Summary
Top Third Quarter Events
Bitcoin Developments
Is Ethereum Falling Behind?
What to Expect from Ethereum's Next Upgrade: Pectra
DeFi's Comeback: Fact or Fiction?
In-Depth Analysis of Aave and EigenLayer
Notable Events From Third Quarter
While the BTC price mostly ranged in Q3 2024, there was no shortage of volatility in the altcoin market and wider macro/geopolitical markets, too. On reports that the White House was aware of Iran's preparations for a ballistic missile strike on Israel, Bitcoin and other digital assets experienced a sharp decline. The U.S. stock markets also opened lower amid fears of a potential war in the Middle East. As the threat of escalating conflict loomed, these geopolitical tensions significantly influenced market sentiment.
Bitcoin, which began the week near $65,800, fell sharply to around $60,000 in the aftermath of these developments. By the week's end, however, the digital asset showed signs of recovery, climbing back toward $63,500.
Despite the volatility, macroeconomic indicators in the U.S. offered a counterpoint to the geopolitical uncertainty. The non-farm payrolls update for September revealed that the U.S. economy added 254,000 jobs, surpassing forecasts of a 150,000 increase. This strong job growth exceeded market expectations and marks the best monthly performance since March and signals the economy's resilience. With the economy stronger than anticipated, there is growing speculation that the Fed may cut interest rates, shifting toward a more accommodative stance that could spur investment and consumption. Historically, Bitcoin has performed well in low-interest-rate environments, suggesting a potential tailwind for the asset despite the geopolitical backdrop.
While recent attention has been focused on the U.S. election and wars in the Middle East, crypto adoption in Southeast Asia and India is making waves of its own. Chainalysis ranked India as the top country in its 2024 Global Crypto Adoption Index. This index measures various countries' engagement across different sectors of crypto, based on available data. Interestingly, Singapore didn’t make the top 20, possibly due to a lack of available data.
Satoshi Getting Doxxed?
Meanwhile, speculation surrounding the identity of Bitcoin's elusive creator, Satoshi Nakamoto, has resurfaced with an upcoming documentary by filmmaker Cullen Hoback. Titled “Money Electric: The Bitcoin Mystery,” the film promises to investigate the origins of Bitcoin and may reveal the identity of Nakamoto, whose pseudonym has long been a point of fascination within the cryptocurrency community. Hoback’s new project raises questions about whether Len Sassaman, a prominent figure in the cypherpunk movement who died in 2011, could be the mysterious Satoshi.
Sassaman's involvement in cryptography and his death coinciding with Satoshi’s disappearance from public forums have fueled ongoing rumors, though previous efforts to confirm his identity were inconclusive. Sassaman’swidow, Meredith L. Patterson, acknowledged that while the research connecting him to Satoshi was thorough, she did not believe her late husband was the creator of Bitcoin.
Satoshi Nakamoto is a name that has been shrouded in mystery ever since the creation of Bitcoin. This pseudonym represents the person or group who not only invented Bitcoin but also worked on its development until December 2010. Since then, Satoshi’s identity has been the subject of endless debate and speculation, adding to the intrigue that surrounds Bitcoin. Today, the term “sats,” short for Satoshis, refers to the smallest unit of Bitcoin, a way in which the mysterious creator’s legacy continues in the cryptocurrency world.
The cryptocurrency community remains skeptical after enduring several fraudulent claims, most notably from Craig Wright, who asserted that he was Satoshi before retracting those statements under legal pressure. Several individuals have been linked to Satoshi over the years, most of whom were part of the cypherpunk movement, an early group of cryptographers and programmers advocating for privacy through encryption technology.
One potential candidate is Wei Dai, whose work on b-money was cited in Bitcoin’s whitepaper. Another prominent figure is Hal Finney, who was the recipient of the first-ever Bitcoin transaction. Finney, a key contributor to the network, passed away in 2014, having never acknowledged that he was Satoshi. Similarly, figures like cryptographer Nick Szabo and Bitcoin developer Gavin Andresen have been linked to Satoshi due to their involvement in Bitcoin’s early days.
Other individuals, like Adam Back and Len Sassaman, have also been mentioned as possible candidates. Sassaman’s involvement in remailer technology, which could have influenced Bitcoin’s development, and his suicide in 2011, months after Satoshi’s last email, fueled speculation. On the other hand, some, like Craig Wright, have publicly claimed to be Satoshi but failed to provide convincing evidence, leading many in the crypto community to reject these assertions.
The true identity of Bitcoin’s creator may never be revealed, and that may not even matter anymore. Bitcoin’s decentralized nature ensures that no one person can control its future, including Satoshi. Whether or not HBO’s documentary offers new insights, Bitcoin will continue to function as a decentralized digital asset, independent of its creator. Its role as a hedge against inflation and a secure store of value remains, and for investors, the focus will continue to be on its potential for long-term growth.
