April 2021 Market Commentary

In April, bitcoin saw its first down month since September 2020. But, zooming out, institutional developments continued to drive progress across digital assets, and investor interest continues to extend beyond just bitcoin. The digital asset class has arrived.

The big story of 2020 was bitcoin adoption at the institutional level. As this year progresses, however, investors are moving deeper into other pockets of the asset class. In particular, Ethereum adoption is happening at a frantic pace. It is evident that investors are starting to understand the potential of this “Web 3.0” protocol, and their confidence is further buoyed by the continued growth of the related decentralized finance (DeFi) and non-fungible token (NFT) sectors.

The emerging area of DeFi has the potential to upend the entire financial ecosystem as we know it. DeFi offers global, inclusive financial service improvements with incomparable enhancements in speed, cost, and accessibility. It opens entirely new possibilities for economies and individuals worldwide. Nearly 9% of all ETH in circulation is now locked in DeFi smart contracts, and the DeFi space has grown from less than $5B last year to more than $80B in market cap today. On the NFT front, Q1 2021 saw nearly $2B spent on tokens, an increase of nearly 2100% from Q4 2020.

What’s next for Ethereum? There is a major development on the horizon: July’s scheduled EIP-1559 network update. Known as the “London Hardfork”, EIP-1559 provides a number of improvements to ETH’s operability. It will change the current gas pricing mechanism on the blockchain with the goal of lowering the volatility of these fees. And it introduces a mechanism to burn transaction fees and remove them from the circulating supply of ETH, which will introduce deflation to the Ethereum ecosystem. EIP-1559 is in addition to the development of ETH 2.0, the next iteration of Ethereum, which kicked off in December 2020. ETH 2.0 will increase the scalability of the blockchain and switch Ethereum from a Proof of Work model to a Proof of Stake model—inherently faster and more efficient. Ultimately, the goal is to build Ethereum into a deflationary asset that is increasing in both security and user activity.

The combination of EIP-1559 and ETH 2.0 will undoubtedly lead to more people using Ethereum, thus creating a more secure network, which entices the number of people using Ethereum to increase, further fortifying the network. The concepts of permissionless networks, complex peer-to-peer transactions, and users’ control of their information are transitioning from niche trends to more widespread adoption.

As you contemplate the future of Ethereum, I will leave you with a summary of key developments for digital assets across the month of April:

• Morgan Stanley made a filing stating it intends to add bitcoin exposure for one dozen of its institutional funds.
• Goldman Sachs announced plans to offer digital assets to its Private Wealth Management clients.
• David Solomon, CEO of Goldman Sachs, stated his belief that bitcoin is on a path to a higher market cap than gold.
• J.P. Morgan announced plans to offer bitcoin exposure to its clients as early as this summer.
• Coinbase became publicly traded via its highly-publicized direct listing.
• Galaxy Digital, in partnership with CI, launched ETHX, the world’s first Ethereum ETF.
• Venmo launched a digital asset purchasing feature.

• #1 overall NFL draft pick Trevor Lawrence announced a Blockfolio sponsorship and will receive a percentage of his bonus in bitcoin and other digital assets.
• Ecosystem company, Consensys, raised $65M from institutions that included J.P. Morgan, UBS, and Mastercard.
• Storied hedge fund, Brevan Howard, announced it will begin buying crypto in its flagship fund.
• New York-based blockchain infrastructure platform Paxos received a Federal Bank Charter from the Office of the Comptroller of the Currency.
• Wealthfront announced its intention to enable crypto purchases in 2021.