In Markets
The past week was arguably one of the most historic for crypto in a decade, with SkyBridge Capital’s Anthony Scaramucci summing it up as “a big year this week in crypto.” Pro-crypto legislation passed with bipartisan support in the US House of Representatives, the Ethereum ETF was approved, and Donald Trump promised to defend crypto from critic Elizabeth Warren and her “goons.” It suggests a sea change in crypto’s political fortunes and is a potential catalyst for the second stage of the bull run. Bitcoin topped the A$106K (US$70.6K) mark earlier today, but at the time of writing, the price was flat seven days ago to trade at A$104,210 (US$69.3K). Ethereum gained 7% over the past week and is trading around A$5,839 (US$3,878). The ETF approval appears to have taken some of the gloss off of ETH killer Solana which pulled back 8%, and ETH competitor Cardano (-6%), XRP was flat, Dogecoin gained 3%, and Shiba Inu was flat. The Crypto Fear and Greed Index is at 74 or Greed.
From the IR OTC Desk
It seems clear that both monetary policy and cryptocurrency-specific political events will drive cryptocurrency price action. We also expect several subplots to develop from within this broad narrative. One will be the ongoing relationship between ETH and BTC – commodities, which are now at risk of competing for the same (traditional finance) ETF allocations, if ETH approval can be received.
While this is a very positive development for cryptocurrencies, it is important to recognise that flow can move pricing away from expectations in the short term, making pricing seemingly irrational. This will be something to closely monitor.
With the ETH US spot ETF being one of the remaining agenda items on the cryptocurrency ‘pending’ wish list, one can only wonder, ‘What is next?’ And, importantly, is there still upside from here? This week, it seems appropriate to take an extended look at the forward calendar. Important agenda items include pending interest rate cuts within the G8 and the US Federal election (scheduled for November 5th).
While these events are well known, they have the potential to be particularly market-moving for risk assets and the political landscape of cryptocurrencies. It is our expectation that these events will continue to drive volatility in the complex and be capable of changing the cryptocurrency landscape for many years to come. They should be monitored closely.
Economic releases this week are include:
In Australia (AEST)
- Thursday 11:30am AU Monthly CPI Indicator (April)
In US (AEST)
- Thursday 10:30pm US GDP Q1 (2nd estimate)
- Friday 10:30pm US PCE Inflation Index (April)
On the OTC desk, flows in the majors have now quietened. Following last week’s bout of high pricing volatility, this week has seen more technical trading emerge. An example of this is the ETH/BTC spread, which is up more than 10% over the last 7 days. In times of reduced outright movements, relative value and volatility become of increasing importance.
So far we have not seen an ‘excessive’ positive impulse return into alts. While the conversations remain ongoing, allocations appear to be light. To follow on from last week’s historical review, alt season tends to follow ETH outperformance. On the spread to BTC, ETH outperformance is starting to develop. Perhaps more speculative allocations are nearer on the time horizon.
For any further information, please feel free to reach out.
In Headlines
Ether ETFs approved
In a last-minute plot twist, after markets had given up hope, the SEC held its nose and approved the 19b-4 filings for Ethereum ETFs from VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK 21Shares, Invesco Galaxy, and Bitwise. The late decision, which was made under delegated authority rather than a vote of commissioners, meant issuers were caught unprepared. The S-1 registration statements required to start trading could take weeks or months, depending on how motivated the SEC officials are. Importantly, the approval is a tacit recognition that Ether itself is not a security. “These are commodities-based trust shares, so the SEC, by approving these, is explicitly saying they’re not going to go after Ether as a security,” stated Bloomberg ETF analyst James Seyffart. Adam Cochran, a partner at Cinneamhain Ventures said it probably meant “a lot” of other projects aren’t securities either, however, SEC boss Gary Gensler clearly disagrees.
