From Polls to Profit: Sectors in the Election Year
Executive Summary
- Market trading color: BTC price action, the basis trade, ETH underperformance
- Theme of the week – AI, blockchain, and SocialFi poised for growth amid the presidential election, spotlighting technology convergence
- Sector commentary: Bitcoin and Ethereum show resilience and growth; SocialFi and AI tokens also gain traction
Market Trading Color (Nolan Aibel)
It has been a positive week for $BTC despite Biden’s veto of SAB121 this past Friday. The asset is up over 4.25% on the week as it successfully climbed past $71,000. After trading rangebound between $67,000 and $70,300 for over two weeks, increased spot buying has taken us higher. The $72,000 level is key to reclaim as this is where the major of liquidity has built up. We’ve unsuccessfully tested the level three times in the past couple months. If we do happen to break through momentum could continue and see over $1.4B of shorts be liquidated on the way up to new highs of $75,000. The majority of the spot buying mentioned has largely been from the increased BTC ETF spot buying we’ve seen over the past week. While we’ve seen 16 straight positive days of inflows, this week alone brought in over $1.58B to the spot products.
Many are suggesting this drastic increase in ETF inflow should have led to a larger leg up in price. Our best explanation as to why this hasn’t been the case is the increase of traditional hedge funds / institutions putting on the basis trade. THE BTC spot ETFs weren’t marginable out of the gate. As dealers became more comfortable, margin started to be offered on a dealer-by-dealer basis. With more access to margin on these ETFs than before, the basis trade has more capital efficient and profitable. Given this and coinciding with large ETF inflows, short open interest of CME Bitcoin Futures is near all-time highs, over $6.5B. From 5/14 to 6/4 over $2.9B was brought in by spot BTC ETFs, at the same time over $1.19B in short CME OI was added. Hence, only looking into net inflows into BTC aren’t the best indicator of increase in net risk and price appreciation. The $BTC basis trade is currently paying around 10% minus fees on this market neutral strategy.
Source: The Block
Source: Glassnode
$ETH on the other hand continues to underperform since the 19b-4 spot ETH ETFs approvals. In the past week, the ETHBTC ratio is down over 3.30%. Over this time frame over 850,000 $ETH ($3B USD) has been withdrawn from exchanges. We continue to highlight the lack of supply of ETH on exchanges as a potential upside catalyst. Look for this to continue to tick lower as S-1’s are approved and the ETFs begin trading. Looking at $ETH implied vol surface, we find it interesting that we are not seeing a notable kink pricing in approval for July/August. It almost seems as though the market doesn’t care about the ETF or isn’t anticipating much move in price action. We don’t agree with this sentiment and think this could be a good area to accumulate during this consolidation.
Source: TheTie
From Polls to Profit: Sectors in the Election Year
As we approach the year-end and the upcoming presidential election, it’s an opportune time to evaluate the sectors poised for substantial growth. Among these, AI tokens and decentralized infrastructure projects (DePIN) are emerging as strong contenders. This trend is reminiscent of how social media giants garnered significant attention during the last presidential cycle. Let's dive into why AI and blockchain technologies are positioned to thrive.
Current Market Performance
Year-to-date (YTD), AI and DePIN projects have been among the best-performing market segments, alongside Bitcoin and centralized exchanges. Projects that seamlessly integrate Web3 platforms with Web2 applications are leading the charge, capturing significant Total Value Locked (TVL) and market share.
Source: Artemis
Analyst Insights
Conversations we have with research analysts and portfolio managers are increasingly focused on the convergence of Web2 and Web3 technologies. This perspective is driving substantial investments, such as Pantera's $100 million commitment to Toncoin and VanEck's investments in Hivemapper and Goednet. The rationale is clear: the future of technology lies in bridging traditional and decentralized systems.
AI's Central Role in the Presidential Election
AI and machine learning are set to dominate the discourse as the US heads into the presidential election this November. With advancements like OpenAI’s ChatGPT-4 and Google I/O capturing media attention, AI-related blockchain projects are experiencing notable price action. The political landscape will inevitably bring AI into the spotlight, with deep fakes, cloned audio, and the broader implications of AI being hotly debated topics. Big tech companies will once again be scrutinized for their influence and the potential biases in their models, garnering more media coverage, and more investor interest in the space.
Meta and Google performed well during the last presidential election cycle, with their stocks showing resilience and growth amid the broader market volatility. They were also frequently mentioned in the media due to their significant roles in handling election-related misinformation and the increased regulatory attention. As we approach the next election cycle, we expect to see similar trends given the new dimension of AI and machine learning technologies becoming more prominent in the public discourse.
Source: Mozilla Foundation
The visualization aims to illustrate the frequency and timing of policy changes across platforms between October 2019 and January 2021. The graph does not account for differences in policies before this time. The number of changes and their relative impact level in the timeline does neither indicate their level of enforcement nor their short- or long-term effectiveness in combating misinformation.
