October 4th, 2024
Market Overview:
Digital assets performed well in early trading, before global market uncertainty from escalating conflict in the Middle East increased investor caution and reversed recent gains.
- Bitcoin closed out the month on a high, marking one of its best-ever performances in the traditionally-subdued month of September
- Bitcoin hit a peak of $66,400 on Friday, its highest value since late July, before pulling back to a low of $60,110 on Thursday as global markets reacted to news of increased armed conflict in the Middle East
- This started October on a bearish note—despite the month historically being one of the best for Bitcoin performance
- Ether performed similarly, hitting a high of $2,720 on Friday, before dipping sharply as geopolitical tensions intensified, en route to a weekly low of $2,316 on Thursday
- This snapped a long run of Ether underperforming Bitcoin, and renewed activity on the chain led to a significant increase in supply reduction via transaction fees burned
- Overall digital asset market capitalisation decreased to $2.12tn
- According to industry monitoring site DeFi Llama, total value locked in DeFi dropped around $7bn, to $81.2bn
Digital assets performed strongly across the weekend, before erasing some of their recent gains as increased conflict in the Middle East sent global markets into capital preservation mode. Outside of geopolitical challenges, there was however good news for the asset class, as tokenisation efforts increased, PayPal pioneered B2B stablecoin usage, ETFs posted significant inflows, and Binance founder Changpeng “CZ” Zhao was released from prison.
What happened: ETF News
How is this significant?
- Digital asset ETFs experienced significant inflows this week, although those were mitigated by outflows following the escalated Middle East tensions from Tuesday onwards
- According to CoinShares data, digital asset investment products accrued significant inflows of $1.2bn in the week ending 27th of September; an increase of almost $900m on the week before
- This included Ethereum’s first weekly inflows since early August, breaking a five week losing run
- Spot Bitcoin ETFs experienced an eighth consecutive day of inflows before the developing geopolitical situation led to traders going risk-off and taking profits, causing net outflows
- The three days before conflicts escalated featured substantial daily inflows; $366m, $494m, and $61m respectively
- The best daily performance of the week came from ARK Invest’s ARKB, which accrued $203m on Friday
- Other positive performances were posted by BlackRock’s IBIT ($111m, $72m, and $41m in consecutive days), and Fidelity’s FBTC, which added $124m on its best day
- However, FBTC also posted by far the week’s largest outflow, shedding almost $145m on Tuesday
- Bloomberg’s senior ETF analyst Eric Balchunas pointed out that the performance of IBIT and FBTC in particular has been nothing short of historic; out of over 2,000 ETFs launched this decade, they both rank in the top ten by asset value; “stunning given how young they are.”
- Spot Ether ETFs experienced a strong day of nearly $59m inflows on Friday, and were able to staunch the bleeding quicker than their Bitcoin-based contemporaries, moving back into inflow mode ($19.8m) on Wednesday
- The inflows were led by BlackRock’s ETHA and Fidelity’s FETH, whilst Grayscale’s converted ETHE trust (trading with a 2.5% fee) continued with its general trend of consistent post-launch outflows
- In ETF other news, issuers Bitwise applied to launch an XRP spot ETF, aiming to satisfy perceived demand for the native asset of the Ripple blockchain (given Ripple Labs’ repeated victories against the SEC)
- Additionally, Balchunas pointed out that the new MicroStrategy 2x ETF—the most volatile on US markets—is already posting daily performances within the top 1% of all ETFs
- The ETF has gained $100m AUM already; despite the existence of previous leveraged ETFs for MicroStrategy (which can act as a proxy for Bitcoin exposure)
What happened: Political news
How is this significant?
