Bitcoin Renaissance with Runes - A New Fungible Standard
Executive Summary
- Market trading color: BTC pre halving dump and look ahead, BTC ETF volume and exchange outflows, ETH 3m implied vol potentially underpriced
- Theme of the week – Bitcoin increased ordinal activity, parallels we see to Ethereum NFTs, and inscriptions on Ethereum’s blobs
- Sector commentary: Bitcoin clings at $65K; Ethereum progresses; DeFi launches; NFTs surge; Web3 evolves; crypto market shifts.
Market Trading Color (Nolan Aibel)
With all the volatility surrounding quarter end, $BTC sank nearly 6% over the past week. Many are referring to this as the “$BTC pre-halving dump” that has been seen in past halving cycles. Since finding support around the $64,500 level, $BTC has chopped around the past two days. We believe we could have seen the worst of this pre-halving dump and price could trend positively heading into the halving. A major part of this is the factor of the ETFs this time around. While demand has tailed off a bit, the majority of buying for these ETFs was done in the low $60,000 range and over the past 2+ months, over 216,000 $BTC ($12B+) net has flowed into these products.
The below showcases the fact that 9.5% of $BTC has been acquired above $60,000, the large majority coming from ETFs noted above.
Source: Glassnode
While net inflows have tailed off a bit as we’ve only seen $251M over the past week, march saw over $11B in ETF volume. This was triple what they did in February. While this could tail off in April, what is important to look at aside from inflows is $BTC issued everyday coupled with the $BTC leaving exchanges. While we all know $BTC issued will be halved come April 20ish, we’ll continue to monitor exchange outflows and the supply/demand dynamic.
Source: Glassnode
In the world of options, the 3m implied vol for $ETH is not much off that of $BTC. This covers the first round of $ETH ETF approval/rejection. This is essentially stating the market says there’s no chance of approval in May. Perhaps $ETH vol is a bit underpriced vs $BTC. Of course, if you believe the $BTC halving will be a sell the news event, we could see increased vol there.
Source: Deribit
BTC Metrics
Bitcoin has seen lots of momentum over the past few weeks. The price has surged to around $75K, accompanied by a significant drop in exchange reserves to approximately 2 million BTC, indicating increased holding behavior and reduced selling pressure. Additionally, Bitcoin miner reserves stand at 1.817 million BTC amidst the price surge, signaling miner accumulation and confidence in future market potential going into the halving. The total number of Bitcoin transfer volume has also increased by 73%, showcasing ongoing network activity and potential user engagement or fund movements. Lastly, the cumulative count of inscriptions on the Bitcoin blockchain remains high, with a daily count of 180,728 and a monthly average of 68,277, indicating sustained interest in adding data to the network and highlighting ongoing network utilization beyond traditional currency transactions.
A Quick Refresher on Inscriptions
Inscriptions:
- A new way to write arbitrary data ("digital artifacts") on the Bitcoin blockchain.
- Uses the witness data of a transaction, benefiting from segwit and Taproot upgrades.
- Data is serialized within unexecuted conditionals ("envelopes") in the witness data.
- Inscriptions inscribe sats with arbitrary content, creating bitcoin-native digital artifacts, more commonly known as NFTs. Inscriptions do not require a sidechain or separate token.
Ordinals:
- Proposed in 2022, it's a numbering scheme for satoshis allowing individual sat tracking.
- Satoshis are numbered based on mining order, facilitating ownership transfer and asset association.
- Viewing satoshis through ordinals may reveal "rare" satoshis with unique historical significance.
Source: Dune Analytics @sealaunch
- Total Inscriptions created 63.2M
- Bitcoin Volume on Magic Eden in March: $426M
- All time fees $241M
- Fees spent on BRC-20s $171M
The recent release of ord 0.17.0 on April 1st includes the final implementation of Runes. This means Runes are part of the Ordinals protocol and its decentralization will benefit from how easy it will be for all the people running the Ordinals protocol to also run Runes.
