Research Roundup Newsletter [January 2024]

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1. Market Index

The monthly price, volume, and volatility indices were positive at +0.33%, +3.60% and +32.80%, respectively.

2. Charts of the Month

The latest release of our Crypto Market Sizing Report 2023 saw global cryptocurrency owners increasing by +34% in 2023, rising from 432 million in January to 580 million in December. The main catalyst behind BTC’s adoption growth was the development of Bitcoin exchange-traded funds (ETFs) and the introduction of the Bitcoin Ordinals protocol, which enabled non-fungible tokens (NFTs) and fungible tokens to be minted on the Bitcoin network. Strong interest from institutional investors also contributed to the increase in BTC’s adoption. Meanwhile, ETH’s adoption growth was mainly driven by liquid staking after Ethereum’s Shanghai Upgrade, which allowed the withdrawals of staked ETH after the transition to the Proof of Stake (PoS) blockchain.

US Spot Bitcoin exchange-traded funds (ETFs) have received a total net inflow of US$1.5B since their launch on 10 January, with BlackRock’s ETF seeing the most. Meanwhile, Grayscale’s ETF has experienced net outflows. Market commentators have opined that Grayscale’s expense ratio of 1.5%, the highest of them all, could be a factor for its outflows, and also reportedly selling from FTX’s bankruptcy estate.

The Bank for International Settlements (BIS) unveiled its strategic priorities for 2024, with a particular emphasis on central bank digital currencies (CBDCs) and tokenisation. The 2024 roadmap points to a continuation of its engagement with digital financial technologies, including the development of Project Promissa, an initiative that aims to revolutionise financial instruments by digitising promissory notes using blockchain technology.

This signals a continued growing interest in RWA and tokenisation, which is further bolstered by a sizeable increase in tokenised treasuries in the past year. Data suggested that tokenised US Treasuries experienced a 657% yearly growth rate in terms of market cap, rising from US$113 million to US$866 million as of 20 January. The expansion is likely to be attributed to existing platform growth as well as an increase in the number of companies entering the tokenised treasury space.

Ethereum reclaimed the first position on the NFT sales volume ranks in January 2024, followed by Bitcoin and Solana. Polygon and Avalanche experienced a rapid growth of 138% and 89% respectively in January, with the increase mainly driven by gaming and profile picture (PFP).

Meanwhile, Bitcoin’s NFT sales volume dropped significantly by 61% from US$869 million in December 2023 to US$335 million in January.

4. Monthly Feature Articles

Monthly Feature Article | Crypto ETFs

In June 2023, BlackRock announced filing for a Spot Bitcoin exchange-traded fund (ETF) in the US, sparking a crypto ETF trend among other asset management firms.Grayscale, Invesco, ARK Invest, and VanEck followed suit with their Spot Bitcoin ETF attempts. The approval of 11 Spot Bitcoin ETF applications by the SEC on January 10, 2024, was a historic milestone for the crypto industry. It is considered a watershed moment, with an estimated $38.6 billion inflow into Bitcoin ETFs within the first three years.

This report examines crypto ETFs, providing an overview of the market, how they function as investment vehicles, their features, advantages, significance, and drawbacks.

Key takeaways:

