This week on Galaxy Brains I talk with Sam Callahan (The News Block) about bitcoin markets, MicroStrategy, and the Trump administration’s impact on markets.
Christine Kim has two sets of notes on the Ethereum developer calls this week. One set is for the latest Execution Call that took place this week on December 5, and the other is for the Consensus Call last week that took place on November 28.
In the newsletter we write about bitcoin’s ascent over $100,000, structural sellers taking advantage of the favorable price action, and Ethereum validators signaling to increase the network’s gas limit for the first time.
Have a great weekend,
Alex
Market Update
Data via Messari as of 4:00PM 12/5/24
The total implied network value (market cap) of the digital assets market stands at $3.78tn, up 9.6% from last week (when it stood at $3.45tn). Bitcoin’s network value is 10.7% of gold’s market cap. Over the last 7 days, BTC is up 4.6%, ETH is up 7.6%, and SOL is down 1.5%. Bitcoin dominance is 56.03%, down 227 basis points from last week.
Stories of the week
001
🚀 Bitcoin Breaks $100K
Bitcoin trades above $100k to make new all-time highs of $104k. Bitcoin crossed the milestone at 9:33pm ET on Wednesday, December 4. Bitcoin held its gains for about 20 hours before witnessing a violent correction down to the $92k range and later pairing losses. At the time of writing, BTCUSD is trading around $99k.
Our Take
The historic milestone was widely covered by financial and mainstream media, marking a significant organic marketing event for Bitcoin. Bitcoin has capitalized itself into a $2+ trillion-dollar asset with no fundraising, founding team, or marketing budget. Still, it feels early in Bitcoin adoption both quantitatively (with only low double-digit percentages of individuals and investors owning it) and anecdotally, with my friends and family still just beginning to re-emerge from their 3-year slumber to again inquire about the “cryptos.” Here’s a traditional finance executive sheepishly admitting that his firm completely missed it. The difference this time is that, particularly with milestones like $100k, many of the skeptics are starting to reconsider in earnest. It’s just too hard to ignore. Michael Saylor told me yesterday on Galaxy Brains that bitcoin is either going to $0 or $1 million (full episode next week). And right now it really doesn’t feel like Bitcoin is going to zero. - Alex Thorn
002
💰 Structural Sellers Take Advantage of Price Action
This week’s surging price action was paired with frenetic on-chain movements. It was an exciting week of price action: Bitcoin breached $100k, and Ripple marched its way to the #4 Cryptocurrency spot, dethroning Solana and reaching a Market Cap greater than Citigroup’s. There was frenetic trading across the board, with many large-cap cryptocurrencies up 10-50%. This surge of trading activity was matched with on-chain activity, where we saw some of the last structural sellers move their coins.
On Tuesday, the United States Government emptied most of the remainingbalances related to the FTX & Alameda cases. The wallets consisted of a sizeable portion of the US Government’s altcoin holdings, including $13mm BUSD, $1.5mm SHIB, $1.0mm ANT, $350k RLC, and $20mm ETH. The remaining wallets from the seizure hold most of the US governments Altcoin holdings including ~$30mm BNB, ~$10mm WETH, ~$5mm TRX, ~$4mm UNI, ~$3mm SAND, ~$3mm RNDR, ~$2mm BAND, ~$2mm LINK, ~$2mm FTT, $1mm AAVE, amongst others in wallets A, B, C, D, and E.
Moving out of the alt-coins into Bitcoin, we saw the other single largest component of the sell wall move, with Mt. Gox shuffling ~$3.5bn BTC hours before Bitcoin breached the $100k mark. The lion’s share ($2.8bn) was moved to twonew wallets, with the remainder rotating back into one of the Gox cold wallets. The fresh addresses could be exchange deposits, but we have not seen any subsequent distribution since the tokens were moved, so we cannot give any more clarity into whether they were deposited at an exchange or not.
Our Take
On-Chain token velocity is elevated in times of market volatility. With prices as meteoric as they have been in the past week, it is no surprise that we are seeing massive flows to and from exchange as traders look to sell into strength and leverage productive collateral where possible. These movements hang over trading desks like a black cloud, waiting to flash signals for sell pressure. Thankfully, the US Government and Mt. Gox are two of the last elements of the supply overhang looming over the market. The launch of the Bitcoin ETFs has shown that the market is healthy, mature, and can absorb institutional levels of volume in the billions of dollars There is a blue sky on the horizon for the market once it weathers this last deluge of liquidity. - Thad Pinakiewicz
003
⛽ Ethereum Validators Debate Raising the Gas Limit for the First Time
On Sunday, December 1, Ethereum Foundation Researcher Dankrad Feist announced that he is in favor of doubling the Ethereum block gas limit and has configured his validators to express this preference accordingly. Though support for an increase to the block gas limit has been brewing in the Ethereum community formonths, Feist’s comment on Sunday sparked renewed efforts from stakers to make this change a reality. Two prominent Ethereum community members, Mariano Conti, and Eric Conner, in support of Feist’s comment,t created a website to educate stakers on how they can signal their support for a gas limit increase called Pump the Gas.