What are Runes?
Runes is a UTXO-based fungible token protocol introduced to the Bitcoin network, offering a streamlined alternative to traditional models like BRC-20 and ORC-20. Developed by Casey Rodarmor, who is also known for creating the Ordinals protocols, Runes simplifies token creation and management by integrating seamlessly with Bitcoin's architecture, reducing blockchain bloat and improving scalability. It allows storing multiple runes in a single UTXO, distinguishing itself from address-based or off-chain protocols. Runes' user-friendly structure and data efficiency may attract developers and foster innovation within the Bitcoin community, providing new avenues for asset issuance and management.
Wen Runes Launch?
Rodarmor has timed the launch of Runes to coincide with the Bitcoin halving, scheduled for a block height of 840,000, which is anticipated around April 20.
Who is Building?
The project has garnered attention from various entities, including RSIC, a collection of 21,000 Ordinals planning to launch a token called RUNE, and Runestone, an Ordinals project with 112,383 Runestone Ordinals airdropped to eligible Ordinals wallets. This can be confusing, and a user on X explained it by best by stating RSIC launching a token called RUNE is like launching an ERC-20 token called ERC-20.
Additionally, popular Bitcoin wallet Xverse and leading NFT marketplace Magic Eden have expressed support for Runes, signaling potential adoption across various platforms. Rodarmor hopes that if Runes are successful, “they’ll drain liquidity, technology, and attention away from other cryptocurrencies, and bring it back to Bitcoin.”
Differences between Runes and BRC-20
Like BRC-20s, Runes will use Bitcoin and pay fees in Bitcoin to create new tokens. The key difference between Runes and BRC-20s is that Runes, like Bitcoin itself, uses an Unspent Transaction Output (UTXO) model, as opposed to an account model—the same model used by some layer-1 chains such as Ethereum.
- UTXO (Unspent Transaction Output) Model: In UTXO-based cryptocurrencies like Bitcoin, each transaction creates new UTXOs, which are essentially unspent outputs or "coins" that can be used as inputs in future transactions. This model emphasizes transaction independence and security, as each UTXO must be spent entirely, reducing the risk of double spending.
- Account Model: In contrast, the account model, used in cryptocurrencies like Ethereum, maintains account balances and tracks transactions based on account balances rather than individual UTXOs. This model allows for more complex smart contracts and facilitates easier token creation and management but may require more computational resources to process transactions.
Parallels to Ethereum NFTs
In January 2022, Ethereum NFT marketplaces hit an all time high of $5.46B trading volume. Since then, there has been a decrease of 85%. Chains like Solana have seen tremendous growth on the retail side, but so has Bitcoin. Many institutions are focused on what can bring the next wave of adoption on-chain. As we have seen in the past on Ethereum with NFTs and the current trend of memecoins as an avenue for speculation and community, a growing ordinal ecosystem with easier access through new ventures like Bitcoin L2s could see volumes increase significantly.
A notable example within the Bitcoin Ordinals space is the Bitcoin Puppets collection, which can be found here.
- A $15 mint turned into a 0.22 BTC floor
- $150M MarketCap & $80M total volume
- Fastest Ordinals collection to hit 100 BTC volume (2 days)
Bitcoin Puppet holders received multiple airdrops including:
- RSCI (valued up to $8000)
- Puppet Maxi Bizz ($2000 ATH)
- Many others + WL spots for dozens of projects
This follows the same playbook as Yuga Labs did with the Bored Ape Yacht Club, which is the largest NFT collection by volume on Ethereum at 2M ETH. Projects that experienced growth in the last cycle were known for rewarding their existing user base and enabling speculation on upcoming opportunities. Puppets already represent a part of Bitcoin's culture, being only 3 months old and already ranking as the #1 meme on Ordinals and the #6 profile picture (PFP) collection in terms of net value across all chains
Source: CryptoSlam.io
Inscriptions leak over to Blobs
Ethscriptions, drawing inspiration from Bitcoin's ordinal inscriptions, changes Ethereum transactions by allowing users to transform satoshis into distinct digital assets without relying on smart contracts. This approach enables users to append detailed information, such as image data, to their Ethereum transactions through call-data, presenting a cost-effective alternative to traditional NFTs and tokens. Recently, the introduction of blobscriptions within the Ethscriptions ecosystem has gained remarkable momentum, significantly impacting blob fee markets and influencing the composition of Ethereum blocks. This surge in blobscriptions usage underscores their growing prominence in the blockchain space (see past weeklies for more details on blobs).
