Crypto Unlocked: In the bleak midwinter - Page 3

Introduction

Greater institutional adoption , the lure of high fees and the opportunity to dominate a new segment of the market have been key reasons for the rapid growth of ETF issuers – and wider asset managers – entering the cryptocurrency market .

In recent years , the European market has seen US giants such as Invesco , WisdomTree and Fidelity International as well as smaller players like Global X and VanEck all launch crypto ETPs in a bid to capture growing investor demand , especially Switzerland and Germany where favourable regulation is helping to cultivate thriving ecosystems .
However , the market currently finds itself in the middle of what has been termed a ‘ crypto winter ’ with bitcoin collapsing from its high of $ 67,553 on 8 November 2021 to trade at $ 19,082 , as at 20 September , with the space losing a massive $ 2trn in value .
Macro drivers including rampant inflation and a resulting tightening monetary policy cycle across western economies has done little to help bitcoin ’ s performance which is becoming more correlated to other risk-on assets , as highlighted in Chapter 3 by ETF Stream ’ s special projects writer Stephan Roth . Highlighting this , bitcoin suffered its worst three months in nearly a decade in Q2 at the same time the Nasdaq 100 fell over 22 %.
The sell-off was a key reason behind the collapse of algorithmic stablecoin TerraUSD in May , an event that sent shockwaves through the entire crypto ecosystem . The stablecoin broke from its US dollar parity , sank to a low of two cents and incurred $ 40bn in losses over a fortnight .
Terra ’ s collapse wiped an estimated $ 83bn from DeFi protocols , the greatest loss incurred across the space , and caused significant contagion risks across other stablecoins . The meltdown even led Treasury Secretary Janet Yellen to warn that stablecoins pose significant risk to financial stability on 12 May , an issue that is explored in Chapter 1 .
Meanwhile , the biggest recent development has been the ethereum ‘ merge ’ which will see the second-largest coin move from a proof-of-work ( PoW ) to proof-of-stake ( PoS ) system , a process that is less energy intensive . Ethereum miners , however , have hit back by splitting the ethereum blockchain into two and continue to use the PoW system in what is known as a hard fork .
In Chapter 2 , 21Shares declare the ‘ merge ’ is arguably the most important event in the cryptocurrency industry ’ s short history while Flow Traders analyse what this means for ethereum ETPs going forward .
Elsewhere , ETF Stream provides a breakdown of the different sectors in the crypto space to provide investors more clarity into what the different coins do while reporter Jamie Gordon asks whether crypto will ever be considered UCITS eligible by regulators in Chapter 6 .
Overall , we hope this report provides investors with further concrete insights into the different trends taking place within cryptocurrency ETPs . From ethereum ’ s merger and what it means for ETPs to the different sectors in the digital asset space , understanding the crypto ETP market is becoming more important to investors and the wider ETF industry .
Tom Eckett
Editor ETF Stream
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