WEEKLY, Sept 30, 2023
ETH futures ETF confusion, why I'm not talking about SBF, Iranian drumming and more...
Hi everyone, and happy Last Day of Q3! You’re reading the free weekly edition of Crypto is Macro Now, where I update and/or re-share a couple of things I wrote in more detail about during the week. If you’re a premium subscriber, you’ve probably already read them, so feel free to scroll all the way down for some cool non-crypto links.
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Some of the topics discussed this week:
Things are getting jittery
BTC price resilience explained
ETH interest is picking up
Dogecoin
Some crypto liquidity surprises
The EU urges other jurisdictions to get a move on
SEC overreach
“Soft landings” in 2007
The climbing interest burden on small-caps
Ethereum ETFs
Ether futures ETFs are a go! On Monday, a total of nine funds based on ether futures could start trading.
It’s unlikely that we’ll get all nine, and even if we do, it’s even less likely that all will still exist a couple of months from now. Margins are thin on ETFs, and I don’t see there being that much demand just yet. After all, there are only four US-listed ETFs offering long exposure to BTC via futures, and only one of them – ProShares’ BITO – has any meaningful size (and even then, only $1.1 billion). There’s no reason to think that ETH futures products will generate much more demand.
The outlook
Why not? It’s true that the potential upside of ETH is significant, especially given its recent underperformance relative to BTC. Year-to-date, ETH is up 40% while BTC is up over 60%.
(chart via TradingView)
And pending upgrades will boost the scalability and throughput of Ethereum, potentially also lifting demand and therefore also the price for ETH.
Plus, ETH’s supply is recursive – the higher the number of transactions on Ethereum, the more ETH paid in fees and the greater the number of ETH burnt (that is, permanently removed from circulation). The more ETH burnt, the more new ETH issuance is offset, potentially turning net new supply negative (as it was for most of this year). So, if ETH’s price starts going up, we can assume there would be more transactions on Ethereum from those buying actual ETH – this brings the supply down, further supporting the ETH price, attracting more transactions, bringing the supply down further. And so on.
But the main headwinds are still blowing. The macro situation is getting even dicier (I wrote about this on Thursday), and I expect stock market jitters to also impact crypto assets in the very short term.
Bond markets around the world are flashing signs of distress, as yields last week reached multi-year records in the US, UK, Germany and Japan to name just a few markets. The impact of the US government shut-down that, barring a last-minute save, starts tomorrow is unknown but it’s not going to be good. The resilience of the US consumer is now in doubt as the Q2 real consumer spending growth was revised down by more than half, from 1.7% quarter-on-quarter to 0.8%. And student loan repayments restart in October.
Short-term, I believe the market is heading even more into risk-off territory.
There’s also the regulatory uncertainty around ETH, which is likely to keep many macro investors on the sidelines. It’s not that they necessarily think ETH is a security and therefore subject to registration and reporting requirements – it’s that investors are not going to want exposure to a sharp price drop should the SEC go on the offensive. This is especially relevant given the decline in market liquidity since late last year.
(chart via Kaiko Research)
And it’s not even just about the uncertainty around ETH. The lid on DeFi activity given the regulatory chill is dampening Ethereum activity, since Ethereum is still by far the principal DeFi network.
(chart via DeFiLlama)
The players
So, who will win the battle for ether futures ETF dominance?
It’s going to be a competitive field, and like I said above, I don’t think all will stick around. Brand has a lot to do with flow – on that front, ProShares has an edge, since they manage the leading bitcoin futures ETF.
VanEck has taken an original and encouraging approach. Late last night, it announced that it would donate 10% of their profits from its ether futures fund to Protocol Guild, an organization of Ethereum core developers. A cool move that gives back to the community – this should win VanEck some points from crypto enthusiasts.
Valkyrie took a more aggressive approach. It started buying ETH futures on Thursday, with a view to commencing trading on Friday. This was swiftly walked back, however (perhaps after a call from the SEC?), and on Friday it said it would sell the derivatives already purchased and would wait until next week to start trading.
Truthfully, the calendar of all this is quite confusing, and I have no idea what kind of communication has been going on between the SEC and the ETF issuers, so things could change between now and Monday.
But, it’s now looking almost certain that as of next week, US-based investors will have convenient access to ETH. I don’t think it will produce a sharp spike in the ETH price just yet, but it’s not nothing. It drives home that the crypto market is not just about bitcoin. It’s also a further sign that crypto assets are increasingly part of the macro landscape. I’m here for that. And I hope that whatever launches we see next week go really well.
Why I won’t be talking about the SBF trial
While it is a gripping story that will no doubt generate an insane amount of pixels and dishevelled images, I will not be talking about FTX or Sam or any of his circle. To a large extent, it’s because I don’t find it interesting. It’s actually more “ick”, and I can’t wait for him to be behind bars and for this shameful episode in crypto history to be over.
It’s also because the trial and what FTX did are not relevant to the focus of this newsletter, which is the overlap between the crypto and macro landscapes. What Sam did was criminal, and the sooner he gets his hefty sentencing and disappears from public view, the sooner we can get on with things.
I will allow a caveat: I was on a Twitter Spaces panel recently in which some of the participants were adamant that SBF would get off scot-free because he was connected and “that’s how the system works!!!!” (there were a lot of exclamation points being thrown around). Should that happen, of course I would write about it because it would represent as well as portend a complete breakdown in trust in institutions, in what is held up to be one of the world’s more equitable judicial systems (everything being relative in life). But I do not see that outcome as even remotely possible. The evidence is overwhelming, and surely any politician embarrassed by their connection to Sam would not be so brazen as to try to override that.
So, hopefully I will never have to mention SBF again, and I am SO looking forward to a time when we don’t have to see his pasty face illustrating so many news articles.
HAVE A GREAT WEEKEND!
By now, you probably know that I love to share exotic music videos. Here’s Maede Shafiie from Iran with some mind-blowing yet unexpectedly relaxing drumming for you: