Bitcoin ETF Flows Slide, HK ETFs make a Stride, and Crypto Ads Glide

• Hong Kong regulators approve the launch of spot Bitcoin and Ether ETFs
• Ernst & Young taps ZK-proofs on Ethereum to automate contracts
• Layer-1 Blockchain Berachain raises $100 million in funding

US Bitcoin ETF flows dip while HK ETFs stir

The total market capitalization of the cryptocurrency universe experienced a significant weekly decline of 13.5%, while bitcoin dominance edged just below 54%. Among the major cryptocurrencies, bitcoin saw a 13.2% decline, while ether dropped by 15.8% compared to the previous week.  The markets mirrored the sell-off seen in TradFi assets this week, albeit with higher volatility sticking to their beta with TradFi assets.

In the realm of US-listed spot bitcoin ETFs (excluding GBTC), inflows continued to dwindle, while GBTC itself witnessed ongoing outflows, resulting in net outflows from the ETF universe for the past four consecutive trading sessions. As of the end of April 17, GBTC experienced cumulative daily net outflows totaling $16.59 billion, whereas IBIT and FBTC have collectively accumulated a total of $23.4 billion in cumulative daily net inflows.

In regards to spot bitcoin ETF flows, Bloomberg ETF analyst James Seffart provided insights in an X-post. He explained that it is normal for most ETFs to experience zero flows on any given day, given that there are approximately 3,500 ETFs in the US. On Monday, 2,903 of these ETFs recorded zero flows. Shares in ETFs are created or destroyed in creation units, a process triggered only by a significant mismatch between supply and demand, surpassing the size of a creation unit. 

The size of creation units varies for each ETF; for spot bitcoin ETFs, they range from 5,000 to 50,000 shares. Issuers handle minor mismatches similarly to trading stocks, but for significant imbalances—exceeding a creation unit in either direction—issuers will turn to authorized participants (APs) or the underlying market. This simple explanation offers only a glimpse into the complexities inherent in the actual process.

Earlier this week, several news reports indicated that the Hong Kong Securities and Futures Commission (SFC) conditionally approved its first spot bitcoin and ether ETF. It's reported that at least three offshore Chinese asset managers, including the Hong Kong units of Harvest Fund Management, Bosera Asset Management, and China Asset Management (ChinaAMC), are gearing up to launch their spot bitcoin and ether ETFs shortly.

Bosera will collaborate with HashKey Capital for the launch of its spot crypto ETFs. Acting as sub-custodian for ChinaAMC and Harvest, OSL Digital Securities, will facilitate their operations. When the Hong Kong securities regulator issues a conditional authorization letter to an ETF application, it indicates that the application generally meets the required standards, subject to fulfilling various conditions such as fee payments, document filing, and approval from the Hong Kong Stock Exchange (HKEX) for listing. Reports suggest that the spot bitcoin and ether ETFs approved in Hong Kong will be launched as in-kind ETFs, enabling the issuance of new ETF shares using BTC and ETH. Following the SFC's approval, HKEX is expected to take approximately two weeks to finalize listing procedures and other necessary arrangements. While cryptocurrency remains banned in mainland China, Hong Kong has actively positioned itself as a global digital asset hub. This strategic move aligns with efforts to enhance the city's appeal as a leading financial center.

EY's contract crusade and Berachain's raise

Big Four accounting firm Ernst & Young has unveiled its latest innovation, the EY OpsChain Contract Manager solution. This Ethereum-based platform utilizes zero-knowledge proofs and is designed to assist private business clients in managing intricate contracts more effectively. EY OpsChain Contract Manager streamlines the execution of complex business agreements, prioritizing confidentiality, time efficiency, and cost reduction. 

By automating adherence to agreed terms, the solution caters to various contract types, including purchase agreements, standardized rate cards, volume discounts, rebates, and strike prices. EY's decision to leverage Ethereum, a public blockchain, instead of a private network, stems from the desire to ensure fairness and prevent any party from gaining an unfair advantage. Additionally, this approach mitigates the risk of sensitive business information leakage. The development of EY OpsChain Contract Manager was prompted by the firm's recognition, derived from previous client engagements, that contract term accuracy could be enhanced while significantly reducing cycle times and administrative costs, by up to 90% and 40%, respectively. This initiative builds upon EY's ongoing exploration of zero-knowledge proofs, which began in April 2019 with the aim of developing a blockchain-based platform for audit, tax, and transaction monitoring. Ethereum has consistently been EY's preferred blockchain platform for such endeavors.

