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Welcome to Crypto Long & Short! This week, Ilan Solot, Senior Global Markets Strategist, Marex Solutions, looks at how the SEC's approval of ETH ETF could benefit the Ethereum ecosystem long-term. Then, Jason Leibowitz argues that digital assets like bitcoin offer unique advantages for institutions seeking growth and diversification. As always, get the latest crypto news and data from coindeskmarkets.com. – Ben Schiller, head of Consensus Magazine at CoinDesk
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What ETF Approval Could Mean for Ethereum |
The SEC recent approval of ETH ETFs might eventually prove a more important event for Ethereum than it was for Bitcoin. Bitcoin's dominance, niche, and value proposition as a store of value are well-established and unlikely to be challenged in the near term. Ethereum, however, faces far stiffer competition, sometimes struggling to distinguish itself among narratives of smart contract platforms — until recently. Now we know there are two major crypto assets likely not at risk of being called securities by U.S. regulators. This might not mean much for retail investors, especially outside the U.S., but clearing up the regulatory uncertainty will influence many institutional investors in considering chains to use, build and invest in. Ethereum will likely continue dominating developer activity in the blockchain space, at least when it comes to large projects. According to Electric Capital's Developer Report, Ethereum (and EVM chain in general) attracted vastly more developers than all other chains last year. The potential capital inflows from the ETFs, accessible institutional pathways like Coinbase's BASE L2, and now this stamp of legitimacy could further strengthen its dominance. |
From a project point of view, the Ethereum chain has a robust pipeline including EigenLayer, Ethena, and BlackRock's BUIDL. Just Ethena synthetic dollar (USDe) alone amassed in a few months the entire market cap of stablecoins on Solana, a staggering $3 billion. This doesn't mean that other chains won't host important crypto projects – they certainly will. But only Ethereum (for now) hosts protocols with the history and track record necessary for institutions to participate with meaningful capital. Think of AAVE or Uniswap, for example. Lastly, a higher ETH price could kick-start the Ethereum DeFi economy, setting off a powerful feedback loop. To take a simple example: just on AAVE, there is ~$9 billion of ETH-linked collateral (between wETH, wstETH, weETH), plus another $1 billion or so in L2s. Sure, some of this collateral is used for delta-neutral strategies like recursive lending and points farming, but most of it is likely not. A higher ETH price – and collateral value – could act like a stimulus package for its crypto economy. It creates wealth effects, more spending, more investment, more leverage. Especially if ETH-related altcoins follow higher. |
It's too early to say, but we might look back at this moment when Ethereum establishes itself as the "Amazon" of the digital asset economy. If scenario unfolds (still a big "if"), it might relegate other smart contract layer 1s to niche players (like "Etsys"), even if still supporting thriving communities. It's unclear (to me at least), whether this is the best path for the industry; perhaps a more balanced multi-chain world would ultimately maximize adoption – we may never know. But at this stage, Ethereum dominance sure looks like the most likely outcome. |
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Fringe to Forefront: the Institutional Embrace of Digital Assets |
A dramatic shift is transforming the financial landscape. Digital assets, once relegated to the periphery of technological curiosity, are now capturing substantial global investment. This burgeoning acceptance is propelled by the debut of Bitcoin ETFs in January and the anticipated arrival of Ethereum ETFs. These regulated investment vehicles provide a familiar and accessible gateway, catalyzing a significant influx of institutional capital. The appeal of digital assets to institutional investors is manifold. Primarily, they present a once-in-a-generation opportunity to participate in the birth of a new asset class. Unlike any previous financial innovation, cryptocurrencies are forging a distinct market niche, offering unparalleled growth potential. They have the added advantage of helping to diversify investment portfolios. We can see Bitcoin's usefulness as a diversification tool by looking at Bitcoin's correlation with the Nasdaq Composite. It has fluctuated, currently standing at 0.60 — up from 0.0 two months ago. Despite this recent rise, the average correlation between Bitcoin and the Nasdaq Composite for 2024 remains at a modest 0.30. This relatively low correlation underscores crypto's potential to act as a diversification tool, providing a hedge against the movements of traditional equities and enhancing the overall resilience of a well-balanced investment portfolio. |
Deciding which tokens merit inclusion, and in what proportions, is a pivotal consideration. Despite the proliferation of thousands of cryptocurrencies, only a select few warrant inclusion in institutional portfolios. Bitcoin and Ethereum, as industry stalwarts, are indispensable. Additionally, tokens such as Solana (SOL) and Chainlink (LINK) should be considered, albeit with careful, active management to mitigate potential risks. This balanced approach ensures that investments in digital assets are both judicious and resilient. Investing in an index like the CoinDesk 20 offers several benefits, particularly in terms of diversification and risk management. By design, the CoinDesk 20 Index captures the performance of the top 20 digital assets by market capitalization, inherently reducing volatility compared to single asset crypto investments. This diversification mitigates the impact of sharp fluctuations in any one asset, providing a smoother investment experience. Quarterly rebalancing ensures the index remains representative of the broader market, adapting to changes and maintaining a balanced exposure to the evolving asset class. |
Navigating the crypto landscape presents significant challenges. Direct investment and self-custody demand a high degree of expertise and are not advisable for novice investors. For most, collaborating with a reputable asset manager is the most prudent course of action. Trusted asset managers streamline the investment process, making it easy and efficient. They guide institutional investors into strategies that make sense for their portfolios and handle the complexities of liquidity, custody, and security. The crypto market has transcended its early reputation as a mere curiosity, emerging as a formidable force in the modern financial ecosystem. Visionary institutions are positioning themselves to capitalize on this burgeoning asset class. Proactive allocation of capital to digital assets now allows institutions to secure a substantial advantage as the market matures and cryptocurrencies become more integrated into the broader financial landscape. Despite the inherent challenges, digital assets offer diversification, significant growth potential, and the guidance of expert asset managers render the risks manageable and the opportunities too compelling to overlook. |
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Early-bird passes are now on sale for Consensus Hong Kong and Consensus Toronto!
Special Offer: Use code 2FOR1 to get two Consensus Hong Kong Pro passes for the price of one ($299) or two Consensus Toronto Pro passes for the price of one ($399). This is your chance to get the lowest possible price on next year's Consensus events! Hurry! This deal ends on June 13. Register now. |
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Here is some news worth knowing, from CoinDesk Consensus Magazine editor Ben Schiller: |
- Republican presidential candidate Donald Trump said on June 11 that he wants all the remaining bitcoin to be made in the U.S., reiterating that it will help the country become energy-dominant. Trump, the first U.S. presidential candidate to accept crypto donations, met with executives of Nasdaq-listed bitcoin mining firm CleanSpark Inc. and Riot Platforms. The former President reportedly told the attendees at the Mar-a-Lago event that miners help stabilize the grid's energy supply. Trump, who in 2021 said bitcoin was "a scam against the dollar," has embraced bitcoin this cycle, touting the U.S. digital assets industry and winning support among bitcoiners as a result.
- Artificial intelligence (AI) and crypto could add a combined $20 trillion to the global economy by 2030, asset manager Bitwise said in a report on Wednesday. "The intersection of AI and crypto is going to be even bigger than people imagine," senior crypto research analyst Juan Leon wrote, adding that the "two industries could add a collective $20 trillion to global gross domestic product (GDP) by 2030.
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