Messages from crypto and its proxies

ASSET: Crypto is by-far the best performing asset class this year. Trouncing other hard-assets like gold. Its $2.7 trillion market cap is the smallest, youngest, and most retail of all assets. Bitcoin set the pace and optimism is high. With a classic supply-and-demand squeeze of ETF inflows and the imminent halving. Ethereum (ETH) lagged and its depressed sentiment ahead of next month’ spot ETF decision is a possible opportunity. Crypto also has longer term catalysts of Fed rate cuts and company accounting and bank regs changes. Whilst ecosystem venture capital (VC) inflows were up by a third last quarter and institutional tokenisation projects are building.

ETHEREUM: ETH has lagged Bitcoin the most in two years. Its 25% below its all-time-high. And its ‘dominance’, or proportion of crypto market cap, is only 16%. Even after April’ Dencun upgrade that cut transaction fees and boosted scalability. And with more tokenisation uses, like BlackRock’s (BLK) digital liquidity fund. And ahead of the May 23rd US SEC first final deadline to decide on a spot Ethereum ETF. Where it just opened a 3-wk public comment period. Approval skepticism is the main underperformance driver. Proxied by the Ethereum Trust NAV discount widening to 26%. With ETH maybe seen as a security and on a different legal footing to Bitcoin.

BITCOIN: The largest crypto asset has found support after profit taking from its recent new all-time-high. It’s being driven by a classic supply-and-demand squeeze. As new spot ETFs see an average $200 million net inflows daily, and now hold 4% of all BTC. Whilst adoption spreads to more fund platforms, and new products – like levered versions – are launched. Also, the four-yearly halving event is just two weeks away and will cut the growth rate of the 7% of Bitcoin still to be mined. The 2x NAV premium of equity proxy MicroStrategy (MSTR) speaks to the optimism, even as competition from higher bond yields and delayed Fed rate cuts has mounted.