Introduction
Welcome to Greythorn Asset Management's monthly market update for April 2024. We are pleased to share insights and analysis that will help you understand our work and the market trends we observe. Our mission is to invest in breakthrough technologies and asset classes to generate significant value and have a positive impact on the world.
At Greythorn Asset Management, we are committed to providing monthly updates on the cryptocurrency markets. These updates include in-depth analysis of market dynamics, regulatory developments, and macroeconomic factors affecting digital currencies.
To learn more about our work and more about us, please visit our website.
Market analysis
Market dynamics in April 2024
April was marked by significant volatility and major events in the cryptocurrency market, with Bitcoin experiencing wild price swings after hitting record highs in March. At the beginning of the month, the price of Bitcoin dropped sharply by more than 5%, falling below $66,000. Prices experienced multiple swings throughout the month, driven primarily by macroeconomic factors and changes in market sentiment. These moves are consistent with changes in U.S. interest rate expectations, highlighting Bitcoin’s sensitivity to global economic trends.
Source: TradingView
Derivatives markets anticipated this decline, with falling funding rates for Bitcoin perpetual futures signaling an upcoming correction. To many observers, changes in market sentiment made this correction seem inevitable, with a notable liquidation event occurring outside of U.S. ETF trading hours.
Source: VeloData
Another factor that may have influenced the shift in BTC sentiment is the change in expectations for US interest rates, which may be related to the recent decline. This is a reminder that although many people believe that BTC is a "store of value", it is still sensitive to macroeconomic changes.
Source: Bloomberg
Throughout the month, BTC prices fluctuated between $73,000 and $60,000. This stability may be attributed to several factors. One notable impact was the unexpected decline in the U.S. dollar index DXY. A weaker US dollar will support BTC prices by making them more attractive.
Source: TradingView
Investors’ attitude towards the BTC halving event may have led to expectations of a price surge. This is another factor that may have affected market sentiment. However, this expectation failed to materialize and the price of BTC was not affected.
Additionally, ETF inflows continue to support the market, albeit at a slower pace.
Source: The Block
As April comes to an end, BTC is currently at the lower end of the price range, showing significant market weakness and potentially leading to more interesting developments.
Source: Coinalyze
Innovation and transformation of crypto investment products
One important development Greythorn focused on in April was the continued exploration of asset tokenization, particularly with the launch of the BlackRock USD Institutional Digital Liquidity Fund by BlackRock. This fund, represented by the $BUIDL token on Ethereum, is open only to accredited investors who can meet a sizable minimum investment amount. It invests primarily in safe, income-generating assets such as U.S. Treasuries and repurchase agreements, with dividends paid in $BUIDL tokens. This innovative model not only offers a new investment option, but also demonstrates how blockchain can improve the liquidity and accessibility of traditional financial assets.
The fund manages more than $375 million in assets from just 10 holders, highlighting significant progress in merging real-world assets with blockchain technology.
Additionally, the $BUIDL token has been further enhanced through a partnership with BlackRock, Securitize, and Circle. This partnership connects the token to a smart contract pool of USDC, enabling direct redemption and continuous liquidity. As a result, investors can convert their $BUIDL holdings to USDC at any time, which supports instant global transactions. This feature is particularly beneficial for crypto companies managing large treasuries, providing a seamless way for businesses to quickly access funds as stablecoins become more prominent in international transactions. This integration marks an important advancement in liquidity management in the financial sector.
Regulatory and geographic expansion
April was particularly significant for the crypto world with regulatory action, notably the Hong Kong Monetary Authority’s approval of Bitcoin and Ethereum spot ETFs. This approval was a game changer for Asian markets, especially Hong Kong, although it is worth noting that access for mainland Chinese investors remains quite limited due to strict regulation. This decision involved three major investment groups and shows the importance of incorporating cryptocurrencies into the wider financial ecosystem.
Crypto is also moving forward in Europe. Germany’s Landesbank Baden-Württemberg (LBBW), one of the country’s largest banks, announced that it is preparing to offer crypto trading and custody services. This move by a traditionally conservative financial institution highlights the growing popularity of cryptocurrencies as legitimate, investable assets. LBBW’s approach is particularly notable in their focus on crypto services as part of their business model, rather than just chasing speculative gains. This reflects deeper, more practical applications of blockchain technology in corporate finance.
The development of Ethereum and regulatory challenges
Ethereum has followed a similar trajectory to Bitcoin, but has received more intense regulatory attention. The SEC’s pending application for an Ethereum spot ETF, asking for public comment on proposed amendments, demonstrates the regulator’s cautious approach and continued uncertainty in the regulatory environment.
