March 2024 Market Commentary

April 10, 2024

Market Commentary

March continued the positive digital assets price trajectory with bitcoin reaching a new all-time high. For the month BTC gained +13.94%, ETH increased +4.82%, and the Bloomberg Galaxy Crypto Index rose +19.54%. As we reflect on the year’s first quarter, it is readily apparent confidence has returned to crypto markets.

With consistent demand pressure from the newly launched spot BTC ETFs, ‘digital gold’ broke $70,000 for the first time in its history and furthered its price discovery to a record $73,750.15. During March, the bitcoin ETFs cumulatively realized $111B in trading volume, approximately a 3x improvement month-over-month. Bitcoin’s increased popularity can no clearer be demonstrated than Bitcoin Google searches reaching their highest levels in over a year and surpassing the Google search popularity of international superstars Taylor Swift and Beyonce.

Bitcoin’s mainstream adoption obtained further support this month on several fronts. In March we saw a $475B financial advisor, Cetera, approve four of the spot ETFs including BTCO. As bitcoin’s role in institutional portfolios becomes more pervasive, we expect to see additional platforms turning on access to the bitcoin ETFs in the coming months. Another bullish signal stemmed from the Government Pension Investment Fund of Japan, the world’s largest pension fund by AUM announcing its intentions to explore a bitcoin allocation. Additionally, one of bitcoin’s prominent adopters, the nation of El Salvador, detailed its conviction in the digital asset by disclosing that its stake totals ~$400M.

All eyes are now focused on bitcoin’s fourth halving, which is less than a month away (currently anticipated to occur on April 19). In bitcoin’s history, it has never previously reached a new all-time high prior to the halving. In prior cycles, the halving has served as a catalyst that eventually pushed bitcoin to new heights. While bitcoin breaking its previous highs before the halving this time around, history may not be truly repeating itself but it does suggest potential price accumulation still exists in this cycle.

While the market sentiment is rosy for bitcoin, there are increasingly subdued views surrounding the approval of a spot ETH ETF in the near term. Bloomberg insider Eric Balchunas recently lowered his May approval prediction from 70% to 35%, signaling that a second type of spot crypto ETF may not be immediate following the BTC ETF-inspired hopium. At this point in the BTC ETF approval process, the SEC was collaboratively engaging with issuers whereas to this point the regulator agency has yet to engage and issue comments on proposed spot ETH ETF applications. With May unlikely to be the approval date in the U.S., the outlook across the Atlantic is suddenly looking more promising. The London Stock Exchange plans to start accepting applications for BTC and ETH ETNs in late May, potentially becoming the next major financial hub to welcome crypto ETPs.

As we inch closer to November and investors begin to narrow in on ballot implications for markets, the crypto industry may play a large role than it ever has. During Super Tuesday, a group of crypto-backed super PACs spent $13M+ in hopes of swinging races in multiple states. In parallel with this, a March public opinion poll conducted by Paradigm found that 19% of registered voters in America have purchased crypto. This number starts to jump off the page when restated in the following manner: Over 11M voters own more than $1,000 of crypto. The entrenched position of crypto ownership amongst Americans is further evidenced by the fact that just 32% of the voting population owns stock of any kind.

Evaluating other winners in the larger crypto market, Solana exacerbated its strong year-to-date with a +43.32% performance in March. Base, Coinbase’s L2 network that has no native token, garnered headlines as its on-chain metrics such as transaction levels and decentralized exchange (DEX) volumes exceeded prior records. As Coinbase seeks to further integrate its services on-chain, Base will likely take on greater strategic priority for the company. Real world assets (RWAs) continued to be another leading theme, with the push to tokenize assets and increase their functionality on-chain. Embracing where the industry is headed, BlackRock introduced its own tokenized fund, the BlackRock USD Institutional Liquidity Fund (BUIDL), on the Ethereum network. BlackRock’s first foray into tokenized funds on a public blockchain intends to offer qualified investors on-chain access to money market funds. Lastly, this month brought the launch of liquid restaking tokens (LRTs). Tokens such as Ether.Fi’s ETHF have been incubated with the functionality to utilize Ethereum’s proof-of-stake consensus mechanism (PoS) to secure other blockchains through the EigenLayer restaking platform.

