The Hottest Crypto Narrative Yet! Don’t Miss it!
Pick the right narratives for this bull market and you could stand to make serious gains. Problem is, there are quite a few to choose from and not all of them will be successful this cycle. But one narrative is starting to emerge that looks immensely promising and could be the catalyst for some serious mass adoption. Step forward, DePIN.
If this is the first time you’ve seen that collection of letters, it stands for Decentralised Physical Infrastructure. So, think decentralised wireless networks, cloud computing, data storage, etc, etc. You’ll no doubt know that these sectors are currently dominated by massive, centralised behemoths (think AWS) and are thus ripe for disruption.
If the above sounds intriguing, then consider these two factors as well: firstly, a number of DePIN projects have seen some mind-boggling amounts of post-ICO funding. That is rare in crypto and suggests investors have a lot of confidence in their future success. And secondly, DePIN doesn’t involve the sort of financial uses and applications that have regulators so spooked about other crypto niches, especially DeFi. Food for thought.
Among those who have their eye on DePIN are the research gigabrains at Messari, who recently produced a report on the sector. As with so many of Messari’s reports, it contains a boatload of useful information, so much in fact that we cover it in today’s video. So, if you want the lowdown on this most promising and downright fascinating of crypto niches, get ready to see how it might change the world by watching that video right here.
(PS - if you read on, you’ll learn about yet another promising narrative in a few paragraphs’ time…)
📈 Crypto Market Forecast 📈
It looks like we could be in for another rough week in the crypto market. This is primarily due to the fact that the crypto-specific factor (the spot Bitcoin ETFs) that had been driving most of the rally since last summer is ‘over’. Not only is it over, but GBTC holders are reportedly selling BTC from Grayscale’s ETF to the tune of billions of dollars.
Not to brag, but this is something we had noted in our video about how high BTC could go after the spot Bitcoin ETF approvals. Specifically, we noted that while there would be significant inflows, these would be spread out over time. Conversely, the sales from GBTC arbitrageurs would happen faster, and it seems they will continue for the time being.
Similarly, the bankruptcy estates for Celsius and FTX are reportedly sending hundreds of millions of dollars of ETH to exchanges, presumably to sell. It’s not entirely clear how much ETH they can or will sell, but consider this: Celsius alone recently unstaked almost 500 million dollars worth of ETH. It’s safe to assume then that this sell pressure will continue too.
It’s not just crypto-specific factors that are holding the crypto market down either. If you’re a member of the Coin Bureau Club, you’ll know we recently did an analysis arguing that the interest rate on the 10-year treasury seems to be moving crypto prices the most. In case you missed the news, the 10-year yield is rising due to strong jobs data and Fed hawkishness.
That puts this week’s PCE print front and centre. For reference, the PCE is the Fed’s favourite inflation measure, and it’s scheduled to be released this Friday. If it comes in higher than expected, it could cause yields to spike higher, with crypto falling lower. Conversely, if it comes in lower than expected, it could cause yields to drop lower, with crypto rising higher.
This begs the question of what impact the sudden surge in layoffs will have on yields, and the crypto market by extension. As you may have heard, a bunch of big tech companies are starting to fire people again.
The answer is that it could cause yields to fall and crypto to rally. That’s because lots of layoffs means a weaker economy, which means that the Fed would respond by lowering interest rates. That would be bullish for risk assets like crypto, which are sensitive to rates. The catch is that it will take time for all of the above to show up in the official data.
The practical effect of this delay is that yields could continue to rise in the short- to medium-term, and that could continue to put pressure on the crypto market. This ties into another macro factor that seems to be emerging, and that’s the sudden rise in geopolitical risk. For starters, there seem to be significant supply chain disruptions in the Red Sea.
Logically, these supply chain disruptions risk increasing all kinds of goods-related inflation. As with employment though, it will take time for these things to show up in the official inflation statistics. In this case it’s more of a silver lining, because it means there’s a window of time wherein yields could fall - a window of time wherein crypto could continue to rally.
On the crypto-specific side meanwhile, the biggest tail risks continue to be regulatory in nature. There’s still no shortage of FUD around Tether these days, but the bigger regulatory catalyst could be related to the SEC’s case against Coinbase. According to an attorney who worked with Coinbase, the SEC won’t be throwing out the case, and will announce that decision soon.
For reference, there appear to be hopes that the SEC’s case against Coinbase will be binned by the judge following last week’s meeting. That’s simply because of the de facto precedent that the ruling in the Ripple case had set (sales of XRP on exchanges were not securities). Unfortunately, it seems that won’t be enough to save Coinbase from further scrutiny.
