DigitalX Funds Weekly Wrap (19-26 May 2023)

Weekly Price Action?

*All figures below are in USD unless otherwise specified.

Market commentary

This week in the crypto market the Hong Kong Securities and Futures Commission announced it would soon allow licensed platforms to serve retail investors. Another step in the right direction for China's re-entry back into the crypto space following their nationwide ban back in 2021. Although, it is important to note that these retail inflows out of Hong Kong cannot be expected to kick in until later in the year due to the time restraint on license processing for exchanges.

On the macro front, the US Federal Reserve are currently re-evaluating their approach to hiking interest rates, with Fed Chair Jerome Powell switching stances ahead of the June FOMC meeting. However, the FOMC meeting minutes for April did reveal that concern remains present amongst many members that the current targets may not be enough to keep inflation in check.

Bitcoin is set to record its first negative month-on-month performance of 2023 but both Bitcoin and Ethereum have performed strongly YTD. Bitcoin up 59% and Ethereum up 51% has outperformed Gold, the S&P 500 and NASDAQ. YTD. Bitcoin has also completed its 3rd straight week as the 2nd largest NFT network by volume (behind Ethereum). Increased interest in Bitcoin ordinals has spiked transaction fees for the network, with many migrating to the cheaper Solana blockchain. Ethereum on the other hand, which currently sits at -3.5% MTD with the number of active validators now reaching a new high of 584,000.

CEO comment

The gap between Bitcoin and the S&P 500 closed a small amount this week at 47%. Our markets in particular have been extremely quiet with the echo of sell in May and go away (which worked spectacularly well last year). We note last year it was sell in May, throw the baby out with the bathwater and then go away so hopefully 2023 holds us in better stead.

In terms of the shift list we are still seeing positive structural shifts into Web3 rails occurring across the globe. My top picks for the week

• All eyes are on Hong Kong and China again - it will be a slow grind as the infrastructure catches up. The news flow seems to be positive in terms of clear regulatory guidelines providing further clarity. It is worth noting the devil in the detail in managing timing expectations. Despite this it is still an overall positive for sentiment and could be a future catalyst for demand and volumes with Asia based businesses able to enter the space with more confidence.
• ETH appears to be going from strength to strength and we are starting to see real legs to the story that ETH staking yields could become the equivalent of a crypto risk free rate of return and are fascinated by the implications for this on asset financing.
• Imagine if the US election became the Bitcoin election! I’ll leave this one right there.

Lisa Wade (she/her) , DigitalX CEO

Week in review

The Shift List

• Deutsche Digital Assets launches physically backed Multi-Asset Crypto ETP on German exchange.
• Apple's crypto policy softens as Stepn offers in-app digital asset trading.
• Hong Kong to open crypto exchange access for retail users, but there’s a catch.
• USDT makes bear market comeback with total supply nearing all-time high.
• Ethereum staking demand skyrockets following network upgrade.
• Chinese city launches gov’t-backed metaverse platform.
• Ron DeSantis vows to ‘protect’ Bitcoin during presidential campaign launch.

Market Updates

• Binance's CZ says China is 'buzzing' after Bitcoin seen in TV segment.
• Revolut could see license application denied, but crypto offerings unaffected.
• Topia releases the first layer2 shared DA layer protocol at Montenegro Edcon Super Demo.
• BNB Chain records highest transaction count since last May.
• Solana blockchain integrates ChatGPT plugin, launches AI accelerator.
• BlockFi withdraws reorganization plan statements following bankruptcy court order.
• Binance pushes back against Reuters report alleging company commingled funds.
• Worldcoin developer nets $115 million fundraise led by Blockchain Capital.
• Crypto attractive to family offices but regulatory clarity needed: survey.
• DCG shutters crypto institutional services subsidiary TradeBlock.
• Circle launches euro-backed stablecoin on Avalanche.

Macro/Regulatory Updates

• The US economy grew by an annualized 1.3% on quarter in Q1 2023.
• Federal Reserve Chair Powell hints at a pause in rate hikes when central bank meets next month.
• Fed uncertain about more rate hikes, minutes show.
• German economy entered recession as inflation hurt consumers.
• Coinbase hits back at SEC with new court filing in ongoing lawsuit.
• Biden opposes debt deal friendly to 'crypto traders' amid threat of U.S. default.
• The S&P global flash US Manufacturing PMI declined to 48.5 in May of 2023 from 50.2 in April.

In the spotlight?

The Hong Kong Securities and Futures Commission (SFC) announced it would soon allow licensed platforms to serve retail investors.

In a May 23 announcement from the SFC, the regulator said operators of virtual asset trading platforms willing to comply with the SFC’s proposed guidelines are welcome to apply for a license.

The guidelines for virtual asset trading platforms will include asset custody safety requirements, cybersecurity standards and the segregation of client assets — among others.

The SFC CEO Julia Leung said that providing clear regulator expectations is “key” to creating a responsible and innovative development environment.

?itcoin (BTC)

While Ethereum, has long been the dominant blockchain for NFTs, still ranking number one in terms of trading volume and is unlikely to lose that lead any time soon, Bitcoin has been maintaining a firm grip on second place for more than three weeks. Bitcoin’s ascendance in the NFT space could have the knock-on effect of spurring a decline in wash trading which can sometimes distort markets.

Strike, a payments platform built on Bitcoin's Lightning Network, has added support for Tether's USDT, the world's largest stablecoin. The development means USDT on-ramps, off-ramps and settlements are now possible within the Strike app, Tether CTO Paolo Ardoino told The Block.

Crypto hedge fund BXB Capital or Block by Block Capital is launching a bitcoin-focused trading fund in July. The fund, which was co-founded by former Binance Korea co-founders J.J. Petersen and Alex Friedberg, already has 400 bitcoin (worth around $10 million at current prices) in commitments and plans to raise up to 1,000 bitcoin (nearly $27 million), Petersen told Fortune in an interview published Monday.

Ethereum (ETH)

Ethereum (ETH) is witnessing its highest levels of staking activity following a critical update earlier this year. The network’s transition to Proof-of-Stake (PoS) late last year, coupled with Ethereum’s “Shapella” network upgrade in April, which enabled withdrawals of staked ETH as well as rewards, has led demand for new validators to reach its highest level in two and a half years. Previously, users could stake their ETH to the Beacon Chain as early as December 2020, but it wasn’t until Shapella was fully implemented that it became possible to withdraw.

BitDAO, a prominent decentralized autonomous organization known for its sizable treasury, announced a merger with Mantle Network, an Ethereum Layer 2 solution to which it formerly provided funding. This consolidation was done following the approval of a governance proposal from BitDAO community members, titled BIP-21. The merger amalgamates BitDAO’s governance framework and treasury with the technical prowess of Mantle Network, thereby creating a newly unified ecosystem. The primary aim is to refine branding, tokenomics, and create a unified product focus, according to a press release.

A new iteration of Coinbase’s cloud product, which employs multi-party computation (MPC), went live on Tuesday, the exchange said on Twitter. Coinbase on Twitter dubbed the Web3 wallet solution as a direct to user product, “Coinbase Wallet as a Service,” adding that the product has launched on the Ethereum mainnet. The exchange first introduced this product in March, when the exchange described it as a way for companies “fully customizable onchain wallets for their customers.”

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/.