[3-10 November 2023] DigitalX Weekly Crypto Update: Market Trends and Analysis

Weekly Price Action

*All figures below are in USD unless otherwise specified.

Market commentary

Digital asset prices continue to appreciate as altcoins maintain October’s momentum into the first week of November. There have been consecutive weeks of positive dollar inflows into digital asset investment products according to data from CoinShares with year to date inflows for digital asset investment products totalling US$847 million - Bitcoin attracted the majority of inflows with altcoins such as Solana trending up as well. Ethereum investment products experienced a jump in inflows last week as well, coinciding with a recent filing from BlackRock Advisors with the Delaware Department of State Division of Corporations for an iShares Ethereum Trust entity. In the hours following the filing to register the entity in Delaware, BlackRock was confirmed to be working on a proposed spot ETF called the iShares Ethereum Trust, which has officially been filed with the SEC.

HSBC continues to expand its digital asset offerings with an announcement that the bank would be launching a digital-assets custody service for institutional clients. According to the announcement, the custody service will focus primarily on tokenised securities. Previously HSBC launched its tokenisation platform, HSBC Orion, as a means for institutions to issue digital bonds. The bank also announced last week the launch of tokenised ownership of physical gold currently being held in their London vault.

CEO Comment

The Gap between Bitcoin and the S&P 500 stabilised this week as BTC and digital asset markets continued to grind higher inline with broader markets. The Australian market absorbed further rate rises, though we continue to anticipate the end of the cycle. The question is, are we there yet?

As for the shift list, which we define as the major events and announcements facilitating the broader market's transition to Web3 financial rails or the internet of value, the top two for this week include:

1. Being one of the few listed digital asset companies globally, Coinbase’s Q3 result shows that it is a leader of the shift list, pivoting to what many are calling a “Crypto Super App”. There is a definite pivot towards a platform and real world asset approach - the net quarter loss shows that despite the recent rally there is still work to do executing out of the 2022 market routs.?
2. Decentralised data is a theme we follow closely, so The Graph announcing the roll out of new blockchain data services will prove to be a game changer in years to come. I think it is fair to say we will hear “the Google of web3” a few times over the coming years and only time will tell if this is true of The Graph.
3. Spot ETF’s remain the key driver of sentiment in the digital asset markets, so all eyes on this - The SEC has opened talks with Grayscale over its bid for a spot Bitcoin ETF conversion: report.?

In our DigitalX Digital Asset Fund we continue to apply a sound institutional investment process to investing in the top digital asset opportunities within the sector. Some of our key thematics include identifying the most reputable and innovative networks working on identity and data validation (Zero Knowledge proofs and rollups), data storage, infrastructure plays, and many others as well as other tangential opportunities the scaling of Real world assets brings. We are encouraged by the sheer volume of real world asset tokenisation activity that also underpins these thematics.

Lisa Wade (she/her), CEO DigitalX

Week in review

The Shift List

• BlackRock has filed to register a new iShares Ethereum Trust entity in Delaware.
• Nasdaq files for BlackRock's proposed iShares Ethereum Trust ETF.
• HSBC to offer Tokenized Securities Custody Service for institutions.
• 85% expect cashless future in 10 years: Survey.
• Crypto funds hit $767 million six-week streak, ether sees largest inflows since August 2022.
• Ark Invest launching new suite of digital asset ETFs with 21Shares.
• The SEC has opened talks with Grayscale over its bid for a spot bitcoin ETF conversion: report.
• Nomura’s Laser Digital follows BTC fund with ETH offering.
• Nike-RTFKT's crypto universe nears $1.4 billion in NFT trading as sneakerheads swoon.

Market Updates

• Crypto funding: Zero-knowledge tools stole the show this week.
• Coinbase Q3 results signal its future as ‘crypto super app’: Analyst.
• Binance moves into self-custody space with Web3 wallet.
• Aave pauses V2 on Ethereum, freezes certain assets on V3 due to reported issue.
• Lido Finance approves proposal to enable decentralized staking module.
• BitGo wants to be ‘exchange agnostic’ as a qualified custodian.
• Magic Eden, Yuga Labs launching Ethereum NFT marketplace to enforce royalties.
• Magic Eden strengthens support for Polygon with new features.
• The Graph set to roll out new blockchain data services, including AI-assisted querying.
• Animoca Brands Japan announces strategic partnership with Cool Cats Group.
• Polygon Village launches $90 million fund for ecosystem development.

Macro/ Regulatory Environment

• US labor market loosens as job gains slow, unemployment rate hits 3.9%.
• Services PMI at 51.8%; October 2023 Services ISM report on business.
• RBA hikes interest rate to a 12-year high of 4.35% in November.
• UK Financial Watchdogs publish plans to regulate stablecoins.
• The SEC is struggling to hire crypto experts, because they seem to want to HODL.
• US Supreme Court agrees to take up Coinbase case involving arbitration jurisdiction.
• SEC should consider proposing rules to regulate crypto, Republican commissioner says.
• US banking regulator sees less interest in crypto, more curiosity about tokenization.
• Federal Reserve's Michael Barr calls for a strong federal framework for stablecoins.
• Crypto has more than one fraudster, SEC Chair Gary Gary Gensler says.
• CFTC Chair Rostin Behnam says Congress needs to play a more pivotal role in how agencies regulate crypto.
• Celsius Network payment plan approved by New York judge, now it’s up to the SEC.

