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ETC Group Crypto Market Compass #7 2024
• Bitcoin closes at highest price since December 2021 as cryptoassets recover strongly on the back of positive net inflows into US spot Bitcoin ETFs and rising futures open interest
• Our in-house “Cryptoasset Sentiment Index” has also recovered strongly and signals bullish sentiment
• Global Bitcoin ETP flows top +1 bn USD last week as monthly flows into top 2 US products were best in US ETF history
Chart of the Week
Performance
Last week, cryptoassets continued to recover strongly on the back of positive net inflows into US spot Bitcoin ETFs and rising futures open interest.
More specifically, global cryptoasset ETP fund flows topped +1 bn USD last week which was the highest weekly net inflow since the first week of trading of the US spot Bitcoin ETFs in early January.
One month after the launch of the US spot Bitcoin ETFs, the top 2 US products have recorded the most flows in the history of US ETF trading launches which demonstrates that the launch has been a huge success so far.
Meanwhile, BTC futures open interest also picked up significantly in a sign that global risk appetite is returning. In fact, our in-house Cryptoasset Sentiment Index has also recovered briskly to levels last seen before the recent “sell-the-news” correction which is consistent with an overall return in cross asset risk appetite.
Meanwhile, a recent institutional trader survey by JP Morgan implies that overall interest in cryptoassets is still rather lukewarm. In a poll of more than 4,000 traders conducted by the bank, 78% of respondents said they would not trade cryptocurrencies, and only 12% said they would do so over the next five years.
Besides, Google Trends search queries for “bitcoin” in the US also remain well below previous cycle peaks of 2021 or 2017 which implies that retail sentiment is also still muted which is overall a positive sign amid increasing risk appetite.
It seems as if the market is turning a blind eye on unpleasant macro developments that are happening in the background such as increasing risks in the global financial system and as such increasing recession risks.
For instance, last week the German lender Deutsche Pfandbriefbank came into crosshairs as it significantly increased its loan loss provisions related to its US commercial real estate exposure. This is following similar developments in the US (New York Community Bank) and in Japan (Aozora Bank) more recently.
That being said, in particular Bitcoin could be regarded as a hedge against rising systemic risks in the banking system as a censorship-resistant and counterparty risk-free asset.
One of the reasons why markets are turning a blind eye is the Chinese New Year celebrations that were accompanied by increasing monetary stimuli by the People’s Bank of China. In fact, aggregate financing in China, which comprises of bank loans and non-bank financing activity in China, has reached an all-time high in January 2024.
Although it is quite common to see a seasonal pick-up in lending activity in China during the annual new year festivities around January/February, the fact that it has reached an all-time high is yet another piece of evidence that the Chinese authorities are clearly trying to support the economy. Lending activity in China usually leads real economic activity by approximately half a year which implies improving economic conditions over the coming months.
What is more is that, based on our own calculations, improvements in global growth expectations have been the major macro factor for Bitcoin’s performance over the past 6 months. So, since China is the global business cycle behemoth, any further positive news from China should also affect Bitcoin and cryptoassets positively.
In general, among the top 10 crypto assets, Avalanche, Bitcoin, and Solana were the relative outperformers.
Solana outperformed somewhat counter-intuitively despite an outage that happened last week due to a fixed but not yet implemented bug fix.
However, altcoin outperformance vis-à-vis Bitcoin was relatively weak, with only 10% of our tracked altcoins managing to outperform Bitcoin on a weekly basis.
Sentiment
Our in-house “Cryptoasset Sentiment Index” has also recovered strongly and signals bullish sentiment.
At the moment, 9 out of 15 indicators are above their short-term trend.
Compared to last week, we saw major reversals to the upside in global crypto ETP fund flows and the BTC futures long liquidation dominance.
The Crypto Fear & Greed Index remains in ”Greed” territory as of this morning.
Meanwhile, our own measure of Cross Asset Risk Appetite (CARA) has continued to increase as well which is signalling a positive sentiment in traditional financial markets.
Besides, performance dispersion among cryptoassets has declined somewhat but still remained relatively high.
In general, high performance dispersion among cryptoassets implies that correlations among cryptoassets are low, which means that cryptoassets are trading more on coin-specific factors.
At the same time, altcoin outperformance vis-à-vis Bitcoin was still relatively low, with an underperformance of Ethereum vis-à-vis Bitcoin last week. Viewed more broadly, only 10% of our tracked altcoins have outperformed Bitcoin on a weekly basis.
In general, low altcoin outperformance tends to be a sign of low risk appetite within cryptoasset markets.
