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Silver and Copper see Strong Inflows as ECB Easing Boosts Risk Appetite
Silver and Copper see Strong Inflows as ECB Easing Boosts Risk Appetite The European Central Bank’s strong policy moves announced last week to spur growth and strong US employment data added to investor confidence in the global macro outlook, boosting interest in commodities broadly and more cyclical metals in particular. The gold price also rose on news of aggressive monetary measures taken by the ECB, as the metal often trades as an alternative hard currency.
Long silver ETPs see highest inflows in 10 weeks. Inflows of US$20.9mn last week show that investor enthusiasm for the metal that usually trades in gold’s shadow is growing. With global economic growth rising, prospects for the metal, used in many industrial applications, are improving. Silver is likely to post another supply deficit this year, following last year’s trend, further tightening the market. Despite the US imposing higher tariffs against Chinese solar panel imports last week, its new climate change policy announced last week is likely to lift the demand for photovoltaics in general. Solar panels are the fastest segment of demand growth for silver fabrication, with a compound annual growth rate of 20% over the past decade and are now as significant as photography in terms of sources of silver demand.
ETFS Copper (COPA) sees $18.1mn of inflows, the highest in a month. Investors appeared to view the drop in the copper price to a month low as a good buying opportunity. The price has been weighed on by an investigation into warehousing in China’s Qingdao port that investors worry could unwind financing deals using the metal as collateral. In our view, underlying real demand for the metal in China remains robust. We expect that as negative sentiment and speculative activity subsides, investors will again focus on tightening supply-demand fundamentals and continue to target a copper price of around US$7,500/tonne.
Gold ETPs see the biggest outflows since September 2013 as investors continue to rotate into more cyclical assets. Although the gold price rose on Thursday following the ECB’s decision to cut interest rates and press on with other monetary easing measures, the gold price ended the week lower as markets focused on the potential for further US dollar strength. In our view, however, with positioning already heavily negative gold, the gold price now trading near its marginal cost of production and developed market equity markets looking heavily stretched, we view the gold price as these levels as relatively cheap insurance against the possibility the current consensus positive macro views are wrong.
Profit taking drives US$15.8mn out of ETFS Aluminium (ALUM). Marking the largest outflow since November 2013. Aluminium has been the best performing industrial metal this month, gaining 4.7% as China tries to address oversupply in domestic production.
ETFS Physical Palladium (PHPD) saw its largest outflow since July 2013. Taking profit on a 1.1% rise in price, palladium investors sold US$12.2mn into the rally last week. With courts having thrown out the AMCU union’s request to stop the miners communicating directly with their employees in South Africa, an end to the prolonged strike does not appear to be getting any closer.
Key events to watch this week. China’s money supply, lending and production data will be in focus as investors watch to see the impact the government’s recent stimulus measures are having on the world’s second largest economy.
Important Information
This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (”FCA”).
Every month, our research team will present the cryptoassets of the month that increased or dropped in value by more than 15%. With a data-driven approach, we highlight the most important developments and events causing price movements.
Figure 1 – 30-Day Performance: Cryptoassets of the Month vs. Traditional Asset Classes
Data Source: 21Shares, CoinGecko, and Yahoo Finance, from 30-Apr-2023 to 31-May-2023 (Close Price)
Ethereum (ETH)
Ethereum traded down 0.57% over the past month. On May 15, Lido V2 went live, enabling users to withdraw their stETH (staked Ether). As of May 31, Lido has processed over 460k stETH withdrawals without voluntarily exiting a single validator. The protocol achieved this by implementing a buffer that accumulates ETH via daily deposits, partial withdrawals, and rewards. On the scaling front, Aztec revealed its “hybrid zk-rollup,” which will enable private smart contract execution, allowing users to protect their data and on-chain activity with programmable anonymity. Finally, Ethereum’s beacon chain suffered a technical issue that caused the network to stop finalizing blocks briefly.
