Weekly Top Stories - 11/8

This week in the newsletter, we write about Trump's historic election and what it means for digital assets, Polymarket's key role during the campaign, and a new Ethereum L2 that uses the Solana Virtual Machine.

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Red Wave Helps Orange Coin

Bitcoin hits new all-time highs as Trump wins a sweeping victory. Bitcoin hit fresh all-time highs as Trump's odds of victory increased on Tuesday night, and then made new all-time highs again Thursday night. Ether and Solana bounced significantly, as did most crypto assets and crypto-linked equities.

President-elect Donald J. Trump made history by becoming just the second president ever to win a second, non-consecutive term in office. Grover Cleveland is the only prior president to accomplish this feat when he defeated Benjamin Harrison in 1892 to win a second term. Then, the anti-tariff, pro-gold Democrat retook power for a second non-consecutive term in 1892, while today the pro-tariff, pro-Bitcoin Republican won a 2nd non-consecutive term in 2024.

Trump's victory was also historic in modern times. He is likely to expand his electoral college votes to 310+ vs. 306 in 2016. He becomes the first Republican to win a majority of the national popular vote since George W. Bush in 2004. Trump swept the "Blue Wall" states of PA, MI, and WI just like in 2016, but he is also likely to win Nevada, which Clinton won in 2016. In Florida, Trump won by a whopping 13% (vs. Biden +7% in 2020 and Clinton +30% in 2016), though a lot of this can be attributed to demographic changes in the state.

Republicans won the Senate and will likely control the upper chamber with 53 or 54 seats. The House could take weeks more to call, but could also end up in Republican hands.

OUR TAKE:

Crypto is poised to enter a golden era. Trump has promised to make America the "crypto capital of the world" and his high level team is filled with strong crypto advocates. VP-elect J.D. Vance has disclosed that he owns Bitcoin, Vivek Ramaswamy has been a vocal supporter of the industry throughout the campaign cycle, RFK Jr. owns Bitcoin and has been extremely and thoughtfully supportive for at least 2 years, Transition Team Co-Chair Howard Lutnick said he and other Cantor Fitzgerald own "shedloads" of Bitcoin (and Cantor banks Tether), and many other major donors are either directly involved in crypto or have expressed significant positive attitudes to the asset class and industry. And don't forget that Trump himself has issued NFTs and launched his own affiliated DeFi protocol, World Liberty Financial. The pro-crypto nature of his team, family, and donors increases the likelihood that Trump follows through on his campaign promises to the industry.

Here is a list of things to expect in Washington:

• Trump will immediately elevate existing Republican-appointed commissioners to acting chair of the SEC and CFTC, which in the near term is likely to lead to exemptive relief for industry participants like exchanges and issuers.

• Trump will replace Gruenberg at the FDIC and Hsu at the OCC, leading to a relaxation or abandonment of "Chokepoint 2.0." Whether through a fair access rule and withdrawal of SAB 121 or simply through a change in posture by regulators, banks will soon be able to custody crypto. Eventually, whether through interpretive guidance or legislation, banks are likely to be specifically allowed to issue stablecoins and interact with public blockchain networks.

• Congress will work on stablecoin or market structure legislation, though this will take a back seat to other priorities, particularly if Republicans hold the House and hold unified control of the government.

• Easing of regulatory headwinds, entrance of more traditional players, and maturation of existing crypto industry will significantly increase institutional interest in and adoption of digital assets. More ETFs, traditional financing options, integration with traditional financial system, and easier issuance of more useful token designs are all likely.

In this environment, over the next two years we expect that Bitcoin and other digital assets will trade significantly higher than the current all-time high. What was once an oppressive headwind in the world's largest capital market will now shift to a tailwind, and no one is bullish enough. - Alex Thorn

Onchain Prediction Markets Vindicated in Wake of Trump Election Victory

All eyes were on Polymarket and blockchain-based prediction markets as the U.S. Presidential Election unfolded on November 5. This was the first election, or major event of any kind, where prediction markets were widely used and acknowledged. Polymarket, the largest onchain prediction market by open interest, was only in beta during the last presidential election, and blockchain-based applications generally had not yet been adopted outside of crypto-native circles. For reference, Aave, the largest non-staking application in DeFi only had $940 million in total value locked (TVL) during the 2020 election compared to $15.3 billion today.

Prediction markets were met with immense skepticism and outright rejection leading into the election. Skeptics questioned the validity of their signal, often citing high barriers to accessibility, the possibility for financial motives hindering the expression of participants' true opinions, and the potential for malicious interference blurring the signal non-malicious participants were trying to convey. The need for crypto exposure in some cases, the financial incentives that encapsulate these markets, and their global nature gave these claims solid ground. However, reality proved the skeptics' claims to be incorrect.

OUR TAKE:

It is now clear that prediction markets offered a more accurate signal leading into the election and provided faster and more precise real-time feedback as votes were counted than mainstream media and social media outlets.

