Eterna's Insights - December 2024

Bitcoin Breaks $100K for the First Time

Bitcoin hit a historic milestone in December, surpassing $100,000 for the first time on December 4th and reaching a new all-time high of $108,000 on December 17th. The cryptocurrency has then faced a price correction touching as low as $92,000 and closing the month slightly above $93,000. Despite the volatility driven by low trading volumes during the second half of the month, Bitcoin has since rebounded, trading near $102,000 at the time of writing. This achievement cements Bitcoin’s position as a leading asset in the global financial ecosystem, driven by growing adoption and increasing institutional interest.

BlackRock Recommends up to 2% Allocation to Bitcoin

BlackRock has recommended a 1-2% allocation to Bitcoin in multi-asset portfolios, describing this range as "reasonable" for exposure to the cryptocurrency. In an Investment Perspectives note, the firm compared this allocation to the exposure of traditional 60/40 portfolios to the "Magnificent 7" mega-cap tech stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla). However, BlackRock cautioned against exceeding the 2% level, as Bitcoin's high volatility, despite its low correlation with other assets, significantly impacts overall portfolio risk.

The report suggested that wider institutional adoption could reduce Bitcoin's volatility, potentially allowing for higher allocation levels. However, reduced volatility might also limit Bitcoin’s potential for significant price increases. The authors noted that if Bitcoin achieves broad adoption and becomes less risky, it may lose its structural catalyst for long-term price growth. In such a scenario, investors might favor using Bitcoin tactically as a hedge, similar to gold, rather than as a long-term holding.

Trump Names PayPal & Yammer Veteran as White House AI and Crypto Czar

President-elect Donald Trump has appointed venture capitalist David Sacks as the White House AI and Crypto Czar. In this newly established role, Sacks will guide the administration's policies on artificial intelligence and cryptocurrency, aiming to position the U.S. as a global leader in these sectors. His responsibilities include developing a clear legal framework for the cryptocurrency industry to foster growth and innovation.

Sacks, a former PayPal executive and close associate of Elon Musk, has been a prominent supporter of Trump's campaign, notably hosting high-profile fundraising events. His appointment signals the incoming administration's commitment to advancing AI and crypto technologies while addressing concerns related to online free speech and potential biases in Big Tech.

Google’s Willow Quantum Processor Sparks Discussion of Blockchain Security

Google’s new Willow quantum chip has reignited concerns about blockchain security, particularly for Bitcoin, as quantum computers could theoretically exploit algorithms like Shor’s and Grover’s to break cryptographic systems. These algorithms could derive private keys (via ECDSA) or accelerate mining (via SHA-256), undermining blockchain security. However, Willow, with its 105 qubits, is far from the over 1,000,000 qubits required to pose a threat, and experts estimate quantum computers capable of breaking encryption are at least 10-20 years away.

Bitcoin and other blockchains are not uniquely vulnerable; the cryptography they use secures everything from financial systems to government secrets. While Shor’s algorithm requires entirely new cryptographic defenses, Grover’s impact is more manageable, as doubling hash lengths can restore pre-quantum security. Blockchain networks, including Bitcoin, have ample time to implement quantum-resistant upgrades, and with quantum computing advancements expected to progress gradually, the current concerns about immediate threats remain overblown.

Ethena Aims to Onboard TradFi through New Stablecoin

Ethena Labs has launched USDtb, a new USD stablecoin backed primarily by tokenized US treasury funds via BUIDL, a BlackRock-issued tokenized fund. USDtb’s reserves consist of 90% BUIDL and 10% USDC, ensuring immediate redemption and weekend liquidity. Issued by Pallas, a BVI-based entity, and supported by custodians like Copper, Zodia, Komainu, and Coinbase Institutional, USDtb is designed to act as a reserve asset for Ethena’s $6bn USDe synthetic dollar.

USDtb helps Ethena mitigate risks associated with USDe, which uses a delta-neutral yield strategy. During periods of negative funding rates, Ethena can close USDe’s underlying hedging positions and redirect assets to USDtb to maintain USDe’s $1 peg. Since its launch, USDtb has already grown to $80bn, highlighting rapid adoption and strong market demand.

E*Trade Considers Adding Crypto Trading to Platform

E*Trade, Morgan Stanley's online brokerage, is reportedly considering adding cryptocurrency trading, anticipating a "more favorable regulatory environment" under President-elect Trump’s administration. Acquired by Morgan Stanley in 2020, E*Trade manages over 5.2 million client accounts with $360 billion in retail assets. This move would align E*Trade with competitors like Fidelity, Robinhood, and Interactive Brokers, which already offer crypto trading. Meanwhile, other major brokerage firms, such as Charles Schwab, are also exploring crypto trading, pending regulatory approval.

Eterna Portfolio Company Spotlight:

Union Labs Becomes Part of the Eterna Capital Portfolio

We recently announced our investment in Union Labs, a pioneer in blockchain interoperability. Union Labs addresses the challenges of fragmented ecosystems by developing a modular, zero-knowledge-powered architecture that enables secure and efficient connections across thousands of chains. This approach eliminates the vulnerabilities of traditional bridges and paves the way for a truly interconnected blockchain future. Eterna Capital believes that by building a hyper-efficient zero-knowledge infrastructure layer for general message passing and asset transfers, Union is not only addressing a critical fragmentation bottleneck but also laying the foundation for a more interoperable, decentralized, and trustless internet.