Welcome back to DV Chain's Weekly Market Commentary! In this edition, we'll delve into last week's significant developments, including the  approval of the spot Ethereum ETF and the FIT21 bill passing the House. We'll also preview upcoming events like Consensus, potential market catalysts, and trading opportunities. Let's get started:

Market Recap

• It was a really big week for Crypto, as the SEC approves spot Ethereum ETF last Monday, 8 issuers got the green light in a surprising ruling
  • The market largely expected rejection, polymarket odds were around ~10% of approval
  • The approval of S-1 documents still remain
    

• The FIT21 bill passed in the House with a 278 to 136 vote. Next, it heads to the Senate
  
  
• Between the ETF and FIT21, last week marked a turning point in the U.S regulatory stance towards crypto
  • This was likely helped by Donald Trump’s recent flurry of commentary towards crypto, expressing his support for the space, beginning during his speech during his NFT Dinner
    • Trump has made Crypto into a political point of contention heading into the election, and the Democrats are clearly feeling this pressure

• • • “I will ensure that the future of crypto and #Bitcoin will be made in the USA…I will support the right to self custody to the nation’s 50 million crypto holders.” He also vowed, “I will keep Elizabeth Warren and her goons away from your Bitcoin. And I will never allow the creation of a Central Bank Digital Currency (CBDC).”
  • Trump is also leading in election betting odds, at 53%
    
    
• US Markets are closed for Memorial Day today, earnings and economic data are largely behind us, besides Friday’s PCE, so a quiet week for risk assets are expected
  
  
• UNI announced it’s moving forward with the Fee Switch proposal and governance vote, despite receiving a Wells Notice from the SEC, (it’s not public what the Wells Notice is specifically for)
  • Voting begins Friday May 31st

• Consensus is kicking off this week, promising excitement with last week's news and upcoming announcements setting the stage for impactful industry developments. Members of the DV Chain Team will be in attendance, so please reach out if you'd like to meet.

Upcoming Catalysts / Trade Ideas

• $ETH
  • With the ETH ETF approved, we think it will continue higher on both an absolute and relative basis
  • As it’s up almost 30% week over week with about 2B increase in offshore open interest and about 500m in CME OI, the question is how much upside is priced in and how much is left
  • If we look towards the BTC ETF approval, we saw about 4B notional and about 60k units of BTC in coin terms in CME OI added between when the ETF started being rumored to be approved and the actual trading date, and CME Basis traded up to 20% apy
    
    

• Interestingly, for BTC, crypto natives were more offsides. Offshore OI added about 2.5B in notional aggregated OI but decreased in coin terms
• A lot of notional Open interest has been added last week, but the market is also larger now
• CME Basis and Offshore funding rates both sitting near 10% suggests there’s not as much leverage frontrunning the ETH ETF flows as much as the BTC ETF flows, although Ethena now exists to compress those rates
• It’s also worth studying that for BTC, ETF frontrunning flows took it from 25k to 50k, it sold off briefly when trading began, and then the actual flows took BTC from 40k to 70k
• On a relative basis, we saw BTC march higher with limited drawdowns since the ETF, while most other tokens bled and fell over 50% from highs.
  • On the BTC ETF move, we saw a few “BTC Beta” tokens achieve parabolic gains, namely $STX and $ORDI, which leads to the next trade Idea
    
    
    
• $LDO
  • With the ETH ETF approved, alts finally showed some sign of life following the ‘altpocolypse’ of the last few months
  • ETH has led week over week, but it’s worth noting that $LDO is one of the few significant outperformers to ETH, suggesting that the market is showing its hand in which coins are the best ETH Beta
    
    

• LDO fundamentally is a very strong project, clipping almost $200m in fees on an annualized basis to its treasury
• It has maintained majority of market share in the LST/LRT space, despite higher temporary yields in new competitor’s liquidity bootstrapping farms
• From an institutional standpoint, it is much stronger than competitors in terms of safety and network effects. The Lido Dao’s roadmap prioritizes institutional adoption, which we think is an astute plan, given the recent interest in crypto from Wall Street
  
  
  
• $ASI Launch, 5/24
  • $FET, $AGIX, and $OCEAN merge and get converted to $ASI
  • Was supposed to be 5/24, but seems to be delayed
  • As the 3 tokens all convert to $ASI, there is an arbitrage opportunity since $FET trades at a premium to $AGIX and $OCEAN
    
    
    
• Higher % float, lower FDV tokens, ie. $DMT, $FRIEND
  • Keep an eye on small to mid-size projects where float is more representative of the FDV, given market waking up to the fact the low float high FDV game is a bit rigged against retail and Binance committing to focus on listings with strong fundamentals and organic community base
    
    
  • $FRIEND - currently trading at a 100mm valuation, we’d view it as the leader in “socialfi” which should become increasingly strong narrative
    • One of few non-trading/lending crypto dapps that has achieved significant TVL and mindshare
      
      
  • $DMT – currently trading at a 150mm valuation and 90mm market cap
    • has elements of socialfi with streaming platform
    • last week launched its L3 and first game
    • organic community base that built through almost a year of token price stagnating

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