Key Insights:- Digital assets again produced positive returns in December, led by the Smart Contract Platforms Crypto Sector. Grayscale Research believes the Fed’s discussion of possible rate cuts helped support valuations in both crypto and traditional markets last month.- Ethereum’s ETH token gained but significantly trailed Solana. We believe competition among Smart Contract Platforms should be a focus for crypto investors in 2024.- Many have speculated that the SEC could approve a spot Bitcoin ETF this month. This would be an important milestone, but Grayscale Research would argue that Bitcoin’s fundamentals will ultimately prove more important for its price.
Exhibit 3: Smart Contract Platform Crypto Sector outperformed in December Solanas SOL token gained 72% in December and ended the year 916% higher. SOL is still down roughly 59% from its all-time high, this years gain represents a remarkable turnaround following a challenging 2022. In addition to price appreciation, the blockchain has seen a notable uptick in on-chain activity, including rising stablecoin transfer volume and active
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Although addresses exceeding both Bitcoin and Ethereum for the first time. Solana is pursuing a monolithic development approach centered around advanced hardware, and generally offers a compelling user experience, in our view. At the same time, much of the recent on-chain activity represents speculative trading (e.g. meme coins), and it remains to In contrast to Ethereum, be seen whether the chain can encourage sustained user growth. Bitcoin faces a similar debate around the rise of ordinals, a type of digital collectible on the oldest and largest public blockchain. We see Bitcoins core use case as a store of value asset and digital alternative to gold, but its applications can possibly expand over time due to adoption trends and/or technological developments. In December, the Bitcoin blockchain saw a record number of transactions, largely due to trading of ordinals and related assets (Exhibit 4).
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The rise in ordinals trading should be considered a positive for Bitcoins valuation, in our view, because it expands the blockchains addressable markets. Exhibit 4: Ordinals drive record Bitcoin transaction volumes If the Securities and Exchange Commission (SEC) approves trading of spot Bitcoin ETFs, this may broaden the number of investors with regulated access to digital asset investment products, and potentially result in new net demand for Bitcoin. In light of a relatively tight supply backdrop, as well as the halving of Bitcoin issuance scheduled for April 2024, new net inflows into the asset should have positive implications for Bitcoins valuation, in our view. However, sustained demand for Bitcoin from end investors will ultimately be more important for
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Although Bitcoin has other potential applications, the token is primarily held as a store of value asset and digital alternative to gold. Therefore, its price will be influenced by the factors that drive demand for gold-like investments, including changes in real interest rates and/or geopolitical tail risks. Bitcoin and many other digital assets produced strong returns in 2023, but crypto remains a volatile asset class, and investors should be mindful of both the macro and micro factors that can drive crypto valuations.
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