Crypto ETF inflows, investor survey, UK’s crypto-friendly PM

Crypto ETFs see inflows despite market downturn

Despite the downturn in the cryptocurrency market over the past few months, crypto exchange-traded products (ETPs) have continued to see positive flows year-to-date. 

According to data from Trackinsight cited by the Financial Times , ETPs that invest in crypto directly or via futures contracts have taken in $379m so far this year, even as the market capitalization of the digital asset space has plummeted from $3.2trn to below $1trn between May and September.

Popular offerings include ETPs providing exposure to specific crypto ecosystems. For example, the VanEck Vectors Avalanche ETN (VAVA), launched in December, has seen inflows of $26m despite losing 82% of its market cap year-to-date.

Other popular offerings are the Purpose Ether ETF (ETHH), which has attracted $176m this year despite seeing its market cap drop to just $42.5m; and the CoinShares FTX Physical Staked Solana ETP (SLNC), raking in $107m since launch in March, while its market cap is down to $34.3m. 

Product providers are also putting their faith in digital assets, with 39 new crypto ETPs launched in the first seven months of 2022, according to TrackInsight. This is comparable to 2021, which saw 68 launches for the entire year, despite the poor performance of the asset class so far in 2022.

Among big names making a foray into crypto investment products is the world’s largest asset manager, BlackRock , which is set to launch a spot Bitcoin private trust in the US. 

Another US fund giant, Fidelity Investments , recently added a Bitcoin option to its retirement offering. The firm is also reportedly planning to hire 100 new employees for its growing digital assets division, taking the total staff count to around 500 by the end of Q1 2023.

In the UK, asset management stalwarts Aberdeen and Schroders are dipping their toes into crypto via investments in businesses active in the digital asset space.

The Yield App View:

The continued interest of investors and institutions alike in digital assets shows the true extent of the momentum behind the cryptocurrency market. When the world’s largest asset manager decides to launch a crypto investment product, we know it’s only a matter of time before this asset class becomes truly mainstream.

The reality is that digital assets are here to stay and we are currently at the very beginning of a long and prosperous journey for this asset class. As such, the correction we are witnessing in the market at the moment is the perfect time to begin allocating to the space or preparing new investment products in time for when the market recovers. This is exactly what we are doing here at Yield App, so it is no surprise that this is happening across the board.

It is also encouraging to see that investors are seeing today’s market backdrop as an opportunity to increase allocation to digital assets within their portfolios. While everyone knows the old adage - be greedy when others are fearful - in practice, this doesn’t always happen. This mature response to the crypto market downturn is unequivocal proof that the asset class is finally coming of age.

Regulatory crackdown on crypto makes it more attractive

Investors are more attracted to cryptocurrencies as a result of the regulatory crackdown on the asset class by the Securities and Exchange Commission (SEC) and other regional financial watchdogs, according to a recent poll.

The latest MLIV Pulse survey from Bloomberg has revealed that around 60% of the 564 respondents view the increased attention of regulators towards cryptocurrencies as a positive development for the asset class.

Some 56% of professional investors and 65% of retail buyers said they are “more likely” to invest in the asset class with greater regulatory enforcement coming in. 

The SEC has been busy investigating a number of crypto businesses in recent months, including bankrupt crypto lender Celsius, Three Arrows Capital, and Yuga Labs – the creators of the Bored Ape NFT collection.

The Yield App View:

It is not surprising that an increase in regulatory oversight is attracting investors to the cryptocurrency asset class. At Yield App, we also believe that regulatory compliance is the right way forward for the digital assets ecosystem. 

For many investors, cryptocurrency still resembles the “Wild West”. In addition, institutions simply cannot invest in an asset class that remains unregulated due to their internal requirements. Regulatory oversight will solve these problems, fostering trust, stability and proper risk management frameworks.

We truly believe that this will be the next step in the evolution of digital assets. Internally, we have been strongly focused on compliance and risk management, and have contributed towards the development of a regulatory framework for decentralized finance (DeFi) through our work with GBBC Digital Finance (GDF), an industry body promoting the development of best practices and conduct standards in the space.

New UK PM Sunak is good news for crypto

This week, the United Kingdom welcomed its new Prime Minister – former financial minister Rishi Sunak – as Liz Truss stepped down from her role as leader after a short stint. The crypto industry has welcomed this appointment as good news for the adoption of digital assets in the country.

In his previous role as finance minister (under PM Boris Johnson), Sunak openly spoke of his plans to turn the UK into a global crypto hub, while he has also been dubbed a “champion of fintech”.

On the regulatory side, Sunak has been supportive of the Financial Services and Markets Bill – a regulation that could give policymakers greater oversight of the digital asset industry, including stablecoin issuance. 

He is also a proponent of the concept of central bank digital currencies (CBDCs), having commissioned the Royal Mint to issue an NFT this year “as an emblem of the forward-looking approach the UK is determined to take”.

The Yield App View:

Just like regulatory oversight, political support can help propel cryptocurrencies into the mainstream. From our point of view, it would be great to see more politicians embracing this new paradigm.

There is a huge need for education to help investors understand the risks associated with this asset class in order to decide how it can fit into their own portfolios. A Prime Minister who understands the importance of this can drive a campaign that will ultimately help protect savers’ capital.

A figure in parliament that is supportive of the crypto ecosystem can also help to foster a strong relationship between the industry and the financial regulator. In Rishi Sunak’s case, his previous role as finance minister places him in a strong position to support this development.

DISCLAIMER:

The content of this newsletter does not constitute financial advice and is for informational purposes only. The price of digital assets can go down as well as up and you may lose all of your capital. Investors should consult a professional advisor before making any investment decisions.