Source: Grayscale; Translated by: Baishui, Jinse Finance
Sustained and expected selling pressure from a variety of sources has had an impact on Bitcoin and the cryptocurrency market more broadly in June. However, in Grayscale Research’s view, the fundamentals for the asset class have remained virtually unchanged.
There appears to be more progress towards listing spot Ethereum exchange-traded products (ETPs). While the timing remains uncertain, for the purposes of market analysis, Grayscale Research assumes that these products will begin trading in the third quarter of 2024.
Barring a major shift in the macroeconomic outlook, Grayscale Research expects cryptocurrency valuations to recover in the coming months.
In June 2024, the cryptocurrency market experienced a correction as some Bitcoin selling pressure triggered a general decline in investor risk appetite, but Grayscale Research remained optimistic about the asset class.
Returns on traditional assets were mixed in June as markets priced in a variety of new risks (Figure 1). Several segments underperformed due to these risks, including U.S. homebuilders (there are signs that the housing market has cooled), Chinese stocks and certain industrial metals (China’s economy is weakening again), and French stocks (there may be a change in government). In contrast, risk-adjusted returns on global bonds, emerging market stocks outside of China, and the S&P 500 were relatively solid, as was the Swiss franc—typically a barometer of rising international tail risks. Bitcoin and R, both down about 10%[1], were among the segments that underperformed on a risk-adjusted basis.
Figure 1: Traditional assets were mixed in June, but crypto valuations fell
Grayscale Research believes that actual and expected selling pressure from multiple sources has caused Bitcoin to fall this month. Bitcoin's weakness, in turn, appears to have spread to other cryptocurrencies. The main new sources of selling pressure include:
Mt Gox Estate: The trustee of the Mt Gox bankruptcy estate announced on June 24 that repayments in Bitcoin and Bitcoin Cash will begin “in early July 2024.” [2] At the time of writing, the estate holds $8.9 billion worth of Bitcoin. [3] It is uncertain whether creditors will convert proceeds into fiat currency, and within what timeframe.
German government: German government agencies have begun liquidating bitcoins confiscated in 2013. [4] According to data provider Arkham Intelligence, wallets associated with the German government sent nearly 4,000 bitcoins (worth approximately $220 million) to exchanges in June. [5]
US Government: On June 26, the US government sent 3,940 BTC ($240 million) seized from the wallet of a convicted drug dealer to Coinbase Prime Deposit. Previously, the US government's last confirmed sale was in March 2023, when it sold 9,861 BTC worth $216 million.
US spot Bitcoin ETPs: In the second half of June, these products saw net outflows of $581 million, compared with net inflows in May and early June.[6]
In addition to these new sources of selling pressure, Bitcoin miners continue to reduce their holdings : according to data from Glassnode, miners have sold approximately 1,560 BTC (about $100 million) in the past 30 days. [7] On the other hand, publicly traded company Microstrategy reportedly purchased nearly 12,000 BTC (worth $786 million) in mid-June, likely supporting the price of Bitcoin. [8]
While these short-term flows may temporarily weigh on the price of Bitcoin, we do not see a significant change in the asset’s fundamentals. For example, despite modest dollar strength, the market has already priced in further interest rate cuts from the Federal Reserve this year and next as consumer price inflation eases further. [9] In addition, certain adoption metrics for smart contract platforms show continued growth. For example, as shown in Figure 2, daily active users for the 10 largest components (by market capitalization) of our smart contract platform cryptocurrency segment have continued to increase in recent months.
Figure 2: Daily active user growth of major smart contract platforms
Separately, the listing of spot Ethereum ETPs on the U.S. market appears to have made further progress. At the end of May, the U.S. Securities and Exchange Commission (SEC) approved Form 19b-4 applications from multiple issuers, allowing these products to be listed on U.S. exchanges. On June 13, SEC Chairman Gensler said regulators could approve the remaining applications "sometime this summer." While the timing remains uncertain, for the purposes of market analysis, Grayscale Research assumes that these products will begin trading in the third quarter of 2024. As with the launch of the spot Bitcoin ETP in January 2024, the Grayscale Research team expects the new Ethereum product to generate meaningful net inflows (although less than the Bitcoin ETP), potentially supporting the valuation of Ethereum and tokens within its ecosystem (for more details, see our report " The State of Ethereum ").
While both Bitcoin and Ethereum fell last month, they outperformed the broader crypto market as measured by the FTSE Grayscale Crypto Sector Index Series (Exhibit 3). Our Crypto Sector Market Index (CSMI), which measures the performance of the entire digital asset market, fell 19% in June. The worst performing market segment this month was the consumer and cultural crypto sector, due to weakness in memecoins (tokens used primarily for entertainment value and associated with internet culture). The currency crypto sector, which includes Bitcoin, and the financial crypto sector performed relatively well.
Figure 3: Cryptocurrency sector generally down
While most token prices declined in June, one notable exception was Toncoin (TON), the third-largest asset by market cap in our smart contract platform crypto space. [12] The TON blockchain, integrated into Telegram’s secure messaging app, has the potential to leverage the reach of Telegram’s 900 million monthly active users, making it an attractive platform for app developers. Driven in part by the growing popularity of its Open League token incentive program and Telegram Games, [13] the network has seen significant growth from an average of 27,000 daily active users in January to over 400,000 daily active users in June. [14] Additionally, Tether’s USDT stablecoin launched on the TON network in April 2024 and has seen rapid adoption. In March, the Financial Times reported that Telegram was considering an IPO, [15] which, in our view, could have an impact on the value of public blockchain tokens integrated with applications.
Despite the crypto market setbacks in June, Grayscale Research remains optimistic about the valuation outlook for the rest of the year. We believe the macro backdrop remains generally supportive of the crypto asset class – economic growth, potential Fed rate cuts, and a buoyant stock market. While a U.S. recession could weigh on crypto markets, a period of slower but positive growth still appears to be the main economic outlook. Additionally, the approval of Ethereum ETPs has the potential to expose more investors to the concepts of smart contracts and decentralized applications – giving public blockchains the potential to transform digital commerce.
References
[1] As of June 28.
[2] Source: Mt Gox Estate.
[3] Source: Arkham Intelligence. Data as of June 28, 2024.
[4] Source: Bitcoin Magazine.
[5] Source: Arkham Intelligence. Data as of June 28, 2024. USD values based on a Bitcoin price of $60,000.
[6] Source: Bloomberg, Grayscale Investments. Data as of June 28, 2024.
[7] Source: Glassnode. Data as of July 1, 2024. USD value calculated by taking the price of Bitcoin on the day it was transferred.
[8] Source: CoinDesk.
[9] Source: Bloomberg, Grayscale Investments. Fed rate cut pricing based on SOFR futures contracts for December 24 and 25. As of June 28, 2024.
[10] Source: Bloomberg.
[11] Source: CryptoSlate.
[12] The Grayscale Research Top 20 represents a diverse group of assets in the cryptocurrency space that we believe have high potential to perform well in the coming quarter due to factors such as (i) immediate catalysts or trending themes, (ii) favorable protocol-specific adoption trends, and (iii) low or moderate token supply inflation. Several of the assets in our Top 20 list have high price volatility and should be considered high risk. This content does not constitute advice and does not take into account an investor’s specific investment objectives, financial situation, or needs.
[13] Source: Decrypt.
[14] Source: Artemis. Data as of June 28, 2024.
[15] Source: Financial Times.