- Digital asset reporting in the political sphere slowed down slightly this week, after Kamala Harris recently ended ambiguity around her digital asset policies by endorsing the industry’s role in America’s financial future
- Donald Trump’s World Liberty Financial DeFi project began signing up users, although its exact mechanisms remain unclear
- At the moment, only accredited investors can gain access to the project due to US laws, although a spokesperson said “We plan for all Americans to be able to use this platform in the future, giving everyone access to the tools and opportunities that have been restricted for far too long”
- However, there were still several stories that emerged from within government structures, particularly pertaining to the SEC
- The agency appealed its $125m judgement in the recent Ripple Labs lawsuit, which fell well short of the SEC’s desired $2bn figure
- In a statement, the SEC claimed that “the district court decision in the Ripple matter conflicts with decades of Supreme Court precedent and securities laws”
- Ripple executives were quick to comment on the regulator’s unwillingness to accept federal judge Annalisa Torres’ verdict; chief legal officer Stuart Alderoty tweeted that “The SEC's decision to appeal is disappointing, but not surprising. This just prolongs what's already a complete embarrassment for the agency”
- He added “Instead of faithfully applying the law, this agency, under this Chair, continues to engage in litigation warfare against the industry. We are evaluating whether to file a cross appeal. Either way, the SEC's lawsuit has been irrational and misguided from the start, and we're ready to prove that yet again in the appellate court (once again taking the lead for the industry)”
- Ripple CEO Brad Garlinghouse agreed, stating “If Gensler and the SEC were rational, they would have moved on from this case long ago. It certainly hasn’t protected investors and instead has damaged the [SEC’s] credibility… they still haven't gotten the message: they lost on everything that matters. Ripple, the crypto industry, and the rule of law have already prevailed“
- Coincidentally (or perhaps not, as speculated by Alderoty), the SEC’s top enforcement official Gurbir Grewal announced his departure from the agency about an hour before the appeal against the $125m settlement was filed
- Grewal will leave for a job in private practice by mid-October, having spearheaded various enforcement actions against the digital asset industry (amongst others) with limited success
- As noted by Bloomberg “during Grewal’s tenure, the SEC authorised more than 2,400 enforcement actions, leading to more than $20bn in disgorgement, prejudgment interest and civil penalties”
What happened: PayPal makes first corporate transaction via stablecoins
How is this significant?
- Payments giant (and PYUSD stablecoin issuers) PayPal completed its first business transaction using a stablecoin this week, demonstrating their improved efficiencies in commercial use
- The firm paid an invoice to accounting giant Ernst & Young (EY), via SAP’s digital currency hub platform
- In a blog, PayPal’s director of market development Steve Everett explained the improvements stablecoins can introduce; “B2B payments is ripe for innovation, and digital assets can provide incredible value in these use cases… Requiring terms like ‘net-30’ for invoice payments can restrict cash flow and negatively impact business operations. With digital assets like stablecoins, payments can be made 24/7, funds transferred near instantly and settled in near real time”
- Additionally, Bloomberg identified the borderless nature of stablecoins as another key advantage
- Jose Fernandez da Ponte, PayPal’s VP of blockchain and digital assets, commented that “The enterprise environment is very well-suited for it. It’s a very rational conversation to have with the CFO”
- This news follows on from last week, when PayPal allowed (US) merchant accounts to use crypto assets
What happened: State Street bolster digital asset capabilities with executive hire
How is this significant?
- Banking giant State Street hired a new head of digital asset solutions this week, former BNY Mellon managing director Vanessa Fernandes
- According to a press release and industry reporting, 25-year finance industry veteran Fernandes will be “tasked with leading the execution of the firm’s enterprise strategy for digital asset services”
- Bloomberg reported tokenisation as a key driver in the company’s strategy, as the company is (according to rumours) exploring the development of a deposit token for client accounts
- Chief product officer Donna Milrod commented that blockchain is a transformative pillar for finance; “We continue to focus on developing, leading, and executing on our digital strategy, which, over time, will impact nearly every facet of our industry… I am pleased to welcome Vanessa to the team and look forward to seeing her build on the foundation we have established with her expertise with digital products, technology and operations”
- The company also appeared keen to follow in BNY Mellon’s recent crypto custody footsteps after the latter’s SAB 121 accounting waiver, noting that a recent collaboration with Swiss tokenisation firm Taurus “will enhance State Street's digital asset capabilities by adding tokenisation and the technological foundation to offer, subject to regulatory approval, digital asset custody services to its existing fund administration and accounting offerings for digital assets”
What happened: Guggenheim tokenises $20m worth of commercial papers
How is this significant?
