Greythorn Monthly Market Update | April 2024
OPENING REMARKS
Welcome to Greythorn Asset Management’s April 2024 Monthly Market Update. We’re delighted to share insights and analyses that shed light on our operations and the market trends we’re observing. Our mission is to invest in groundbreaking technologies and asset classes, aiming to generate significant value and contribute positively to the world.
At Greythorn, we are dedicated to offering monthly updates on the cryptocurrency market. These updates include thorough analyses of market dynamics, regulatory developments, and the macroeconomic elements that impact digital currencies.
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MARKET ANALYSIS
April Market Dynamics
April was marked by notable volatility and significant events in the cryptocurrency market, with Bitcoin experiencing dramatic price fluctuations following its record highs in March. The month kicked off with a sharp decline, with Bitcoin’s value dropping over 5% to dip below $66,000. The price saw various ups and downs throughout the month, largely driven by macroeconomic factors and shifts in market sentiment. These movements align with changes in US interest rate expectations, underscoring Bitcoin’s sensitivity to global economic trends.
The derivatives market had foreseen this downturn, as evidenced by a decrease in the funding rate on BTC perpetual futures, which hinted at an upcoming correction. For many observers, this adjustment seemed inevitable, as a change in sentiment primed the market for a liquidation event, which notably occurred outside of US ETF trading hours.
Another factor influencing the shift in BTC sentiment that likely contributed to the recent drop is a change in US interest rate expectations, serving as a reminder that while BTC is considered a “store of value” by many, it remains sensitive to macroeconomic changes.
Throughout the month, the BTC price was fluctuating between 73 and 60 thousand dollars. This stability could be attributed to several factors. One notable influence was the unexpected drop in the DXY dollar index. A weaker US dollar generally supports BTC prices by making it more attractive.
Investor anticipation of a potential price surge due to the upcoming BTC halving was another factor that might have affected market sentiment. However, this expectation did not come to fruition, and BTC’s price remained unaffected.
Additionally, although the pace has slowed, ETF inflows continue to bolster the market.
As April drew to a close, BTC found itself at the lower end of its price range, displaying significant market weakness and suggesting that March might bring further interesting developments.
Innovations and Shifts in Crypto Investment Products
One of the important developments in April was the continued exploration of asset tokenization,notably with BlackRock’s introduction of the BlackRock USD Institutional Digital Liquidity Fund. This fund, represented by the $BUIDL token on Ethereum, is accessible only to accredited investors who can meet a substantial minimum investment. It primarily invests in secure, income-generating assets such as U.S. Treasuries and repo agreements, with dividends paid in $BUIDL tokens. This innovative model not only offers a fresh investment option but also showcases how blockchain can improve the liquidity and accessibility of traditional financial assets.
The fund’s strong initial response, amassing over $375 million in assets under management from just 10 holders, underscores a significant advancement in merging real-world assets with blockchain technology.
Moreover, the $BUIDL token has seen further enhancements through a partnership involving BlackRock, Securitize, and Circle. This collaboration has linked the token to a smart-contract pool of USDC, enabling direct redemptions and continuous liquidity. Consequently, investors can convert their $BUIDL holdings into USDC at any moment, which supports instant global transactions. This feature is particularly beneficial for crypto companies managing large treasuries and provides a seamless way for corporations to access funds quickly as stablecoins become more prominent in international transactions. This integration marks a significant evolution in liquidity management within the financial sector.
Regulatory and Geographical Expansions
April was a big month for regulatory moves in the crypto world, especially with the Hong Kong Monetary Authority giving the green light to BTC and ETH spot ETFs. This approval is a game-changer for the market in Asia, particularly Hong Kong, although it’s worth noting that access for investors from mainland China is still quite restricted due to tight regulations. The decision involved three major investment groups, pointing to a calculated strategy to weave cryptocurrencies into the region’s broader financial ecosystem.
Over in Europe, things are also moving forward. Germany’s Landesbank Baden-Württemberg (LBBW), the largest of its kind in the country, announced it’s gearing up to offer crypto trading and custody services. This move by a traditionally conservative financial institution underscores a shifting view of cryptocurrencies as bona fide, investable assets. What’s particularly striking about LBBW’s approach is their focus on incorporating crypto services as part of their business models, rather than just chasing speculative gains. This reflects a deeper, more practical application of blockchain technology in corporate finance.
Developments in Ethereum and Regulatory Challenges
Ethereum has been moving similarly to BTC but has found itself under the microscope of regulators a bit more intensely. The SEC has been slow to decide on Ethereum’s spot ETF applications, asking for public comments on proposed amendments, which suggests a cautious approach and ongoing uncertainty in the regulatory landscape.
In a bold move, Ethereum Lab Consensys has sued the SEC, challenging the classification of ETH as a security. This lawsuit could bring about important clarifications concerning Ethereum’s regulatory status and that of other cryptocurrencies, potentially impacting market dynamics and boosting investor confidence.
This all points to the fact that issuers are operating under the assumption that approval will come through eventually.
