures that may yield substantial returns over time.
- Vance says that Bitcoin and Ethereum ecosystems are converging towards similar models where layer-1 focuses on DeFi, NFTs, and high-value transactions while layer-2 caters more towards speculative activities like memecoins.
- He adds that Celestia embodies a vision akin to what big block proponents envisioned for Bitcoin if certain technologies were available earlier, featuring large blocks and innovative solutions like data availability sampling. Over time, Celestia aligns with Bitcoin and Ethereum in functionality convergence, potentially leading to commoditization within the cryptocurrency landscape.
- Vance says that stablecoins like $DAI capture 35-40% of all DeFi profits. Considering the Maker–Ethena partnership, Maker can enter trading without risk due to being delta-neutral. Exchange risks exist but stablecoins provide a superstructure for trading.
- He adds that community usage enhances network effects tenfold. The underlying asset plays a crucial role in fostering network effects and liquidity.
- Vance says that Bitcoin’s transaction count decreased despite price appreciation post-Taproot upgrade. Liquidity, adoption, and narrative are more critical for asset success than underlying protocols.
- He adds that Celestia uses ZK accounts for trustless bridging from Ethereum to rollups.
User & Economic Lock-in
- Vance says that $BTC’s narrative evolution was initially positioned as a store of value akin to digital gold with a 21 million hard cap, though narratives have shifted over time. Current narrative vibe emphasizes a macro Austrian economic perspective, advocating for limited government intervention and aligning with a gold-loving ethos.
- He adds that the emergence of debates between tech enthusiasts pushes innovation and financial proponents to maintain traditional values. Spirited conversations within the Bitcoin community regarding expansion implications and potential disruptions to established narratives.
Layer-1 vs Layer-2 Scaling
- Vance says that there is a notable inclusion of discussions around the Bitcoin Renaissance due to increased innovation focus within crypto communities. Bitcoin layer-2 solutions gaining prominence, and it indicates a shift towards embracing diverse perspectives within the ecosystem.
- He adds that Ethereum’s transformation from an optimistic smart contract platform to a mature $300 billion protocol emphasizes its role as a monetary entity.
- Vance says that the debate centers on whether it is more beneficial to have high-value users conducting transactions on the main chain with stable supply or to attract more users by reducing fees. The layer-1 and layer-2 architecture suggests high-cost layer-1 transactions with fewer users but aims for mass adoption through layer-2 solutions native to chains. To become a trillion-dollar protocol, a diverse incentive structure is crucial, highlighting the significance of multiple layer-2 approaches for growth. Scalability challenges are evident in Solana’s transaction volume surge, emphasizing the need for sustainable solutions beyond short-term patches.
- He contemplates whether a monolithic chain can reach trillion-dollar status without a layer-2 ecosystem supporting upward economic flow.
- Vance says that Solana’s transaction overload poses both opportunities and challenges, underscoring the necessity for long-term strategies beyond immediate fixes. Addressing escalating transaction volumes prompts considerations about pricing compute resources appropriately or adopting layered approaches like layer-2 solutions.
- He adds that sticky layer-1 transactions play a pivotal role in bootstrapping chains while emphasizing the importance of attracting diverse user bases for sustained growth. Finding the optimal balance between fees, throughput, and use cases is essential in determining sustainable economic models that drive network disruption.
- Vance says that Solana’s 400 millisecond block times enable efficient base sequencing, potentially simplifying interoperability challenges. Moving to layer-2 solutions allows for shorter confirmations, enhancing user experience and utility.
- He adds that Solana’s strong layer-1 functionality could provide advantages over Bitcoin in terms of layer-2 capabilities. He emphasizes the significance of apps and assets in driving value within the ecosystem.
- Vance says that apps hold significant power within the crypto space, influencing network dynamics and user engagement.
Profits for a Layer-1
- Vance says that there are contrasting profit mechanisms between layer-1 protocols and traditional companies. He discusses the lack of compounding effects on profits within layer-1 systems compared to corporate reinvestment strategies.
- He views layer-1 protocols as more commodity-like than equity-like due to limited reinvestment opportunities. There are differences in economic structures between protocols and traditional businesses.
- Vance says that participants engage in a positive carry trade by lending USD stablecoins at 14% interest while borrowing $DAI at 15%, resulting in a 1% yield. Maker is anticipated to reach $10-15 billion of $DAI supply with interest rates ranging from 13% to 16%, potentially generating significant revenue. Maker’s revenue could surpass that of Tron, positioning it as a lucrative protocol within the crypto space.
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Show Information
- Medium: YouTube (Video)
- Show: Bell Curve
- Show Title: Bitcoin’s Renaissance: Inside Runes, Ordinals, and Transaction Revenue | Roundup
- Show Date: April 19, 2024