Top Stories of the Week
001 Trump Picks Bitcoiner JD Vance for VP
Less than a week after narrowly dodging a bullet, Trump accepted the GOP nomination for president and chose Ohio Senator J.D. Vance as his running mate. In a 93-minute speech that ranks as the longest convention acceptance speech in history, Trump recalled the events of last Saturday in Butler, P.A. and argued that “we must rise together or fall apart.” Notably for the cryptocurrency industry, though, earlier in the week Trump selected J.D. Vance (R-OH) to be his vice-presidential running mate, in another win for the cryptocurrency industry.
According to Congressional records, Vance disclosed ownership of $100-250k of Bitcoin in 2022, which would be worth $136-390k at today’s prices. He has been a longtime supporter of crypto, having 1) voted to repeal SAB121, 2) criticized SEC Chairman Gary Gensler in presentations and multiple open letters, 3) and has circulated draft legislation that would revamp digital assets regulation, seen as a companion to the House’s FIT21 Act and alternative to the Stabenow-driven Digital Commodities Consumer Protection Act (DCCPA). Vance previously served as a Principal at Mithril Capital, a venture firm started by Peter Thiel, longtime Bitcoin advocate. And in perhaps his most interesting exchange in the Senate, Vance grilled Federal Reserve Chairman Jerome Powell about the dollar’s status as world reserve currency, arguing that the “reserve currency status is a massive subsidy to American consumers but a massive tax to American producers,” hinting at a powerful concept known as the Triffin Dilemma, that there is a conflict between the economic interests that arise between short-term domestic and long-term objectives for countries whose currencies serve as global reserve.
Trump is scheduled to speak on the main stage of the Bitcoin Conference in Nashville at 2pm on Saturday, July 27. He will hold a fundraiser alongside the event, with the campaign seeking $844,600 per person for the top ticket. Vance, Vivek Ramaswamy, Sen. Bill Hagerty (R-TN), and former Hawaii Representative Tulsi Gabbard will attend the reception, according to Bloomberg.
Our Take
Bitcoin repriced meaningfully higher following the events of last weekend in Butler, PA, on increased odds that Trump would win the presidency and usher in a more friendly environment for crypto. Between Trump and Vance, it’s pretty clear that their administration seeks a weaker dollar as a means to spur domestic manufacturing. But a weaker dollar would also benefit Bitcoin and other assets, as would a more laissez faire approach to regulation.
Another rumor is circulating on social media relating to the event: that Trump will announce some kind of “National Strategic Bitcoin Reserve.” We’re cautious on this rumor, although it’s not out of the realm of possibility. We see two primary reasons for a nation to put Bitcoin on its national balance sheet: 1) as a hedge against debasement or foreign currency risk, or 2) for geopolitical reasons, such as competing with adversaries or building a stockpile of neutral assets for use in trade. While the first may be warranted, it’s hard to believe that Trump (or any president) would openly purchase Bitcoin (or any other asset) to hedge dollar dominance – merely announcing it would signal significant weakness in the dollar and perhaps even hasten the decline of its reserve status. Holding Bitcoin for geopolitical strategic reasons could make sense, partly as a hedge on foreign nations or adversaries doing the same. The legal mechanisms available to a president to perform such an operation will also color any justification for doing so. We’ll have a more substantive report on this topic in the coming days. In any case, the nomination of J.D. Vance as the VP candidate further cements the GOP ticket as firmly pro-bitcoin, and further increases the odds of more fireworks in Nashville next week. - Alex Thorn
002 Ethereum ETFs Expected Next Week
SEC tells issuers that ETH ETFs can start trading next week. On Monday, the SEC told prospective issuers that funds could start trading beginning next Tuesday on July 23. The SEC reportedly told one issuer that they had no further comments on the recently submitted S-1s asked issuers to return final S-1s (including fee details) on Wednesday, July 17. According to Bloomberg Intelligence analyst Eric Balchunas, who first reported the development, trading could begin on Tuesday, July 23, "provided no unforeseeable last min issues" (i.e., assuming the ETFs are deemed effective next Monday on July 22).
According to the amended S-1 filings submitted by prospective issuers, fees (which were left off most filings prior to this week) for each of the fund products will range from 0.19% (Frankin) to 0.25% (Fidelity, Blackrock, Invesco Galaxy) while Grayscale's ETHE trust (to be converted) will have a fee of 2.5%. 7 of the 10 funds will have fee waivers for the first several months up to certain amounts (see complete fee details for each of the funds as reported by Bloomberg).
Late Thursday: Grayscale filed an amended S-1 on Thursday that lowered the fee for its Spot Ethereum Mini ETF (separate from the ETHE trust to be converted) from 0.25% to 0.15%, which would make it the lowest cost ETF of the group.