Bitcoin has evolved beyond its origins, and Satoshi’s disappearance has allowed the project to thrive without any single figure holding power over it. Whether or not we ever learn who Satoshi is, the principles he put into place continue to guide Bitcoin’s growth in a world where decentralized finance is becoming more mainstream.
BTC Charts
Declining Revenues: Publicly traded crypto miners experienced a third straight month of declining daily revenue in September, partly due to an increase in Bitcoin network difficulty.
Bitcoin Hash Rate Increase: The Bitcoin network’s hash rate reached 643 exahashes per
second (EH/s) in September, a 2% rise from August.
Earnings Decline: Miners’ earnings per EH/s dropped 6% month-over-month to
$42,100, despite a 7% rise in Bitcoin’s price during September.
BTC fees were down ~85% this quarter, particularly with fading interest in Ordinals
and Runes, was met with little concern from the market.
BTC remains in a Sell-to-Neutral Zone on the CryptoEQ Trading Signal.
Ethereum
The third quarter of 2024 proved challenging for much of the cryptocurrency market, as holiday vacations and seasonal trends took traders away from their screens, while traditional markets saw little movement. This summer lull led to on-chain fees dropping to multi-year lows, especially on Ethereum, where fees remained depressed despite a slight rebound in September. Ethereum’s substantially lower fees are seen as a significant factor in its underperformance, with the market seemingly rejecting the narrative of ETH as "money." Meanwhile, Bitcoin's dominance rose, reaching its highest market share since April 2021.
Despite Bitcoin's price trading sideways throughout the quarter, it performed relatively better than Ethereum and smaller tokens, which set new yearly lows. Ethereum’s struggles in Q3 were compounded by the effects of the Dencun upgrade. While the introduction of EIP-4844 dramatically reduced Layer 2 (L2) transaction costs by over 10x, leading to a boom in L2 transactions and setting new records each month, it negatively impacted Ethereum’s value accrual on its Mainnet. Base, a prominent L2, has been at the forefront of this transaction growth.
However, lower Mainnet fees have led to less ETH being burned, shifting Ethereum back to an inflationary state (but still less than Bitcoin’s inflation), a stark contrast to its previous deflationary trajectory. This drop in fee-related burns is akin to a company experiencing declining revenues while halting stock buyback programs—two signals that investors typically view unfavorably.
Ethereum Roadmap and Pectra Upgrade
L2s work by processing transactions off-chain before settling them on Ethereum’s mainnet, utilizing batching and compression techniques to maintain low costs and high speeds. However, as the demand for L2 blockspace grows, the need for more efficient data handling becomes critical. Without substantial upgrades, L2s could hit a bottleneck, leading to congestion, rising fees, and slower transaction speeds—exactly the problems they were designed to solve. This is why Ethereum’s community is looking toward future upgrades, like PeerDAS and Danksharding, to address these looming issues and ensure Ethereum’s scalability.
Danksharding and PeerDAS are two key solutions being developed to increase Ethereum’s blockspace and improve data availability (DA), particularly for L2s. Danksharding aims to divide Ethereum’s data into smaller shards, enabling parallel processing that significantly boosts the network’s data throughput. This is especially important for L2s, which rely on Ethereum’s mainnet for DA and security. By increasing the available blockspace, Danksharding will allow L2s to settle more transactions efficiently, easing the pressure on the network.
PeerDAS complements this by ensuring the availability of data for these shards through a sampling mechanism. Validators and light clients can verify that the data for each shard is present without downloading it all, reducing resource requirements and making the network more scalable and decentralized. Together, Danksharding and PeerDAS enable validators to secure the network without having to store the entire state of blocks, offering a solution to the scaling issues that L2s are beginning to encounter. However, both ofthese innovations are still under development, and any delays could hinder Ethereum’s ability to scale in time to meet rising demand.
The upcoming Pectra hard fork, which promises to bring a host of new Ethereum Improvement Proposals (EIPs), notably won’t include PeerDAS, raising concerns among L2 developers. As Pectra is already packed with more EIPs than any previous hard fork, PeerDAS has been postponed, despite its critical importance to Ethereum’s scalability. In the meantime, some in the community, including Ethereum founder Vitalik Buterin, have suggested increasing the target blob space—the amount of data L2s can upload to Ethereum’s base layer—as a temporary fix. Buterin even argued that a modest 33% increase in blob capacity would be more impactful than many of the other EIPs currently in development.
While increasing blob space could offer short-term relief, it is not a sustainable solution. The real challenge lies in ensuring that Ethereum’s long-term upgrades like PeerDAS and Danksharding are rolled out in time to accommodate the growing demand. Delays in these critical upgrades could lead to significant congestion and higher fees for L2s over the next 12 to 24 months, potentially pushing developers and users toward alternative networks that may sacrifice some level of security for faster execution.
