July 10, 2024

June 2024 Market Commentary

Galaxy Asset Management

July 9, 2024

Market Commentary

As we conclude the first half of 2024, June’s down month should not take away from a notably positive start to this year for digital assets. While in June BTC fell -9.62%, ETH dropped -9.75%, and the BGCI Index slumped -12.60%, many across the crypto industry would have likely taken the opportunity to sign up if they were told at the beginning of the year that BTC would be up 43.80% YTD and spot ETH ETFs would soon begin trading. With us celebrating the Fourth of July in the U.S., now is an opportune time to take a moment to acknowledge the accomplishments in crypto so far this year. Despite the recent negative sentiment from price depreciation, zooming out the strong 2024 trajectory for the industry is still readily apparent.

While bitcoin’s price encountered some resistance in June, global BTC ETPs realized $738M in monthly flows according to Coinshares. The inflows suggest that investors are seizing the opportunity to obtain better entry levels as they continue to buy despite bitcoin’s price drop. Part of the June decline can likely be attributed to profit taking as well as some investors subscribing to the ‘Sell in May and go away’ market adage. In examining endogenous factors, bitcoin’s price was likely impacted by wallets linked to the U.S and German governments moving assets. During June a wallet assumed to belong to the U.S. government transferred nearly 4,000 BTC to Coinbase. Blockchain Intelligence firm Arkham is contending that this government stockpile of bitcoin stems from a January seizure by the DOJ from a narcotics trafficker who had been selling illicit substances for cryptocurrency through dark web marketplaces. Separately, the German government moved approximately 6,500 BTC, over a tenth of the supply it had seized from a pirated movie website operator. With the presumption that the governments will likely offload their seized bitcoin, market participants reacted negatively to these headlines. In Asia, bitcoin received positive news as Thailand’s SEC approved its first spot BTC ETF, paving the way for the market-leading cryptocurrency to trade in ETF form in yet another jurisdiction.

After taking a backseat to bitcoin for most of the year to date, Ethereum continues to receive more attention in anticipation of S-1 filings enabling prospective spot ETH ETF issuers to launch their funds. As of this writing we are expecting these new cryptocurrency ETFs to begin trading in mid-July. Prior to U.S. spot ETH ETFs entering the market, Galaxy Research’s Charles Yu is predicting inflows of $1M per month. Leveraging learnings from this year’s spot BTC ETF launch, Yu estimates that net inflows into the U.S. spot ETH ETFs will be approximately 30% of their spot BTC counterparts over the first five months of trading. Following the same path as transpired with GBTC outflows, Yu believes that we are likely to see a similar situation transpire with ETHE selling. In his report on Sizing the Market for the Ethereum ETF, Yu makes a distinction between demand for spot BTC and spot ETH ETFs worth highlighting: Due to the proposed spot ETH ETFs not enabling staking at this time, demand for these proposed funds may be blunted.

Outside of the top two cryptocurrencies by market cap, the industry also saw headlines in June involving Robinhood, bitcoin miners, and proposed Solana ETFs. This past month Robinhood announced the acquisition of BitStamp, one of the larger crypto marketplaces in Europe. Robinhood’s $200M acquisition is likely part of the company’s strategic ambitions to broaden its crypto presence globally. In a sign of investors exhibiting a desire for crypto exposure beyond direct ownership, June served as a banner month for U.S.-listed bitcoin miners as they surpassed their previous all-time high cumulative market cap. With skeptics wondering how miners might be affected in the aftermath of the halving, June’s record market cap is a welcome signal of bitcoin miners’ resiliency. While SOL (-11.56%) was not immune to June’s market downturn, the third L-1 did see its price rebound significantly following VanEcK and 21Shares both filing applications to launch a spot SOL ETF in the U.S. Given the current regulatory environment we are not optimistic about spot SOL ETFs being approved in the near term as the SEC has previously declared SOL is a security and a regulated futures market for Solana does not yet exist (one of the decisive factors supporting the launching of spot BTC and ETH ETFs).