Source: Dune Analytics @hildobby
Source: CryptoSlam
Sector Commentary
- Layer One / Altcoins
- Bitcoin ($BTC): Bitcoin clings to $65K — More losses ahead for BTC price? (link)
- Bitcoin ($BTC): Bitcoin Becomes More Volatile Than Ether as Halving Approaches (link)
- Bitcoin ($BTC): Q&A: What will the Bitcoin halving mean for Bitcoin L2s? (link)
- Bitcoin ($BTC): 12 Future Bitcoin Scenarios: From Bullish to Bearish (link)
- Bitcoin ($BTC): Bitcoin futures open interest reaches new high at $38 billion (link)
- Ethereum ($ETH): Vitalik Buterin shares the next steps for Ethereum Purge (link)
- Ethereum ($ETH): Ethereum Could Face 'Hidden Risks' From Ballooning Restaking Market: Coinbase (link)
- Solana ($SOL): Solana breaks $200 as memecoin and airdrop interest continue (link)
- Polygon ($MATIC): Polygon unpacks zkEVM outage and ‘emergency’ upgrade (link)
- Altcoins: Crypto Bulls See $400M Liquidations as Solana, Dogecoin Lead Slide in Majors (link)
- DeFi
- Van Eck Scion Launches Stablecoin With Investment Firm’s Support (link)
- Bitwise CIO ‘excited’ for a product that gives exposure to Ethereum DeFi (link)
- DeFi Protocol Cega's New Options Product Marries Gold, Ether to Offer Up to 83% Yield (link)
- Telegram's Pivot to TON Payments for Ads Boosts Toncoin (link)
- AI / NFTs / Web3
- RWA / Tokenization / Metaverse / Gaming
- Digital Infrastructure: Capital Markets / Exchanges / DAOs / Mining
- Who’s the better bitcoin salesman: Larry Fink or Michael Saylor? (link)
- Bitcoin to attract $1T from institutions amid ‘raging bull market’ — Bitwise exec (link)
- Crypto Market Setup Looks Positive for Second Quarter: Coinbase (link)
- Silk Road Bitcoin Worth $2B Moved by U.S. Government: On-Chain Data (link)
- Spot bitcoin ETF monthly trading volume nearly tripled in March, hits $111 billion (link)
- Spot Bitcoin ETFs return to net daily outflows; Grayscale’s GBTC total outflows eclipse $15 billion (link)
- Op-Ed by Meltem Erdem: How the Bitcoin Halving Could Affect Network Security (link)
- Steven Tananbaum’s GoldenTree Asset Management sells crypto unit to investment firm Republic (link)
- Bitwise publishes a new correlation analysis as part of its new spot Ethereum ETF filing (link)
- Crypto Exchange Figure Markets Has a Plan to Democratize Finance (link)
- Tether boosts Bitcoin reserves with latest acquisition (link)
- Crypto derivatives firm Deribit moves to Dubai after winning VARA approval (link)
- Coinbase, Circle challenge Basel committee's stablecoin requirements (link)
- CFTC Commissioner Pham says KuCoin complaint ‘undermines’ SEC (link)
- Singapore Enacts Licencing Requirements for Crypto Custody Services and Others (link)
- Sam Bankman-Fried Expresses Remorse for His Actions After Getting a 25-Year Prison Sentence (link)
