Welcome to the latest edition of the Asset (r)Evolution newsletter where we dive into what is important for Financial Advisors to know in the continued evolution of Crypto Asset markets and the adoption of decentralized blockchain technology.
Critical for advisors to be aware of recent changes in crypto-asset markets:
- Bitcoin hits a new all-time high at $72,500 on the back of record ETF inflows and upcoming halvening event.
- BTC ETF Update: Wall Street incoming and the next bitcoin halvening event.
- ETH ETF Status
Are you looking for a trusted partner to ensure assets arenโt leaving your practice to the firms listed above for access to Bitcoin investments or other crypto asset investments? Are your financial planners looking for help when deciphering digital asset activity on client statements? Are you wondering if you need to be thinking about an allocation to Bitcoin or other crypto asset investments for clients?
Look no further than Arbor Digital. We have been in the market serving advisors helping retain assets and grow AUM since 2021. Owned by SEC-registered Alaska-based Arbor Capital Management, which has been serving the wealth management needs of clients since 1997. Be sure to set time here with the Arbor Digital team here for your free consultation.
Before diving in, a run of the numbersโฆ
Run of the Numbers Sponsored by Digital Asset Research
*Data Provided By: Digital Asset Research. Digital Asset Research (DAR) drives the evolution of digital asset data integrity by emphasizing quality, transparency, and accuracy in our solutions for institutional crypto businesses. We help our clients operate confidently in the crypto space by delivering trustworthy ‘clean’ digital asset pricing, market data, research, and expert guidance.
Digital asset markets are up so far year month with the total industry market cap above $2.8 trillion. The price of Bitcoin (BTC) closed at $72,551.19, up 63.64% year to date, while Ethereum (ETH) closed at $4,042.52, up 72.83% year to date. With the recent price movement bitcoin became the worldโs eighth most valuable asset, surpassing silver as its market cap rose above $1.4 trillion. BTC and Ethereum are positively correlated to the S&P 500 when looking at a 30-day rolling correlation. Using the same metric, BTC and ETH remain negatively correlated with the US Dollar index and VIX index. (See Correlation Chart Below). Total Value Locked (USD$) in Decentralized Finance came in just over $103b while stablecoin market cap continues to see modest growth coming in at $145b.
Since the spot BTC ETFs were approved, we have seen a rapid change in the distribution of BTC between the issuers, with outflows from Grayscale and inflows toward the newly-approved ETFs. One of the reasons for this preference is that the new ETFs have dramatically lower fees compared with Grayscale BTC (GBTC) at 1.5%, with Fidelity and BlackRock at 0.25% (both waiving or reducing fees for an initial period). Another reason is the liquidation of several important holders of GBTC, such as FTX selling approximately $1B and Digital Currency Groupโs Genesis investments. Nonetheless, we have seen over $10b inflow since the official ETF launch with total BTC ETF AUM at ~$56b as of March 11th, 2024.
Institutional Fervor
Bitcoin has gone from being a fringe curiosity to a global financial force, as indicated with the record-breaking numbers the newly approved spot Bitcoin ETFs continue to achieve. However, these achievements have all been done without meaningful adoption from the largest financial institutions in the world. That is quickly changing. We wrote previously about one of the effects of ETF approval would be inclusion into asset management platforms and professionally managed model portfolios by institutional asset managers, which we are starting to see from the biggest names on Wall Street:
- Inclusion into Blackrock Global Allocation Fund.
- Inclusion into Fidelity Investments Canadaโs All-In-One ETFs.
- BOA Merrill Lynch, UBS, Citigroup, and Wells Fargo Offering to certain clients on unsolicited basis.
- $30b RIA Carson Group approved BTC ETFs on their platform.
- Morgan Stanley Europe Focused Fund Considering Exposure.
With regulatory progress, Bitcoin, and broader digital asset markets are poised to continue its emergence as an accepted global asset class for capital allocators.
Bitcoin Halvening
To grasp the significance of the halving event, we need to venture into the foundations of Bitcoin itself. When the mysterious creator, Satoshi Nakamoto, coded the original blockchain, they introduced a unique mechanism to ensure the finite supply of Bitcoin exists. This mechanism, the halving event, reduces the rate at which new Bitcoins are generated by 50% every 210,000 blocks or roughly four years.
But why this consistent slashing of the mining reward? The rationale is two-fold. Firstly, it is an act of digital austerity, ensuring that the eventual issuance of 21 million Bitcoins is spread over time, increasingly asymmetrically diminishing returns on resource allocation. Secondly, it is an intentional economic lever, designed to stimulate value appreciation by tightening the existing supply-demand dynamic.
Every halving event brings a seismic shift to the network’s dynamics. Miners, who secure and maintain the network, are suddenly faced with a diminished reward for their efforts. In response, the ecosystem often anticipates a reduction in the selling pressure from miners, leading to a tightening of the supply side of Bitcoin. This initiative typically catalyzes a bullish market sentiment, as a reduced issuance often leads to higher valuations in traditional markets.
ETH ETF Status
In October 2023, Grayscale filed an application to convert their Grayscale Ethereum Trust (ETHE) into a spot ETH ETF, a similar path they took with GBTC. Recently, Coinbase, gave a presentation to Wall Street’s top regulator where it talked about Grayscale’s proposed product, documents filed on Wednesday from the regulator show.
With the success of the spot BTC ETFs, everyone is now looking forward to the next ETF domino, a spot ETH ETF. The deadline for the SEC’s final decision on the first ETH ETF application is May 23. Bloomberg ETF analyst Eric Balchunas reduced his estimate of the likelihood of the SEC approving a spot ETH ETF in May to 35%, down from as high as 70% in January.
That hasnโt stopped ETH from rallying to above $4,000 for the first time since December 2021.
ETH Network Upgrade
The Dencun upgrade is part of Ethereum’s broader strategy to enhance scalability and reduce transaction costs for its users. Dencun introduces a concept called “proto-danksharding” to Ethereum. Proto-danksharding is engineered to decrease transaction costs for layer-2 blockchains and reduce data availability costs, addressing key scalability challenges. It lays the groundwork for the eventual implementation of “danksharding,” which aims to further extend these benefits.
Simply put, this upgrade is meant to achieve the following:
- Changing how data is stored on the Ethereum blockchain making is more accessible and less costly when recording layer 2 transactions.
- This makes Layer 2โs even more important to the Ethereum ecosystem.
- This is an effort to make Ethereum able to process millions of transactions a second.
The upgrade went live on Wednesday, March 13th. The recent price run up in ETH, the Ethereum networkโs native token, prior to the release of the upgrade, has largely been attributed to this as well as the anticipation of a spot ETH ETF being approved in May.
Conclusion:
No matter how you feel about Bitcoin, Ethereum, or digital asset markets, investors have questions and will be looking towards their trusted financial professionals to guide them. Now is the time to become aware, conduct due diligence, and position you and your firm for success in educating investors and servicing clients looking to gain access to digital asset investment solutions. While this may feel like a daunting task, we at Arbor Digital can help.
Book time with us today to learn more about how we can help you gain trust with clients looking for digital asset education and investment solutions.
Thank you for your continued trust. Be sure to tell someone today you care about them!
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