In the spotlight

A website for the Delaware Department of State Division of Corporations shows that BlackRock Advisors filed today for an iShares Ethereum Trust entity.

The filing indicates that BlackRock could be doubling down on crypto. The world's largest asset manager is currently awaiting a decision on its spot bitcoin ETF application from the Securities and Exchange Commission. A BlackRock spokesperson declined to comment to The Block. Ether's price has jumped nearly 8% today to around $2,040.

An iShares Ethereum Trust filing doesn't yet appear on the SEC's website. But notably, the iShares Bitcoin Trust entity was first registered in the Delaware state seven days before BlackRock filed the ETF application with the SEC. That suggests the iShares Ethereum Trust filing might appear on the SEC website next week.

?itcoin (BTC)

The circulating supply of Bitcoin is historically tight, with coins held by long-term investors at an all-time high, according to Glassnode data. The data found that existing bitcoin investors are becoming increasingly unwilling to part with their holdings, with analysts at Glassnode observing "impressive rates of accumulation taking place. The Bitcoin supply is quite tight with several measures of supply such as illiquid supply, coins HODLed, and long-term holder supply at historical highs," Glassnode analysts said in a note shared with The Block. In a Wednesday blog post entitled "The Tightening of Supply," Glassnode data showed the proportion of circulating supply of bitcoin held for longer than one year is hovering around all-time-high levels. Analysis of the data found this long-term holder metric is at an elevated level for several BTC age bands.

Bullish sentiment continues to build in the crypto market as Bitcoin trades sideways and altcoin rotation picks up, according to the latest K33 Research report. Bitcoin has remained in the $34,000 to $36,000 range over the last two weeks, seeing the largest cryptocurrency's market dominance fall from 53.1% to 51.5%. The declines can be attributed to non-ether altcoins outpacing the leading digital asset, K33 Research Senior Analyst Vetle Lunde and Vice President Anders Helseth said. Such outperformance was highlighted by solana’s 41% gain over the same period amid the Breakpoint conference in Amsterdam and highly-anticipated Firedancer upgrade — a new independent validator client for the blockchain that went live on testnet last week.

Ethereum (ETH)

Ether crypto funds generated the most inflows since August 2022 last week, totaling $17.5 million — a significant turnaround from a run of $107 million in outflows they have faced this year. Solana and Chainlink products witnessed inflows of $11 million and $2 million, respectively, while Polygon and Cardano-based funds saw minor inflows of $0.8 million and $0.5 million. In contrast to recent subdued flows compared to Europe, U.S. investors stepped up their game over the past week, contributing regional inflows of $157 million. Meanwhile, Germany, Switzerland and Canada continued steady participation, registering inflows of $63 million, $36 million and $9 million, respectively.

Ether has made a small advancement over the last week in terms of its performance relative to Bitcoin, according to data from CoinShares. "Over the last week, ether has outperformed Bitcoin by about 4.55%," CoinShares Research Associate Luke Nolan told The Block. However, Nolan added that a closer look at the ETH/BTC trading pair shows ether's recent gains are more of a technical bounce than an indication of a pickup of interest in Ethereum itself.

Blockchain cryptography firm Nil Foundation is planning to introduce a ZK-Rollup, a type of Layer 2 network on Ethereum featuring sharding technology. The Layer 2 solution will function as a zkEVM — a type of ZK-Rollup that can run existing Ethereum decentralized applications. The Nil Foundation states that its objective with the ZK-Rollup is to provide an alternative approach to scaling by integrating multiple shards into a unified Layer 2 execution environment. This approach combines modular and monolithic architectures to support data-intensive decentralized applications (dapps). The network is in an early development phase, and the Nil is working on a public testnet, which it expects to be available in the next 3-6 months.

About DigitalX

DigitalX Ltd (ASX:DCC) is a leading ASX-Listed Bitcoin and digital asset funds management business. The Company has a 9 year track record mining Bitcoin, blockchain and smart contract development. DigitalX Asset Management is the investment manager of digital asset investment products that provide qualified investors with highly secure and streamlined access to digital asset exposure. To learn more contact the team at [email protected] or visit our website https://digitalx.fund/.

Disclaimer

DigitalX Asset Management Pty Ltd is a corporate authorised representative (CAR) of Boutique Capital Pty Ltd (AFSL 508011), and True Oak Investments Ltd (AFSL 238184). To the extent to which this document contains advice it is general advice only and has been prepared by the CAR for individuals identified as wholesale investors for the purposes of providing a financial product or financial service. The information herein is presented in summary form and is therefore subject to qualification and further explanation. The information in this document is not intended to be relied upon as advice to investors or potential investors and has been prepared without taking into account personal investment objectives, financial circumstances or particular needs. Recipients of this document are advised to consult their own professional advisers about legal, tax, financial or other matters relevant to the suitability of this information. Past performance is not indicative of future performance.