Gryphsis Cryptocurrency Weekly: BTC Price Drops Over 15% Since Bitcoin ETF Approval

Author: Gryphsis

Market and Industry Snapshot

Layer 2 Overview:

Last week, Layer 2 saw a decline in all areas except for zkSync Era and Starknet, although the increases in both were not significant. Protocols like Mountain Protocol, Baklava Space, ZeroLend, and StarkDefi showed notable TVL growth percentages.

LSD Sector Overview:

In the LSD sector, both Ethereum deposits and total withdrawals increased, but the withdrawals were more pronounced. In terms of market share, all blue-chip LSDs except for sfrxETH saw declines, with sfrxETH rising by 4.25% this week.

RWA Sector Overview:

Last week, the market cap of real-world assets (RWA) rose by 15.25%, with a significant increase in 24-hour trading volume of 111.02%. The tokenized treasury and tokenized U.S. Treasury bonds saw slight increases in value. Notable growth tokens included $PENDLE, $MIMO, and $TRADE, while tokens like $ELAND, $DEXTF, and $EPOCH experienced significant losses.

Main Topics

Macro Overview:

• US Stock V.S. Crypto

Major Events This Week:

• BTC Price Drops Over 15% Following ETF Approval

Weekly Protocol Recommendation:

• B² Network

Weekly VC Investment Focus:

• WOO Network ($9M)

• Fetcch ($1.5M)

• DIMO ($11.5M)

Twitter Alpha:

• @TheDefiDog on $ARB

• @wacy_time1 on $SAVM

• @stacy_muur on AI

• @Vaultkaofficial on GLM

• @zerokn0wledge_ on Eigenlayer

Macro Overview

This week, the stock market saw stronger fluctuations compared to the crypto industry, with SPX and NASDAQ increasing by 1.17% and 2.86%, respectively. In the coming week, attention should be paid to major events such as the core S&P Global U.S. Manufacturing Purchasing Managers' Index, the Bank of Canada's interest rate decision, crude oil inventories, and deposit rates.

Major Events This Week

BTC Price Drops Over 15% Following ETF Approval

Since the newly approved spot Bitcoin ETF began trading on January 11, the price of Bitcoin (BTC) fell again by 4.5% last Thursday, reaching a one-month low of $40,800, marking a total decline of about 13% to date. Additionally, financial giant JPMorgan stated in a research report on Thursday that Bitcoin has dropped over 15% since the launch of the spot exchange-traded funds (ETFs) last week, with $1.5 billion flowing out of Grayscale Bitcoin Trust (GBTC).

K33 research analyst Vetle Lunde noted that global exchange-traded products (ETPs) currently hold over 864,000 Bitcoins. However, in the past week, Canadian and European ETPs also experienced significant outflows as investors took profits and/or moved funds into cheaper U.S. ETFs.

Moreover, ProShares Bitcoin Strategy ETF (BITO) recently managed over $2 billion in assets. Although this futures-based ETF does not hold Bitcoin, according to Lunde, it accounts for 36% of the open interest in Bitcoin contracts on the CME Group. He added that futures-based Bitcoin ETFs represent 48% of all Bitcoin open interest on the CME.

JPMorgan's analyst team warned that "if GBTC loses its liquidity advantage, there could be more outflows, potentially an additional $5 billion to $10 billion, from GBTC." As of Friday, GBTC was the most expensive ETF in its category, with some not charging any fees for the first six months or until a certain asset management (AUM) target is reached.

https://www.coindesk.com/markets/2024/01/18/bitcoin-plunges-below-41k-as-sell-the-bitcoin-etf-news-wins-the-day/

https://www.coindesk.com/markets/2024/01/19/bitcoin-exposed-to-possible-15b-in-future-gbtc-sales-jpmorgan-says/

Weekly Protocol Recommendation

Welcome to our weekly protocol segment—here, we focus on protocols that are making waves in the crypto space. This week, we chose B² Network, a ZK Rollup Layer 2 network deployed on the Bitcoin network.

The B² team has been involved in the cryptocurrency industry since 2015, and upon realizing the innovative mechanisms and significant community potential brought by Ordinals assets, the team launched B² Network in 2022, an EVM-compatible network using zero-knowledge proof Rollup technology, supporting both BTC and EVM addresses as a Layer 2 network. B² Network was included in OKX's 2023 investment annual report, but the specific funding amount is unknown.

Due to Bitcoin's Turing incompleteness, zero-knowledge proofs cannot be directly executed on Layer 1 (Bitcoin). Therefore, B² Network's ZK-Rollup solution only writes aggregated data of zero-knowledge proofs and Rollup into Bitcoin via Taproot, ensuring that the data of ZK-Rollup is anchored in Bitcoin and cannot be tampered with. However, it does not guarantee the validity and correctness of transactions in the ZK-Rollup, nor can it leverage Bitcoin's strong consensus ability to ensure the security of Layer 2 ZK-Rollup. Thus, ZK-Rollup needs to be confirmed on Bitcoin as the final settlement layer.

The following is its technical framework, which mainly includes the following parts:

Source: Official Doc

1. Rollup Layer

B² Network uses ZK-Rollup as the Rollup Layer, with the ZK-Rollup Layer employing a zkEVM solution responsible for executing user transactions within the Layer-2 network and outputting relevant proofs. User transactions are submitted and processed in the ZK-Rollup Layer, and the state is also stored in the ZK-Rollup Layer. Batch proposals and generated zero-knowledge proofs are forwarded to the data availability layer for storage and verification.

2. DA Layer (Data Availability Layer)

The data availability layer includes decentralized storage, B² nodes, and the Bitcoin network. This layer is responsible for permanently storing copies of Rollup data, verifying Rollup zk proofs, and ultimately confirming on Bitcoin.