Fund Flows
Overall, we saw net fund inflows in the amount of +1091.9 mn USD (week ending Friday) based on Bloomberg data across all types of cryptoassets.
Global Bitcoin ETPs continued to see significant net inflows of +1079.5 mn USD of which +1194.4 mn (net) were related to US spot Bitcoin ETFs alone.
The Grayscale Bitcoin Trust (GBTC) continued to see net outflows of around -415 mn USD last week albeit at a decelerating pace. This was more than offset by net inflows into other US spot Bitcoin ETFs. For instance, BlackRock’s iShares Bitcoin Trust (IBIT) took in +684 mn USD and Fidelity’s Bitcoin ETF (FBTC) took in +523 mn USD last week.
Both IBIT and FBTC have recorded the most flows in the history of US ETF trading launches one month after trading launch which demonstrates that the launch has been a huge success so far.
Note that some fund flows data for US major issuers are still lacking in the abovementioned numbers due to T+2 settlement.
Apart from Bitcoin, we saw comparatively small flows into other cryptoassets last week.
There were some minor inflows into global Ethereum ETPs of around +6.7 mn USD. Altcoin ETPs ex Ethereum that managed to attract +17.2 mn USD last week.
In contrast, thematic & basket crypto ETPs experienced net outflows of -11.4 mn USD, based on our calculations.
Besides, the beta of global crypto hedge funds to Bitcoin over the last 20 trading still implies that global crypto hedge funds remain under-exposed to Bitcoin market risks.
On-Chain Data
Positive on-chain developments have also supported the recent recovery. For instance, BTC exchange balances have reversed last week and reached their lowest level since July 2018. ETH exchange balances have also continued to drift lower.
All in all, BTC net exchange transfers and deposits have recently been negative and BTC exchange balances have declined over the past week as a result. This implies overall increasing demand for Bitcoin.
Most of those net outflows occurred from wallet sizes in excess of 1 mn USD which implies that the majority of net outflows from exchanges and thus net demand originates from larger (institutional) investors.
At the same time, whale deposits to exchanges have clearly levelled off last week in a sign of decreasing selling pressure from large entities. Whales are defined as network entities (cluster of addresses) that hold at least 1,000 BTC. Long-term holders have also reduced their transfers to exchanges significantly over the past 2 weeks and long-term holder supply has stabilized somewhat.
Meanwhile, BTC miners continue selling into their reserves as BTC miner balances have reached their lowest level since July 2021. It seems as if BTC miners are trying to prop up their cash reserves ahead of the Halving which is less than 10000 blocks away and expected to happen around the 20th of April.
The overall BTC network hash rate continues to hover near the all-time high reached on the 2nd of February and total miner revenues have declined towards the block subsidy as transaction demand has somewhat normalized.
Futures, Options & Perpetuals
BTC futures open interest has increased significantly last week with an increase of around +32k BTC of which CME accounted for around +20.7k BTC. Perpetual open interest also increased by around +12k BTC last week.
As a result, the 3-months annualized BTC futures also increased to around 11.0% p.a. and the BTC perpetual funding rate increased to the highest level since January 12th across major derivatives exchanges.
BTC options’ open interest also increased significantly last week by around +26k BTC. Interestingly enough, the Put-call open interest increased throughout the week implying that option traders built up downside protections throughout the week as well. Put-call volume ratios also increased which is consistent with this observation.
However, the 25-delta BTC option skew for all major expiries has declined significantly over the past week in favour of call options, implying renewed interest for upside calls. At the same time, there was a reversal in implied volatilities to the upside, especially in earlier expiries.
Bottom Line
• Bitcoin closes at highest price since December 2021 as cryptoassets recover strongly on the back of positive net inflows into US spot Bitcoin ETFs and rising futures open interest
• Our in-house “Cryptoasset Sentiment Index” has also recovered strongly and signals bullish sentiment
• Global Bitcoin ETP flows top +1 bn USD last week as monthly flows into top 2 US products were best in US ETF history
Disclaimer
Important Information
The information provided in this material is for informative purposes only and does not constitute investment advice, a recommendation or solicitation to conclude a transaction. This document (which may be in the form of a blogpost, research article, marketing brochure, press release, social media post, blog post, broadcast communication or similar instrument – we refer to this category of communications generally as a “document” for purposes of this disclaimer) is issued by ETC Issuance GmbH (the “issuer”), a limited company incorporated under the laws of Germany, having its corporate domicile in Germany. This document has been prepared in accordance with applicable laws and regulations (including those relating to financial promotions). If you are considering investing in any securities issued by ETC Group, including any securities described in this document, you should check with your broker or bank that securities issued by ETC Group are available in your jurisdiction and suitable for your investment profile.