It is worth mentioning that Ethereum Lab Consensys has sued the SEC and is challenging the decision to classify ETH as a security. This lawsuit may clarify Ethereum's position on regulation and also affect other cryptocurrencies. If it wins, it may affect market dynamics and boost investor confidence.
The move to sue is a strong suggestion that the issuer was operating under the assumption that approval would eventually come through.
Bitcoin Halving
The Bitcoin halving event occurred this month, cutting the block reward for miners in half. This change has significant long-term implications for the network's economics. While we haven't seen an immediate impact on price, reduced rewards could mean higher transaction fees over time as miners rely more on gas to remain profitable. This shift is important for the future of Bitcoin as a transaction network, especially since higher fees could make it less attractive for smaller transactions. On the bright side, network development is underway on Layer 2, which is helping balance the tradeoff between security (which is more critical for larger transfers) and cost (which is a larger factor in smaller transfers).
Source: Blockchain.com
Macro environment
Gold's Steady Rise Linked to Cryptocurrencies
Gold remained in the spotlight in April as prices continued to rise despite a drop in holdings of the largest US gold exchange-traded fund.
Source: @BobEUnlimited
The divergence is noteworthy, particularly in Asia, which recorded net inflows into gold ETFs despite less developed market infrastructure compared to North America and Europe.
Source: World Gold Council
Central banks have also been active buyers of gold, continuing a decade-long buying trend. Recent World Gold Council data shows that central banks’ gold purchases are primarily motivated by diversification from traditional markets and as a hedge against crises, rather than a move away from the dollar. The only motivation that increased last year was gold’s performance in crises, which highlighted global geopolitical and economic uncertainty.
Source: World Gold Council
This interest in gold appears to coincide with discussions in the cryptocurrency world about finding international payment options other than the U.S. dollar, pointing to a broader need for reliable alternatives to the conventional financial system.
Interest rate expectations and economic signals
April opened with a lot of attention on US financial markets, with expectations of interest rate cuts generating heated discussions. Stronger-than-expected economic data dampened hopes for a rate cut in 2024. It appears that the US economy may be more resilient than we thought.
US employment and FOMC developments
A strong focus will be on US employment data, with the ADP payrolls expected to reveal a slight weakening in the labor market. These data are often a precursor to the official employment statistics released a week later, which also showed a softening, with the unemployment rate remaining at 3.8%. The JOLTS and Challenger layoff reports provide further information on hiring and layoffs.
Among these releases, the FOMC press conference is particularly critical, with Chairman Jerome Powell discussing the ongoing problem of inflation and the Federal Reserve's interest rate strategy.
Treasury market tensions and US fiscal quarterly reports
This month, the Treasury Department's quarterly report revealed some key financial strategies, detailing upcoming bond issuance plans and adjustments to overall fiscal policy, which directly affects market liquidity. This update is also reflected in the Treasury market, which is being closely watched by investors due to the reduction in liquidity and increased volatility since the end of 2021. In addition, the report highlights the Treasury's projected borrowing adjustments in the second quarter, which are now $41 billion more than previously expected, totaling $243 billion. While this increase seems large, it is relatively small compared to the United States' massive total national debt, which currently exceeds $34.5 trillion and continues to rise.
Global Perspective
The global economy is also worth watching. Money market operations in Japan suggest that the government may intervene to support the yen. Basically, the "yen bounce" (i.e. a sudden increase in the value of the yen) coincided with a decline in the DXY dollar index, which led to speculation that the Bank of Japan may intervene in the currency market to influence the value of the yen.
Source: TradingView
Meanwhile, South Africa is taking steps to regulate cryptocurrencies, indicating that institutions there are increasingly interested in digital assets. In contrast, Venezuela has encountered difficulties using USDT, a digital currency, in its oil transactions due to the risk of sanctions.
Highlights of this month
● Former Binance CEO Changpeng Zhao was sentenced to four months in prison for anti-money laundering violations, highlighting regulatory action in the crypto space.
● BlackRock’s USD Institutional Digital Liquidity (BUIDL) Fund: The BUIDL fund has over $375 million in assets under management, demonstrating strong institutional interest in digital assets.
● Bitcoin and Ethereum spot ETFs in Hong Kong: Hong Kong has launched six new Bitcoin and Ethereum ETFs, significantly expanding regulated crypto investment options in the region and reflecting the trend of regulatory-approved crypto investments.
