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Bitcoin ETFs set the stage
The approval of spot bitcoin ETFs in the US this month might prove to be the most consequential moment for the mainstream adoption of crypto assets.
This will take months and years to play out, but in the near term there is a lot for crypto investors to be excited about. Most notable is the upcoming Bitcoin halving, set for the end of April. This event, which we discuss in detail in our 2024 Crypto Investment Outlook, has historically proven to be very positive for prices.
Regardless of where prices go in the short term, our long-term investment case for crypto has never been stronger. In his latest Notes from the CIO, Samir Kerbage looks at the investment case for bitcoin specifically in the wake of the ETF approvals and the forthcoming halving.
It’s sure to be an exciting year. As always, we are greatly appreciative of your trust in us and are here to answer any questions you may have.
-Your Partners at Hashdex
Market Review
The new year started in the same manner as 2023 ended. In the early days of January, the crypto asset market surged, driven by the anticipation of the launch of spot bitcoin ETFs in the US. On the ETF debut day, the 11th, the Nasdaq Crypto Index (NCI) had accumulated a gain of over 10%, reaching a 21-month high.
However, following the ETF launches there was a reversal in this trend for technical reasons, which is worth delving into. GBTC was a bitcoin trust that did not allow redemptions, holding nearly $30 billion in bitcoins accumulated over more than a decade. Investors could only sell their shares in the secondary market, where, in recent years, there were significant discounts compared to the fair value of the shares. With the increased likelihood of a trust-to-ETF conversion, which would allow redemptions, many traders started buying shares at a discount. GBTC’s conversion to an ETF, approved alongside the new bitcoin ETFs, led to a surge in redemptions, both from traders closing their positions and from investors who had been stuck in the position for a long time. The result was that, despite significant inflows observed in other ETFs, the overall net result in the initial days was a substantial outflow of capital, leading to the sale of bitcoins and pushing the price down.
Between the 11th and the 23rd, both the NCI and bitcoin fell approximately 16%. However, during this period, redemptions in GBTC decreased, while investments in other ETFs were more resilient, causing the net flow to turn positive, meaning an influx of capital. This contributed to the recovery observed in the last eight days of the month, during which the NCI rose 9.3%, closing the month with a 1.4% increase. It marked the fifth consecutive month of growth. Similar to December, the standout performer among the index constituents was Arbitrum, with a gain of 15.8%.
For other indices serving as benchmarks for Hashdex products, the month resulted in losses due to the poor performance of most altcoins. Among the sectoral indices from CF Benchmarks, Smart Contracts Platforms, Decentralized Finance, and Digital Culture experienced declines of 7.2%, 8.3%, and 11.4%, respectively. The Vinter Hashdex Risk Parity Momentum Index lost 8.1%.
It was a positive start to the year for NCI and major crypto assets. The impact of bitcoin ETFs in the US will be felt over the coming months and years, as capital is allocated. We remain very optimistic about the prospects for the crypto asset class for this year and beyond.
Top Stories
Bitcoin mining sustainable energy usage hits all-time high of 54.5%
According to the Bitcoin ESG Forecast, bitcoin mining has reached a historical peak of 54.5% utilization of sustainable energy, marking a 3.6% overall increase in sustainable mining throughout 2023. According to the data, bitcoin mining currently stands as the foremost consumer of sustainable energy compared to other global industries.
BlackRock and Moody’s endorse tokenization
BlackRock CEO Larry Fink asserted that ”Bitcoin surpasses any government” and is a potential long-term store of value, particularly in countries where citizens fear their government’s actions or currency devaluation. Fink also highlighted the significance of crypto ETFs on CNBC, envisioning a future where assets are increasingly tokenized. His comments came out not long before credit rating giant Moody’s released their own report highlighting the benefits of tokenization.
Bullish sentiment shifts to Ethereum
Ether (ETH) experienced a pretty significant bullish reversal on its BTC pair early in the month. This move suggests that market participants have started rotating capital to the second largest crypto asset after more than a year of underperformance against BTC, in what could be explained by a narrative shift from spot BTC ETFs to potential spot ETH ETFs coming later in 2024.