3. Decentralized Storage

A key aspect of B² Network, decentralized storage serves as a repository for ZK-Rollup user transactions and their corresponding proofs. Through decentralized storage, the network essentially enhances security, reduces single points of failure, and ensures data immutability.

4. B² Nodes

Composed of multiple modules, they perform various roles. They incentivize decentralized storage through zk storage proofs and economic incentives, ensuring the accuracy and efficient storage of B² rollup data copies. They verify zk rollup proofs, checking the accuracy and efficiency of zk rollup transactions and state generation. The Bitcoin submission module of B² nodes writes data to Bitcoin via Tapscript, creating bit commitment for zk proof verification and executing final confirmation on Bitcoin through a challenge-response mechanism.

The Bitcoin network serves as the final settlement layer for B² Network. Users can recover all B² rollup transactions through Bitcoin and use the zk proofs recorded on Bitcoin to verify their authenticity. B² Network employs zk proof verification commitments and challenge-response mechanisms for final confirmation on Bitcoin. This process is supported by Bitcoin's robust proof-of-work (POW) algorithm, ensuring the security of B² rollup.

Through these technical means, B² provides scenarios for building applications for BTC and other Bitcoin-related assets, making Bitcoin not just "digital gold," but a leader in cryptocurrency application scenarios, laying the foundation for BTC-related assets and allowing DeFi, NFT, SocialFi, and other applications to thrive.

Our Insights

Originally, Bitcoin served as a value storage currency, but its network limitations led to transaction congestion that restricted ecological development. However, with the explosive popularity of Ordinals assets, inscriptions, BRC20, and other asset concepts, it seems to have opened a new path, leading to an explosion in Bitcoin's market cap and ecological activity.

Since November of last year, Bitcoin's market cap has grown by 20.6%, and ecological interaction fees have increased 32 times. More and more users and projects are flocking to the Bitcoin ecosystem, but due to its Turing incompleteness, block size limitations, and other factors, it cannot accommodate the surging network demand, leading to the emergence of more Bitcoin Layer 2 network protocols.

Source: Tokenterminal

Initially, Bitcoin Layer 2 networks were dominated by Lightning Network, Stacks, Rootstock, Liquid, etc. Ethereum founder Vitalik suggested in a Twitter Space about the Bitcoin ecosystem that Bitcoin needs scaling solutions like Plasma or Rollup to bring more possibilities. An increasing number of Layer 2 networks not only adopt Rollup but also propose various solutions.

Source: Crypto.com

B² Network, as a Layer 2 network using ZK Rollup technology, ensures the security of rollup transactions through the innovative introduction of zero-knowledge proofs; it generates Taproot commitments based on rollup zk proof verification, publishing fraud proofs of the rollup on the Bitcoin network; and confirms fraud evidence through the inquiry-response mechanism on the Bitcoin network, ultimately ensuring the security of the rollup.

Currently, B² Network has launched the Alpha testnet MYTICA in December and is publicly recruiting ecosystem developers. Partners and developers can deploy DApps on the B² Network testnet. It has also opened its Odyssey and a $1M Grant to attract users to experience on the testnet.

Weekly VC Investment Focus

Welcome to our weekly investment focus, where we reveal the most significant venture capital dynamics in the crypto space. Each week, we will focus on the protocols that have received the most funding.

WOO Network

WOO Network connects traders, exchanges, institutions, and DeFi platforms, providing them with democratic access to the best liquidity and trading execution at zero or low cost. It was initially incubated by the large crypto quantitative trading firm Kronos Research. WOO Network aims to reduce market inefficiencies and disrupt the cryptocurrency market by addressing a major issue—liquidity fragmentation.

https://x.com/WuBlockchain/status/1747909315745489071?s=20

Fetcch

Fetcch is building a new wallet with an ID protocol that enables various wallets and dApps to issue cross-chain, composable wallet IDs to their users. These IDs allow users to connect any number of addresses from any chain, achieving a single identity across chains. Fetcch aims to simplify payments and improve the connection between wallets and blockchains, allowing dApps to create a simple onboarding experience for users.

https://x.com/FetcchX/status/1747581921801163229?s=20

DIMO

DIMO is a decentralized software and hardware Internet of Things (IoT) platform that enables users to create verified vehicle data streams for private sharing with applications. This allows users to negotiate better services, such as auto financing and insurance.

https://www.theblock.co/post/272456/decentralized-infrastructure-11-5-million-series-a-coinfund

Protocol Events

Bungee protocol exploited as funds worth at least $3.3 million appear to be stolen

Chainlink integrates with Circle's CCTP protocol for cross-chain USDC transfers

Jupiter, the Solana DEX aggregator confirms token release date

OP Crypto Rebrands as Inception Capital: A Name That Embodies Vision And Multicultural Strength

Solana Mobile unveils cheaper Saga crypto phone successor

Industry Updates

South Korea weighs crypto tax abolition amid new income tax regime

EU provisionally agrees on stricter due diligence rules for crypto firms

Coinbase takes its turn in court, arguing the tokens it listed are not securities

Cumulative spot bitcoin ETF volume crosses $11 billion on fourth day of trading

Ethereum devs implement Dencun upgrade on Goerli testnet

Twitter Alpha

There is a lot of Alpha contained in crypto Twitter, but navigating through thousands of Twitter threads can be challenging. Each week, we spend hours researching to curate insightful threads and present you with a weekly selection. Let's dive in!

https://x.com/TheDefiDog/status/1748095435431145722?s=20

https://x.com/wacy_time1/status/1748164431555510368?s=20

https://x.com/stacy_muur/status/1747975954704834838?s=20

https://x.com/Vaultkaofficial/status/1747944479007662157?s=20

https://x.com/zerokn0wledge_/status/1747762080378478962?s=20

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