Remember that CZ will be appearing in court in February as well. Interesting times ahead…
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🔬 DeSci 🔬
Among the number of ‘crypto-enabled’ narratives (DePIN, DeSoc, tokenized RWAs, etc.,) that have emerged over the past couple of years, there is one that seems to have gone relatively under the radar - DeSci, or Decentralised Science.
However, those who’ve taken a closer look at this narrative know that DeSci has far more potential than most give it credit for. This is largely due to its potential to eliminate some of the major barriers preventing large-scale scientific research and collaboration.
This becomes even more relevant and important when you realise that collaborative and open research was crucial to producing cures or vaccines in times of distress, such as the recent COVID-19 pandemic.
In fact, the easiest way to understand how DeSci adds value to traditional science is to take a look at how it impacts each of the four major stages of scientific research: funding, research, peer review and publication.
Funding is one of the most crucial stages, and dictates what researchers choose to study and how they study it. A Vox report found that federal funding for scientific research in the United States has plateaued since 2000 and even dipped with sequestration budget cuts in 2013. Meanwhile, the talent pool of scientific researchers has been growing exponentially, as access to education around the globe has widened following a period of relative world peace.
This means that there are more researchers and less funding compared to 30 years ago. This creates an imbalance, which forces existing researchers to retain their lines of funding by continuously publishing literature relating to widely-researched and ‘safer’ focus areas, inevitably resulting in a stall in innovation.
However, DeSci fixes this funding gap by using decentralised funding models such as crowdsourcing, quadratic funding and retroactive funding. Moreover, this has also led to a rise in DAOs that focus on funding and nurturing research relating to a specific area of science. These include research about longevity (VitaDAO), hair loss (HairDAO), women’s health (AthenaDAO), climate change (ValleyDAO), and more.
Meanwhile, research, the second stage of the process, is plagued by issues surrounding a lack of transparency and record-keeping. Specifically, the current architecture is one where researchers work in silos under centralised bodies that fund their efforts and claim ownership over the resulting intellectual property that’s produced.
This not only results in researchers having limited autonomy and rights over their research, but also contributes to issues such as the replication crisis – the inability of other researchers to verify and validate the work of their peers.
DeSci fixes this problem by using decentralised storage solutions built on public blockchains to create a verifiable and publicly available record of the research. This also allows researchers to bypass centralised intermediaries and collaborate with other open-source researchers. A few of the projects working on decentralising the research layer are LabDAO, Data Lake, Coordination Network and PrimeIntellect.
As for the issue regarding intellectual property, DeSci players use IP-NFTs to allow researchers the freedom to licence their IP to other entities, either via private deals, auctions or even fractionalisation. Projects such as VitaDAO use IP-NFTs.
Peer review, the third stage of the process, is another important step which ensures the quality of the research being produced. However, it lacks proper incentives, since researchers perform peer review for free while the academic publishing industry extracts enormous profits from the process by acting as an intermediary. DeSci projects such as ResearchHub Foundation (co-founded by Brian Armstrong) seek to resolve this issue by offering token incentives for honest peer reviewers.
The final stage of the process is publication. As noted above, the primary issue that plagues scientific research is the amount of control in the hands of centralised entities, including publishing bodies. Specifically, these publishers lock publicly-funded research behind paywalls and even require researchers themselves to pay publications to publish their work. By decentralising the publishing landscape, we can decrease the concentration of power in the hands of a handful of major players.
The attention towards DeSci is slowly but surely growing. Major names like Coinbase’s aforementioned Brian Armstrong and Binance’s Changpeng Zhao have already announced their next moves will involve the acceleration of the DeSci landscape. Intellectual, as well as financial capital appears to be headed in DeSci’s direction.
This narrative could well be one to watch this cycle…
🔮 Video Pipeline 🔮
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* SUI Review 2024: The Ultimate High-Speed Blockchain?
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📖 Quote of the Week 📖
Crypto narratives are very important. Sure, you can try and find the “next 100x” project playing a particular narrative, but that comes with idiosyncratic risk. But, if you are convinced of the narrative, you can just buy the coins of the underlying networks these narratives are likely to build on.
“Don’t look for the needle in the haystack. Just buy the haystack!” - John Bogle
Team Coin Bureau
Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.
Guy is one of the founding members and face of the Coin Bureau. Like many of us, he is just an average joe who became “crypto curious” back in 2013. After recognising the potential of blockchain technology, Guy set off on a mission to create crypto educational content, working with others to start the Coin Bureau website and released our first video on YouTube in 2019. You can learn more about him in his Who is Guy? blogpost.