Correction Over?
The recent news of Bloomberg's increased odds to 75% of spot ETH ETF approval has shifted the crypto market to a bullish sentiment, with Bitcoin experiencing a 13% increase over the past week, reaching over $71k. More significantly we saw Ethereum surge by 22% off the news, and is up 32% this week. The SEC has instructed exchanges to update their Ethereum ETF filings on an accelerated basis, indicating a strong likelihood of approval.
Bitcoin Weekly Price Chart
The approval of a spot Ethereum ETF could significantly boost ETH above its all time highs. The approval is widely seen as imminent, with multiple applications pending SEC approval and amendments. This optimism has propelled the decentralised finance (DeFi) total value locked (TVL) to surpass the $100 billion mark for the first time in over two years which may indicate another DeFi run.
Ethereum Weekly Price Chart
Furthermore, the SEC's potential approval of a spot Ethereum ETF has generated interest in Solana as a candidate for its own ETF, hence we saw Solana react positively to the news, and is up 23% on the weekly.
U.S Election - Impacts on Crypto
The Trump campaign has recently made headlines by starting to accept cryptocurrency donations, marking a significant milestone as the first major party presidential nominee to do so. This move is advertised by the campaign as evidence of Trump's commitment to American freedom and innovation, showing support to the crypto sector.
In contrast, last month, President Joe Biden made a significant political move in the crypto space by asking Congress to kill the American Bitcoin mining industry. Additionally, the Biden administration has stated that Biden would veto any legislation permitting highly regulated financial firms to custody Bitcoin and other cryptocurrencies. Despite these actions, Democrats have pushed back against Biden and Senator Elizabeth Warren, realising that taking a strong anti-crypto stance could turn away a substantial portion of their supporters. Consequently, both major parties now understand they have to adopt a more pro-crypto approach.
We see Trump's embrace of cryptocurrency as a major victory for the crypto industry, which we believe will increase awareness and adoption of crypto assets. His acceptance of Web 3.0 technology and its development in the United States is the beginning of a more crypto friendly world. We believe this shift will trigger the crypto community to support Trump, positioning him as the pro-crypto candidate against Biden's who is still perceived as an anti-crypto.
We are optimistic about the outcome of the US election, believing that future presidents will have no choice but to support and integrate the crypto industry. This marks an interesting contrast from the last election, where Trump did not support the development of crypto within the nation. His current pro-crypto stance suggests a significant change in perspective.
Why this change? It is clear Trump recognises the growing number of Americans who support and want to adopt cryptocurrency technology. Hence he has been brave to embrace the philosophy of "if you can't beat them, join them," and has acknowledged the significant maturation of the industry and the adoption of crypto assets by major institutions. Trump sees the potential opportunities that supporting the crypto industry can bring to the country, aligning his campaign with the interests of all Americans.
U.S. Bitcoin ETFs
Over the past week, Bitcoin ETFs have consistently experienced positive net flows. As we anticipate the IBIT inflows for May 21st, we expect this to mark the seventh consecutive day of positive inflows.
Institutional interest remains strong, with Morgan Stanley and Millennium Management investing substantial amounts into Bitcoin ETFs. According to a 13F filing on Wednesday, Morgan Stanley purchased $270 million worth of Grayscale Investments' Bitcoin product in the last quarter.
Bitcoin ETF Flow Table (US$m)
Despite the recent market movements, the past 7 trading days (10th May to 20th May), the ETFs have only experienced volumes of $11 billion. This indicates a slowed interest in sport BTC exposure through ETFs and is not as much as many would have predicted after such bullish news. However it is important to note the volume was mainly purchases and less people are selling, meaning that many may be anticipating higher prices before selling.
DeFi + Layer 2 Lags
We have observed a significant lag in some top DeFi tokens such as DYDX, RUNE, CAKE, and SNX. These revenue-sharing protocols experienced substantial gains with the market surge in March but have since shown limited strength. Despite this, they present potential safe and profitable entry points as the market heats up again, even in the short to medium term.
Additionally, most Layer 2 (L2) protocols are also lagging such as Arbitrum even though its TVL is approaching all time highs. With the approval of an Ethereum ETF, these L2 protocols could serve as a leveraged play on Ethereum's success. Despite the attractiveness of new DeFi tokens, these established protocols and ecosystems from the last cycle have cemented their positions as market leaders and are unlikely to be faded.
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