Exchange-traded commodities/cryptocurrencies, or ETPs, are a highly volatile asset and performance is unpredictable. Past performance is not a reliable indicator of future performance. The market price of ETPs will vary and they do not offer a fixed income. The value of any investment in ETPs may be affected by exchange rate and underlying price movements. This document may contain forward-looking statements including statements regarding ETC Group’s belief or current expectations with regards to the performance of certain asset classes. Forward-looking statements are subject to certain risks, uncertainties and assumptions, and there can be no assurance that such statements will be accurate and actual results could differ materially. Therefore, you must not place undue reliance on forward-looking statements. This document does not constitute investment advice nor an offer for sale nor a solicitation of an offer to buy any product or make any investment. An investment in an ETC that is linked to cryptocurrency, such as those offered by ETC Group, is dependent on the performance of the underlying cryptocurrency, less costs, but it is not expected to match that performance precisely. ETPs involve numerous risks including, among others, general market risks relating to underlying adverse price movements and currency, liquidity, operational, legal, and regulatory risks.
For more details and the full disclaimer
I en nyligen genomförd Coindesk-intervju lyfte Blackrock fram institutionaliseringen av tillgångsklassen eftersom de förväntar sig en ny våg av investerare, särskilt från stats- och pensionsfonder, som är redo att öka efterfrågan under de kommande månaderna. Som nämnts regelbundet för våra läsare, är denna dynamik precis vad vi förväntar oss och vi ser denna institutionalisering som en viktig drivkraft för kryptotillgångar som kryptoindex ETPer.
Utveckling (USD) i slutet av april 2024
Beta Index ETP – Nasdaq Crypto Index Europe ETP (HASH eller HDX1): April -16%, YTD +35% och 12m +87%.
Smart-Beta Index ETP – Crypto Momentum Factor Index ETP (HAMO eller HDXM): April -23%, YTD -3% och 12m +60%.
Marknadsuppdatering
Efter 7 månader av uppgångar i rad såg kryptomarknaden sin första nedgång sedan augusti 2023, med Nasdaq Crypto Index Europe (”NCIE”) som sjönk med 16% i april, men bibehöll en ökning med 35% för året. Trots globala geopolitiska utmaningar är utsikterna för kryptotillgångar fortsatt positiva, främst drivna av ett fortsatt institutionellt intresse.
April markerade den mycket efterlängtade bitcoin-halveringen, som såg att gruvbelöningarna halverades, vilket underströk dess utbud och efterfrågan. Historiska trender tyder på en effekt efter halvering, nu förstärkt av framsteg i amerikanska ETF-flöden. Vårt forskarteam har fördjupat sig djupare i detta fenomen i vår rapport: Hashdex Research – Bitcoin’s Halving: An investor’s guide.
NCIE i förhållande till andra tillgångsslag
Källa: Hashdex, per den 30/04/24.
I det globala sammanhanget stötte index över olika tillgångsklasser på en utmanande månad. Oro för potentiellt förlängda höga räntor i USA ledde till marknadsturbulens, vilket resulterade i negativa utfall över nästan alla index. Av särskild betydelse var S&P 500, som noterade en nedgång på över 4 % för månaden.
April månad
- Nasdaq Crypto Index Europé
Källa: Hashdex, per den 30/04/24.
Indexet påverkades övervägande av Bitcoin och Ethereum, och upplevde nedgångar på -13,4% respektive -18,6%. Samtidigt såg alla andra komponenter i NCIE fall över 24%. Uniswap, i synnerhet, drabbades av betydande turbulens efter ett meddelande från SEC:s Enforcement Division till Uniswap Labs, vilket resulterade i en brant minskning med 42 %.
- Crypto Momentum Factor Index:
Källa: Hashdex, per den 30/04/24.
In i maj, med sin månatliga ombalansering, lade Momentum Index till en ny tillgång: NEAR Protocol, en decentraliserad utvecklingsplattform som använder en Proof-of-Stake (PoS) konsensusmekanism, kommer att introducera en sönderdelad arkitektur för förbättrad transaktionskapacitet. Hittills har priset stigit med 68 % i år.
3 månaders daglig avkastning korrelation Nasdaq Crypto Index Europe vs S&P 500
Källa: Hashdex, per den 30/04/24.