Since Feist’s X post, there has also been some opposition to the increase and recommendations in support of a smaller increase of 33% instead of 100%. Responding to a Lido research forum post about the block gas limit written by Lido DAO Contributor Isidoros (Izzy) Passadis, representatives from both Everstake and Consensys Staking expressed their support for a more modest 33% boost. Others like Evan Van Ness, another prominent Ethereum community member, advocated against any increase at all saying that gas prices on Ethereum were already relatively low and an increase may negatively impact the health of the network.
As background, the block gas limit caps the number of transactions and operations that can be included in an Ethereum block. At present, it is 30 million gas. Ethereum block producers have the power to change the block gas limit if more than 50% of them are in favor of the increase. Preferences about the block gas limit can be expressed by adding a flag to node configurations. Before the Merge, miners were the block producers of Ethereum. Miners successfully increased the limit on 6 different occasions from 2016 to 2022. Since the Merge, validator node operators have become the new block producers of Ethereum and this is the first time a material subset of them, 2.5% so far, have voted for a change to the gas limit.
Our Take
Increases to the Ethereum block gas limit have historically been made sparingly by miners and by magnitudes lower than 25%. Usually, they function as a short-term scaling solution on Ethereum that temporarily helps reduce network congestion and lower transaction fees. They do not occur often because a gas limit increase also increases the resources needed to run and maintain Ethereum nodes. Thus, too large of an increase too quickly could negatively impact resource-constrained node operators, cause them to drop off from the network, and adversely affect network decentralization.
With this in mind, it is important to note that Ethereum has not increased the limit for over 2 years and several prominent Ethereum researchers and developers have been advocating for a long overdue increase to the limit since as early as January 2024. In January, Ethereum founder Vitalik Buterin proposed a 33% increase. In October, Lead Erigon developer Giulio Rebuffo proposed an EIP to facilitate a gradual doubling to the limit by default in validator configurations over the course of 2 years. In November, during the most recent Ethereum developer conference, Devcon, Nethermind developer Marek Moraczyński presented data-driven research on why an increase is justified and safe for Ethereum. On top of this, three independent studies on node performance have been conducted in recent months that suggest nodes on Ethereum can handle larger blocks. (These studies were used to justify the inclusion of a blob capacity increase in the Pectra upgrade.)
The data and research make it abundantly clear; A block gas limit increase will most likely not negatively impact Ethereum. However, it is also likely that it won’t materially help Ethereum in any way either. As stated, block gas limit increases are short-term scalability fixes. They were used in the past to hold Ethereum over until a long-term solution for scaling could be implemented. The rollup-centric roadmap is that long-term solution. Gas limit increases will not be more effective at scaling Ethereum and thus improving its utility and value than rollups. The network’s scale and value primarily depend on demand for and usage on rollups improving over time, not on Ethereum’s block size increasing over time. So, there‘s no good reason to oppose a gas limit increase but also no good reason to advocate for one right now either.
Practically speaking, the gas limit increase cannot happen without the buy-in from one or two major validator node operators like Coinbase and Kraken and these businesses are unlikely to rush into a decision on this matter so close to the holidays and even after the holidays, large staking entities will need a better reason than, "Well, it can't hurt.", to throw their weight into backing an increase. - Christine Kim
Since 2021, Layer 2 (L2) projects building on Bitcoin have increased over sevenfold from 10 to 75. This report estimates that over $47bn of BTC could be bridged into Bitcoin L2s by 2030.
The Digital Asset Investable Universe is your guide to mastering the digital asset industry, its key sectors and entry points, and the convergence of finance, blockchain, and AI.
Ethereum rollups have paid 36% of the total amount of consensus layer (CL) blob fees paid over the last 30 days. Over this time, they spent a total of $2.05 million averaging $68,308 in CL blob costs daily over the period. This compares to an average rolling 30-day total spend of $441,401 (v. $2.05m over the most recent 30 days) and an average daily spend of $21,338 (v. $68,308 daily over the most recent 30 days).
Increased use of blobs by rollups is pushing costs higher. Base has been the largest demander of blobs over the last month, purchasing 7,500 to 9,000 blobs daily. The number of blobs purchased by base is correlated to the heightened amount of activity on the network, as it has consistently been the most transacted on rollup over the last four months. Blobs have also been consistently utilizing more of their capacity over the last 30 days, only leaving ~13% of their total capacity unused.
The increased use of blobs, and subsequent hike in their costs, has led to an increasing amount of ETH being burned by rollups on a daily basis. One of the main critiques of Ethereum’s move to the blob-based model for rollup data posting was its impact on ETH burn by rollups. However, the fees burned by blob activity (CL blob fees paid in addition to the base fees of type-3 execution layer transactions) reached its highest relative share of ETH burned daily at 4.36% on November 30, 2024, using its seven-day moving average.
More on Ethereum blobs and rollup economics can be found at this public Galaxy Research Dune dashboard. Details on the state of Ethereum blobs and their impact on Ethereum Layer 1 and ETH can be found at this Galaxy Research report.
In Other News
Grayscale files to convert Solana Trust into ETF on NYSE
Celsius founder Alex Mashinsky pleads guilty to fraud charges
Cambodia blocks access to 16 crypto exchange websites
Aave on par with traditional banks as net deposits reach all-time high of $31 billion
Coinbase adds Apple Pay onramp support for Bitcoin, Dogecoin and more
MicroStrategy buys another $1.5 billion in bitcoin, now holding 400K BTC
Bitcoin miner Marathon buys $618 million worth of BTC
Thank you for reading.
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