Ethereum DeFi
Certain Ethereum tokens stand out due to solid fundamentals but have struggled with price performance, offering potential entry points for investors. For example, UNI (Uniswap) maintains high utility as a leading decentralized finance (DeFi) platform but has exhibited a period of ranging price action, especially when compared to ETH.
Similarly, LDO (Lido) dominates the liquid staking sector with an impressive total value locked (TVL)-to-market capitalization ratio, even as its price has remained stagnant.Meanwhile, MKR (Maker) and AAVE show strength in both fundamental metrics and market performance. Maker currently holds nearly 40% of Ethereum’s DeFi profits and the largest portfolio of real-world assets, while AAVE has set new records in user engagement, with its TVL surpassing $11 billion across 14 active markets.
Aave
Aave’s total value locked (TVL) experienced a remarkable 84% surge over the past year, outpacing the broader decentralized finance (DeFi) market by more than double its growth rate. This expansion can be attributed to the compounding effects of network growth and Aave’s success in multiple strategic areas. While TVL is often a key metric for evaluating DeFi platforms, Aave's progress highlights that borrowing volume—now a primary driver of DAO revenue—may offer a more insightful measure of the platform's health and success than TVL alone. This shift underscores the importance of borrowing activity as a revenue generator, as innovative strategies like looping and carry trades continue to gain traction within Aave's lending markets.
In addition to lending growth, Aave has seen stability and expansion in its GHO stablecoin, with supply increasing to $150 million through various initiatives aimed at enhancing liquidity and unlocking new use cases. This increase in GHO adoption further strengthens Aave's ecosystem, offering broader opportunities for decentralized financial applications.
Aave’s ambitions extend beyond DeFi, as it seeks to bridge the gap between decentralized and traditional finance (TradFi) by incorporating real-world assets (RWAs) into its ecosystem. Leveraging insights from Aave Arc, the platform is actively exploring new integrations, such as collaborations with BUIDL and USTB, which signal its readiness to expand further into traditional financial markets. Through these initiatives, Aave ispositioning itself as a pivotal player in the evolving financial landscape, solidifying its role in both DeFi and TradFi ecosystems.
Additionally, Grayscale has introduced the Aave Fund, offering investors a direct opportunity to gain exposure to AAVE tokens. Aave, a decentralized lending platform operating on Ethereum, allows users to borrow against their cryptocurrency holdings while earning interest by lending their assets. Despite its market capitalization of $2.3 billion, which positions it smaller than some prominent cryptocurrencies, Aave has established itself as the largest lending protocol in the decentralized finance (DeFi) sector by total value locked (TVL).
Grayscale emphasized that Aave’s innovative use of blockchain technology and smart contracts enables a more efficient lending process by minimizing intermediary involvement and reducing the reliance on manual decision-making. By automating these financial processes, Aave not only improves efficiency but also aligns with the broader DeFi ethos of decentralization and trustless operations. The launch of the Aave Fund provides institutional investors with a structured way to participate in the growing DeFi market and capitalize on Aave’s position as a leading lending protocol.
EigenLayer
EigenLayer encountered an early obstacle following the launch of its EIGEN token being transferrable/tradeable. On October 4th, the EigenLayer team reported unauthorized selling activity linked to one of their wallets. The wallet in question sold approximately 1.6 million EIGEN tokens, valued at around $5.5 million.
EigenLayer functions as a restaking marketplace, where participants can allocate their security resources to back various layer-2 projects and applications, thereby strengthening the security of the broader Ethereum ecosystem. Learn more about EigenLayer and its token here.
Following the EIGEN token airdrop to early users, the protocol gained significant momentum, achieving a market capitalization exceeding $600 million within its first week. However, this growth was marred by the security breach, which occurred when an investor’s token transfer was compromised by a malicious actor.
According to a statement released by EigenLayer on October 5th, the attacker intercepted an email thread related to the transfer, quickly converting the stolen tokens into stablecoins through a decentralized swap platform and then moving the stablecoins to a centralized exchange. Despite the breach, the team was able to freeze a portion of the stolen funds with the help of exchange platforms and law enforcement. This incident highlights the ongoing security challenges that even high-profile projects face in the decentralized finance (DeFi) space, where the rapid growth of new protocols often attractsmalicious actors looking to exploit vulnerabilities.
Our Take
At Event Horizon Capital (EHC), we believe select cryptoassets will outperform all other asset classes over the next five, ten, and possibly even twenty years due to their superiorqualities as new money/assets for the internet age. Because of this, we seek the best risk- adjusted exposure to protocols that personify the blockchain benefits outlined above. With crypto markets being one of the world’s most dynamic markets, our agile and active management provides the flexibility required for swift, decisive action while also never compromising on security.
EHC’s multi-strategy approach is built upon:
Qualitative fundamental research,
Quantitative tools and valuation metrics
Narrative and sentiment-driven market swing
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