Commentary

ETF Flows Resurge, BNB hits ATH, Reimagining Value Distribution

Week in Review

Commentary

ETF Flows Resurge, BNB hits ATH, Reimagining Value Distribution

Introduction

Week in Review

  • Spot bitcoin ETF flows surge, achieve second highest daily record
  • Binance Coin hits a new all-time high
  • SEC Chair Gensler indicates ether ETF debut will take some time

Bitcoin ETF flows back in black, and BNB soars to uncharted heights

This week, the crypto markets rallied, posting a 4.3% gain in the total market cap. Bitcoin dominance edged lower, falling below 53%. Among major cryptocurrencies, bitcoin surged by 5.2% compared to the previous week, while ether advanced by 2.7%. US-listed spot bitcoin ETFs experienced significant inflows, with Tuesday seeing $886.6 million, marking the second highest daily inflow since their inception earlier this year. Additionally, even the Grayscale Bitcoin Trust (GBTC) saw net inflows on Tuesday, one of the few instances since its conversion from a trust, with $28.2 million in inflows.

Among other major OGs, BNB, the native token of Binance, has posted an impressive 17.5% gain over the past week, reaching a new all-time high by crossing the $700 mark. This surpasses its previous all-time high of approximately $690 in May 2021. The rally has been bolstered by the growing popularity of Binance Launchpool, which requires users to hold and stake BNB to participate in new token offerings on the world's largest cryptocurrency exchange. Last month, Binance Launchpool announced its support for Notcoin, claiming to be the first platform to list the token. Notcoin, which can be earned through a Web3 game on Telegram, has garnered a market capitalization of over $2.2 billion since its inception.

Bitcoin ETFs are attracting global attention. Monochrome Asset Management's Bitcoin ETF (IBTC) recently began trading on the Cboe Australia exchange under the ticker IBTC, with a management fee of 0.98%. This milestone makes IBTC the first fund in Australia to offer direct bitcoin holdings, providing investors with straightforward access to BTC. This new product stands apart from the two existing spot bitcoin ETFs in Australia, which offer exposure to bitcoin without holding the asset directly. Monochrome's ETF fills this gap by providing an ETF that actually holds bitcoin.

Thailand has joined the bitcoin ETF trend by approving One Asset Management (ONEAM) to launch a bitcoin ETF. The ETF, named the ONE Bitcoin ETF Fund of Funds Unhedged, is scheduled to be distributed between May 31 and June 6. This approval came around two months after the Thai SEC amended its local rules to allow asset management firms to launch private funds offering bitcoin ETFs. While ONEAM has received approval, MFC Asset Management is still awaiting regulatory approval for its bitcoin ETF.

United States Securities and Exchange Commission (SEC) Chair Gary Gensler has suggested potential delays in the final approvals for asset managers offering spot ether ETFs on exchanges. In a June 5 interview on CNBC, Gensler mentioned that the next steps regarding the SEC’s approval of spot ether ETFs will "take some time," indicating a slow or delayed process for signing off on S-1 registration statements. On May 23, the SEC approved 19b-4 filings from VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK 21Shares, Invesco Galaxy, and Bitwise. However, the final approvals would allow the listing and trading of these ETFs on U.S. exchanges could take months. During the interview, Gensler also highlighted that cryptocurrency firms were engaging in activities not permitted for traditional exchanges, implying that the SEC’s stance on enforcement actions is unlikely to change under his leadership. While Gensler suggested a slow approval process for spot ether ETFs, the SEC has initiated the process for eventually listing shares on exchanges. The approval of spot ether ETF 19b-4 filings came five months after the SEC approved several spot bitcoin ETF applications, marking an industry first.

Bridging the incentive gap between miners and developers with MEV taxes

Stepping back from the cryptocurrency markets and delving into blockchain technology, researchers at VC firm Paradigm have introduced Miner Extractable Value (MEV) taxes. This is a new approach that enables blockchain applications to capture and redistribute some of the value generated by transaction ordering back to users and developers. MEV refers to the profit that miners or block builders can earn by selecting and sequencing transactions within a blockchain block. Miners have the authority to decide which transactions to include and their order, allowing them to capitalize on opportunities for financial gain. Traditionally, this profit has been exclusive to miners, leaving out the developers who created the applications. The introduction of MEV taxes aims to alter this dynamic. 

For MEV taxes to be effective, block proposers need to adhere to competitive priority ordering rules, which rank transactions based on the fees paid without engaging in censorship or other manipulative activities. However, if block creators do not follow these rules, they can avoid MEV taxes and keep the generated value for themselves. The researchers suggested various applications for this solution. For instance, decentralized exchange (DEX) routers could use MEV taxes to increase the prices received by traders, while automated market makers (AMMs) could use them to minimize losses when providing liquidity. Cryptocurrency wallets could capture "backrunning" MEV associated with their users' transactions. Additionally, off-chain or Dutch auction solutions, including protocols for oracles, collateralized lending protocols, and lending protocol liquidations, could benefit from MEV taxes.

A critical aspect of MEV taxes is their reliance on block builders following the rules of competitive priority ordering. If these rules are not observed, block creators could bypass the MEV tax and retain the value, highlighting a limitation of this approach. It requires a significant level of trust in the block builders. The research team noted that the solution lacks incentive incompatibility for a monopolistic block proposer, emphasizing that it can only succeed with proper competition for transaction inclusion. They proposed certain rules to enhance its efficiency, such as priority ordering, censorship resistance, and pre-transaction protocols.

Macro pulse 

Among TradFi assets, US equities surged by 1.7% over the previous week, printing a fresh all-time high, driven by Nvidia achieving a $3 trillion market cap. Conversely, Oil futures experienced a 6% weekly decline as OPEC+ announced a timetable for gradually unwinding some of its production cuts, sparking a debate on the market's capacity to absorb the additional supply. Meanwhile, the US Dollar index fell by 0.8%, 10-year US Treasury yields decreased by 34 basis points, and the Gold & Silver index dropped by 2.4% week-over-week.

*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on June 06, 2024 

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