This material expresses Hashdex Asset Management Ltd. and its subsidiaries and affiliates (“Hashdex”)’s opinion for informational purposes only and does not consider the investment objectives, financial situation or individual needs of one or a particular group of investors. We recommend consulting specialized professionals for investment decisions. Investors are advised to carefully read the prospectus or regulations before investing their funds. The information and conclusions contained in this material may be changed at any time, without prior notice. Nothing contained herein constitutes an offer, solicitation or recommendation regarding any investment management product or service. This information is not directed at or intended for distribution to or use by any person or entity located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Hashdex to any registration or licensing requirements within such jurisdiction. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Hashdex. By receiving or reviewing this material, you agree that this material is confidential intellectual property of Hashdex and that you will not directly or indirectly copy, modify, recast, publish or redistribute this material and the information therein, in whole or in part, or otherwise make any commercial use of this material without Hashdex’s prior written consent.
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Stablecoins are digital currencies tied to assets like the U.S. dollar, offering the price stability needed for payments. They maintain their peg by being backed 1:1 by their underlying fiat currency, with issuers holding equivalent amounts in cash and cash equivalents, making stablecoins a digital representation of those reserves. Their market has doubled to over $235 billion, with daily usage nearly doubling in two years.
Why are stablecoins making headlines now?
Due to their clear product-market fit and growing mainstream adoption, stablecoins have become a top priority for regulation, with both industry leaders and policymakers calling for swift action.
On April 4, the Securities and Exchange Commission’s Division of Corporation Finance finally clarified that stablecoins are not securities if backed one-for-one by USD or similar assets and used for payments or value storage. These “Covered Stablecoins” are not marketed as investments, lack profit incentives, and include protections like reserves, making securities law registration unnecessary for issuance or redemption.
The GENIUS Act, introduced in February and advanced by the U.S. Senate Banking Committee in March, marks a major step toward creating a clear legal framework for stablecoin issuance and oversight. This clarity is driving momentum as Fidelity is set to launch its own stablecoin, and Bank of America is preparing to follow it once legislation is finalized.
Globally, the European Union’s Markets in Crypto Assets (MiCA) framework has already come into effect, reinforcing a broader shift toward formal integration of stablecoins into traditional finance. These developments reflect a growing consensus that stablecoins are emerging as essential infrastructure for global payments, treasury management, and digital asset adoption.
What are the benefits of stablecoins?
Stablecoins are digital currencies designed for fast, low-cost, and stable transactions. Since their launch in 2014, they’ve become a go-to tool for online payments, especially cross-border transfers. As they’re pegged to stable assets like the U.S. dollar or euro, they avoid the wild price swings seen in other cryptocurrencies.
They’re accessible to anyone with internet, making them especially valuable in regions with high inflation or limited banking access, like Argentina or Turkey.
With some built on public blockchains, stablecoins offer transparency, letting users track transfers and supply in real time. For institutions, they also simplify treasury management by acting as efficient digital cash that can be deployed instantly.
Who are the major players in the stablecoin race?
Tether (USDT) and Circle (USDC), the two largest stablecoin issuers, collectively hold over $204 billion in U.S. Treasuries, making them the 14th largest holders globally. Their combined treasury holdings surpass those of entire nations, including Norway and Brazil.
USDT leads with $144 billion in circulation; USDC, backed by Coinbase and known for compliance, has become a trusted digital dollar across global finance.
Why stablecoins matter: A revenue engine for blockchains
Stablecoins generate steady revenue for blockchains like Ethereum and Solana by driving transaction fees with each transfer. With trillions in annual volume, they help sustain network activity beyond speculation.
On Ethereum, for example, USDT and USDC transactions are major contributors to daily gas fees. Year to date, Tether ranks #3 and USDC ranks #5 in terms of total gas consumed. Tether and Circle also dominate daily transaction activity on Ethereum, averaging approximately 12 million and 6 million transactions per day, respectively, making them the top two entities on the network by daily transaction count.
Meanwhile, on Solana, stablecoin activity has surged, helping sustain validator rewards and strengthen protocol economics. In addition to the mainstream utility, stablecoins represent reliable, protocol-level cash flow, making them crypto’s killer use case.
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
Stablecoins: The real powerhouse of crypto
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