Graphing Digital Assets
Month in Review — June 2024
Bitcoin’s Greatest Hack…10 Years After
In June 2024, the price of bitcoin (BTC) declined by 7.12%, dropping from $67,472.41 to finish the month at $62,668.26. This decline was driven by several factors, including waning optimism about near-term interest rate cuts, a slowdown in flows into bitcoin ETFs, and increased selling pressure. Notably, bitcoin’s price fell to nearly $60,200 on June 24th in response to Mt. Gox bankruptcy estate’s announcement they would begin repaying creditors in July.
Formerly the world’s largest bitcoin exchange, Mt. Gox collapsed in 2014 after suffering a series of hacks resulting in the loss of an estimated 850,000 bitcoin (equivalent to ~$51 billion today). The announcement of the repayments, distributing nearly $9 billion in bitcoin and Bitcoin Cash back to creditors, resulted in a nearly $3,000 BTC price drop as investors feared that the upcoming payouts would exert significant selling pressure on bitcoin. The Crypto Fear and Greed index fell 25 points from June 23-25 (top graph), dropping well into “Fear”.
This concern over a massive sell-off may be overstated. The repayments will be spread out over several months and across multiple exchanges, which should help to mitigate any immediate price drops. Additionally, creditors had the chance to sell their claims earlier if they needed immediate funds. Given the substantial appreciation in bitcoin’s price since Mt. Gox’s declaration of bankruptcy (bottom graph) and the associated capital gains tax implications, it is unlikely that all creditors will convert their bitcoin to fiat right away. We expect some short-term volatility to persist, but the long-term impact of the Mt. Gox repayments have likely already been priced in.
Source for BTC daily open price: Investing.com as of June 30, 2024.
DeFi Summer 2.0?
Following the positive market activity surrounding the ETF approvals at the end of 2023 and into 2024, the cryptocurrency market has recently demonstrated a slowdown, with the decrease of trading volumes, funding rates, and market movement. While some crypto trading strategies have produced weaker returns in recent months, decentralized finance (DeFi) strategies have shown considerable strength. New innovations and investment opportunities in the space have led to an optimism that we may be entering “DeFi Summer 2.0.”
The summer of 2020, dubbed “DeFi Summer,” saw rapid innovation and user growth in decentralized finance, catalyzed by the liquidity mining program of COMP tokens launched by the DeFi protocol Compound in May 2020. The subsequent launch of similar products drove rapid increase in DeFi users and the total value locked (TVL) across DeFi protocols.
DeFi is poised for a new wave of growth and development. Some key innovations are:
• Restaking and liquid staking: Restaking has gained traction with protocols like EigenLayer allowing users to earn additional rewards by reusing staked assets for multiple services. Platforms like Lido Finance offer liquid staking solutions, enabling staked assets to be utilized across various DeFi applications, enhancing yield opportunities.
• RWA Tokenization: The tokenization of real-world assets is quickly gaining popularity, bridging traditional finance with DeFi, as platforms like Goldfinch and Maple Finance lead the way in creating new investment opportunities for institutional capital.
• Bitcoin Layer 2s: Bitcoin’s functionality is growing with innovations like Ordinals and BRC-20 expanding Bitcoin’s role beyond a store of value. At the end of June, Bitcoin accounted for 1.08% of the DeFi TVL.
Advancements like these have transformed the DeFi landscape since 2020. While DeFi TVL surpassed $1 billion for the first time in 2020, four years later, the TVL stands at just under $96 billion, with significant growth in 2024 after a relatively stagnant 2023 (top graph). In June 2020, Ethereum’s dominance of the TVL across DeFi protocols was more than 95%, compared to 61.2% today (bottom graph), reflecting the amount of novel innovation in the space.
As innovation spurs user adoption, we look towards a potential DeFi Summer 2.0. The DeFi sector is poised for further maturation and integration with traditional finance as ongoing development is likely to attract more institutional and retail investors, leading to increased liquidity, higher TVL, and more robust user engagement. This confluence of factors underscores a bright future for DeFi, positioning it as a key driver in the next phase of the digital asset market's evolution.
Source: Defillama. Data as of June 30, 2024.
Institutionalizing Digital Assets: ETPs
In late June, asset managers VanEck and 21Shares each submitted filings with the U.S. Securities and Exchange Commission (SEC) for the listing of a Solana (SOL) ETF. These applications came just a few weeks after the SEC approved the listing of eight Ethereum (ETH) ETFs in May, increasing optimism about the SEC approving additional crypto exchange-traded products (ETPs).
Crypto ETPs, which include exchange-traded funds (ETFs), exchange-traded commodities (ETCs), and exchange-traded notes (ETNs), are gaining significant traction globally, with many additional launches expected soon. These products are expected to attract substantial institutional capital as they provide a more accessible and regulated way for large institutional players to gain exposure to the digital asset class.
Recent crypto ETP launches include:
April: Hong Kong launched Asia’s first spot bitcoin and ether ETFs
May: The FCA approved bitcoin and ether ETPs proposed by WisdomTree to be listed on the London Stock Exchange
June: Bitwise and Swiss fintech company Anum partnered to launch a multi-crypto-based ETP in Switzerland
June: 3iQ applied to launch a SOL ETP on the Toronto Stock Exchange
July: Deutsche Digital Assets is launching the world’s first macro bitcoin ETP in Germany
According to a study by ETFGI, as of the end of May, there were 208 digital asset ETPs listed globally, with $82 billion in total assets. The first half of the year saw 37 new ETP launches (see graph) with assets surpassing $80 billion, underscoring the exponential growth of flows into these products.
The rapid expansion of digital asset ETPs indicates the growing acceptance of these products in traditional financial markets. As more regulatory approvals are granted and new products are introduced, the crypto ETP market is poised for continued growth, bolstered by institutional capital. The momentum behind these launches reflects a broader trend of digital assets becoming an integral part of the global financial ecosystem.
