The recent price slide seems to be over, but the burdening factors are not out of the world: These include the high interest rates and the tough attitude of the US Securities and Exchange Commission towards cryptos.
24 August 2023. FRANKFURT (Börse Frankfurt). Cryptocurrencies are still not for the faint of heart. After the loss-making year 2022 and high price gains in the first half of 2023, bitcoin came under renewed strong pressure last week. The background to this was the news that Elon Musk's space company SpaceX had sold its entire Bitcoin holdings worth $373 million. The Bitcoin exchange rate - still at just under 32,000 US dollars in mid-July - fell below 26,000 US dollars. Currently it is 26,463 US dollars. Since the beginning of the year, this still results in a plus of 59 percent, but the all-time high from the end of 2021 at over 60,000 US dollars is far away.
However, the news was not the only reason for the latest price setback: "The outflow of funds from digital investment products is probably a reaction to the latest media reports, according to which no decision by the U.S. Securities and Exchange Commission on the approval of a U.S. spot-based ETF is imminent," explains James Butterfill of CoinShares, an asset manager specializing in digital investment products. He also said trading volumes are far below average, likely due primarily to seasonal effects. "That makes prices vulnerable."
Major asset managers BlackRock and Invesco, as well as ETF provider WisdomTree, had filed applications with the U.S. Securities and Exchange Commission (SEC) for a listed bitcoin spot ETF. Decisions are still pending, but so far the SEC has rejected similar applications. In addition, the SEC is known for its skepticism of the industry, and has sued crypto exchange operators such as Coinbase and Binance.
Spoilsport high interest rates
Last but not least, high interest rates are also hurting cryptocurrencies. "There is and remains a concern that interest rates in the United States could remain high for longer than previously priced in," notes Timo Emden of analyst firm Emden Research. "This is increasingly at the expense of non-interest risk asset classes." U.S. government bond yields are higher than they have been for many years. For instance, 10-year Treasuries recently yielded 4.35 percent, which is as much as they last did during the 2006/2007 financial crisis.
The other cryptocurrencies are also showing signs of weakening.Bitcoin rival Ethereum currently costs just $1,544, Ripple $0.48.
Inflows, but at a low level
Bitcoin trading volume has been rather low over the past two months, as Benjamin Dean of issuer WisdomTree reports. "The combination of low volatility and low trading volume created the environment for the sharp swings that followed," he explains. Bitcoin and Ethereum ETNs saw net inflows in Europe in July, according to Dean, but lower than in June. Year-to-date, there have been net inflows into physically backed bitcoin ETNs totaling $269 million and outflows from synthetic bitcoin ETNs totaling $35 million.
According to Fabian Wörndl of Lang & Schwarz, turnover in crypto ETNs has recently increased again. In particular, he sees buying for the ETC Group Physical Bitcoin (DE000A27Z304), the 21Shares Ethereum Staking (CH0454664027) and crypto baskets such as the VanEck Crypto Leaders (DE000A3GWEU3) and the WisdomTree Physical Crypto Altcoins (GB00BMTP1519). There was buying and selling in equal measure in 21Shares Ripple (CH0454664043), according to Wörndl. MarketVector Crypto Leaders provides access to the largest and most liquid cryptocurrencies, while WisdomTree Physical Crypto Altcoins explicitly excludes Bitcoin and Ethereum.
"Hardly any trading in smaller currencies"
"Things are rather quiet here," reports Ivo Orlemann of ICF Bank. "Too many have burned their fingers." At ICF, trading is focused on bitcoin and ethereum trackers from VanEck and WisdomTree. "We virtually never see trading in smaller currencies."
Orlemann
However, there is no bet on price declines either: "Short Bitcoin recorded the 17th consecutive week of outflows," reports Butterfill from CoinShares. On falling prices can be bet, for example, with the 21Shares Short Bitcoin (CH0514065058) and the 21Shares Short Ethereum (CH1210548884).
The most traded crypto ETN on Xetra in July was once again ETC Group Physical Bitcoin, followed by VanEck Bitcoin (DE000A28M8D0), CoinShares Physical Bitcoin (GB00BLD4ZL17) and 21Shares Bitcoin (CH0454664001). Top-selling ETNs on other cryptocurrencies were 21Shares Solana Staking (CH1114873776) and VanEck Ethereum (DE000A3GPSP7). All crypto ETNs tradable on Xetra are physically backed and listed on the Regulated Market of the Frankfurt Stock Exchange. They are also centrally cleared by Eurex Clearing AG as the central counterparty (CCP) of Deutsche Börse Group.
by: Anna-Maria Borse, 24 August 2023 © Deutsche Börse AG
Anna-Maria Borse is a finance and economics editor specializing in financial markets/stock markets and economic topics.
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