Digital Assets Market & Industry Analysis

After a couple of poor days at the end of February and start of March, flows did go back to the levels seen in the second week of February (they had trailed off afterwards), and after the ATH break on 8th March (itself a relatively modest day), we saw a record day on the 12th, at net inflows of over $1bn for the first time. Since that week, we have seen a significant depreciation of inflows however, in a very similar manner to what we saw up through the last week or so of February - except, in this case, with higher GBTC outflows turning the net figure negative for every day of the week of 18th March.

To give a brief view of the 'why' here insofar as anyone has a strong indication: we tend to think a lot of it has to do with weakness on ETH as a market leader (the expected hangover after the Dencun upgrade's implementation, murmurs around the ETH ETFs being rejected or delayed - we think rejection is unlikely but a delay beyond the first deadlines in May is possible) and on BTC ETF buys/flows being somewhat more sensitive to outside conditions than some quarters were beginning to assume. Renewed focus on the FTX case as Sam Bankman-Fried approaches sentencing (on March 28th) may also be dampening retail appetites somewhat. The long and short of it is that we think there's a decent chance that the current drawdown ends up deepening somewhat (albeit we have tended to underestimate market resilience over the last 3-6 months) and that prices end up much, much higher by year's end.

Today will see - or, by the time you read it, most likely has seen - the Dencun upgrade come to Ethereum. In truth, this was not something that we particularly planned to write about here; while Dencun is an important upgrade (and the realisation of many, many years of working and pivoting on the Ethereum roadmap), for reasons we'll get into, it seems like something of an odd choice for those not on the technical side of Ethereum (and the on-chain world in general) to fixate on. Nonetheless, we have had enough enquiries here, and there is paradoxically little enough to say on the market more generally right now (beyond 'ride momentum') that it seems worth spending some time explaining what it is, why it's important, and what it ultimately means for Ethereum going forward.

OI has - unsurprisingly given recent price action - continued to rise, albeit not too far above levels on February 14th, and with micro-BTC in particular seeing a decent sell-off/shift towards the short side going into last week. Whatever the dynamics were at play there, it doesn't seem to have correlated particularly strongly with price movements in the short-term, though next week's report (coming after February expiry and before/during the ongoing breakout) should be interesting.

Enigma Securities is a leading, FCA registered digital asset liquidity provider owned by Makor Securities, a traditional finance regulated agency broker which processes $10’s of billions of dollars in trades annually for its network of institutional clients. As an extension of its full-service trading solutions, Enigma has partnered with OpenTrade, a Circle-backed technology company that builds USDC / EURC real world financial asset yield products,to launch a new product that allows Enigma’s institutional clients to easily invest digital asset holdings in and out of U.S. Treasury Bill backed yield products through their existing OTC trading desk set-up.

The FTX bank run and collapse created illiquid conditions that unevenly impacted digital asset returns. However, the crisis did not change fundamental value drivers for some digital protocols.

Though FTX was not the largest exchange by volume, its collapse evaporated market liquidity and the full effects are yet to be determined. Exchange data shows the FTX collapse drove the volume impact on returns.

Though BTC prices support last week’s view that digital asset markets remain in a downward trending regime, macro and fundamentals suggest changes are in the wind. Sunday marked the lowest close in two years at $16.3k BTC. Though it ended the free-fall, last week continued a negative trend for BTC price.

After a couple of poor days at the end of February and start of March, flows did go back to the levels seen in the second week of February (they had trailed off afterwards), and after the ATH break on 8th March (itself a relatively modest day), we saw a record day on the 12th, at net inflows of over $1bn for the first time. Since that week, we have seen a significant depreciation of inflows however, in a very similar manner to what we saw up through the last week or so of February - except, in this case, with higher GBTC outflows turning the net figure negative for every day of the week of 18th March.

To give a brief view of the 'why' here insofar as anyone has a strong indication: we tend to think a lot of it has to do with weakness on ETH as a market leader (the expected hangover after the Dencun upgrade's implementation, murmurs around the ETH ETFs being rejected or delayed - we think rejection is unlikely but a delay beyond the first deadlines in May is possible) and on BTC ETF buys/flows being somewhat more sensitive to outside conditions than some quarters were beginning to assume. Renewed focus on the FTX case as Sam Bankman-Fried approaches sentencing (on March 28th) may also be dampening retail appetites somewhat. The long and short of it is that we think there's a decent chance that the current drawdown ends up deepening somewhat (albeit we have tended to underestimate market resilience over the last 3-6 months) and that prices end up much, much higher by year's end.

Today will see - or, by the time you read it, most likely has seen - the Dencun upgrade come to Ethereum. In truth, this was not something that we particularly planned to write about here; while Dencun is an important upgrade (and the realisation of many, many years of working and pivoting on the Ethereum roadmap), for reasons we'll get into, it seems like something of an odd choice for those not on the technical side of Ethereum (and the on-chain world in general) to fixate on. Nonetheless, we have had enough enquiries here, and there is paradoxically little enough to say on the market more generally right now (beyond 'ride momentum') that it seems worth spending some time explaining what it is, why it's important, and what it ultimately means for Ethereum going forward.

OI has - unsurprisingly given recent price action - continued to rise, albeit not too far above levels on February 14th, and with micro-BTC in particular seeing a decent sell-off/shift towards the short side going into last week. Whatever the dynamics were at play there, it doesn't seem to have correlated particularly strongly with price movements in the short-term, though next week's report (coming after February expiry and before/during the ongoing breakout) should be interesting.

Last week, MakerDAO decided to launch a DAI vault backed by loans originated by Huntingdon Valley Bank to create DeFi’s largest stablecoin pool backed by real world assets.

Stable Is as Stable Does. Download the PDF here for access to the report.

Bridges, You Are the Weakest Link. Download the PDF here for access to the report.

Research Note: Layer 1 Competition. Download the PDF here for access to the report.