Digital Assets Monthly Report | June

Cryptocurrency Monthly Report: Key Takeaways

• Markets seek bottom after bruising May; investors scoop up cheap Bitcoin [1]

• a16z launches the largest crypto fund in history at $4.5bn [2]

• eBay follows Instagram: debuts Ethereum NFTs

Macro Outlook

Markets seek bottom after bruising month; investors scoop up cheap Bitcoin

With the macro picture highly charged and uncertainty everywhere, underpinned by central bank rate hikes; ongoing war in Ukraine; and soaring prices for staple foods and commodities, investor sentiment was relentlessly bearish in May. However, despite this being a vexing month for crypto buyers and holders, the bleed-out appears to have slowed at around the $1.2 trillion market cap mark. [3]

The data clearly shows that investors have shrugged off sliding prices to return to the market in May. Bitcoin remains some 57% off its record high of $69,000 reached in November 2021, and investors have been taking advantage of this meaningful price weakness. [4]

Spot Bitcoin prices bounced off a macro low dating back to June 2021 at $28,000, while global Bitcoin ETP holdings reversed course, showing net inflows totalling 9,765 BTC (~$289m) across the month. Bitcoin ETP holdings also climbed to an all-time high of 250,008 bitcoin in the first two days of June, market data shows. [5]

Traders have also demonstrated an obvious preference for those digital assets that have remained live and secure the longest — most notably Bitcoin — as evidenced by these digital asset fund flows. [6]

Cryptoasset exchange-traded funds and products (ETFs/ETPs) remain an exceedingly popular way for both institutional and retail investors to gain exposure, as they promise greater liquidity than buying the underlying asset alone, and remove the prominent headache that investors face of custodying their own assets. 

In the wake of the destructive $40bn collapse of Terra, newer blockchains drawing in hype and speculators have suffered the largest price falls. [7] Now, markets remain finely poised between bearishness and bullishness as we head into June 2022, and we believe investors are expressing a clear preference for the relative safety of Bitcoin. 

Please remember that cryptocurrencies can be highly volatile, and your capital is at risk. Past performance is not indicative of future performance.

a16z launches the largest crypto fund in history at $4.5bn

Testament to the idea that the technology underlying blockchains, crypto, web3 and the metaverse is moving ahead undaunted by spot market weakness was the 25 May launch of the record-breaking $4.5bn Crypto Fund 4 by Andreessen Horowitz (a16z). [8] This fourth iteration of its crypto fund is more than double the size of the $2.2bn Crypto Fund 3, launched in June 2021. [9]

This means the Silicon Valley venture capital giant has now invested more than $7.6bn into the next generation of crypto and blockchain innovators. Analysts said $1.3bn will be earmarked for seed funding startups, with $3bn for venture investments in blockchain, web3 and crypto. [10]

Investing in the infrastructure around technological innovation waves is huge business — no matter what current market price of cryptoassets may suggest. In the 1960s, the microchip arrived to change the tech world; in the 1980s it was the personal computer and in the 1990s it was the early version of the internet, or Web1. The 2000s brought us Web2, and the 2010s ushered in the age of mobile internet. The 2020s are clearly the era of Web3 and the blockchain, and the winners will be the operating systems of the future. [11]

J.P. Morgan added to the general sense of longer-term optimism when it published a research report pegging the fair value of Bitcoin at $38,000, some 26.5% higher than current spot prices. [12]

Readers may recall in 2017 reading about the CEO of the Wall Street giant dismissing Bitcoin as “a fraud that will eventually blow up…worse than tulip bulbs”. [13] What a difference a few years makes. In May 2022 research, the Wall Street giant said cryptoassets had now leapfrogged real estate to become its preferred alternative asset class. [14]

Public markets have already priced in significant risks of a recession in the US and Western Europe, and crypto markets have repriced significantly lower since the collapse of Terra, the bank’s analysts said.

“A potential lagged repricing keeps us more cautious on private equity, private debt and real estate over the coming quarters,” J.P. Morgan analysts said.  “We thus replace real estate with digital assets as our preferred alternative asset class, along with hedge funds.” [15]

Venture funding is a key metric to watch to gain a sense of the future moves likely from crypto markets, JP Morgan added.  “If VC funding dries up from here…then a return to the long winter of 2018/19 would look more likely. Thus far, there is little evidence of VC funding drying up post-Terra’s collapse.” [16]

eBay follows Instagram at debut Ethereum NFTs

Just weeks after Instagram launched NFTs with Ethereum (ETH) and Polygon (MATIC), [17] eBay has moved to bring the unique, collectible tokens to its marketplace utilising the same blockchains. [18]

“You don’t have to be a crypto expert to buy, sell and collect NFTs,” said Lin Dai, CEO of eBay’s partner company OneOf. [19] The Florida-headquartered tech firm produces music and art-based NFTs on the Tezos (XTZ) and Ethereum (ETH) blockchains. “[We] are bringing transformative Web3 technology to the next 100 million non-crypto-native mass consumers.

”Despite headlines of a ‘collapse’ in NFT sales, weekly sales data actually shows the industry in rude health. [20] $424m of gaming NFTs have been bought and sold in 2022 to date, and sales of art and sports-related collectibles have surpassed $2.45bn. [21]

As such, we believe reports of the death of an industry which only began to flourish in January 2021 appear to be premature. 

eBay’s move to follow Instagram, TikTok and global brands like Formula One into NFTs reinforces the idea of Ethereum as the infrastructural protocol base of Web3, with its add-on Polygon allowing for cheaper fees and faster settlement. [22] [23]  

The same thing that occurred with Web1 and Web2 is now happening with Web3: the protocols that formed the base layer of the internet, like TCP/IP, were not the be-all and end-all. It was the interesting tech built on top of them that created true generational wealth.

Crypto Performance (As of 31.05.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/05/2022 Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product.

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