Source: TradingView, CNBC, Bloomberg, Messari
AI, DeFi, and HYPE Remain Hot
If you only look at broad crypto indices, it would appear as if the digital assets market has paused the past few weeks after a significant runup post-election. But most crypto indices do a poor job of accurately representing the entire asset class, as these indices are market-weighted and, therefore, predominantly composed of BTC, ETH, and SOL. Further, it’s almost impossible for any passive strategy or broad-based index to keep up with the innovation and new token launches.
For example, the Hyperliquid (HYPE) token launched two weeks ago over Thanksgiving and is already a Top 30 asset with a nearly $10 billion market cap after rising over 400% from launch (and +80% last week). Similarly, most of the AI sector (now composed of AI bots and platforms) is less than 2 months old. None of these will show up in any index, even though they have been the market leaders for the past few weeks (as we
wrote about 2 weeks ago), and continued to soar in value last week.
Source: Messari
Similarly, while some of the hot DeFi tokens are old enough and big enough to be included in some indices (like ETH-based AAVE, +36% w-o-w), there are few, if an,y indices that carry Solana DeFi (i.e. RAY, +10% w-o-w), Base DeFi (i.e., AERO, -5% w-o-w) or any of the recent newcomers (i.e. HYPE and ENA, +26% w-o-w).
The overall crypto market cap barely budged last week due to large caps stalling, but make no mistake, there is still a roaring bull market happening in new sectors and themes.
What’s Driving ETF flows?
Look - I’m tired of writing about the BTC and ETH ETFs, too, but they are just so hard to ignore. Here’s a fun stat. Out of nearly 700 ETFs launched this year, over half of the top 30 by fund inflows are crypto-related.
- 9 BTC ETFs
- 4 ETH ETFs
- 3 MSTR ETFs
Say what you want about the validity or value of digital assets, but it’s pretty undeniably clear that the market was starved for it.
And last week was no different. Bitcoin spot ETFs posted 9 straight days of inflows above $200 million, with $4.2 billion in total inflows. In the same 9-day span, Ethereum spot ETFs saw daily inflows >$80 million and a total of $1.7 billion in total inflows.
So why isn't the price going much higher? At least part of the reason is the basis trade, meaning a lot of these inflows will be offset by shorts in the futures market. The 3-month basis (if you short futures and go long spot) is offering 15%+ annualized returns currently, which would entice every credit fund manager on the planet, not to mention market neutral strategies, market makers, and even probably some long/short equity funds.
Source: Velo.xyz
While it’s impossible to accurately quantify how much of the inflows are being offset by futures shorts, it is evident that this is a big part of it. ETH futures on the CME are showing record shorts.
That said, this doesn’t account for all of the inflows. It’s clear that financial advisors and RIAs are just wetting their feet with regard to exposure to the asset class. Jay Jacobs, U.S. Head of Thematic and Active ETFs at BlackRock,
recently stated,
“We’re really just at the tip of the iceberg with Bitcoin and especially Ethereum. Just a tiny fraction of our clients own ($IBIT and $ETHA) so that’s what we’re focused on (vs launching new altcoin ETFs)”.
Are ICOs Back?
Over the last few weeks, we’ve discussed two prominent themes:
- Companies and projects are returning to innovation mode after the U.S. election, as they are no longer forced to be afraid of their own shadow when it comes to the hostility and ambiguity of U.S. regulators.
- The Hyperliquid (HYPE) fair launch was yet another example of how to launch tokens the right way by allowing early users to profit, which was a stark difference compared to the many failed VC-owned token launches that came at egregious valuations on Coinbase and Binance only to go straight down.
While not perfect, ICOs in 2017 were definitely closer to perfect than we had seen over the last few years. I wouldn’t be surprised to see some version of ICOs return under the new U.S. political and regulatory regime. And we’re already starting to see some further experimentation with token launches.
For example, the Echo platform has helped raise $32M across 86 deals, with participation from over 4,000 investors. Last week,
MegaLabs raised $10 million on the platform in just 3 minutes from over 98 participating countries. It’s clear that the market wants some form of ICOs to return, where community-driven projects with zero venture capital involvement can bring crypto back to its roots. As one
member of MegaLabs stated:
“The days of being a discord farmer for metrics that the insiders use to dump on your head is over. Skin in the game for everyone who wants it. Just like Ethereum.”
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Source: Dune Analytics