The Bitcoin Halving
The Bitcoin halving event took place this April, cutting the miners’ block reward in half. This change has significant long-term effects on the network’s economy. While we didn’t see much immediate impact on the price, over time, the reduced rewards could mean higher transaction fees as miners rely more on these fees to stay profitable. This shift is important for Bitcoin’s future as a transaction network, particularly since higher fees could make it less appealing for small transactions. On the bright side, development of second-layer networks is ongoing, which helps balance the trade-offs between security, more crucial for larger transfers, and cost, a bigger factor in smaller ones.
MACRO INSIGHTS
Gold’s Steady Climb and Crypto Connections
In April, gold remained a key focus. Despite a drop in holdings within the largest U.S. gold ETFs, gold prices continued to ascend.
This divergence is notable, particularly as Asia, unlike North America and Europe, recorded net inflows into gold ETFs, despite its less developed market infrastructure compared to the West.
Central banks have also been active gold buyers, with a decade-long trend of increasing purchases. Recent data from the World Gold Council suggests that central banks are buying gold primarily for tradition, diversification, and as a crisis hedge, rather than moving away from the U.S. dollar. The only motivation that increased last year was gold’s performance during crises, highlighting global geopolitical and economic uncertainties.
This increasing interest in gold is similar to conversations in the cryptocurrency world about finding other options besides the U.S. dollar for international payments. This shows a wider search for dependable alternatives to the usual financial systems.
Rate Expectations and Economic Signals
April opened with all eyes on the U.S. financial markets, as shifting expectations about interest rate cuts sparked lively discussions. Economic data coming in stronger than many predicted put a damper on hopes that rates might be cut in 2024. It seems the U.S. economy might just be tougher than we thought.
U.S. Employment and Federal Open Market Committee (FOMC) Developments
Significant attention was focused on U.S. employment data, with ADP payrolls expected to reveal a slight weakening in the labour market. This data often serves as a precursor to the official employment statistics released later in the week, which also suggested a softening, with the unemployment rate holding steady at 3.8%. Additional reports like the JOLTS and Challenger job cuts further informed on the state of hiring and layoffs, respectively.
Amid these releases, the FOMC press conference was notably critical, with Chair Jerome Powell addressing the persistent issue of inflation and the Fed’s rate strategy.
Treasury Market Tensions and U.S. Treasury Quarterly Report
This month, the Treasury’s quarterly report shed light on some key financial strategies, detailing upcoming bond issuance plans and tweaks to the Treasury General Account, which directly impacts market liquidity. This update comes at a time when the Treasury market is already under intense scrutiny, dealing with ongoing issues of reduced liquidity and increased volatility since late 2021. Additionally, the report highlighted an adjustment in the Treasury’s expected borrowing for the second quarter — it’s now set to be $41 billion more than previously estimated, totaling $243 billion. While this increase seems large, it’s relatively small when viewed against the backdrop of the U.S.’s massive national debt, which currently stands at over $34.5 trillion and continues to climb.
Around the World
Globally, the economic landscape was just as riveting. Japan’s currency market manoeuvres hinted at possible intervention to prop up the yen. Basically, The “yen bounce,” where the value of the yen suddenly increased, coincided with a decrease in the DXY dollar index, which tracks the strength of the U.S. dollar against a basket of currencies. This simultaneous occurrence leads to speculation that the Bank of Japan might be intervening in the currency markets to influence the yen’s value.
Meanwhile, South Africa is taking steps to regulate cryptocurrencies, showing that institutions there are getting more interested in digital assets. In contrast, Venezuela is struggling to use USDT (a digital currency) in its oil trading because of the risk of sanctions.
HIGHLIGHTS
- Former Binance CEO Changpeng Zhao Sentenced: Changpeng Zhao received a four-month prison sentence for anti-money laundering violations, underscoring regulatory actions in the crypto sector.
- BlackRock’s USD Institutional Digital Liquidity (BUIDL) Fund: The BUIDL fund amassed $375 million in assets under management, indicating robust institutional interest in digital assets.
- Hong Kong’s Spot Bitcoin and Ether ETFs: Hong Kong unveiled six new bitcoin and ether ETFs, significantly broadening regulated crypto investment options in Asia, reflecting a wider trend towards regulatory-approved crypto investments.
- MicroStrategy’s Bitcoin Acquisition: MicroStrategy expanded its bitcoin holdings by purchasing more bitcoins, bringing its total to 214,400 BTC, continuing its bitcoin investment strategy.
- Consensys and SEC Legal Developments: Consensys faces regulatory challenges from the SEC, potentially impacting Ethereum’s legal classification and broader regulatory treatment of cryptocurrencies.
- Australia’s Potential for Spot Bitcoin ETFs: Australia is preparing to list its first spot bitcoin ETFs by year-end, potentially expanding the cryptocurrency investment market in the region.
- Tether’s Expansion on TON Blockchain: Tether launched 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 introduce additional spot Bitcoin and Ethereum ETFs, furthering regulated crypto investment options in the Asian market.
