Weekly Market Update - Friday, May 12, 2023

Takeaways

• BRC-20 tokens and Ordinals transactions clogged up the Bitcoin network and transaction fees spiked to the highest since April 2021. BTC prices had a volatile week starting above $29k USD before plunging to around $26.5k USD by Friday.
• U.S. CPI came in-line with expectations, causing crypto to rally with risk assets. However, rumors of the U.S. government moving digital assets on-chain circulated once again, leading to a sell off led by BTC that has the asset class on its backfoot toward the end of the week.
• Crypto Twitter was buzzing this week with memecoins back in the spotlight led by PEPE’s meteoric rise. However, top new memecoins like PEPE, TURBO, and ORDI were well off their highs by the end of the week, declining by more than 50%.
• Tether (USDT) published eye-popping first quarter results, reporting $1.48b USD in net profits.

Noisy Week for Bitcoin Network With BRC-20 Tokens in the Spotlight

Bitcoin had an eventful week as the network was severely congested, caused by the minting of 14,000+ BRC-20 tokens. BRC-20 is a new fungible token standard for the Bitcoin network, analogous to ERC-20 tokens on Ethereum, which allows for the creation of new tokens stored on Bitcoin.

The rapidly growing interest in BRC-20 tokens was reflected in a spike in transaction fees on the Bitcoin network as users minting BRC-20 tokens took up over 50% of total transactions. As a result, the Bitcoin mempool, where unconfirmed transactions sit before inclusion in a new block, saw more than 450k transactions in the pipeline at one point. The congestion and high transaction fees led Binance to suspend Bitcoin withdrawals twice at the start of the week, before enabling BTC Lightning Network withdrawals to help tackle the issue.

Ordinals and BRC-20 tokens have been controversial in the Bitcoin community. Some users noted the increased use cases and potential for growing Layer-2 applications. Others, including a leading Bitcoin developer, suggested restricting or blocking their usage citing these transactions as spam. At a high-level, Ordinals are the Bitcoin equivalent of Ethereum-based NFTs.

U.S. Inflation Shows Signs of Abating

The U.S. Consumer Price Index (CPI) data for April came in at 4.9% on an annual basis, slightly below expectations. Released on Wednesday, the data showed a mild 0.4% monthly increase for April. The trends further reinforced investors' confidence that the Federal Reserve will pause interest rate hikes at its next policy meeting in June, and begin cutting rates later in the year.

Stocks closed slightly higher on Wednesday as a result, but the ongoing regional banking turmoil and the debt ceiling debate in Congress that appears to be hitting an impasse continue to weigh on investors.

Rollercoaster Week for BTC Price

The flurry of activity around Bitcoin created some negative headwinds that pushed the BTC price down from above $29k USD on Sunday toward the bottom of its two-month range around $27.5k USD on Wednesday morning.

Following a price recovery back above ~$28.3k USD following positive CPI data, BTC price suddenly declined later on Wednesday as rumors of the U.S. government selling 9.8k BTC began to circulate again, pushing the price as low as ~$26.8k USD. The rumors were quickly found to be false resulting in a short-term price rebound.

By the end of the week, the BTC price moved lower hovering around $26.5k USD by Friday morning. Liquidity conditions have worsened resulting in wider bid-ask spreads as it was reported two major market makers were paring back their U.S. crypto trading operations.

PEPE Revitalizes Crypto Twitter

Crypto Twitter received a boost this past week as memecoin mania took over once again, led by the frog-themed coin PEPE which brought with it a wave of FOMO across the space typically seen during bull markets. PEPE became the fastest-growing ERC-20 token in history as it took only 23 days from launch to cross the $1b USD market cap, moving into the top 50 tokens, and acquiring over 100k holders.

Another trending token was TURBO, a memecoin created using the popular AI tool ChatGPT with a budget of $69, which went on to hit a market cap of over $100m USD last weekend. Even Bitcoiners have got in on the action, with Bitcoin Ordinals and BRC-20 tokens seeing a rise in popularity. The total market cap of BRC-20 tokens surpassed $1b USD this week for the first time, with ORDI being the largest to date.

The memecoin mania, however, appears to be subsiding for the time being with a number of the biggest trending tokens since last weekend seeing greater than 50% drops from their peaks, including PEPE, TURBO, and ORDI mentioned above.

Tether Reports Strong First Quarter Profits

Stablecoin issuer Tether (USDT) reported $1.48b USD in net profits for the first quarter of the year and an increase of more than 20% in the tokens in circulation. As part of the report, Tether revealed the majority of its reserves are invested in U.S. Treasury Bills, but also holds 4% of the firm's reserves in gold and 2% in BTC. Tether has seen its market share of the stablecoin sector grow over the first quarter of the year following the minting of new BUSD being halted and the brief de-pegging of USDC during the collapse of Silicon Valley Bank.

-From the Gemini Trading Desk