14th June, 2024
Market Overview:
Digital assets reversed their recent gains, experiencing significant pullbacks as US economic data reduced the likelihood of multiple rate cuts this year.
- Bitcoin declined throughout the week, falling sharply late on Friday as employment data from the US exceeded expectations, thus lowering the likelihood of interest rate drops
- Bitcoin dropped from a Friday high of $71,910 to a Tuesday low of $66,200, although it staged a brief rally on Wednesday driven by strong ETF inflows
- Ether displayed a similar chart to Bitcoin, declining from a Friday high of $3,835 to a Thursday low of $3,434
- Although some news emerged indicating that Ether ETFs could launch by the end of summer, it too was affected by indications that the Fed will approve only one interest rate cut this year, down from estimates at the start of the year
- Due to lower overall market caps and status as more on-risk than the established Bitcoin, altcoins pulled back further, with several in the top 30 projects dropping between 10-20%
- Overall digital asset market capitalisation pulled back to $2.43tn
- According to industry monitoring site DeFi Llama, total value locked in DeFi dropped nearly $8bn to $101.2bn, largely as a consequence of Ether’s decline
Digital assets pulled back sharply this week, as US macroeconomic data and Federal Reserve statements decreased hopes of multiple interest rate cuts this year. However, despite macroeconomic challenges, the wider market and adoption exhibited positive developments; Ether ETFs are now forecast by the end of summer, a VC raised $850m for a new early-stage fund, Biden and Trump both moved closer to crypto in campaigning, and much more.
What happened: ETF news
How is this significant?
- Bitcoin ETFs ended a 19-day streak of consecutive net inflows on Monday
- This included $3m net outflows from Fidelity’s FBTC, which itself had boasted consecutive inflows since early May
- Reversals were primarily linked to US economic data and forthcoming treasury speeches, which led to pullbacks across wider markets (particularly in risk assets)
- Net outflows followed again on Tuesday, but this was halted on Wednesday, when Bitcoin ETFs experienced $101m net inflows
- Some analysts linked this to CPI figures in line with predictions, restoring a bit of confidence to the market following earlier job data that far exceeded expectations
- FBTC led the way, gaining $51m, followed by BlackRock’s market-leading IBIT adding $16m
- As of June 12th, cumulative total net inflow for spot ETFs stood at over $15.5bn since launching in mid-January, and $16.7bn inflows for all Bitcoin products
- However, JP Morgan analysts led by Nikolaos Panigirtzoglou published a new report on Wednesday, claiming that only about half of total inflows may indeed be “new money” entering the market, rather than existing wallets reallocating
- The report proffered the theory that Bitcoin reserves dropping on exchange “implies that the majority of the $16 billion inflow into spot bitcoin ETFs since launch likely reflects a rotation from existing digital wallets on exchanges”
- According to the latest CoinShares data, the week ending last Friday (the 7th) was one of the most successful weeks of the year of digital asset investment products; taking in just north of $2bn, and extending the streak of weekly inflows to five weeks
- Trading volume across crypto ETPs was up 55% on the previous week
- This included Ether investment products’ best weekly inflows since March, accounting for around $69m (bearing in mind that no spot ETFs currently exist)
- Regarding forthcoming spot Ether ETFs, SEC chair Gary Gensler indicated to Congress this week that he expects likely approval for issuers “by the end of summer”
- Bloomberg ETF analysts Eric Balchunas and James Seyffart have offered a late July prediction for launches, although they concede that in the absence of any further information from the SEC, timelines remain a complete guess
- ProShares, a late entrant into the spot Ether issuer race had its filing officially published on the SEC website, although Bloomberg analysts believe it is unlikely to be included in any day one launches upon approval (if, as expected, the SEC repeats spot Bitcoin procedure and simultaneously approves all issuers who filed before the first deadline)
- Bitcoin futures experienced record net short interest, in what market observers describe as a sign of growing basis trade popularity
- Ravi Doshi, markets head of prime brokers FalconX, told Bloomberg “The popularity of the basis trade can be observed through the short interest on CME Bitcoin futures held by hedge funds. There is over $7.5bn in net-short futures currently. In 2021, when BTC basis was significantly higher than it is now, the peak short position was only $2bn”
- K33 Research senior analyst Vetle Lunde added “The popular angle that ETF flows are offset by CME shorts is wrong. The organic directional demand is the key source behind the strong ETF flow, not traders motivated by the chunky futures premium arbitrage”
What happened: Paradigm raised $850m for new VC fund
How is this significant?
- Venture capital firm Paradigm this week announced the successful conclusion to its raise for a third crypto fund, worth $850m
- This makes it one of the largest crypto VC funds ever, albeit still lagging behind previous bull run mania efforts like Andreessen Horowitz (a16z)’s $4.5bn raise for its fourth crypto fund in 2022, and Paradigm’s own $2.5bn fund in 2021
- The fund will concentrate on early-stage startups (including incubation programs), with co-founder Matt Huang noting in a blog post that “This is the sort of early-stage work that we love contributing to, and it’s what we’ll be increasingly focused on going forward… It’s more important than ever to accelerate a positive future for crypto, not just as investors but as builders”
- Additionally, Paradigm promoted Georgios Konstantopoulos to general partner, alongside his role as head of research
What happened: Binance CEO views 2024 as “landmark year” for digital assets
How is this significant?