Our Take
With each passing day we get closer to having spot ETH ETFs available for trading in the US. July 23 is now the latest prediction date as set by our favorite Bloomberg ETF analysts (who have pushed back their prior timing predictions from July 2 to July 18). (Note, Galaxy Research predicted in late June that the vehicles could launch as soon as July 8). However, confidence levels are much higher around this latest prediction since it is reported to have come straight from the mouth of the SEC, which has been relatively tight-lipped with prospective issuers compared to when it was in process of approving the bitcoin ETFs. The preliminary approvals set up for the final regulatory sign-off to come on Monday next week (though this is hardly guaranteed).
Competition looks to be tight as 10 bps is all that separates the cheapest from the most expensive (not including Grayscale's ETHE trust that will charge 2.5%). Prospective issuers waited until the last minute to disclose fees. Once these ETFs begin trading (assuming that they do go effective), most investor attention will be on total inflows (benchmarked against bitcoin ETF flows) and the pace of outflows from Grayscale's ETHE trust (as we've seen with outflows from GBTC). Keeping the fee high on ETHE but offering the lowest fee among the field in its Spot Ethereum Mini ETF is a clever move that could blunt the impact of net-outflows from Grayscale products. Our report that details other important considerations around the launch of ETH ETFs. Assuming all goes smoothly next week with ETF approvals, ETH will be set to undergo a radical transformation as a portfolio asset. - Charles Yu
003 Ethereum's Pectra Upgrade Stuck in Negotiation Gridlock
Disagreements about the scope of the next Ethereum upgrade (“Pectra”) escalated during an Ethereum developer call on Thursday, July 18. The main source of contention was over the inclusion of EOF in Pectra. As background, EOF is a bundle of 11 code changes that are aimed at improving the functionality of transaction execution on Ethereum. Marius van der Wijden, a developer for the most widely used Ethereum software client Geth, said on the call, “I would like to make it very clear that I'm not for this change. I think it's risky, and I think the risks outweigh the benefits, and if we decide to do it then I don't want to be held responsible for anything. … If anything breaks or if mainnet goes to a shit, I have a clear conscience.”
Other Geth developers shared similar sentiments as Van der Wijden, but representatives from most other client teams including Reth, Erigon, Besu, and Nethermind, expressed their support for including EOF in Pectra. Aside from EOF, developers are struggling to reach consensus on EIP 7702, a code change that would introduce greater flexibility to user-controlled accounts, also called externally owned accounts (EOAs). Like EOF, developers agreed to include EIP 7702 in Pectra in prior meetings but continued dissent from call participants is opening the possibility for major changes to the EIP’s design or its complete removal from the upgrade.
Developers also remain divided on whether to expand the scope of the fork to include additional code changes like EIP 7742 and RIP 7212 . During a prior call, Tim Beiko, Ethereum Foundation Protocol Support Lead, pushed back on more additions to Pectra, saying, “I think what's also pretty clear is if we do move forward with EOF there's very little bandwidth to do anything else. [Pectra] would already be the largest fork by far.” Yet, developers continue to wrestle with the possibility of new additions to the upgrade.
Our Take
At the core of the tension regarding EOF is a disagreement about Ethereum’s competitive edge. Improvements to transaction execution and the user experience improve both Ethereum as a smart contract platform and other smart contract platforms, specifically Layer-2 rollups, that choose to remain compatible with Ethereum. However, such improvements do not help Ethereum as a settlement or data availability layer for rollups. If Ethereum developers are serious about pivoting Ethereum to compete as a performant settlement layer for rollups, as opposed to a performant smart contract platform, then upgrades like EOF no longer make sense. This was the view expressed by pseudonymous Geth developer “Lightclient” on the call. He said, “We as a core [developer] group said that we want to focus on being a settlement layer and allow L2s to take the baton on developing execution layer for Ethereum. Yet, we are trying to essentially plan the future for them. I don't think that's our place. I don't think that is useful for the future, for Ethereum.”
However, the reality is that Ethereum is not a performant settlement layer today. It is the world’s most popular and widely adopted general purpose blockchain that, aside from Geth developers, other protocol developers still see value in refining. Protocol developers are not aligned about giving up on Ethereum as a smart contract platform, especially developers that have been working on Ethereum since the early years of its inception such as Greg Colvin. (Colvin repeatedly remarked on the call that he has worked to see aspects of EOF implemented on Ethereum for the past nine years.) Until developers can reach an agreement about what Ethereum should be, there is likely to be continued breakdowns in governance and confusion in the broader ecosystem about what stakeholders can expect from the next Ethereum upgrade. - Christine Kim
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