With digital assets commanding more attention in Washington, many expected the topic to feature at the first presidential debate. While crypto was not mentioned during the televised June event, former President Trump continued to align himself with the industry at a fundraiser in San Francisco hosted by prominent tech venture capitalists. At the event, former President Trump dubbed himself the “crypto president.” According to his former ambassador to Austria the presumed Republican nominee also held an event at Mar-a-Lago with the “Power 30”, bitcoin miners who together comprise 30% of the Bitcoin network’s computing power. Afterward, former President Trump posted on Truth Social that he “want[ed] all the remaining Bitcoin to be MADE IN THE USA” (Note: Due to Bitcoin’s inherent decentralization, we can presume this post was merely intended to be provocative in nature). Similarly, in Europe, crypto will likely continue to wield a prominent role in politics as the continent’s landmark framework, the Markets in Crypto-Assets regulation, took effect on June 30.

Portfolio Considerations

The initial enthusiasm surrounding ETH applications in early June has waned due to the lack of immediate progress. This, combined with the decreased likelihood of multiple interest rate cuts by the Federal Reserve this year, has left the broader market choppy and range-bound mostly. Despite the overall market conditions, the PolitiFi sector has seen a surge in trading volume in June. This memecoin subsector, aiming to bridge the crypto community and the political sphere, has attracted significant attention. Several prominent PolitiFi coins have emerged, though none have official affiliations with political figures. The market capitalization of this subsector has grown to over $1Bin June, nearing the value of tokenized gold coins, which stand at $1.14 billion.

The leading PolitiFi memecoin, $TRUMP, was launched on Uniswap in August 2023 at $0.06. Its value trajectory has closely followed developments in Trump’s legal proceedings and U.S. election campaign news. $TRUMP reached an all-time high of $17.07 on June 2nd, two days after the former president was found guilty on all 34 counts. Currently trading around $5.10, $TRUMP has struggled to regain its earlier highs, likely reflecting traders' disappointment with the lack of clear crypto policy stances from candidates during the presidential debate on the 27th. Despite the proliferation of Trump-themed memecoins, there is a notable absence of memecoins relating to Biden that reached a similar popularity and market capitalization as $TRUMP with $232M on Ethereum. The largest Biden themed meme token is $BODEN on Solana with a market capitalization of $23M.

The Ethereum ecosystem has seen the emergence of innovative staking protocols, such as restaking and liquid staking, all aimed at enhancing the usability of locked Ether and generating additional yield. Lido, launched in December 2020, allowing users to receive a derivative representing staked Ether—a simple delta 1 product. Within two months, Lido’s total value locked (TVL) surpassed $100 million and has since grown to over $32B, establishing it as the largest Ethereum DeFi protocol.

However, Lido’s dominance is now challenged by EigenLayer, launched in June 2023. EigenLayer offers staking, security, and mature validation services of Ethereum to new, up and coming protocols. Its TVL has surged to $17B growing 1300% in just over a year, while Lido’s TVL has grown at a much slower pace, around 2.6 times, during the same time.

To directly face these challenges, Lido recently announced a new initiative allowing stETH to be restaked with Symbiotic, EigenLayer’s competitor. Symbiotic supports a broader set of crypto assets for restaking, whereas EigenLayer limits the assets it accepts to ETH, EIGEN and a few others. Technically and from a business development perspective, Lido’s new initiatives are sound. In addition, EigenLayer’s rapid growth has been driven partly by its points system, which promises future airdrop eligibility. Restaking services are not yet producing yield to this day, but these potential airdrop eligibilities are what became the most widely followed DeFi fad of 2024. Lido’s new initiative has yet to reveal plans for airdrops or points accumulation, but Mellow Finance, a recently launched liquid restaking project for restaking protocol Symbiotic could help benefit Lido to reclaim market share from protocols like EigenLayer.

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