Monthly Cryptocurrency Market Report | April

• ETC Group listed the ETC Group Physical Ethereum ETC (Ticker: ZETH) on Tuesday 9th March, the first time an Ethereum exchange traded product (ETP) is listed on the Deutsche Borse
• Bitcoin decouples from Global tech stocks as longer duration bond yields rise
• European asset managers are the last of the three major markets to embrace crypto

Industry News

Bitcoin Performance

Past performance is no guarantee of future performance.

Source: XBT, HANetf *XBTUSD Index, in USD. 12 Month figures based on 31.03.20 -31.03.21.

Bitcoin remains a volatile store of value and March saw a 19% drawdown in Bitcoin. However this was less than February’s 27% mid-month drawdown or the 31% decline mid-January. These consolidations are considered healthy price action as they afford the market opportunities to ‘clear’ and find the ‘right price’. ITI observes that three-quarters of Bitcoins have not changed hands since the price reached $10,000 per Bitcoin– testament to the concentration amongst long-term investors. This indicates a much more mature market structure than as recently as a year ago when the highly-leveraged and unregulated retail platforms commanded a larger portion of the trade and were better able to manipulate the price action as they liquidated overly leveraged small players during periods of lower liquidity.

Our bitcoin ETC saw another surge in March with a 28.86% rally following the 27.91% rise in February taking the since inception gain to 497.79% since launch in July 2020. Bitcoin is now up over 100% Year to Date in US Dollar terms and continues to gain growing institutional adoption as the ‘scarcity Asset’ of choice amongst institutional multi-asset investors. One of the more striking characteristics of the Bitcoin price action has been the relative decoupling from technology stocks since yields have started to move markedly higher first in the longer end and then the belly of the US Treasury curve. 

The US 10 Year yield has continued to dominate macro and multi-asset investors’ attention.  Last month, we highlighted the focus on the psychologically important 1.75% level, hitherto taken as a line in the sand that could trigger an acceleration back out of equities and higher-risk assets into the bond market. 

However, this narrative has evolved over the month and the outlook is generally considered more constructive for a variety of reasons. 

ITI observes that the biggest force in markets remains the monetary policy of the Federal Reserve and the rest of the G4 central banks. Fed Chairman Powell signalled clearly to markets that the front end of the curve was firmly anchored until 2024 before there would be any hike in rates despite mushrooming expectation for fiscal stimulus to reflate the US economy. 

Expectations are quickly building for a pipeline of multi-trillion fiscal packages that extend far beyond the Great Corona Recession on the promise of ‘Building Back Better’ and investing in a ‘sustainable future’. Long gone, is the moral hazard of debating the ethics of bailing out the banks – the dynamic that tempered enthusiasm for marginal extraordinary policy action after the Great Financial Crisis. 

Reassured by this double-barrelled support rather than an ‘either-or’ assumption of monetary versus fiscal stimulus, uncertainty abated across markets and the VIX made a new era-low as confidence returned to US equities. The Nasdaq suffered a 12% drawdown from its peak mid-February into the first week of March and ended March 41bp higher, a net gain of 2.78% for Q1 21. Eighty-five percent of US households received a stimulus cheque for $1400 on average which is attributed to helping support the popular tech stocks and digital assets, long popular with retail investors.

Introducing ETC Group’s Physical Ethereum ETC (ZETH)

While much investor interest in cryptoassets to date has been hyper-focused on Bitcoin, it is the second largest cryptoasset by market cap and daily trading volume [1], Ethereum, that is now attracting greater attention.

Ethereum uses a native currency called Ether (ETH) which can be transferred or traded just like bitcoin (BTC). But the true genius of Ethereum is that it is not simply another Bitcoin clone. The growing conviction around Ethereum as an asset class relies on its utility.

In terms of the technology, we can think of Ethereum’s blockchain as a base layer upon which a whole host of computing functions and programmes can be built. The key analogy here is that of the TCP/IP tech stack that underpinned the creation of the internet, along with all the various protocols that were built on top of it.

Ethereum’s broad practical application as a foundational computing framework means that investors are now looking to Ethereum as a potentially more valuable asset to track.

ETC Group launched the Ethereum ETC on 9 March 2021 to offer a simple and easy-access investment vehicle giving investors exposure to this important asset class. ZETH has its primary listing on Deutsche Börse XETRA, providing investors with a central counterparty-cleared investment product on a recognised, regulated international stock exchange. All of the Ethereum in the ZETH ETP is professionally custodied with the institutional digital asset manager BitGo, which removes the need for investors to custody their own cryptoassets, or hold or manage cryptographic keys. Units of ZETH are fully redeemable for the underlying ETH currency. Its management fees are 1.49%. For more information, please refer to the Prospectus. For professional investors only. When trading ETCs your capital is at risk.

BTCetc- ETC Group Physical Bitcoin ETC Performance Table

As of 31.03.2021

* Bitcoin price is based off XBT daily performance from Bloomberg

Performance before inception is based on XBT daily performance from Bloomberg. Past performance of XBT does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for XBT is in USD. The performance calculation is based on USD. If the currency in which the past performance is shown differs from the currency of the country in which you reside, you should be aware that due to exchange rate fluctuations, the performance shown may increase or decrease if converted into your local currency. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. It is provided for illustrative purposes only. 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 these products. Source: Bloomberg / HANetf. Data as of 31/03/21

Outlook

There is much focus on the correlations over various time frames between Bitcoin and other asset classes. ITI observes that the recent decoupling from tech stocks is a very constructive phenomenon and should incentivise multi-asset investors. So too, the divergent fortunes of physical gold and ‘Digital Gold’. 

One of the fundamentals of multi-asset portfolio construction is the persistent inverse correlation between gold and real interest rates (nominal rates adjusted by inflation). Gold bugs are quick to highlight its store of value for thousands of years across human civilisation. However, institutional investors really only were able to allocate to gold since futures started trading in 1976. 

Retail investors were only able to allocate portfolio investments to gold from 2003 with the advent of the first ETF on the precious metal. ITI believes those are more relevant way-markers to frame the evolution of investing in gold. And as such the advent of access to investing in Digital Gold suddenly seems of greater significance. 

‘Bitcoin is better at being gold than gold’ for many reasons but one of the central reasons is the accessibility to the asset with the peace of mind that there is no dependency upon an administrator’s spreadsheet to record entitlement nor requirement to physically visit the vault. 

In Emerging Markets, the challenges of wealth preservation have been top of mind since WWII with the spectres of sovereign defaults, rampant inflation or financial repression never far away. ITI observed that many core EM countries like Turkey, Brazil and Russia saw new all-time highs in their local currencies long before the USD new highs. As rising yields and a resurgent US Dollar represent a new double headwind to EM central banks, ITI expects to see a reacceleration of Bitcoin demand across its core emerging markets. 

Meanwhile, closer to home, the ‘Great Taxation’ threatens to be a more durable trend than the Great Rotation as those challenges of wealth preservation come to Developed Markets paying back their stimuli. This promises to keep demand robust with retail and institutional investors alike. ITI observes that BTCE is the most fiduciary responsible way for institutions to access the Bitcoin ecosystem. Europe is the last of the three major markets to embrace crypto and therefore BTCE,  which is the leading BTC equity product in terms of AUM[2]

Learn more about our Ethereum ETC here.

Learn more about our Bitcoin ETC here.