Key Findings from the Timeline
- Platforms did too little, too late to prevent material impacts from misinformation
- Platforms were generally reactive rather than proactive
SocialFi as a Contender too
A previous weekly published on April 11th highlighted a core theme: “As we enter a presidential election, discussions about social media platforms influencing election outcomes and concerns about communication censorship will once again dominate mainstream media. We believe that this topic will attract attention and renew interest in SocialFi, which could offer an alternative solution to address some of these challenges.” Notably, we identified Dream Machine Token (DMT), which has surged 280%, Farcaster, gaining new followers in the low thousands daily, and friend.tech, which saw transactions spike to over 40k daily in May before tapering to a couple of thousand. As many have felt unheard or disenfranchised by social media companies come election season, we anticipate the cry for a suitable platform with less political favoritism will be heard again.
Highlighting AI-Related News Cycles
A previous weekly published on March 18th highlighted names associated with the AI categories and explored their developments. This included RNDR, NEAR, TAO, and others. Following the release of GPT-4 on March 14th, notable price movements were observed: WRLD jumped from $9.33 to $10.79, RNDR went from $11.07 to $13.15, and TAO increased from $602 to $719. Similarly, the announcement of Sora saw RNDR move from $5 to $7.29 over the next week, while NEAR remained flat, and TAO rose from $581 to $629 over a week too.
The Problem with Big Tech and the Promise of Blockchain
Big tech companies control vast amounts of data, which can introduce biases into AI models. This centralization poses risks of creating a dystopian future. Blockchain offers a solution by providing a decentralized system for data storage and model validation, incentivizing the development of unbiased, high-quality AI models.
Worldcoin's Unique Approach
Worldcoin, a decentralized, open-source protocol, aims to provide universal access to the global economy. The project's approach involves distributing a digital token, WLD, to every individual. Verification is achieved through the World ID system and an Orb device, which uses iris scans to create a unique identification code, the IrisCode, ensuring privacy and security while facilitating digital transactions.
As Sam Altman articulated, "the goal is simple: a global financial and identity network based on proof of personhood. This feels especially important in the AI era. I’m hopeful Worldcoin can contribute to conversations about how we share access, benefits, and governance of future AI systems." Despite its promise, Worldcoin's mission raises critical questions, particularly since OpenAI, Altman's previous venture, intensified the urgency of these issues.
Privacy Concerns
- Deceptive Marketing and Data Collection: Investigations revealed Worldcoin used deceptive marketing practices, collected more personal data than disclosed, and failed to secure meaningful informed consent.
- Biometric Data Collection: The collection of biometric data by a private entity is widely criticized, contradicting the principles of anonymity and decentralization foundational to the crypto community.
Practical Issues
- Security Exploits: Instances where Orb operators created multiple World IDs for the same person, particularly in Kenya, highlight security vulnerabilities.
- Fraud and Cash-Out Challenges: Users in Kenya were defrauded during the cash-out process, selling tokens below market value.
Worldcoin's token (WLD) has exhibited considerable volatility since its launch in July 2023. Initially, it surged by over 200%, reaching a peak of $5.29. However, the token has since declined, currently trading between $2.03 and $2.19, with a notable 13% drop observed in a recent week. While the price of WLD is down more than 50% from its all-time highs, where its circulating market cap peaked at $1.57 billion, it still maintains a market cap of $1.09 billion, indicating a significant increase in circulating supply has likely contributed to the price decrease.
Source: CoinMarketCap
You can see in the chart as well that volume up ticked significantly after OpenAI’s announcement of Sora, which is an AI model that creates realistic scenes from text prompts. Number of addresses by holdings also jumped from 10.7k holders to 22k holders.
Blockchain Solutions for AI Challenges
Blockchain can provide solutions to AI's challenges:
- Data and Model Integrity: Time-stamped hashes of datasets and models can ensure integrity and transparency, making development processes available for third-party audits.
- Combating Deep Fakes: Digital signatures and decentralized verification systems can help verify the authenticity of data and combat misinformation.
- Micropayments and Revenue Sharing: Smart contracts can facilitate low-fee micropayments for AI model usage and decentralized revenue sharing among co-owners.
- Decentralized Review Systems: Combining automated and human reviewers, incentivized through smart contracts, can enhance the quality and throughput of data and model reviews.
Market Potential and Predictions
Generative AI is projected to become a $1.3 trillion market by 2032, with a Compound Annual Growth Rate (CAGR) of 42% over the next decade. This immense growth potential underscores the importance of integrating blockchain with AI to address critical issues such as data integrity and trustworthiness.
AI Adoption and Workforce Dynamics
According to McKinsey's annual global survey on AI, 79% of respondents have some exposure to generative AI, with 22% regularly using it in their work. Adoption is highest in the technology sector and North America. Despite challenges, hiring for AI-related roles has become somewhat easier, possibly due to recent layoffs in the tech industry. However, roles like machine learning engineers and AI product owners remain in high demand. This highlights the increasing integration of AI into various sectors, and the growing familiarity businesses and consumers alike have with this technology.