• Crypto ETFs are exchange-traded investment funds that track the price performance of one or more cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH) by investing in a portfolio linked to their value. They offer several benefits similar to the traditional ETFs, including better accessibility, transparency, and cost-efficiency for investors. 
• Currently, there are different types of crypto ETFs offered in the market.
  • Futures-based crypto ETFs do not hold the actual cryptocurrency. Instead, they track the price of crypto through futures contracts, which allow traders to speculate on the future price of an asset without actually owning it. Currently, there are about 22 futures-based crypto ETFs offered in the market, accounting for an estimated total of US$2.65 billion in AUM.
  • Spot (physical) crypto ETFs invest in cryptocurrencies directly and securitise them. The US spot ETFs started trading on 11 January 2024, garnering a total net inflow of US$1.06 billion and collectively gaining over 100,000 BTC (worth approximately US$4 billion, excluding GBTC) in AUM in its first week of launch.
  • Crypto Industry ETFs hold listed shares in companies that relate to the crypto industry, including crypto trading, mining, or other blockchain services. 
• Although ETFs offer benefits to both individual and institutional investors, there still exist drawbacks, including higher management fees, as well as potentially lower liquidity than directly holding crypto, price tracking errors, and limited trading hours, amongst others.
• The recent approval of spot Bitcoin ETFs has been referred to as a ‘watershed’ moment for the industry, offering an estimated US$38.6 billion of inflows into Bitcoin ETFs by the first three years.
• The integration of digital assets like Bitcoin into mainstream financial products like ETFs marks a significant development in the acceptance of cryptocurrencies and accelerates massive crypto adoption.

Monthly Feature Article | Crypto ETPs

In traditional finance, exchange-traded products (ETPs) are an umbrella term to describe a variety of financial instruments traded throughout the day on stock exchanges. Crypto ETPs can track the performance of a single cryptocurrency like Bitcoin, a basket of cryptocurrencies, or blockchain industry-related stocks. They include ETFs, exchange-traded notes  (ETNs), and exchange-traded commodities (ETCs).

Before the recent US Spot Bitcoin ETFs, there were already other crypto ETPs traded globally, including in the US, Europe, and Asia. Unlike stock ETPs which usually track a set of stocks (with diversification being a key feature and benefit), current crypto ETPs mostly track a single digital asset — Bitcoin or Ether — and are generally considered to be undiversified. There are also blockchain-related equity ETPs, which track a set of stocks that have exposure to blockchain industry.

This report provides a detailed exploration of the classification, functionality, and current landscape of crypto ETPs. It also examines crypto products on traditional finance derivatives exchanges.

Key takeaways:

• In traditional finance, exchange-traded products (ETPs) are an umbrella term to describe a variety of financial instruments traded throughout the day on stock exchanges. They include exchange-traded funds (ETFs), exchange-traded notes  (ETNs), and exchange-traded commodities (ETCs).
• The approval of the first US spot Bitcoin ETFs in January 2024 was a major milestone that opened up direct cryptocurrency exposure to mainstream investors through a regulated investment vehicle traded on US stock exchanges. Since launching, the US Bitcoin ETFs have attracted over US$1 billion in net inflows, with BlackRock’s ETF seeing the most.
• Crypto ETPs can track the performance of a single cryptocurrency like Bitcoin, a basket of cryptocurrencies, or blockchain industry-related stocks. They can be physically backed or use derivatives like futures and swaps to synthetically track returns.
• Before the recent US spot Bitcoin ETFs, there were already other ETPs in the crypto space. Globally, net inflows into crypto ETPs rose from US$366 million in 2017 to US$2.2 billion in 2023 (once reaching a high of US$10.6 billion in 2021). In 2024 YTD, net inflows are US$1.3 billion, already 60% of 2023’s entire amount.
• With the success of the US spot Bitcoin ETF launches, issuers are expected to seek approval for ETFs on other major cryptocurrencies like Ether. The range of crypto investment vehicles is also likely to expand over time. These include derivatives like futures and options — major TradFi derivatives exchanges like CME and Eurex already offer crypto futures and options contracts aimed at institutional and sophisticated traders. Open interest in these products has significantly risen to record highs.

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5. Alpha Navigator

This institutional-focused report dives into macro trends, market-neutral pairs, style-factor screens, and events. Read the full Alpha Navigator report here.

• Asset classes were mixed in January, with crypto and equities mostly posting slight gains.

• BTC correlations with equities were mostly negative in the past 1-month.

6. Crypto Conference & Economic Calendar from Market Pulse

Crypto Conferences Calendar

Economic Calendar

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Research & Insights Team