As we look ahead to the second quarter, we’re headed towards restored order in the crypto industry now that the black cloud surrounding the Sam Bankman-Fried trial is in the rear-view mirror. With SBF sentenced to 25 years and an $11B forfeiture of property, we hope the removal of bad actors provides an uninhibited pathway for brighter days in the digital assets realm.

Portfolio Considerations

As highlighted in our previous report, the altcoin market exhibited robust growth in March, with leading tokens achieving all-time highs and the narrative surrounding ETF adoption persisting. The remarkable surge of the Solana-based memecoin, WIF, from $1 to nearly $5, has propelled its market capitalization closely behind more established assets like ARB and ATOM. The original memecoin DOGE returned to traders’ attention, spurred by speculations of its acceptance as a payment method on X. Since 2021, Tesla, another venture under Elon Musk, has embraced DOGE for merchandise transactions. The combined market capitalization of the top 10 memecoins escalated to $61 billion at March's close, up from $29 billion. For Layer 1s supporting memecoins, Solana ecosystem led the charge in this memecoin rally, benefiting from higher transaction speeds and lower fees than Ethereum. In March, the Solana ecosystem's daily fees exceeded $2 million on average, and its Total Value Locked (TVL) surpassed $4 billion, underscoring the influx of memecoin-related activities.

Ethereum's Dencun upgrade, completed on March 13th, aims to boost efficiency and curtail costs for both users and developers through proto-danksharding. This process involves breaking down large data sets into smaller, more manageable parts, facilitating faster and more efficient data sharing and processing. Although the upgrade's benefits may not directly reflect in ETH prices, Layer 2 network users, including those on Arbitrum, Optimism, and Polygon, have already experienced reduced transaction fees. Once fully embraced, the update is expected to reduce nearly 90% of fee on Layer 2 solutions. The high gas fees on the Ethereum network during the last bull market were often cited as a barrier to the wider adoption of cryptocurrencies.

Additionally, our last month's commentary highlighted the growing popularity of restaking, which has become a significant aspect of the staking ecosystem. Ether.Fi, a liquid restaking platform, initiated the airdrop of 60 million of its native ETHFI tokens on March 18th. ETHFI serves as a governance token, allowing holders to vote on matters such as token accrual and grant programs. Following the airdrop, ETHFI's price dipped to as low as $3 on March 20th, due to initial sell-offs by early holders, before recovering to $6.6 by month-end, with over 40 million ETHFI claimed.

Although these developments may seem uncorrelated, they share a common theme: enhancing on-chain user engagement and activity. Memecoins have been instrumental in introducing new users to digital assets during the last bull market. The Dencun upgrade aims to alleviate barriers for users and developers moving assets on-chain and engaging in economic activities more freely. Restaking and liquid staking initiatives address the liquidity challenges of Proof of Stake tokens, which have been criticized for limiting users' ability to explore other investment opportunities.

Institutional Adoption Highlights

• $111 Billion: Bitcoin ETFs See Record Volumes in March

• BlackRock’s tokenized fund BUIDL quickly raises $245mm trailing only Franklin Templeton’s Frankling OnChain US Government Money Fund (FOBXX)

• Hong Kong-based asset manager VSFG and Value Partners apply for spot Bitcoin ETF

• The London Stock Exchange will start accepting applications for BTC and ETH crypto exchange-traded notes (ETNs) soon. Similar to crypto ETFs in the US, ETNs let investors trade securities that track their underlying crypto assets on the London Stock Exchange.

• MicroStrategy bought another 12,000 BTC, worth ~$821M. The Bitcoin-loving software company now owns 205,000 BTC, worth ~$15B

Crypto Performance and Volatility Data