Sources: Mckinsey, Factset, Mozilla Foundation
Sector Commentary
- Layer One / Altcoins
- Bitcoin ($BTC): Bitcoin Tops $70K to Lead CoinDesk 20 Gainers (link)
- Bitcoin ($BTC): Bitcoin Sees Profit-Taking Around $70K Amid ‘Stubbornly Bullish’ Sentiment (link)
- Bitcoin ($BTC): Bitcoin's price touches $71,000, but volatility and sell-side pressures loom (link)
- Bitcoin ($BTC): Bitcoin dormant for 5 years or more awakens in new ‘distribution’ (link)
- Bitcoin ($BTC): A BTC price breakout ‘never seen before’ — 5 things to know in Bitcoin this week (link)
- Bitcoin ($BTC); Ethereum ($ETH): Bitcoin could grow by strides by being more like Ethereum (link)
- Ethereum ($ETH): Spot Ethereum ETFs could absorb over 1 million ETH in first 5 months: K33 (link)
- Ethereum ($ETH): Ethereum ETF excitement? ETH futures tell a different story (link)
- Solana ($SOL): BODEN Token Up Over 10%, TREMP Gains 5% After Kraken Lists Solana PoliFi Duo (link)
- Polygon ($MATIC): Polygon never set out to beat Ethereum: Anurag Arjun, X Hall of Flame (link)
- Altcoins: Uniswap, Starknet, BNB Lead Altcoin Gains as Bitcoin Hits $71K (link)
- Altcoins: TON Market Cap Plunges by Billions After Fixing Inflated Supply Data (link)
- DeFi
- Bitcoin Layer 2 Ark Protocol's Team Forms New Firm as Lightning Network Competitor (link)
- Op-Ed: Uniswap Vote Delay Shows DeFi Stakeholders Aren't All in It Together (link)
- Tether 'concerned' by EU's 'problematic' MiCA stablecoin requirements, says CEO (link)
- Multicoin, Coinbase Ventures Invest in Latin American Stablecoin-Powered SuperApp El Dorado (link)
- D8X protocol brings novel futures exchange to Arbitrum (link)
- AI / NFTs / Web3
- Protocol Village: Sentinel Releases Decentralized VPN App for Android, Says Apple iOS Support to Follow (link)
- Sotheby's 'Gold Fur' Bored Ape NFT Auction Will Retest Art World Demand (link)
- Polygon Spinoff Avail Raises $43M in Series A Funding (link)
- Polygon Acquires Zero-Knowledge Cryptography Firm Toposware (link)
- Stashh Labs raises more than $3.3 million ahead of NFT platform upgrade from Animoca, 6th Man Ventures, among others (link)
- RWA / Tokenization / Metaverse / Gaming
- English Soccer Club Watford FC to Offer 10% Digital Equity Through Investment Platform Seedrs (link)
- DWF Labs to Purchase $12M FLOKI From Project Treasury, Open Market (link)
- Op-Ed: The Promises and Perils of Private Asset Tokenization (link)
- 7 Top Metaverse Coins (link)
- Empire Newsletter: Crypto natives dig themselves in to the RWA space (link)
- Digital Infrastructure: Capital Markets / Exchanges / DAOs / Mining
- VanEck May 2024 Bitcoin ChainCheck by Matthew Sigel, Denis Zinoviev (link)
- Decentral Park Research by Kelly Ye: The Weekly 285 (link)
- Wisconsin Pension Plan Likely to Invest Much More in Bitcoin ETF, Marquette Professor Says (link)
- Op-Ed: Crypto for Advisors: The Evolution of Crypto and TradFi (link)
- Worldwide searches for ‘onchain’ on Google hit all-time high (link)
- Bitcoin Miner Core Scientific Surges After AI Deal, Report of Over $1B Buyout Offer From CoreWeave (link)
- Galaxy Digital Could Benefit From Improving Political Sentiment Towards Crypto in U.S.: Benchmark (link)
- Bitcoin ETFs Resume Inflow Winning Streak; BlackRock's IBIT Crosses $20B in AUM (link)
- Op-Ed by JM Mognetti: Spot ETH ETFs without staking miss the mark (link)
- Bitcoin miners sink millions into AI businesses, seeking billions in return (link)
- US-Listed BitDeer Secures $150 Million Investment from Tether, Stock Rises 7% (link)
- FTX wants to pay the IRS $200 million instead of $24 billion in tax liabilities (link)
- Op-Ed: Is Crypto on the Cusp of a Bull or Bear Market? Using Consensus 2024 as a Barometer (link)
- Terraform, Do Kwon to reach fraud settlement with SEC (link)
- Trump Becomes First President to Accept Bitcoin Lightning Payments for Campaign Donations, $500 Minimum (link)
