Ring around the BTC charts, this is Colton from Hedgehog, the app that helps you buy baskets of cryptocurrency and automate your digital asset exposure wherever you custody funds. Or if you want to get exposure to US Treasury Bills via OpenEden, we can now help you avoid debanking risk by holding TBILL tokens in a wallet you control. Contact us for more details!

Bitcoin is on fire, blasting through $50k this week and gearing up for its next halvening event at block 840,000 which should occur in a little over 60 days. BTC’s value is the highest it has been since 2021 and altcoins are starting to feel the halo effect of the added liquidity in the space. But I think there’s a bigger structural story here:

The floor is lava

Major news from the week features Fidelity including an allocation of Bitcoin in even its “conservative” all market products (in Canada). This is huge news, as it means that broad allocators like pensions, university endowments, and target date funds are starting to include a minimum BTC allocation in their generic strategies for main street investors. As universities raise more money, as pension funds slowly accrue deposits from their members, their investment managers are going to dumbly buy into Bitcoin with 1 - 5% of the assets, no matter the price of Bitcoin.

We’ve already seen some of the crazy results of these indexing strategies with phenomena like the Magnificent 7 accounting for the majority of outperformance in the S&P 500, or the unavoidable carnage of being dropped out of the S&P 500 index, which can lead to a 7+% decline in stock value on average. Since money managers allocate into these indices (or very similar ones) only based on relative market capitalization or flat capital percentages, the price of the underlying becomes a secondary consideration to the stated investment criteria of the underlying funds. On net, the structural flows cause capital to accumulate in the largest assets in what’s called a momentum effect. BTC now qualifies for this kind of treatment more broadly, and so we should expect to see its value accumulate commensurately.

Why number go up? Because number go up.

And there is already evidence to suggest this! Astute observers have noted the decline of investment in hard money like gold even as the total assets in BTC increase. Bitcoin is now once again in the top ten most valuable assets in the world by market capitalization. But the total search volume in Bitcoin is actually down even since 2022 when its price was much lower than today! This suggests that the majority of the price action is being driven by institutional players rather than retail, and this dumb money effect is much more likely given that ETF flows have been enormously positive the last two weeks, and the negative sell pressure has largely evaporated. We do still have to worry about the Genesis $1.3B sell off, but it’s a drop in the bucket compared to the $2B in inflows that occurred over the last four days. And the miners can’t keep up with demand, even before the halvening.

Red rover, red rover, send everything over

Additionally, it appears that ETH is disappearing off exchanges in favor of on-chain destinations. Quite the reverse of the Bitcoin situation, it seems that Ethereum consumers are much more likely to be savvy to the ways of web3 and to want to store their assets in their own wallets. Bullish news for the ETH ETFs that are under consideration, much for similar liquidity reasons as above. If no one’s selling their ETH in exchanges, then how are the institutions going to get access to the asset for their structured products?

This is easily reflected in the total value locked in lending and restaking protocols on Ethereum versus other chains. With over $70 billion locked across all protocols tracked by DefiLlama, over $40 billion is on the Ethereum main chain. That doesn’t even count the value locked on derivative chains like Arbitrum or Polygon. Worth noting is the nascent smart contract networks on Bitcoin via ordinals, Stacks, RSK, and others that have managed to garner a little over a billion in assets. Watch this space!

Hide and seek

According to Chainalysis, money laundering via crypto is down 30% last year, despite an increase in total transaction volumes. This is a good sign for the maturation of the industry and the increasing number of methods that law enforcement has for tracking these illicit transactions and identifying the wallet owners.

It is worth noting that the industry itself is also putting forward its own ideas, with Security Alliance researcher samczsun leading the charge in putting together a standard by which white hat hackers, or benevolent programmers who want to responsibly disclose bugs, can exploit a bug and return the funds to a smart contract for some proportion of the exploited funds. This helps to formalize these sorts of agreements and create trust between hackers and organizations. It may even make being a white hat lucrative enough to convert some enterprising black hats out there.

Weekly feature

An oldie but a goodie, Gnosis has been showing strong gains over the last 6 months, in competition with Bitcoin for greatest gains over that time period, and a token older than the 2021 vintage. You may recognize the token from the eponymous GnosisSafe, which is the most widely used multisignature wallet software to require signatures from multiple wallets before approving a transaction on-chain. Slightly less well known, they started out with prediction markets and oracles, and released one of the earliest sidechains to Ethereum called xDAI.

There’s no guarantee that the momentum on GNO will continue, but it still has 50% to grow back to its all-time high and it recently launched GnosisPay and Hashi bridge consensus to juice the volume on the underlying chain. It’s total value locked is close to its all-time high from December, and up over 25% from its previous high in May 2022. RSI indicates it may be a bit overbought at this point, but as a pair, it could be interesting to trade with RUNE or STX based on the low or inverse correlations and the narrative fit.

We’re in the arena trying things with the new OpenEden TBILLs and soon on-chain multi-network automation like airdrop farming or yield optimization. Let us know what you think about the new weekly feature idea and include one of your own ideas!

Keep hedging,
— Colton