● MicroStrategy expands its Bitcoin holdings: MicroStrategy continued its Bitcoin investment strategy by purchasing more Bitcoin, increasing its total holdings to 214,400 BTC.
● Legal Developments with ConsenSys and the SEC: ConsenSys faces regulatory challenges with the SEC that could impact the legal classification of Ethereum and the broader regulatory treatment of cryptocurrencies.
● Potential spot Bitcoin ETF in Australia: Australia plans to list its first spot Bitcoin ETF by the end of the year, potentially expanding the region’s cryptocurrency investment market.
● Tether’s expansion on the TON blockchain: Tether launched the USDT and XAUT stablecoins on the TON blockchain to enhance liquidity and access to decentralized applications.
● Hong Kong’s cryptocurrency leap: Hong Kong plans to launch additional Bitcoin and Ethereum spot ETFs, further expanding regulated crypto investment options in the Asian market.
● The rise of cryptocurrency in South Korea: The South Korean won surpassed the U.S. dollar to become the most traded currency in cryptocurrency transactions in the first quarter of 2024, demonstrating the country’s growing influence in the crypto space.
● Bored Apes NFT price plummets: The price of the Bored Ape Yacht Club NFT plummeted, marking a major drop in the once-booming digital collectibles market.
● Bitcoin miner activates long-dormant BTC: A Bitcoin miner moved $3 million worth of long-dormant Bitcoin, sparking speculation that early miners may be cashing out.
● BlackRock’s spot Bitcoin ETF surges: BlackRock’s IBIT spot Bitcoin ETF attracted $15 billion in inflows just three months after its launch, indicating growing investor confidence.
● Solana Developers Address Network Congestion: Solana developers are addressing network congestion to increase transaction processing capacity and alleviate bottlenecks.
● PayPal introduces PYUSD stablecoin for international payments: PayPal launched the PYUSD stablecoin international remittance service for US customers and cancelled transaction fees.
● Sony Bank stablecoin pilot on Polygon blockchain: Sony Bank has launched a stablecoin trial on the Polygon network to integrate digital currencies into the gaming and sports ecosystem, reflecting Japan’s changing regulatory environment.
On-chain analysis
- Currently, despite Bitcoin’s strong performance, overall interest in cryptocurrencies is low, especially for altcoins.
Source: Benjamin Cowen
- Despite the market challenges, major bitcoin miners have not visibly given up, as those with efficient equipment and low-cost electricity remain profitable. However, retail miners using older equipment and facing higher electricity costs are struggling.
Source: CryptoQuant
- The proliferation of cryptocurrency projects has increased the complexity of the market. A recent CoinGecko report shows that as of April 2024, the number of cryptocurrencies has increased to approximately 2.5 million, a 570% increase from 2022, although many projects and tokens may not be actively maintained or have credibility.
Source: Cpinguecko
- Glassnode's report shows that Bitcoin's "mania phase" is cooling as the market reorganizes and weakens. The sell-off led by newer investors suggests that the market may be nearing a bottom as the selling pressure is coming to an end. The report also pointed out that the local distribution pattern in March is similar to past bull markets.
Source: Glassnode
- Coinbase’s Base Layer 2 (L2) stands out as a strong on-chain performer amid the current market downturn. The platform is attracting 50,000 to 100,000 new crypto users per day and is approaching 9 million total users.
Source: Dune Analytics
- Short-term holders are selling at a loss. Investors who bought at higher prices in the past six months, and are currently losing money, may panic sell below the SOPR, indicating that the market may be near a local bottom.
Source: CryptoQuant
- On-chain activity has mostly remained quiet, with a few exceptions drawing attention, as shown in the chart. Volumes are trending down as caution persists. Typically, the impact of Bitcoin halvings is delayed by 1-2 months.
Conclusion
April highlighted the delicate balance the global economy is maintaining, as central banks grapple with inflation and growth challenges and markets adjust to regulatory changes and geopolitical uncertainty. This ongoing challenge tests the flexibility and strength of global economic strategies.
As April came to an end, Bitcoin prices stabilized, but Greythorn's research team believes BTC remains sensitive to changes in broader economic indicators and investor sentiment. Hong Kong launched Bitcoin and Ethereum spot ETFs, aiming to broaden market access and enhance cryptocurrency knowledge and investment opportunities in the Asian region.
Potential drivers of positive trends in the cryptocurrency market include:
● Relaxation of SAB 121, the SEC rule that restricts major US banks from offering crypto custody services
● Sovereign funds are investing in cryptocurrencies, report says
● More companies and investment institutions are including Bitcoin in their financial reserves