Bitcoin (BTC)
Bitcoin traded down 7.21% over the past month. On May 17, Tether announced it would use 15% of its monthly net operating profits (i.e., the realized gains from T-bills and similar investments) to buy Bitcoin. The move aims to diversify Tether’s reserve surplus. In addition, it could have a considerable effect on BTC’s structural supply and demand dynamics, as it can offset a significant portion of the selling pressure we can expect from the 41k BTC that the U.S. government intends to sell this year. On another front, transaction fees on the Bitcoin network rose five-fold from $23.5 million in April to $124 million in May, primarily driven by Ordinals and BRC-20 tokens.
Decentraland (MANA)
Decentraland (MANA) traded down 15.08% over the past month as activity in the decentralized virtual world waned significantly. About 2,740 unique wallet addresses interacted with Decentraland throughout May, down ~26% from April. In other news, on May 18, Decentraland DAO introduced “Decentraland Studios,” a platform to connect creators who want to build experiences on the platform but lack the technical skills to do it. This move is part of a broader trend in crypto attempting to lower the barrier of entry for new developers and creators.
Stacks (STX)
Stack’s native token STX traded down 16.47% over the past month. On May 23, ALEX – the most prominent decentralized exchange (DEX) on the Stacks network – introduced permissionless listings for BRC-20 tokens. Despite the combined market cap of BRC-20 tokens reaching close to $500 million, they mainly consist of “meme coins” because Bitcoin does not natively support smart contracts, nor is it designed for fast performance. Thus, Bitcoin needs Layer 2s like Stacks to be usable at scale and open the segway for new use cases. Regarding ecosystem traction, the Stacks networks reached 65,000 deployed smart contracts on May 25.
Avalanche (AVAX)
Avalanche’s native token AVAX traded down 17.85% over the past month despite exciting ecosystem developments. On May 24, Ava Labs announced AvaCloud, a launchpad that allows businesses to deploy custom, fully managed blockchains using an intuitive no-code portal. In addition, the AvaCloud product suite includes managed validators with automated installation for enhanced security, comprehensive data tools, and chain interoperability between all blockchains on the Avalanche network. If successful, the release could mark a paradigm shift in enterprise adoption by removing the complexity of building a public or private blockchain.
Algorand (ALGO)
Algorand’s native token ALGO traded down 18.34% over the past month, underperforming the broader market. The Algorand Foundation recently released AlgoKit, an application that handles the developer environment setup, project generation, and deployment. AlgoKit aims to lower the barrier of entry for developers entering the ecosystem. In this regard, attracting new talent is an area Algorand has struggled with – the blockchain had only 38 full-time developers as of April 2023, according to Electric Capital. The network’s inability to attract new talent may be worrisome as developer engagement is an early and leading indicator of value creation.
Fantom (FTM)
Fantom’s native token FTM traded down 26.28% over the past month. On May 8, the Fantom Hackathon Q2 2023 opened for submissions with a prize pool of over $300k for innovative dApps built on the blockchain. On May 17, the Fantom Foundation released Fantom Academy, a series of lessons for developers, including Solidity basics, token standards, and more. Finally, regarding ecosystem traction, Fantom became available on The Graph, allowing developers to leverage subgraphs to load data on the Fantom blockchain securely and reliably into their dApps.
Strategies of the Month: March 2023
Every month, our research team will also present the best-performing strategies of the month in our product suite. With a data-driven approach, we highlight the most important developments and events causing price movements.
Figure 2: 30-Day Performance: Strategies of the Month vs. Traditional Asset Classes Data
Source: 21Shares Index Management Console and Yahoo Finance, from 28-Apr-2023 to 31-May-2023 (Close Price)
SBTC
The 21Shares Short Bitcoin ETP (SBTC) rose 5.72% over the past month. SBTC seeks to provide a -1x return to the performance of Bitcoin for a single day. Despite its strong fundamentals, BTC’s implied annual volatility has consistently been above 70% and has experienced drawdowns from its all-time high of more than 80%. By comparison, the annual volatility of the S&P 500 sits around 20%. As a result, sophisticated investors with stringent risk-management practices may benefit from tactical short-term inverse exposure to BTC.
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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