Hashdex Nasdaq Crypto Index Europe ETP – dokumentation
ISIN: CH1184151731 / Tickers: HASH (SIX och Euronext) eller HDX1 (Xetra) – handlas i USD, EUR, CHF och GBP
Hashdex Crypto Momentum Factor ETP – dokumentation
ISIN: CH1218734544 / Tickers: HAMO (SIX och Euronext) eller HDXM (Xetra) – handlas i USD, EUR, CHF och GBP
• Bullish, Bearish, or Both? Macro Mayhem Leads to Bitcoin Volatility
• Bitcoin’s Institutional Embrace is Accelerating
• Beyond Borders and Banks: Stablecoins Proving their Market Viability
Macro Mayhem Leads to Bitcoin Volatility
Last week, Bitcoin navigated a wave of conflicting U.S. macroeconomic events. The FOMC press conference last Wednesday confirmed the Fed will sustain high interest rates at 5.25-5.5% as the challenge of achieving the inflation target persists. As shown in Figure 1, this initially triggered Bitcoin’s price to drop by 5.9% as investors sought the safety of fixed-income assets. Friday’s U.S. Jobs report reversed the negative sentiment from the FOMC meeting. The report revealed a disappointing labor market, with only 175,000 non-farm jobs added, as unemployment rose to 3.9%. This data fueled hopes for rate cuts, which bodes well for risk-on assets, which led to Bitcoin rebounding by 6.7% to ~$63,000 by week’s end.
Figure 1: Bitcoin 1 Week Price Performance (April 29, 2024 – May 6, 2024)
Source: TradingView
Looking ahead, several developments could provide tailwinds for Bitcoin. The upcoming Treasury buyback program, the first since 2002, is launching on May 29 and has several implications for the broader financial landscape. By conducting weekly bond buybacks of up to $2 billion, outstanding debt is reduced while liquidity is increased, which could allow capital to flow into riskier assets. The reduced bond supply also puts downward pressure on yields, potentially making Bitcoin more attractive.
The recent Treasury refinancing announcement also looks promising for Bitcoin. A lower target balance for the Treasury General Account (TGA) suggests the government needs to borrow less, which frees up capital. The impact could be compared to quantitative easing, instead of withdrawing liquidity from the market by selling new bonds, the Treasury effectively injects liquidity by not needing to borrow as much. This additional liquidity eventually reaches the banking system, potentially leading to easier access to credit and lower interest rates. As we have voiced throughout, this environment would benefit riskier assets like Bitcoin.
Despite the initial price drop triggered by the Fed’s hawkish stance on interest rates, Bitcoin’s resilience was evident in its subsequent rebound driven by a weakening labor market and the potential prospect of a dovish shift. As illustrated below, Bitcoin’s funding rate is now similar to when it was trading at around $29,000, which signals a healthy market adjustment, shedding excess leverage. Looking ahead, the upcoming Treasury actions will undoubtedly affect U.S. liquidity and interest rate levels, which are key to Bitcoin’s performance and will be closely monitored in the coming weeks.
Figure 2: Bitcoin’s Funding Rate
Source: Glassnode
Bitcoin’s Institutional Embrace is Accelerating
Fueled by the U.S. Bitcoin ETF launch, the institutional adoption of Bitcoin is accelerating. A staggering $175 billion is estimated to be held by ETFs, countries, and public and private companies, representing roughly 15% of the total Bitcoin supply. While miniscule compared to the U.S. launch, Hong Kong’s Bitcoin ETFs further exemplify this trend, accumulating 4.2K BTC, or nearly $270 million, within their first week of trading. This showcases the growing appetite for the asset, however the hunger for Bitcoin is not limited to Hong Kong. Ovata Capital Management’s $60 million allocation into the U.S. spot ETFs underscores this trend, which is set to continue as the May 15 deadline for 13F filings approaches, which may reveal previously undisclosed positions held by institutions.
Recent disclosures by BNY Mellon and BNP Paribas, along with Swiss funds Bellecapital International and Lugano Financial Advisors, provide further evidence of Bitcoin’s institutionalization. Moreover, according to BlackRock, the world’s largest sovereign wealth funds (SWFs), including Norway’s $1.6 trillion fund, Saudi Arabia’s Public Investment Fund, and Kuwait’s Investment Authority, are re-initiating discussions around Bitcoin. The SWF industry is valued at $11.6 trillion, therefore even a moderate allocation into the asset could see demand catapult to new levels, and provide a tipping point for broader adoption. Importantly, it is becoming more difficult to discount the asset – Bitcoin’s unique profile as both a risk-on and risk-off asset is becoming increasingly relevant given the complex macroeconomic landscape.
