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Bitcoin ETFs set the stage

Monthly Letters

Dear Investor,

 

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.

 

 

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