Hello and welcome to the latest edition of the FT’s Cryptofinance newsletter. This week we’re taking a look at ether’s rally.
The total circulating value in the crypto market hit the milestone of $2tn this week. The last time crypto was this highly valued was April 2022, when participants partied on, unaware that the ship was about to hit an iceberg.
It’s mainly down to the price of bitcoin and the hype that US regulatory approval of exchange traded funds will usher in a new era of price appreciation.
My inbox is full of “analysis” that makes some variation of the same argument: bitcoin is going up because ETFs will continue opening the door to fresh capital, or because a network upgrade in April will drive demand for the coin, or because anticipated rate cuts will make risk assets more attractive to investors. In other words, bitcoin’s gains are down to, well, the anticipation of more gains. It becomes self-fulfilling and here we are with bitcoin above $50,000.
Much like the US tech giants hauling the S&P 500 higher, bitcoin is also dragging other prices along with it.
Loyal subscribers will recall my Christmas edition of this newsletter that declared bitcoin had left the rest of the crypto sector behind. But as is often the case in this industry, things change, and there is more to crypto’s latest resurgence than the fortunes of the market’s biggest asset.
Ether has also enjoyed a spectacular renaissance this year and its gains have actually outstripped those of bitcoin (up 28 per cent year to date vs just 20 per cent for bitcoin). Unlike bitcoin, its resurgence hasn’t been down to the prospect of regulatory approval for crypto funds that are listed on the stock market, although the applications are in.
The answer is that investors are turning their attention back to the possibilities offered by the ethereum blockchain. Ethereum’s raison d’être is, of course, to be the foundation block for whatever idea captures your imagination. It can hold assets and lets programmers code functions for buying and selling into smart contracts. It’s a Lego block for crypto.
Most of the industry’s non-bitcoin experiments — from gaming, the shortlived market for non-fungible tokens or staking — are built on the ethereum network.
It seems investors, especially venture capitalists, are back. There is a total of $46bn committed to these collective projects, more than 50 per cent higher than the $30bn that had been committed at the start of the year.
Just this week Andreessen Horowitz, the famed Silicon Valley investor, invested $100mn in Eigen Labs, an organisation with a protocol designed to support developers setting up new projects on ethereum.
“Unlike most other crypto assets there is a direct link between ether’s price and the activity that happens on the ethereum blockchain,” said Ilan Solot, co-head of digital assets at Marex. “People are buying ether because they believe in the network, and they also believe in the projects that are built on the network.”
Ether is slowly becoming a bigger part of the trading market too. Bitcoin’s share of all trading volume on exchanges has fallen from 50 per cent at the start of 2023 to 36 per cent, according to CCData. Ether is up from 12 per cent to 15 per cent in that time.
Still, the ethereum blockchain has its own issues. The so-called Merge event in September 2022 resolved its environmental issues but the price of doing business on it remains as high as ever. It can get very congested at peak times and the transaction costs, known as gas fees, can still surge very sharply.
Moreover these new projects still have to have some sort of broader world or market application at some point, even if it will be found only online. NFTs are a case in point. A Lego spaceship is fun to build but it won’t take you to the moon, literally or metaphorically.
Still, people can only use what’s available. “There isn’t really a viable alternative to the ethereum network right now to build that future, and there’s no point going off and building a separate blockchain when it’s so much easier and cheaper to build on ethereum,” said Sreejith Das, chief executive of staking platform Attestant.
What’s your take on ether’s 2024 resurgence? As always, email me at scott.chipolina@ft.com.
Weekly highlights
-
A scoop to start: Tyr Capital, one of the crypto industry’s highest-profile hedge fund firms, has been accused of “criminal” mismanagement and has been raided by a Swiss prosecutor. A petition filed in the Cayman Islands by TGT — a fund that invested in Tyr — alleged the Geneva-based hedge fund ignored an internal risk limit and investor warnings over its exposure to FTX. Tyr denies the allegations brought against it.
-
Nigeria blocked access to several of the world’s largest cryptocurrency trading platforms, to try to halt the slide in its currency, the naira.
-
Stablecoin operator Circle, which confidentially filed for an IPO at the start of the year, said it would no longer mint its USDC token on the Tron blockchain. The decision involved compliance considerations, among others, Circle said.
-
A US court said FTX administrators could sell its shares in Anthropic, the US artificial intelligence start-up. Under Sam Bankman-Fried, FTX spent $500mn on a near-8 per cent stake. Media reports on Anthropic fundraisings suggest a valuation of somewhere north of $15bn, which would translate to a $1bn windfall for FTX.
Soundbite of the week: Love to Hate You
The European Central Bank has a long proud record of disliking bitcoin. This week the central bank was back again with a no-punches-pulled blog post, saying US approval of ETFs didn’t change its view that the token was worthless.
Most of it ran over well-worn ground but it found the space to have a swing at the US Securities and Exchange Commission and European Commission for developing rules that didn’t really touch bitcoin.
“Moreover, it seems wrong that bitcoin should not be subject to strong regulatory intervention, up to practically forbidding it.”
Data mining: I’d rather cryptojack
A lesser-known illicit subsector of the market is cryptojacking — the practice of hijacking another person’s computer to illegally mine cryptocurrencies.
But there are troubling signs it is on the rise. According to data from cyber security firm SonicWall, there was an eye-popping 659 per cent increase in global cryptojacking volume last year, with just over 1bn total cryptojacking attacks taking place in 2023, compared with 139mn in 2022.
Cryptojacking rarely generates as much coverage as ransomware. Actors operate stealthily, in contrast to high-profile ransomware attacks that make very public demands for payment.
According to SonicWall’s chief executive Bob VanKirk, these “alarming” cryptojacking numbers illustrate how criminals are evolving and adapting to embrace “less risky” tactics.
FT Cryptofinance is edited by Philip Stafford. Please send any thoughts and feedback to cryptofinance@ft.com.