- According to new Binance CEO Richard Teng, 2024 may prove a “landmark” year for the crypto asset sector, thanks to a combination of mainstream adoption, ETF launches, and increased regulatory clarity
- Binance recently reached 200 million registered users on its exchange, with a spokesperson noting 12.5% growth in monthly active users between February and May
- Teng stated “the momentum continues to be very strong, which is a very encouraging sign for us. Other than institutions participating, we do see retail participating in our space as well now”
- He also revealed that assets held on Binance have grown by $42bn since the turn of the year, partly thanks to overall market recovery in that timeframe
- His predecessor (and Binance founder), Changpeng “CZ” Zhao recently began a four-month prison sentence after pleading guilty to AML process failures at the exchange, making him the wealthiest inmate ever to serve time in the United States
What happened: MicroStrategy eyes $500m Bitcoin acquisition
How is this significant?
- MicroStrategy, one of the largest Bitcoin holders in the world, is looking to add to its considerable stash, with an additional $500m of purchases
- In a Thursday press release, the enterprise software firm announced a $500m convertible senior note offering “to acquire additional Bitcoin and for general corporate purposes”
- The company also proposed an option for an additional $75m convertible note issuance
- In March, the company successfully proposed an oversubscribed $600m note offering, which ultimately led to $623m of Bitcoin purchases
- MicroStrategy currently holds 214,400, with an unrealised profit of around $7bn at the time of writing
- The firm also announced redemption of $650m worth of 2025 senior notes, to be completed in July, settled entirely in Class A common stock
What happened: Trump and Biden both make pro-crypto overtures in presidential campaign
How is this significant?
- As the US presidential elections draw nearer, both president Biden and former president Trump were reported as moving closer to the crypto industry in a bid for support and funding this week
- Sources told industry publication TheBlock that “Biden’s campaign is in discussions with cryptocurrency industry players about accepting crypto donations through Coinbase Commerce”
- This move would represent the first time an incumbent president solicits donations via digital assets, and also politically legitimise them as an asset of value (presumably much to the chagrin of some vocal Democrat opponents like Elizabeth Warren)
- One of the sources told TheBlock “They’re paying attention to issues around crypto and are trying to find quick wins to show that they're supportive of the industry… to show that they're not the enemy”
- Meanwhile, Reuters reported that Donald Trump pitched himself as the “crypto president” at a San Francisco tech industry fundraiser
- One attendee told Reuters “President Trump made clear that the Biden-Gensler crusade against crypto will grind to a halt within one hour of a second Trump administration”
- Additionally, Trump hosted several Bitcoin mining firms at Mar-a-Lago, calling Bitcoin “the last line of defence against a CBDC”, and stating a desire for “all remaining Bitcoin” to be “MADE [i.e. mined] IN THE USA”
- Opposition to a CBDC (central bank digital currency) is heavily linked to Republican values of individual privacy, and could court the Libertarian vote in the US
- Politico reported a policy of employing Bitcoin mining as a means to boost natural gas use within the nation’s energy infrastructure
- Across the pond, the UK also faces an upcoming election; but whilst prime minister Rishi Sunak and the Conservative party have voiced support for the digital asset industry in the past, the potential policy positions of the opposition (and presumptive victor) Labour party remain far less certain
- Earlier this year, Coinbase hosted a WEF breakfast roundtable with Labour’s shadow chancellor Rachel Reeves, leading some to hope the party’s approach won’t be as directly antagonistic as the SEC’s in the United States
- In other regulatory-related news, the SEC settled with Terra Luna blockchain creators Terraform Labs and developer Do Kwon, with a $4.47bn payment including $204m from Kwon himself
- However, this may not be a grand victory for the SEC, as Terra Luna’s collapse means that neither the company nor Kwon have the funds necessary to pay said penalty
What happened: Tether earmarks $1bn for investments over next 12 months
How is this significant?
- Stablecoin giants Tether provided further insight into the planned deployment of their significant warchest this week, with over $1bn to be deployed within the next year
- CEO Paolo Ardoino revealed that the firm’s Tether Investments division has grown to 15 employees, evaluating hundreds of funding pitches per month
- Key areas of focus for Tether’s investments are “alternative financial infrastructure for emerging markets, artificial intelligence and biotech”
- Tether won’t employ any of its backing reserves (nor the 6% cushion taken from profits to streamline redemptions) in these investments, but rather fund them entirely from profits
- Due to high interest rates on backing assets like treasury bills, profits remain handsome; Q1 attestations reported a record $4.5bn profit
- Ardoino stated that previous artificial intelligence investments can also be leveraged as an additional benefit to new investments; “We can offer AI computing to all the companies we have invested in. It’s all about investing in technology that helps with disintermediation with traditional finance. Less reliance on the big tech companies like Google, Amazon and Microsoft”
What happened: Fidelity International tokenises money market fund
How is this significant?
- UK-based Fidelity International—formerly the international arm of US asset management giants Fidelity, now an independent firm largely controlled by the same family—this week became the latest major fund manager to move into tokenisation
- The firm is putting one of their money market funds on the blockchain—albeit on JP Morgan’s private, permissioned Onyx blockchain, rather than the public Ethereum blockchain as used by BlackRock and Franklin Templeton’s money market funds
- Tokenisation will occur through Onyx’s Tokenized Collateral Network (TCN), which sits between collateral receiver and provider on the blockchain
- Fidelity International previously worked with Swiss digital asset bank Sygnum to tokenise $50m of assets in a money market fund for the portfolio management of crypto industry clients Matter Labs
- In an email, Fidelity International's head of debt capital markets Stephen Whyman told industry publication Coindesk “Tokenising our money market fund shares to use as collateral is an important and natural first step in scaling our adoption of this technology”
- He outlined “clear benefits” to both clients “and the wider financial system… in particular, the improved efficiency in delivering margin requirements and reduction in transaction costs and operational risk”
- Keerthi Moudgal, head of product at Onyx Digital Assets at JP Morgan added that blockchain helped streamline processes; “Fidelity's participation in TCN brings its MMF units onto our network through tokenization, adding a new asset that is otherwise prohibitively complex to use across today's collateral landscape”