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Welcome back to your weekly crypto check-in!

Before diving into today’s content, we’re excited to share some huge updates for Internet Capital:

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I digress! Today’s topics:

• 📉 Markets: Is it Over?

• 👀 Bitcoin: A Strategic Reserve Asset

• ⏳ Perpetual Futures (“Perps”)

• 💧 Renzo: Liquid Restaking

Check out this week’s YouTube show for a deeper dive!

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Markets: Is it Over?

It was a catastrophically bad week in markets. Recession fears and geopolitical tensions spurred a nasty selloff for equities, leading to a steeper correction for already shaky crypto markets.

• BTC is DOWN ~14.5% on the week to ~$58,300

• ETH is DOWN ~17.7% on the week to ~$2,700

• Solana is DOWN ~25.6% on the week to ~$138

As I write this on Sunday August 4, the crypto selloff is intensifying. Rumors have it that one of crypto’s biggest market makers, Jump Crypto, is liquidating their portfolio.

Market selling a significant chunk of their portfolio on Sunday is a strange move considering the general lack of liquidity on weekends.

But if you’re a keen Internet Capital reader you’ll remember that Jump was recently probed by the CFTC for its involvement in crypto… chances are that this is related.

But right now, it’s unclear exactly why Jump is doing this now and how much worse the dumping will get. We’ll keep a close eye and update you in the aftermath next week.

Market takes:

• Bitcoin keeps dropping — but not for the same reason stocks are sliding

• Bitcoin falls to $57k as market bleeds amid fears of recession, war

• Trump Keeps Beating Bitcoin Drum as Markets Melt Down

• Bitcoin ignores 100% Fed rate cut odds as BTC price taps 2-week lows

Bitcoin: A Strategic Reserve Asset

The crypto selloff started early this week as the US Government spooked markets by moving billions of dollars in Silk Road Bitcoin. Basically, people are scared that the government is going to sell all of its ~$13 billion stash.

Interestingly, the move comes on the heels of Donald Trump’s promise to build a “strategic Bitcoin stockpile” if reelected.

This would entail buying back much of the Bitcoin that the government is currently dumping 😅. A great example of government dysfunction… sigh.

Regardless, Trump isn’t the only politician on the Bitcoin bandwagon.

Earlier this week, Wyoming Senator Cynthia Lumis introduced a Bitcoin Strategic Reserve bill in the Senate, proposing that the US Government purchase 5% of Bitcoin's total supply as a strategic reserve asset.

While Trump and Lumis might just be trying to win the crypto vote, it’s worth understanding why building a strategic Bitcoin stockpile actually makes sense for the US Government.

Gold is a good starting point. Why does the government have a strategic reserve of gold?

Gold is a store of value asset that bolsters the value of the US Dollar. It is a globally recognized, non-sovereign, predictable-supply, bearer asset. These properties make gold a “hard” monetary asset, useful for storing wealth over time.

Of course, Gold is also a physical commodity used for industrial purposes. But, less than 10% of annual gold demand is from industrial applications. Most stats have 40-50% of gold demand coming from investors and central banks.

This means that a significant chunk of Gold’s value comes from its properties as a monetary store of value asset. It is a safe-haven asset useful for hedging inflationary fiat monetary policies and systemic economic risks.

This is also Bitcoin’s value prop.

Bitcoin is best thought of as digital gold, so it shares most of gold’s properties - it is a globally recognized, non-sovereign, predictable-supply, bearer asset.

But it also has the advantage of being completely internet-based. Gold has high storage and transportation costs, making it difficult and costly to transact with. Bitcoin is virtually free to store and send.

So the bottom line is that the US Government should hold Bitcoin as a strategic reserve asset because it’s a better version of gold.

Admittedly, the discussion is more nuanced than I presented here, but because of our limited time, I’ll save the details for another newsletter.

But let’s tie this off with a quick look at the issues with some other strategic reserve assets.

• Foreign Currencies - poor long-term store of value due to inflationary monetary policies and can be confiscated (see US sanctions on Russia)

• Oil - can be depleted and will gradually become less important as the energy transition continues. Costly to store and transport.

• Gold - limited utility and costly to store and transport.

I bring these up to show that all reserve assets have pros and cons which is why you need diversification. Ultimately, Bitcoin adds to this as a reserve asset with similar but different qualities.

Let me know in the comments how you feel about the US Government potentially holding Bitcoin!

Perpetual Futures (“Perps”)

In traditional finance, a futures contract is a legally binding agreement between two parties to buy or sell a specific asset at a predetermined price on a future date.

Futures are popular because they enable traders to hedge risk and get leveraged exposure to the underlying assets.

Consequently, futures markets often have higher volumes than corresponding spot markets, and are the primary venue for price discovery.

Crypto has its own version of futures that look a bit different but serve a similar role.

Almost all crypto futures are “perpetual futures”, not traditional futures contracts.

Perpetual Futures (also known as perpetual swaps or perps) are derivative instruments that allow users to gain leveraged exposure to crypto assets.

Unlike traditional futures, perps have no expiration date (hence the “perpetual”) and track the price of an underlying asset using periodic payments between counterparties. It works like this:

The amount of the periodic payment is calculated using the funding rate. The primary goal of the funding rate is to incentivize traders to take positions that bring the futures price in line with the spot price.

When the perps price is higher than the spot price, the funding rate is positive. This means traders with long positions pay a fee to traders with short positions (sellers) which incentivizes more selling and drives the futures price down toward the spot price.

Arbitrageurs taking market-neutral positions (e.g., long on one trading venue, short on another) ensure that the funding rate mechanism operates efficiently, and minimizes funding rate differences between different trading venues.

So, why does all this matter? Two main reasons:

1. Leverage and Hedging. Perpetual futures enable taking leveraged long/short positions that closely track spot prices. This makes it simple for traders to juice returns or hedge spot price movements over the short term.
   

2. Funding rates are important in understanding crypto market environments. Funding rates represent the interest rate that traders are willing to pay to place a leveraged bet on the price of an asset.
   
   High funding rates (positive or negative) represent a demand for betting that the price will move in a certain direction. This gives traders and investors an idea of market sentiment and potential price movements for the asset.

Overall, perpetual futures are a key piece of crypto market infrastructure. If you want to learn more check out one of the top crypto’s top perpetual futures exchanges: Kwenta.

Renzo: Liquid Restaking

Other News

• US Government Moves $2 Billion in Silk Road Bitcoin

• SEC Charges Bitclout Founder Nader Al-Naji with Fraud and Unregistered Offering of Crypto Asset Securities

• Michael Saylor Buys More Bitcoin

• Coinbase reports $1.4 Billion in Q2 Revenue

• Compound Finance Suffers Governance Attack

Thanks for reading!

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Nothing in this newsletter is meant to be taken as legal, tax, investing, or other advice. Internet Capital is for educational and entertainment purposes only. All views are our own, and not representative of any organizations with which we are affiliated. For any business partnerships please reach out via the email [email protected]