Weekly Crypto Market Insights: US Inflation, ETF Developments, and Key Trends for Advisors

Welcome to another enlightening edition of Crypto for Advisors, CoinDesk’s weekly newsletter tailored for financial advisors navigating the digital asset landscape. In this issue, we delve into the latest market activities, including the US inflation rate, Federal Reserve outlook, ETF developments, and overall cryptocurrency flows. Join us as we explore insights from industry experts, including Xinghua Luo from Pioneer Asset Management Limited and Jason Leibowitz from Hashnote.

Recent Market Overview

This past week, the cryptocurrency market experienced limited movement, particularly after the highly anticipated discussion between Elon Musk and Donald Trump, where digital assets were notably absent from the conversation. Bitcoin (BTC) remained relatively stable, hovering around $58,750, a slight decline of just over 1% from the previous day. The broader market, as tracked by the CoinDesk 20 Index, mirrored this trend, showcasing a similar decrease. The crypto community had high hopes, with a 65% probability of discussing “crypto” during the two-hour interview that attracted over 1 million listeners, but the topic never materialized.

US Inflation Rate & Federal Reserve Outlook

The upcoming US Federal Open Market Committee (FOMC) meeting is scheduled for September 18. Following the recent market downturn, expectations are shifting towards potential rate cuts from the Federal Reserve, with predictions suggesting a reduction of about 100 basis points by year-end. The Consumer Price Index (CPI) year-over-year is anticipated to remain steady at 3.0% for July’s data, while the Core CPI may see a slight dip from 3.3% to 3.2%. As always, the Fed is likely to take a cautious approach, monitoring economic data before making any significant decisions. Currently, they find themselves balancing the need for increased credit against the ongoing battle with inflation.

ETF Developments: A Closer Look

This week, US-listed spot Ether ETFs recorded a net inflow of $4.93 million, with Fidelity’s FETH leading the charge at $3.98 million. Franklin Templeton’s EZET and Bitwise’s ETHW also saw inflows of $1 million and $2.86 million, respectively. However, VanEck’s ETHV faced a net outflow of $2.92 million. On the Bitcoin ETF front, there was a collective daily inflow of $27.87 million, despite Grayscale’s GBTC and Bitwise’s BITB experiencing outflows of $11.7 million and $17 million, respectively, while Grayscale’s two Ether funds showed no flows.

BTC & ETH Option Flows: Trends and Predictions

The week also saw a rise in hedge/bear plays targeting $54-58K puts, with funds increasing exposure to Oct-Mar $60-65K calls as the market rebounded. While short-term put skew reflects caution, long-term bullish sentiment remains robust as market participants await the upcoming Producer Price Index (PPI) and CPI data releases. Although near-term volatility has retraced, long-term calls and spreads have not only remained stable but have also increased. This indicates growing confidence in purchasing upside positions, funded by selling puts below $45K, while short-term protection remains concentrated around $48-50K.

Ethereum (ETH) Technical Analysis

As of August 12, 2024, Ethereum (ETH) was trading at $2,683, oscillating within a range of $2,523 to $2,720. Despite notable market activity, technical indicators suggest that ETH is struggling to break through significant resistance levels, which could signal a potential bearish trend. Although a short-term recovery is observed, sustaining levels above $2,700 is proving challenging, and there is a possibility of a drop towards $2,600 if selling pressure intensifies. While certain indicators hint at buying opportunities, the outlook remains cautious, with Ethereum’s future performance hinging on breaking above critical levels such as $2,800.

Weekly Crypto Asset Flows: Investment Trends

In the past week, digital asset investment products saw inflows totaling $176 million, as investors capitalized on recent price declines, viewing them as buying opportunities. Ethereum emerged as the primary beneficiary of this market correction, attracting $155 million in inflows, raising its year-to-date total to $862 million.

ETH Staking Statistics: Current Trends

The Ethereum staking landscape shows promising activity, with new validator activation taking an average of 10 hours and 13 minutes, while the exit queue remains impressively short at just 1 minute. Currently, 28.06% of all ETH is staked, yielding a staking reward of 3.21% p.a.. Lido, a decentralized liquid staking solution, continues to dominate the market with a substantial share of 71.56%.

Outlook: Sideways Movement and Market Speculation

Looking ahead, the crypto market appears poised for sideways movement and volatility as speculation surrounding the Federal Reserve’s September rate cut continues. Unfortunately, there isn’t much positive news on the horizon that could drive the market towards the coveted $70K threshold in the short term. Consequently, yields generated from staking and other products are becoming increasingly attractive compared to traditional ETF investments.

Understanding Crypto Market Dispersion

In a broader context, the dispersion in crypto returns has become increasingly pronounced over the past year, with leading assets like Bitcoin and Solana significantly outperforming others. This trend indicates a shift from previous cycles where gains were more evenly distributed. Key factors contributing to this dispersion include macroeconomic challenges such as tightening liquidity and rising interest rates, which have adversely affected performance across riskier and less-established assets. The recent Bitcoin halving has further influenced this trend by reducing supply, historically leading to extended periods of bullish activity for Bitcoin.

Yield Generation Strategies in Crypto

A pivotal reason behind the growing dispersion in crypto returns is the transition away from lending as a primary yield-generating strategy. The previous cycle experienced a credit bubble fueled by lending, which eventually collapsed, leaving many investors wary of relinquishing their assets to custodians. In response to this shift in sentiment, innovative funds are now offering safer yield-generating solutions through derivatives markets. Products like Harbor enable investors to earn returns on idle assets like Bitcoin through options strategies, all while ensuring assets remain secure within a custodian’s control. This approach presents a creative and secure alternative to the lending practices that characterized the previous cycle.

The Role of Stablecoins and Yield in Market Dispersion

The proliferation of stablecoins and the ongoing search for yield have significantly shaped the current state of crypto market dispersion. Stablecoins offer a reliable medium of exchange and store of value within the volatilities of the crypto ecosystem, facilitating seamless trading and access to decentralized finance (DeFi) services. However, while stablecoins provide stability, they typically do not yield returns for investors.

Tokenized money market funds have emerged as a vital solution, allowing investors to earn stable, risk-mitigated returns by directly passing on yields from short-term U.S. Treasury Bills. These funds leverage blockchain technology’s advantages—such as transaction speed, transparency, and composability—while minimizing the risks often associated with other token projects. The introduction of these assets adds a new dimension of stability and yield potential to the crypto ecosystem, further diversifying investor portfolios.

Looking Ahead: Strategies for Future Crypto Investment

Given the current trends and factors at play, investors should remain cognizant of the likelihood that crypto market dispersion will persist in the near future. Upcoming events, such as the U.S. presidential election, may introduce regulatory changes that could influence market sentiment and asset performance. Moreover, ongoing technological advancements and varying adoption rates across different blockchain ecosystems will continue to drive disparate outcomes among crypto assets.

To navigate this evolving landscape, diversifying investment strategies through well-regulated and professionally managed funds is essential. Emphasizing due diligence and a comprehensive understanding of individual asset fundamentals will be crucial for investors seeking to capitalize on opportunities within the segmented crypto market.

Stay informed and connected with the latest trends in digital assets by subscribing to Crypto for Advisors. Together, we can navigate the complexities and opportunities in the ever-evolving world of cryptocurrency.

– Xinghua Luo, Managing Director, Pioneer Asset Management Limited

– Jason Leibowitz, Head of Private Wealth, Hashnote