April 2024: Better By Half: Financial and Consumer Use Cases For Crypto Take Mindshare

Key Themes

The Fourth Halving Highlights Bitcoin’s Predictable Monetary Policy And Role As A Scarce Asset

The fourth Bitcoin halving took place on April 19th. Below, we summarize the main implications of this event for the Bitcoin network.

Increased issuance scarcity: The halving reduced the annualized inflation rate of the Bitcoin supply from 1.7% to 0.85%^[1]. As a result, Bitcoin's inflation rate became lower than that of gold (~1.7% in 2023^[2]). The reduced issuance of new coins makes Bitcoin increasingly scarce, creating a sense of digital rarity. This key factor underpins Bitcoin's appeal and potential as a store of value.

Reduced miner revenues: The halving slashed miners' block reward from 6.25 BTC to 3.125 BTC while the sector's operational costs remained steady. Although historically, miners received most of their revenue from the block subsidy rather than transaction fees^[3], they will increasingly rely on transaction fees in the future (e.g., Ordinals and blockchain inscriptions). The halving is testing efficiency and sustainability of miners, as they have to adapt to lower revenues and optimize operations.

Unshaken network security: Mining hashrate is a key security metric. The more hashing (computing) power in the network, the greater its security and overall resistance to attack^[4]. Across halving periods, the growth rate in hashrate has slowed; however, the absolute hashrate per second has continued to expand, now – at 625 exahash per second^[5]. Despite a slight dip in hashrate following the current halving event, Bitcoin's network resilience remains uncompromised.

Effect on BTC price: Historically, BTC price showed strong momentum before halvings and even more significant growth in the following 365 days: BTC price appreciation ranged from ~270% to ~7,645%^[6]. However, the direct impact of the halving on BTC price has faded over time. The diminished daily supply of bitcoins represents only 0.6%^[6] of daily crypto exchange trading volume, and does not significantly affect the price today. This time, the demand factors, mainly related to spot ETFs, are likely to prevail over the supply-side aspects in affecting the BTC price post-halving.

Halving events demonstrate Bitcoin's transparent, predictable, and deflationary monetary policy and reinforce its fundamental value proposition, which includes its open peer-to-peer network, competitive mining sector, and decentralized network of nodes.

[1] Glassnode, The Fourth Halving
[2] https://www.gold.org/goldhub/data/gold-demand-by-country, ARK Digital
[3] NYDIG, Since its inception, the block subsidy has made up 98.5% of miner revenue, with only 1.5% coming from transaction fees. In March, transaction fees comprised around 5% of miner revenue.
[4] Investopedia
[5] https://www.blockchain.com/explorer/charts/hash-rate
[6] Glassnode, The Fourth Halving

10SQ Takeaways From Paris Blockchain Week

Corporate adoption of Web3 was prominent during the Paris Blockchain Week conference. There was a dedicated corporate program exploring how traditional industries and enterprises are adopting and leveraging Web3 technologies like blockchain.

The conference covered cutting-edge topics at the intersection of blockchain, AI, identity, finance, and the latest industry developments through insightful keynotes, content sessions, and a hackathon.

Many of the 10K participants also found the conference a convenient European check-in on their way to the Token 2049 conference in Dubai happening the following week.

Key narratives discussed:

European Crypto Regulation

The European regulatory landscape under the Markets in Crypto Assets (MiCA) regulation and an emerging normalization of key topics such as self-hosted wallets have made company building locally more attractive compared to the US, where clarity remains elusive. Stablecoins were a central focus area, with new rules coming into effect via MiCA and the revised Transfer of Funds Regulation implementing the "travel rule" for crypto transfers. The local regulators will scrutinize stablecoin reserves, consumer protection, and financial crime risks. Jeremy Allaire of Circle spoke on challenges, and the Stellar Foundation made a compelling argument for open and more accessible banking via stablecoins. National regulators like the Dutch AFM will handle licensing processes for crypto asset service providers under MiCA, assessing areas like governance, risk management, and compliance.

French Blockchain Ecosystem

The French/Paris blockchain ecosystem is strong, with marquee projects such as DFNS, Arianee, and Morpho and larger, more established companies like Ledger playing a stewardship role while financial players like BPI France, Cathay, and Frst providing funding support and founder resources.

10SQ Takeaways From NFT.NYC

NFT.NYC returned as the largest NFT focused North American conference for 2024. With NFT trading volumes and price floors still down from previous all-time highs, the conference was not as large as it has been in the past. However, there were still interesting side events and technological developments being made. Most importantly, the absence of mania and froth allowed many founders to focus their companies on real-world deployments and activations.

Key narratives discussed:

Generative AI Building The Metaverse & Improving Games

One area where 10SQ believes there to be strong synergies between AI and blockchain is the application of generative AI in building metaverse experiences and games. Traditionally, designing and building the visuals of a metaverse was one of the most time-consuming and costly aspects for a metaverse company. Additionally, there was a limited talent pool of people capable of creating elements for the metaverse. With generative AI, anyone can prompt and create pieces of a metaverse. The technology enables further creativity and reduces the cost of deploying a metaverse

Brands Continue To Experiment With NFTs

A continuing theme in 2024 is the focus on how F500 brands can use NFTs to give their customers additional utility. Examples of this include 10SQ’s most recent investment, Superlogic, which provides B2B software, and Stepn, a Move-To-Earn NFT project, which announced a partnership with Adidas. The Adidas partnership will include both NFT shoes and physical wearables.

Why We Invested In Superlogic?

Customer loyalty programs are becoming increasingly important to revenue growth and sustainability:

• Customers are 84%^[1] more likely to shop with a retailer that offers a loyalty program.

• Customers who actively use and redeem points from a loyalty program spend 15-25%^[2] more annually than other customers.

• Cost of retaining an existing customer is 5x+^[3] less than acquiring a new customer.

• Brands are willing to pay: the 2024 market size of loyalty management software is over $10Bn^[4].

Current loyalty programs mostly rely on a simple points system and lack customer buy-in with an average engagement rate of under 50%^[5]. Superlogic uses blockchain technology to unlock a new set of value propositions for customer loyalty and engagement:

• By issuing points and digital collectibles as NFTs, customers become true owners of their assets within a loyalty program. The endowment effect suggests that the very act of ownership will cause customers to place more value on these points simply through ownership.

• Loyalty program built using interoperable blockchain technology can facilitate the “interaction” of different brands, creating unique partnerships and cross-selling opportunities. Consumers place a high value on these collaborations with 71%^[6] of consumers having a positive outlook on co-branding.

• Brands can also track their customers’ purchase history across e-commerce and brick and motor purchases using Superlogic’s solution. This data can be used to improve operations and new product offerings. Customers have shown an eagerness for brands to offer more personalized goods and services based on their purchase history^[7].

Superlogic is building a next generation software suite providing loyalty and connected commerce solutions for its enterprise clients, including American Express and Warner Music Group.

Superlogic’s software suite can integrate directly with a client’s existing technology stack to utilize blockchain technology and gamification to re-imagine and upgrade the client’s loyalty program.

Superlogic’s user-friendly loyalty solution will enable millions of people to own and utilize an NFT for the first time in their day-to-day purchases. TenSquared Capital is excited to partner with Superlogic to scale and accelerate its business.

[1] Nielsen
[2] McKinsey
[3] HBR
[4] Average statistic from Fortune Business Insight, Mordor Intelligence, Grand View Research and Report Linker
[5] BCG
[6] Visual Objects
[7] PWC