The day of the election, most traditional proprietary electoral models, and the polls on which many of them were built, had the odds of each candidate at 50/50 in aggregate. There were two outliers in the Economist/ Columbia and the Hill models which had the Trump/ Harris odds at 43/56 and 54/46 respectively, effectively negating each other. The rest were a deadlock at even odds. This offered no signal around who would actually win for election observers. Prediction markets, however, had the race at more or less 60/40 in Former President Donald Trump's favor since September. Based on the ultimate outcome with Donald Trump winning, it is clear that prediction markets were more accurate. Even assuming it was purely coincidental that prediction markets leaned in favor of the winner, these markets at a minimum offered a more directional signal over prop models and traditional polls which showed 50/50 chances for both candidates.

More importantly, prediction markets offered the most immediate real-time signal out of all sources covering the election as the votes were counted on Tuesday night (i.e. mainstream media sources and social media). The chart below highlights how responsive Polymarket was by tracking the odds of both candidates at one-minute intervals. It shows that the market adjusted promptly, often within 15 to 30 minutes of polls closing and vote counts becoming public. Identical movements were observable in all election related markets. As a result, the only real constraint in how quickly prediction markets adjusted was the speed at which information around the election became public. Had votes been counted faster, or information disseminated more quickly, the markets would have updated even more rapidly. This is compared to mainstream media outlets covering the election taking hours to call states or make decisive claims about what the outcome would be.

Many are left asking, how is it possible that prediction markets were the best foretellers of the election outcome? The simple answer is that their market-driven nature offers the most efficient way to price information and communicate signal. Someone has information that the rest of the market doesn't have? They can buy or sell shares in the candidate and let the price of the tokens communicate what they know. This dynamic is seen in the stock market, bond market, and any other market on the planet. Price does the signal communication based on what the market participants know. The ability to make money based on an information edge incentivizes market participants to take actions based on the information they have. In this case, one of the most common criticisms of prediction markets (i.e. financial incentives driving behavior) becomes one of their most distinguishing characteristics.

Another important consideration in the prediction market conversation is the fact that confidence in traditional polling venues and other mainstream sources of information has been eroding over the last decade. This has left many people abandoning them and seeking more robust sources of information. The role of prediction markets in covering the U.S. Presidential Election, combined with their accuracy and timeliness, was a vindicating moment for them. This brings them one step closer to becoming a widely adopted information beacon at a time when people are seeking out reliable information sources the most. - Zack Pokorny

SVM Rollups on Ethereum are Here

Eclipse, the first ETH L2 leveraging Solana's Virtual Machine (SVM), launches on Mainnet. The highly anticipated project brings Solana's high performance VM to an L2 on Ethereum, benefitting from Ethereum's deep liquidity. The SVM offers benefits over the Ethereum Virtual Machine (EVM) such as parallel execution for processing multiple non-conflicting transactions simultaneously and isolated fee markets, which can prevent one specific activity on the network from increasing fees across the network.

Eclipse uses Ethereum as a settlement layer, Celestia for data availability, and RISC Zero for zk proofs. Notably, Eclipse is the first SVM-powered L2 solution on Ethereum to reach mainnet.

The Eclipse mainnet previously opened to developers in July before opening to the public on November 7. Currently, the Eclipse ecosystem has attracted $7.8m of funds on the L2 and includes 60 live applications including well-known Solana projects such as Orca, Backpack and Save (fka Solend).

OUR TAKE:

Eclipse represents a groundbreaking initiative to bridge the gap between the Ethereum and Solana ecosystems. By leveraging the Solana Virtual Machine (SVM), Eclipse brings a new wave of developer talent and applications from the Solana ecosystem to Ethereum. This development highlights a broader trend in the rollup design landscape to explore alternative VMs (altVMs) to deliver greater performance benefits that are not offered by the EVM.

Eclipse is not alone in its approach to bring AltVMs to Ethereum L2s. For example, Arbitrum recently introduced Stylus, a second WASM-based VM to complement the EVM, and Movement Labs is preparing to launch a rollup using MoveVM which also implements parallel execution. The experimentation with diverse rollup designs is vital to the long-term vision of using rollups as a primary scaling solution for blockchains. Competition has been fierce between the Ethereum and Solana ecosystems, but Eclipse offers a solution that combines the best of both worlds. - Gabe Parker

CHARTS OF THE WEEK

Bitcoin ETFs in the U.S. had their biggest ever inflow day on Thursday, November 7, taking in a whopping $1.375bn and driving BTC to new all-time highs. The haul bested the prior biggest net-inflow day of March 12, 2024 which saw $1bn of net inflows.

The "Coinbase Premium" also returned this week after missing for a few months. Bitcoin on Coinbase began trading above Bitcoin on Binance as votes were being counted on Tuesday night and the spread has maintained over the last 48 hours. This is typically a sign that US-traders and investors are driving the move higher.

Other News

• Robinhood, Kraken, Galaxy Digital launch USDG stablecoin

• U.S. Senator Cynthia Lummis doubles down on strategic bitcoin reserve legislation

• Polymarket faces potential ban in France

• Wintermute pushes for Ethena fee switch

• Coinbase launches wrapped bitcoin product on Solana

• SEC seeks to dismiss three of Kraken's key defenses in U.S. lawsuit

• Jack Dorsey's Block shifts focus to bitcoin mining amid Trump's crypto promises

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