Berachain, a Cosmos-based Layer 1 blockchain, recently secured $100 million in Series B funding led by Brevan Howard Digital and Framework Ventures. Berachain's journey started with a fun NFT project called Bit Bears, which evolved into a serious venture with a loyal community. This funding, facilitated through a SAFT agreement, follows Monad Labs' $225 million raise for its own Layer-1 chain. Berachain plans to utilize the funds to drive economic growth, bolster engineering, and expand globally, focusing on key regions like Hong Kong, Singapore, Southeast Asia, Latin America, and Africa. Berachain is an EVM-compatible blockchain built on Cosmos SDK, employing the proof-of-liquidity consensus mechanism to verify the liquidity available for certain assets on-chain. The platform features its governance token, BGT, a gas token, BERA, and its native collateralized stablecoin, HONEY. Users can acquire BGT by performing specific tasks within the Layer 1 ecosystem, such as providing liquidity on Berachain's decentralized exchange, BEX. Subsequently, BGT can be exchanged for the USD-pegged HONEY, with BERA used to pay transaction fees.

Blockworks reported that both Coinbase and Grayscale, are gearing up to launch new television advertisements during NBA and NHL playoff games. These commercials coincide with the highly anticipated Bitcoin halving event, expected to take place on April 19 or 20. During the halving, per-block mining rewards are set to decrease from 6.25 BTC to 3.125 BTC. The Coinbase commercial unveiled recently, features a spotlighted motorbike in a warehouse setting, seemingly used for pizza deliveries. The ad creatively illustrates the purchasing power of one bitcoin over the years. It starts with one pizza box representing the value of a bitcoin in 2012 and progressively adds more boxes to depict the increasing worth of one bitcoin over time, culminating in a flood of boxes knocking over the bike to signify the value of bitcoin in 2024. Grayscale Investments also joins the advertising blitz with their own commercial, emphasizing their status as the world's largest crypto asset manager. The ad concludes with the tagline: "Crypto investing begins here." These forthcoming crypto commercials during popular sporting events signal a shift from the industry's earlier decision to abstain from advertising during the Super Bowl in February.

This past week was notable for its rarity in recent months, as the crypto markets demonstrated both high correlation and high beta to TradFi markets. Not only did crypto markets sell-off in sync with TradFi, but they also experienced bigger moves. With short-term crypto cues lacking, macroeconomic factors are expected to continue driving prices. However, looking beyond immediate price fluctuations, the crypto ecosystem is witnessing positive developments across regulatory advancements, infrastructure adoption, bigger-ticket private investments, and indications of increased spending. Furthermore, there's a growing perspective that the bulk of traditional finance has yet to engage with US bitcoin spot ETFs, particularly more steadfast investors. If Hong Kong were to introduce both bitcoin and ether spot ETFs, it would not only mark a pioneering move in offering ether spot ETF products but also potentially serve as a gateway to one of the world's largest consumer markets. This potential development underscores the ongoing evolution and expanding opportunities within the crypto space, leading to the anticipation that there is still much to unfold in this cycle.

Macro pulse 

Among the TradFi assets, US equities experienced a 2.7% decline compared to the previous week, primarily driven by a selloff in technology stocks. Traders are now adjusting their expectations, foreseeing only one to two Federal Reserve rate cuts for the year—a significant departure from the approximately six cuts anticipated at the outset of 2024, and the three cuts projected by Fed officials just a month ago. Meanwhile, Oil futures plummeted by 4% compared to the previous week, as market sentiment remains cautious, with Israel contemplating a potential strike on Iran on Monday but ultimately opting to delay action. Elsewhere, the US Dollar index rose by 0.7% and 10-year US Treasury yields rose by 4 bps while Gold & Silver index dropped 1.5% week on week.

*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on April 18, 2024 

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