Western ETFs Wane, Eastern Kindle Flame, BTC's Scarcity Enters a New Lane

• Spot bitcoin ETFs resume net inflows following a tumultuous pre-halving week
• SEC delays spot ether ETF decisions for Franklin Templeton and Grayscale
• Hong Kong's 'in-kind' spot bitcoin and ether ETFs launch on April 30th

West's ETF activity continues to dwindle while east prepares to kindle

Crypto markets saw a rebound this week, posting a 5.8% weekly gain in total marketcap of the universe and the bitcoin dominance edged higher just shy of 54%. Among the blue-chip names, bitcoin rose 4.9% while ether outperformed it posting a 5.2% weekly gain. In the US-listed spot bitcoin ETF universe, there were some net inflows over the past few days in ex-GBTC ETFs, although these inflows remained lighter than those seen in previous months. 

GBTC continued to witness net outflows, totaling a cumulative daily outflow of $16.9 billion since its inception, while IBIT and FBTC accumulated $23.5 billion in daily net inflows during the same period.

The US Securities and Exchange Commission (SEC) has extended its decision timeline for the Franklin ether ETF to June 11, 2024. Following this date, the SEC may either approve, disapprove, or initiate proceedings, as stated in a filing on Tuesday. Additionally, the SEC has postponed a similar proposal for the Grayscale Ethereum Trust to June 23, 2024, according to the filing. The SEC has also delayed decisions on applications for other ether ETFs, including VanEck's spot ether ETF and one from BlackRock.

While flows into spot bitcoin ETFs are diminishing in the West, the East is gearing up to launch six crypto-based spot ETFs starting April 30. Initially, three spot bitcoin and three spot ether ETFs will be available, allowing investors to speculate on the price of the two dominant cryptocurrencies without direct ownership. Unlike the US, where spot bitcoin ETFs are "cash-only," Hong Kong's newly listed funds will be "in-kind," potentially reducing complexity and costs for investors. However, mainland Chinese investors, prohibited from investing in such products, may impact the capital inflows into Hong Kong's spot crypto ETFs.

On April 24, Bloomberg senior ETF analyst Eric Balchunas noted that management fees for Hong Kong bitcoin ETFs will range from 0.3% to 0.99%. This contrasts with US spot bitcoin ETFs, where certain issuers charge less than 0.25% annually. All three ETF issuers will facilitate the creation and redemption of ETF shares on Hong Kong's regulated crypto exchanges, OSL and HashKey. Investors will have until 11:00 am local time each day to redeem shares for cash or until 4:00 pm for crypto withdrawals. BOCI Prudential will act as the custodian for all issuers, while market makers such as Vivienne Court and Virtu Financial will be involved.

Scarcity changing tide with Bitcoin's fourth halving stride

Last Saturday marked a significant moment for Bitcoin as it underwent its fourth halving event. This led to a reduction in the block subsidy from 6.25 BTC to 3.125 BTC per block, resulting in an issuance of about 450 bitcoins per day. According to a recent report from Glassnode, Bitcoin has now surpassed Gold in terms of issuance scarcity. 

Glassnode analysts noted, "The fourth halving marks a major milestone in comparing Bitcoin to Gold. For the first time in history, Bitcoin’s steady-state issuance rate (0.83%) becomes lower than Gold's (around 2.3%), marking a historic handover in the title of scarcest asset." However, it's important to note that the report also mentioned that the impact of Bitcoin halving events on the available traded BTC supply may be diminishing across cycles. This is not only due to the reduction in mined coins but also because of the growing size of the asset and the ecosystem surrounding it.

Similarly, miner revenues exhibit a diminishing growth rate when measured in USD, but there's a net expansion in absolute size. Cumulative miner revenue has surpassed a staggering $3 billion over the past four years, marking a tenfold increase over the prior epoch. Hashrate serves as a crucial metric for assessing the collective power of the mining community. While the rate of growth in hashrate has slowed across halving epochs, the absolute number of hashes per second continues to surge, now reaching an impressive 620 Exahash per second. To put this into perspective, it's equivalent to all 8 billion people on Earth collectively completing 77.5 billion hashes every second.

One intriguing trend is that hashrate tends to reach or hover near new all-time highs as each halving event approaches. This phenomenon suggests two possible scenarios:

• More ASIC rigs are being brought online 
• There's a development of more efficient hashing ASIC hardware

Regardless of which scenario is at play, the overarching conclusion is clear: despite a 50% reduction in issuance with each halving, the combined security budget has proven sufficient not only to cover current operational expenses (OPEX) but also to fuel further investment across both capital expenditures (CAPEX) and OPEX domains.

Transitioning from the blockchain to market dynamics, funding rates on perpetual contracts for both BTC and ETH across various platforms have seen significant drops, lingering in negative territory since the recent downturn a couple of weeks ago. Despite this, the prices have rebounded, indicating that the recent price action has been primarily led by spot. A negative funding rate suggests that traders are aggressively taking short positions on perpetual contracts, paying a funding cost to maintain these leveraged short positions. However, if the spot price continues to rise, these traders may not see the rewards for their risk-taking, consequently forcing them to unwind their short positions at some point.

Macro pulse 

Among the TradFi assets, US equities experienced a 2.7% decline compared to the previous week, primarily driven by a selloff in technology stocks. Traders are now adjusting their expectations, foreseeing only one to two Federal Reserve rate cuts for the year—a significant departure from the approximately six cuts anticipated at the outset of 2024, and the three cuts projected by Fed officials just a month ago. Meanwhile, Oil futures plummeted by 4% compared to the previous week, as market sentiment remains cautious, with Israel contemplating a potential strike on Iran on Monday but ultimately opting to delay action. Elsewhere, the US Dollar index rose by 0.7% and 10-year US Treasury yields rose by 4 bps while Gold & Silver index dropped 1.5% week on week.

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*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on April 25, 2024 

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