View from the Arch #16 | Feb 16

Bitcoin has a 5 handle, the Jan CPI print came in and Open-AI continues to release products worthy of a black mirror episode. Their new product might actually be a black mirror episode one day (literally).

This Week in Crypto

This is the 16th edition of this newsletter, and I feel like I’ve been writing about how Bitcoin has gone up for 14 of those 16 editions. Well, today is no different, and Bitcoin has gone up (again).

Amazingly, we continue to print mid-9-figure inflows. Total inflows are now at $4.5bn in little over 5 weeks. To put this number into context - Blackrock’s Climate Conscious fund held the previous title for the most successful ETF launch ever, accumulating over $2.2bn within its inaugural month. The Gold ETF accumulated just $1.4bn in its first month in 2004. This is the most successful ETF launch of all time and has blown nearly all analyst predictions out of the water.

The focus and excitement are currently firmly fixed on Bitcoin, but in our view, Ethereum is where you want to start paying more attention.

• The SEC final deadline for an Ethereum ETF approval is coming up in May; expect more guidance to go to hopeful providers in the coming weeks.

• Bitcoin ETF flows will be the model for comparison for those thinking about the impact on Ethereum’s price; a smaller-cap asset that has more favorable supply-side dynamics, especially in periods of high usage.

• The road to approval will be significantly harder than Bitcoin’s; current analysts’ estimates range from a 50-70% chance of approval.

Coinbase posted their earnings after the Thursday close, we were met with a big beat and a big gap up (+15% Friday pre-market). You can read the full shareholder letter here, but here are the key metrics at a glance:

• Total revenue: $953m (est $820m), +50% YoY, +41% QoQ.

• Net Income: $273m, up from -$557m YoY, up from -$2m QoQ.

• EPS +$1.02, est $0.01.

• This was largely driven by transactional volume: tx rev = $529m, +64% YoY, +83% QoQ, the vast majority of this revenue is from retail.

• Assets outside BTC, ETH, USDT were 42% of trading volumes; signaling a renewed interest in altcoins

• Q1 guidance looks great and this quarter proved fruitful for international expansion efforts such as licensing and continued uptake of their perp product.

Nic Carter, partner at Castle Island (one of our investors) had a succinct summary of the current state of Bitcoin. One thing he mentioned here is BitVM (Bitcoin Virtual Machine), which is a relatively new development and promises to bring optimistic rollups to Bitcoin.

• The TLDR is it appears you can do off-chain computation now and have the state secured on the Bitcoin network, albeit in its current form only between two parties.

• In English, Bitcoin (hopefully) has a new scaling solution.

Elsewhere, top performers, this week included STX +40.3% (ahead of its Nakamoto upgrade), TAO +34% (AI narrative after OpenAI’s announcement - see section 3 in this email), and HNT +34%. As

I’ll leave you with two readings as the news wasnt overly exciting this week:

• This Galaxy report is their annual mining report. Well worth a read given miner dynamics are complex ahead of the halving.

• This paper which makes a substantial and unique contribution to the literature on 51% attacks on Bitcoin and Ethereum.

  • I may or may not post a summary Twitter thread of both of the above next week depending on how my head is feeling on Sunday morning.

• P.S. Starknet announced an airdrop make sure to check if you qualify.

This Week in TradFi

The CPI data dictated the market mood early this week. The numbers for January were a bit of a mixed bag, and good for the markets, where expectations of an early Fed rate cut were high.

• CPI (MoM) missed expectations of 0.2% coming in at 0.3% while the annual figure of 3.1% was lower than December’s print of 3.4% but, importantly, missed expectations of 2.9%.

• Retail sales were down by 0.8% in January (MoM) against expectations of a 0.2% decline.

• Industrial production rose by 0.1% versus expectations of 0.2%

The Fed will stay put for a while, and will not be as focused on each data print as what the market might be. But they will cut. 

• A string of low-inflation prints will be needed to nudge them into action

• Uber-dovish market expectations of 5/6 rate cuts in 2024 are now converging to the Fed’s view of 3.

Markets panicked after that CPI print, but seemed to have recovered their poise and gained back all the losses! Those cuts are coming albeit pushed back some and the economy is displaying a goldilocks-like dynamic.

• The USD stayed strong against the GBP especially after UK inflation data came in much better than expected. Given the UK economy is now also in recession the BoE will more than likely cut rates in June.

• The European Commission downgraded its growth and inflation forecasts for 2024 for the EU and Eurozone, with inflation in the latter expected to decline to 2.7% from 3.4% previously predicted.

All eyes are on inflation across the globe and investors are keeping a steady eye on the CPI prints.

This Week in Tech

In tech, growth stage startups continue to struggle, AI innovation roars and Elon plays on the offensive! News broke this week that Bolt, a one-click checkout company valued at $11B two years ago, is buying back investors shares at a valuation of ~$300M. Bolt has raised over $1B from investors of the course of its history and while many would argue a share buy-back isn’t a good use of it’s cash, it helps the company reduce it’s preference stack for cheap and boost the odds of a successful outcome for common shareholders (read employees and founders) in the event of a sale.

• Huge down rounds and pay-to-play rounds were rare in the bull cycle, but we’re at the early innings of many growth companies structuring such rounds in order to continue operating.

In AI land, OpenAI once again left many founders and VCs blank-headed as they rendered numerous startups unnecessary with the launch of their latest model, Sora. Sora is a generative AI model that creates 1080p movie-like scenes from text. The demos have truly been mind-blowing and we can only predict that:

• An AI-generated movie goes mainstream this year

• An AI-generated video garners the same engagement and viewership metrics as some of the largest YouTubers (ex: Mr. Beast)

Elon Musk has had an active week across both X (formerly known as Twitter) and SpaceX.

• Elon decided to also move SpaceX’s incorporation out of Delaware. We wrote about the event that started this whole movement in our prior edition.

• X has been shipping at an incredible rate and announced that sports betting will be coming to the platform in partnership with BetMGM. This will be huge!

As usual, below are some fundraising announcements, M&A, and tech personnel changes that caught our eye:

• Lambda Labs, a GPU cloud provider, raised $320M led by U.S. Innovation Technology.

• Prominent OpenAI researcher, Andrej Karpathy, has left the company.

• Foundry Group, an 18-year-old venture capital firm, decided to shut down despite announcing a new $500M fund last year.

• LangChain, an open-source AI software maker, raised $25M in a round led by Sequoia.

Arch is building next-gen wealth management platform for individuals holding Alternative Assets. Our flagship product is the crypto-backed loan, which allows you to securely and affordably borrow against your crypto. We also offer access to bank-grade custody, trading and staking services, powered by BitGo.

Disclaimer: None of the above is financial advice, seriously.