Welcome to our institutional newsletter, Crypto Long & Short. This week:
- Martin Gaspar on how bitcoin looks to overcome quantum fears echoing past climate reactions
- Top headlines institutions should be aware of by Francisco Rodrigues
- Aave’s revenue multiples hit 2024 lows despite higher prices in Chart of the Week
Thanks for joining us!
-Alexandra Levis
Expert insight
Why bitcoin’s quantum scare will pass like the climate panic
By Martin Gaspar, Senior Crypto Market Strategist, FalconX
Quantum has become a big theme in crypto over the past few months, partly due to technological developments in that area, but also because investors are looking for potential culprits behind the post-October stagnation in crypto prices. Quantum risk may pose an existential threat to bitcoin given the potential for bad actors to crack old accounts like Satoshi’s. However, a clearer understanding of the threat and increasing industry focus on solutions is driving towards a positive solution.
There are striking parallels to the concerns over the energy consumption and climate impact of Bitcoin’s Proof of Work (PoW) mining that dominated headlines in 2021. These also felt existential as the headline risk made BTC socially unacceptable. Although industry insiders knew climate concerns were misplaced (compared to other industries, such as tech data centers, BTC’s energy footprint is low), fears persisted, culminating in Tesla dropping BTC as a payment option due to climate risk. At the time, Elon Musk’s support for BTC was a big emotional driver, so this action surprised the market. If forward-thinking Elon thought the issue was meaningful enough to pull his support for BTC, more conservative groups could try to ban it or otherwise stifle BTC adoption. From an investor’s point of view, why would you buy into an asset with such risk? This question resonates today and is especially relevant as lower crypto prices weigh on sentiment.
The good news is that the industry can overcome this. In 2021, it required industry leader Strategy to take the initiative to work with BTC miners to publish statistics on the persistent mix of their energy consumption. While it was no secret to the crypto community that BTC miners naturally seek the lowest cost of energy, which is often renewable energy, compiling hard data helped convince naysayers. The industry was able to regain credibility to help allay concerns.
We see the same thing unfold when industry people come together to publicize the facts around quantum risk. Coinbase recently established a quantum computing and blockchain working group, which will help issue recommendations to industry participants to protect against quantum risks and provide analysis of quantum breakthroughs. Also, on February 5th, as BTC sold off strongly towards $60,000, Strategy announced a quantum security program during its earnings call, which may have helped curb further selling. It aims to coordinate with the “global cyber, crypto and bitcoin security community” to help with Bitcoin’s quantum transition.
In parallel, several startups are working to develop post-quantum technology for blockchains, such as Project Eleven and BTQ Technologies. This development indicates that the crypto community is quickly working toward solutions and should help alleviate concerns in the near term.
BTC stands to turn the page through its proactive efforts to eliminate quantum hysteria. Once the industry issues clear facts and a plausible plan, this issue will come to fruition, just like the PoW climate overhang of years past.
This week’s headlines
Francisco Rodrigues
Geopolitical risks have shown again this week that liquidity in the cryptocurrency space means investors are heading for exits as soon as they are able to. The renewed conflict in the Middle East has led to large outflows from Iran, while investors in the US have also withdrawn. Yet builders seem unphased.
Chart of the week
Aave’s revenue multiples hit lows in 2024 despite higher prices
Aave is currently experiencing fundamental valuation: while the token price remains higher than its 2024 lows, the FDV/annual revenue ratio has collapsed back to these levels (<20x), indicating that the protocol is generating significantly more revenue relative to market cap than it did during the speculative highs of this 202a market decoupling. Aave's current earnings power likely pricing in execution risk after the narrow March 1 passage of the "Aave Will Win" proposal and the high-profile exit of core developer BGD Labs.
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Note: The views expressed in this column are those of the author and do not necessarily reflect the views of CoinDesk, Inc., CoinDesk Indices, or its owners and affiliates.
