Eterna's Insights - January 2024

The Era of Spot Bitcoin ETFs Has Arrived

In a landmark move that has ended months of speculation and anticipation, the US Securities and Exchange Commission (SEC) approved all 11 applications for Spot Bitcoin ETFs. The journey to approval was not without its hiccups, as a premature announcement was leaked due to a hack of the SEC's Twitter account. However, the official confirmation quickly arrived, solidifying Bitcoin's status as a legitimate asset class and paving the way for institutional investors to fully embrace the world of cryptocurrency. Despite public scepticism towards crypto, SEC Chair Gary Gensler did cast his vote in favour of the ETFs, along with two other commissioners.

After receiving approval, the total assets under management for Spot Bitcoin ETFs, including the Grayscale Bitcoin Trust ETF (GBTC), which was converted into an ETF immediately after approval, reached around $28 billion. This milestone positioned Bitcoin as the second-largest commodity group in the U.S. ETF market, second only to gold. The majority of the $28 billion was from the conversion of GBTC into an ETF. However, notably, the new Spot Bitcoin ETFs attracted nearly $1.5 billion in new capital within the first two days of trading. Of this influx, BlackRock secured nearly half a billion dollars, while Fidelity and Bitwise followed with $422 million and $237 million, respectively. Currently, BlackRock has amassed more than $3.1 billion since its launch. According to Bloomberg analyst Eric Balchunas, this amount exceeds the cash inflows of 99.8% of ETFs in the US.

Following the launch of Spot Bitcoin ETFs in the US, lawmakers in Hong Kong have urged prompt action to similarly introduce such financial products. This move aims to cement Hong Kong's status as a leading global centre for digital assets. In response to this, Harvest Global Investments, a prominent asset management company in China, applied for a spot Bitcoin ETF to the Hong Kong Securities and Futures Commission. Additionally, Venture Smart Financial Holdings has announced its intention to apply for a Spot Bitcoin ETF, signalling a growing interest in cryptocurrency investment vehicles within the region.

Crypto Indexes Launch

HashKey Capital, a Hong Kong based digital asset firm, has announced a strategic partnership with FTSE Russell, a London Stock Exchange Group business. Together, they are developing three distinct indexes designed to track the performance of various cryptocurrency assets. The first index will monitor the top 20 cryptocurrencies by market capitalisation, providing a broad market snapshot. The second index is crafted to capture the infrastructure layer of the crypto ecosystem, like smart contract platforms and protocol interoperability. The third index will concentrate on cryptocurrencies that offer application functionality, such as those involved in staking and decentralised finance (DeFi). This again highlights the growing institutional interest in this asset class.

Stablecoins Leading The Way

This month has been particularly eventful for stablecoin issuers. Circle, the company behind the USDC stablecoin, made headlines as it was reported that the company plans to file for an IPO. This marks a significant move, as it's the first time in a while that a crypto company has aimed for a public offering. Circle has submitted a confidential S-1 draft document to the SEC, though details remain pending and subject to regulatory approval. Previously, Circle had aimed to go public through a SPAC deal in 2021 with a valuation of $9 billion, but the plan was shelved because, according to CEO Jeremy Allaire, the company didn't meet the SEC's qualification requirements in time.

Tether, the issuer of USDT and the top player in the stablecoin market with a $96 billion market capitalisation, reported a Q4 2023 profit of $2.85 billion and an annual profit of $6.2 billion. A significant portion of these earnings, over $1 billion, came from interest on investments in US Treasuries, reverse repurchase agreements, and money market funds, which back USDT. The remainder of Tether's profit stemmed from investments in Bitcoin and Gold. Finally, PayPal's entry into the stablecoin arena with PYUSD has shown impressive progress, claiming the 8th position among the largest stablecoins by market cap at $300 million, just five months following its launch. Although PYUSD is still navigating its presence in the DeFi ecosystem, its rapid growth and success indicate it has the potential to challenge established stablecoins like USDC and USDT, marking a significant stride in the competitive landscape of stablecoin markets.

Ethereum Upgrades Continue

The Ethereum core developers have successfully implemented the Dencun upgrade on the Holesky testnet, marking the last test before its expected mainnet launch in March. This upgrade, a combination of the Cancun and Deneb upgrades, aims at improving both the execution and consensus layers of Ethereum. A significant feature, proto-danksharding, will be introduced to lower transaction costs and enhance scalability for Ethereum dapps and Layer 2s. This development follows the Shapella upgrade in March 2023, which allowed for the withdrawal of staked ETH.

Visa Enters Web3 Loyalty

In other news, Visa has launched a Web3 loyalty program called the Visa Web3 Loyalty Engagement Solution. Developed in collaboration with SmartMedia Technologies, this solution allows brands to create digital wallets for users, which can hold reward points and digital experiences. According to Visa, this “innovative Web3-based loyalty solution empowers brands to reward customers not just for their transactions but also for their active participation. This opens up a new world of secure, seamless, and engaging digital and real-world experiences right at their fingertips."

Eterna Portfolio Company Spotlight:

Linera launches its Devnet

Linera, the first Layer 1 blockchain infrastructure optimised to provide low-latency Web3 applications with unprecedented horizontal scaling, announced the launch of its Devnet. What enables Linera to redefine blockchain scalability is the introduction of microchains, lightweight chains that operate in parallel within a common set of validators. This puts users at the centre of the protocol and makes it easy for application interfaces to streamline Web3 app interactions as microchains are small enough to be replicated into browser extensions and mobile devices. With this launch, Web3 Rust developers can now deploy their Linera applications on the Devnet for testing and continue to explore microchains as a new scalability paradigm.