- $300bn AUM financial services firm Guggenheim became the latest major institution to embrace tokenisation this week, issuing $20m of commercial papers (rated P-1 by Moody’s) on the public Ethereum blockchain
- In partnership with blockchain platform Zeconomy, this represents the first-ever on-chain digital commercial paper, according to a press release (although others such as Siemens have previously issued such assets on private permissioned blockchains like JP Morgan’s Onyx)
- Zeconomy CEO Giacinto Cosenza commented “With tens of billions of dollars locked in DeFi and corporate treasuries, we are thrilled to partner with Guggenheim Treasury Services to address a clear need for more trusted and secure blockchain solutions”
- He added that “As clearly demonstrated by the ETFs approval and the growth of the tokenization space, there is a massive demand for these digital assets”
- In other tokenisation news, a CFTC subcommittee voted to recommend the use of tokenised money market funds (such as BlackRock’s BUIDL and Franklin Templeton’s BENJI) as collateral in trading
- If this recommendation is improved, it could spur further momentum in the tokenisation space; Bloomberg wrote that it “would apply existing policies and procedures to support the use of blockchain for non-cash collateral in a manner consistent with the margin requirements of the CFTC, other US regulators and derivatives clearing organisations”
- Elsewhere in tokenisation, asset manager Kin Capital revealed a $100m tokenised real estate debt fund, issued on the nascent Chintai blockchain
- This highly specialised chain was developed for RWA (real world asset) applications, regulated and licenced by the Monetary Authority of Singapore
- Kin told industry publication Coindesk that the fund holds first performing real estate trust deeds, and is available to accredited investors with a minimum $50,000 exposure for project 14% annual returns
- Chintai CEO David Packham stated “This collaboration not only bridges the gap between traditional finance and blockchain innovation but also provides accredited investors with unique opportunities to achieve stable and attractive returns in a rapidly evolving digital landscape”
- Estimates on the potential size of the RWA sector of tokenisation vary wildly, with a base case from McKinsey putting it at $2tn by 2030, whilst BCG forecast a potential $10tn market size
What happened: Binance founder released from custody
How is this significant?
- Binance founder Changpeng “CZ” Zhao was released from custody this week, following a four month sentence (and $50m fine) after pleading guilty to KYC shortfalls within Binance’s sign-up process
- Zhao was the wealthiest person ever imprisoned in the US, and his personal fortune reportedly grew by $25m a day during his incarceration, thanks to a broad recovery across the digital asset market
- Upon release, he said he would spend a great deal of time on his non-profit online educational platform Giggle Academy, as well as increasing his tech investment efforts with a focus on “impact, not returns”
- Heading in the other direction, former FTX executive and Alameda Research CEO Caroline Ellison was sentenced to two years in prison (and $11bn forfeiture) over her role in the exchange’s fraud and collapse
What happened: UN uses blockchain to improve aid distribution
How is this significant?
- The UNHCR marked over a year and a half of blockchain for refugee relief this week, in collaboration with the Stellar blockchain
- Stellar, founded by former Ripple executives, is an ultra-low-cost chain focused primarily on the currency-esque transfer of value from point A to point B, rather than sophisticated smart contract computation
- In an interview with Bloomberg, Stellar Development Foundation CEO Denelle Dixon said “this really demonstrates that this technology has a purpose”
- Blockchain technology allows aid to be distributed to refugees via Circle’s USDC stablecoin within three minutes of downloading the requisite blockchain wallet app
- Stablecoins transferred by the UN can then be cashed out into fiat currency at Moneygram remittance locations, held, or transferred to bank accounts
- A UNHCR executive also disclosed that using the technology saved the agency itself around $12m
- Dixon added that stablecoin legislation must be pushed through, and the success of this UN scheme proved the potential of stablecoins as a “really great way for us to leverage the US dollar”