Mixed markets amid regulatory uncertainty for staking providers, while Bitcoiners have been busy building

• The crypto asset market had a mixed month in February.
• Bitcoin and Ether are up by 1.30% and 2.50%, respectively.
• US regulators are coming after some crypto assets by declaring them as securities.
• Bitcoin’s tech community is upgrading fast and building user-centric products.

Market Overview - February

February was an eventful month for most cryptocurrencies. After the rally in January, sellers took over, and we saw price depreciations. The biggest reason for this is the increasing pressure by the SEC in the US. At the end of last year, you started reading more news about potential reactions from regulators to the FTX debacle.Today, they’re very much reacting and starting to influence policy. Although nothing is set in stone so far, it seems like they’re going after the more prominent names in the industry. Earlier this month, they set out to fine institutional companies offering staking services to their clients in the US. One of those companies was Kraken, and they were fined $30 million.At the center of attention for all of that was the head of the SEC, Gary Gensler. In recent interviews, he argued that Proof of Stake (PoS) tokens were very similar to securities and should obey securities law.He further expanded in an interview with New York Magazine that everything besides Bitcoin could be categorized as a security. These statements and the past actions by the SEC indicated further action and spent most of the crypto world into a panic state. The winner out of all of that seems to be Bitcoin.

Crypto Asset Market Performance Review

Bitcoin and Ethereum once more proved their strength in the market. They outperformed most altcoins, adding 1.30% and 2.50% month-on-month, respectively. Polygon (MATIC) and Shiba Inu (SHIB) were the exceptions, not the rule. They outperformed the market, rallying 7.40% and 8.00%, respectively.Bitcoin calmed down after the big rally in January and spent most of February hovering around $22’000 and $24’000 with occasional outbreaks to $25’000. It’s steadily getting closer to the 200-Week Moving-Average, an important indicator for most of Bitcoin’s life.Ethereum managed to keep up with Bitcoin’s January rally and outperform it slightly in February. This price movement could be directly linked to the upcoming Shanghai upgrade, where validators could finally unstake their ETH. The upgrade is scheduled for later in March. It’s a significant milestone in the Ethereum ecosystem, but the uncertainty with the SEC is still in the room.

Binance’s BNB had a steady month and ended with a slight price decrease. Although considering how often they were in the news with negative press, the price drop doesn’t seem too big. The biggest headlines for Binance were the possible suspension of their stablecoin BUSD in the US, an ongoing investigation by the SEC, and an investigation by the Australian finance regulator into their mismanagement of 500 user accounts.The remaining altcoins saw a significant price drop in the second half of February. The biggest driver was most likely the aggressive stand from the SEC against Proof of Stake projects. Many exchanges saw immense sell pressure on popular PoS coins like Solana (SOL) and Cardano (ADA).While we saw uncertainty and pain in most of the crypto market, we also saw a similar pattern with gold and bonds. Gold especially had a red February, while bonds are back to where they started earlier this year. Bitcoin has managed to decouple from both of them and is more in line with the S&P 500 and the NASDAQ.

Bitcoin Tech Update

The Bitcoin tech community had a lot of fun in February. There were mainly two projects which produced a lot of headlines: Ordinals and nostr.

Ordinals Bring NFTs to the Bitcoin Blockchain

Ordinals provide a new way of bringing NFTs to the Bitcoin blockchain. Ordinal Inscriptions, or in short Ordinals, are digital assets inscribed onto a Satoshi, the smallest unit in Bitcoin.They were not the first NFT-like technology making its way onto Bitcoin. In 2014, we saw Counterparty as the first option to bring their collection Rare Pepe to Bitcoin, followed by Stacks in 2017.Ordinals allow users to mint “inscriptions” (which are essentially Bitcoin NFTs) onto a transaction on the Bitcoin blockchain and forever have that image or art piece attached to that specific Satoshi. The Taproot upgrade late last year made this possible.The downside is the block size, as you’ll need more data to inscribe an image into it. The mempool was filled with outstanding transactions and higher fees for ten days. However, once the first wave of enthusiasts settled down, so did the costs.Ordinals show that Bitcoin is capable of providing different solutions. Although we’re still early in the Bitcoin NFT market, solutions are already being worked on to make the process much easier.

Nostr is Making Waves in the Social Media Landscape

The second technology that took the Bitcoin tech community by storm was nostr. The three-year-old decentralized protocol, which is short for “Notes and Other Stuff Transmitted by Relays,” allows people to exchange signed messages with each other.Rather than other platforms that rely on central authorities or servers, nostr is a protocol built on the Lightning Network. A user can join nostr by creating a key pair out of a private and public key, just like with a Bitcoin wallet.Once they’re created, the user can choose which relays or connection points in the network he or she wants to send their notes to. The user is in total control of their content and can share their opinions with as many or as few people as they like.This opens the possibilities for a censorship-resistant alternative to modern social media platforms and different engagement possibilities with each application. Because everything is built on the Lightning Network, developers can also integrate micropayments into their apps.Which is what we saw with Zaps. Think of them as small Lightning donations embedded into the nostr protocol. They can be used as a tip to reward good content users find in their feeds. Next to that, users can also create Lightning invoices and share them on nostr. They will instantly convert to payable tabs and act as another reward tool.The idea behind this is very simple, throughout the past two decades, we have seen users lose their online property rights. Our cookies and data sets became de facto digital assets traded between data brokers and big companies. The user was left out and unable to get their vote in.Nostr fixes this by rewarding users directly through the Lightning Network. We saw an increase in zaps in February alone, and there seems to be no end in sight.

The Bitcoin tech community is evolving and building daily. Ordinals and nostr are the starts of new tech solutions in 2023 and the foundation for even more Bitcoin tech in the next few months.

Institutional Interest in Bitcoin

Up until February, we saw 11,301 BTC being added to Bitcoin ETP products, according to data from ByteTree. A significant increase compared to previous months indicates that more and more institutional interest in Bitcoin is growing.We have experience with our portfolio company, Digital Deutsche Assets, in Bitcoin ETPs, and forward to seeing more Bitcoin ETPs added to institutional and retail investors’ portfolios.

Bitcoin on Balance Sheets

In November 2021, El Salvador announced the plan for Bitcoin bonds. In January 2023, we saw an important milestone with the legislature’s approval of the digital bonds bill.El Salvador would issue $1 billion in bonds and directly invest half of them into Bitcoin. The other half would be invested in the infrastructure necessary to build out the Bitcoin industry in the country itself. The bonds would yield 6.5% and enable a fast track for investors to acquire citizenship in the country.We could see these bonds with the legislature’s approval as early as spring 2023. This would mean more investor interest in the small Central American country and more Bitcoin on their balance sheet.