Ether price barely moves
The Ether price barely moved after the SEC decision, leading Cointelegraph to ask “why aren’t we rich yet?” The answer came down to two factors: the first is that Ethereum had already surged 29% after signs suggested the ETF approval was imminent. The less positive news is that the ETFs face an uphill battle for traction given the likely outflows from Grayscale’s Ethereum Trust (ETHE). Grayscale’s Bitcoin Trust lost half of its assets in outflows over months after Bitcoin ETFs were approved, and Kaiko is estimating US$110M (A$165M) per day outflows from ETHE for the first month. Over the longer term though Bloomberg analysts estimate the Ether ETFs could take 10-20% of Bitcoin ETFs’ AUM, which would be around $5B to $10B in assets. Bitwise CIO Matt Hougan thinks it will be more than 25%, but less than 50%, of Bitcoin’s performance. He argues that TradFi investors are less likely to be maximalists and more likely to want to diversify. Standard Chartered believes Bitcoin will hit US$150K (A$225K) by the end of the year and Ether will hit US$8K (A$12K). ETH finally started to rise in the past two days and finished the week up almost 7%.
Pro-crypto legislation passes
In a development every bit as significant as the ETFs, the pro-crypto Financial Innovation and Technology for the 21st Century Act was passed by the US House of Representatives. It came a week after the Republicans and Democrats had teamed up to pass a resolution overturning SAB121, which would enable banks to custody crypto. The FIT21 bill was even supported by top Democrat Nancy Pelosi, though it faces a tougher battle in the Senate. The White House said it doesn’t approve of the legislation but that it was willing to negotiate to pass, “A comprehensive and balanced regulatory framework for digital assets” which is a huge step forward on veto threats. Senator Cynthia Lummis believes there’s now a bipartisan majority in both houses to pass crypto legislation. But like a dog that finally catches the car, some pro-crypto lawyers are now raising doubts over FIT21. It has a very complicated method to determine what is and isn’t decentralized, and gives the CFTC control over some assets, the SEC control over others, and both regulators control as the assets move between the two. Lummis said this week she hopes to improve the legislation in the Senate.
Donald Trump now a crypto bro
Colourful but erratic presidential candidate Donald Trump announced he’d accept crypto donations, and that he was “very positive and open-minded to cryptocurrency companies” in opposition to President Joe Biden who Trump claims wants crypto “to die a slow and painful death. That will never happen with me.” Trump then appeared at the Libertarian National Convention where he vowed to support the “right to self-custody to the nation’s 50 million crypto holders” and promised to commute Silk Road founder Ross Ulbricht’s dual life sentences.
Michael Saylor says ETH ETF is good for Bitcoin
Bitcoin maximalist and MicroStrategy CEO Michael Saylor has also changed his tune in an appearance on What Bitcoin Did? Having said for some time that Ethereum is a security that would never get an ETF, Saylor spun the approval as being good for Bitcoin “in fact, I think it may be better for Bitcoin because I think that we are politically much more powerful supported by the entire crypto industry.” He said the decision will accelerate institutional adoption and see mainstream investors allocate 5-10% to the “crypto asset class… but Bitcoin will be 60% or 70% of that.” Or to put it another way, Saylor conceded that Ether and other cryptocurrencies might get up to 40% of institutional allocations.
Solana to send 100% of fees to validators
Solana will now send 100% of priority fees to validators rather than a 50/50 split, with the other half being burned as is currently the case. Around three-quarters of voters supported the proposal to increase rewards to validators responsible for the network’s reliability and performance. The change will take a few months to filter through, and there are concerns it will increase the already high inflation of the supply.
Ethereum’s L2 strategy working
Although Ethereum’s scaling strategy using layer 2 rollups has come under sustained criticism from both Solana and Bitcoin fans, the layer 2s themselves are becoming more popular. More than seven million addresses interacted with at least one L2 between May 13 and 19, which is more than double the amount than five months ago. Ethereum’s policy of pushing transactions to L2s saw the base layer fall to 2.1M active addresses, in contrast to the Arbitrum L2 which had 3.7M. Cofounder Vitalik Buterin also put out a blog this week, suggesting that L2s are essentially a community-driven form of sharding, which was the old “Eth2” plan for scaling the main chain.