- Rising Korean Crypto Dominance: The South Korean won surpassed the US dollar as the most traded currency for cryptocurrencies in Q1 2024, showcasing the country’s growing influence in the crypto sector.
- Bored Apes NFT Price Plummets: Bored Ape Yacht Club NFT prices plummeted, signaling a significant downturn in the once-thriving digital collectibles market.
- Bitcoin Miner Activates Long-Dormant BTC: A Bitcoin miner moved $3 million worth of long-dormant Bitcoin, sparking speculation about early miners potentially cashing out.
- BlackRock’s Spot Bitcoin ETF Surges: BlackRock’s IBIT spot bitcoin ETF experienced rapid growth, attracting $15 billion in inflows just three months after launch, indicating increasing investor confidence.
- Solana Developers Tackle Network Congestion: Solana developers are addressing network congestion issues to enhance transaction processing and alleviate bottlenecks.
- PayPal Introduces International Payments with PYUSD Stablecoin: PayPal launched international money transfers for U.S. customers via its PYUSD stablecoin, eliminating transaction fees.
- Sony Bank’s Stablecoin Pilot on Polygon Blockchain: Sony Bank initiated a stablecoin trial on the Polygon network, integrating digital currencies into gaming and sports ecosystems amid Japan’s evolving regulatory landscape.
ON — CHAIN
- Currently, even though Bitcoin is strong, overall interest in cryptocurrencies is low, particularly for altcoins.
- Despite market challenges, major Bitcoin miners haven’t faced significant capitulation, as those with efficient equipment and low-cost electricity remain profitable. However, retail miners using older equipment and facing higher electricity costs are struggling.
- The surge in cryptocurrency projects adds complexity to the market. A recent CoinGecko report shows that the number of cryptocurrencies has risen to about 2.5 million by April 2024, a 570% increase from 2022, though many may not be actively maintained or credible.
- A Glassnode report shows Bitcoin’s “euphoria phase” is cooling following a market redistribution after its halving. Led by newer investors, this sell-off suggests an approaching bottom as sell-side exhaustion nears. The report also notes local distribution patterns from March, similar to past bull runs.
- During the current market downturn, Coinbase’s Base Layer 2 (L2) stands out as a strong performer on-chain. The platform is attracting between 50,000 and 100,000 new crypto users each day, with its total user count approaching 9 million.
- Short-term holders are selling at a loss. Investors who bought at higher prices over the past six months are now in the red and may panic sell below the SOPR, suggesting the market is nearing a local bottom.
- On-chain activity is mostly quiet, with a few exceptions gaining interest as shown in the chart. Volume is trending downward as caution persists. Typically, the effects of a Bitcoin halving are delayed by 1–2 months.
CLOSING REMARKS
April highlighted the delicate balance the global economy is maintaining, as central banks tackle inflation and growth, and markets adjust to regulatory changes and geopolitical uncertainties. This ongoing struggle tests the flexibility and strength of global economic strategies.
As the month closed, Bitcoin prices stabilised but remained sensitive to broader economic indicators and shifts in investor sentiment. The launch of Bitcoin and Ethereum spot ETFs in Hong Kong is set to broaden market access and enhance cryptocurrency knowledge and investment opportunities across Asia.
Potential drivers for a positive trend in the cryptocurrency market include:
- The relaxation of SAB 121, which are SEC regulations limiting major US banks from offering crypto custody services,
- Reports of sovereign funds investing in cryptocurrencies,
- More companies incorporating Bitcoin into their treasury reserves,
DISCLOSURE
This presentation has been prepared by Greythorn Asset Management Pty Ltd (ABN 96 621 995 659) (Greythorn). The information in this presentation should be regarded as general information only rather than investment advice and financial advice. It is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments or to participate in any particular trading strategy. In preparing this document Greythorn did not take into account the investment objectives, financial circumstance or particular needs of any recipient who receives or reads it. Before making any investment decisions, recipients of this presentation should consider their own personal circumstances and seek professional advice from their accountant, lawyer or other professional adviser. This presentation contains statements, opinions, projections, forecasts and other material (forward looking statements), based on various assumptions. Greythorn is not obliged to update the information. Those assumptions may or may not prove to be correct. None of Greythorn, its officers, employees, agents, advisers or any other person named in this presentation makes any representation as to the accuracy or likelihood of fulfilment of any forward looking statements or any of the assumptions upon which they are based. Greythorn and its officers, employees, agents and advisers give no warranty, representation or guarantee as to the accuracy, completeness or reliability of the information contained in this presentation. None of Greythorn and its officers, employees, agents and advisers accept, to the extent permitted by law, responsibility for any loss, claim, damages, costs or expenses arising out of, or in connection with, the information contained in this presentation. This presentation is the property of Greythorn. By receiving this presentation, the recipient agrees to keep its content confidential and agrees not to copy, supply, disseminate or disclose any information in relation to its content without written consent.
