What happened last week

Post-ETF Consolidation Process

A bit more than a week has passed since the SEC has approved all 11 spot Bitcoin ETFs in the U.S. The trading volumes, particularly during the first few days have been very impressive, seeing an inflow of $4.6bn during the first day alone. Since then, the market was able to digest the initial hype, and while conclusions are likely too premature at this point, it can be observed that ETF holdings in terms of BTC as well as trading volumes are on the rise. More information about in- and outflows for each spot ETF can be found here. It is not necessarily surprising that after the conversion from a closed-end fund, Grayscale’s ETF has seen a substantial outflow, which is reflected in daily “rebalancing” that can be observed generally at U.S. open (around 15.30 CEST), whereby the investors in Grayscale’s ETF are either exiting their positions and/or are rebalancing to other investment products / ETF providers, that offer a substantial lower fee. For comparison, Grayscale charges a 1.5% management fee, while BlackRock’s ETF, for example, charges 0.12% for the first year (or on first $5bn), followed thereafter by a 0.25% fee. Notably, Arkham, an on-chain analytics tool monitoring Grayscale's wallets, reports a remaining BTC balance exceeding USD 31 billion.

At present, market participants are vigilantly monitoring ETF flows, especially considering their recent introduction to the market within the past week. Market activities are currently subdued, with participants adopting a cautious approach in response to the recent surge in volatility. Another notable metric, the fear and greed index, has consistently remained above 70 (indicative of greed) since the start of the year. After a downturn to neutral territory (50-52) shortly after the ETF approval, it stabilized in this neutral zone. This suggests that sentiment has shifted from euphoria to a more stabilized interest amid recent weeks' fluctuations.

Shifting focus to the altcoin landscape, ETH has observed a modest increase of 0.5% since Monday, closing at $2’470 yesterday. However, it once again fell short of surpassing the $2’600 level, concluding with a closing performance of -2.4%. This recurrence indicates a persistent stagnation. Additionally, there is a noticeable trend of capital concentration into smaller-cap altcoins, reflecting substantial growth in market dominance and liquidity allocation. Historically, the trajectory of capital flows has often transitioned from BTC to ETH and subsequently to other altcoins following notable performances in BTC and ETH. Presently, there is a prevailing inclination towards a downward movement in this dynamic.

In the realm of United States regulations, the ongoing legal proceedings involving the SEC and Coinbase introduce notable complexities. Before delving into the intricacies, a critical consideration involves a judge determining whether transactions linked to about a dozen tokens traded on the U.S. exchange qualify as securities. The impending court decision, expected in the coming weeks, will contribute to recent rulings by other judges in the same jurisdiction. This outcome could either strengthen the SEC's pursuit of crypto platforms for alleged unregistered exchange activities with unregistered securities or result in legal setbacks, reinforcing the industry's perception of regulatory overreach. Similar SEC cases against other exchanges such as Binance and Kraken may also be influenced by the court's perspective. The potential ramifications of an adverse decision against Coinbase on its role as a custodian for various spot BTC ETF providers remain uncertain.