Further, Bitcoin’s adoption is transcending passive investment strategies. For instance, fintech giant Nubank, housing 80 million users, now offers crypto deposits and withdrawals, aiming to bridge the gap between traditional finance and crypto in Latin America. Lastly, Microstrategy, synonymous with their commitment to Bitcoin, are pushing the boundaries further by building an identity solution on the Ordinals network. This exemplifies the use of Bitcoin beyond a decentralized payment system, a notion we have echoed in the past weeks as Bitcoin continues to evolve beyond its original purpose.
Finally, the coming weeks promise further clues on the US economic trajectory and Bitcoin institutional adoption. There are eight Fed speaker events this week, and while they don’t directly address crypto, they often offer valuable insights into the current economic conditions. This, coupled with the turbulence expected during Q1 earnings season, could create volatility in equity markets, which may spill over to crypto as investors react accordingly.
Beyond Borders and Banks: Stablecoins Proving their Market Viability
After a six-year hiatus, Stripe is re-entering the crypto industry by enabling customers to accept stablecoins for online payments. Stripe was among the pioneers in integrating Bitcoin back in 2014. However, they ceased support in 2018 due to Bitcoin’s prolonged processing times and high transaction costs, which didn’t present a significant improvement over its traditional counterpart. Since then, the industry has undergone a major transformation, with the emergence of numerous smart-contract platforms and scaling efforts, enhancing the potential of crypto’s infrastructure to offer a superior user experience.
For instance, Stripe’s co-founder showcased a $100 USDC payment using Solana at the company’s annual conference. The demo corroborated how the payment was processed in less than a second instead of days while incurring $0.0037 in network fees, a cost reduction of almost 800-fold compared to a credit card. This is a testament to the advancements achieved by the latest generation of platforms, such as Solana, which addressed some of the drawbacks, like high transaction costs and lengthy processing times, while demonstrating their efficacy for use cases requiring a high volume of interactions, such as payments.
To that end, Stripe will begin supporting USDC payments through Ethereum, Solana, and Polygon. This integration marks a significant milestone, given Stripe’s substantial 35% market share in the payments industry. However, it’s even more crucial as users can seamlessly leverage the efficiencies of crypto’s infrastructure, ensuring reduced transaction costs and notably swifter processing times while remaining unaware of the use of blockchain technology in the backend. This mirrors how users are often unaware of the payment infrastructure their preferred fintech apps utilize. At 21Shares, we firmly believe that this kind of seamless integration is imperative for the widespread adoption of crypto.
That said, while Tether leads by market capitalization with $110 billion compared to USDC’s $33 billion, USDC actually dominates in terms of usage when looking at transaction volume. According to Visa’s latest on-chain analytical dashboard aiming to dissect the growth of the stablecoin sector, USDC is now responsible for more than 70% of all stablecoin payments, as illustrated below. As we’ve emphasized for years, exemplified by our own work on Dune, on-chain analytics represents the future of capital markets. It offers unparalleled transparency and real-time data access, unlike traditional industries reliant on periodic disclosures of quarterly financials. Therefore, Visa’s active engagement in on-chain analytics marks a watershed moment, reaffirming our long-held belief that this is the path forward.
Figure 3: Stablecoins Monthly Transaction Volume
Source: Alluvium X Visa
Despite USDC’s widespread adoption, Tether has achieved remarkable financial success in Q1. The company raked in a staggering $4.52B in profits by strategically deploying user deposits into U.S. treasury and repurchase agreements. The exposure to debt, coupled with rising Bitcoin and Gold prices, has proven to be a lucrative formula. As a result, Tether’s net profit now eclipses that of financial giants like Citibank, Goldman Sachs, and Morgan Stanley, highlighting the burgeoning business potential of the fiat-backed stablecoin model.
Further, characterized by its disintermediated structure and emphasis on user experience, stablecoins have proven themselves as a viable alternative within the financial landscape. They are arguably one of crypto’s most compelling use cases right now. Its significance becomes even more apparent in regions facing economic instability, where users turn to stablecoins as a swift means to access the U.S. dollar, safeguarding themselves against currency devaluation. Turkey serves as a notable case study, stablecoin transactions account for a remarkable 4% of the nation’s GDP, the highest proportion globally, at a time when the Turkish Lira lost more than 75% of its value against the U.S. dollar over the last 5 years.
Finally, Tether is intensifying its efforts by launching USDT on the TON blockchain, which is closely linked to Telegram. Despite TON’s recent rise in popularity with approximately 1.74M users, it aims to tap into Telegram’s vast 900M user base through its deep integration. This move could significantly expand the market for stablecoins, currently serving around 25M users. Moreover, this integration is a pivotal step in simplifying crypto usage, concealing its complexities, and paving the way for mass adoption.
This Week’s Calendar
Source: Forex Factory, 21Shares
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
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