BLK Launches Ether ETF in Brazil, and Ongoing Winds of Change in the East

• BlackRock launches ether ETF in Brazil
• Bitcoin L2 network Stacks begin Nakamoto Upgrade
• HKMA launches Project Ensemble Sandbox for Asset Tokenization

Crypto rally pauses, BLK launches ETH ETF in Brazil, Nakamoto upgrade begins

This week, the cryptocurrency market experienced a decline, with the total market cap dropping by 3.7%. Bitcoin's dominance remained steady at around 56%. Among the major cryptocurrencies, bitcoin fell by 3.5%, while ether declined by 3.9% compared to the previous week. In the US listed spot-only ETF space, bitcoin ETFs attracted over $287 million in net inflows over the past week. Ether ETFs saw cumulative net outflows of $17.2 million during the same period.

BlackRock is continuing to expand its crypto offerings internationally. On August 28, the company launched its ether ETF on Brazil's B3 stock exchange through a depositary receipt. Both retail and institutional investors can now trade the iShares Ethereum Trust (ETHA) under the ticker ETHA39 in Brazil. The management fees for this ETF are set at 0.25% per year, aligning with those charged in the US, however, for the first year of trading—or until the ETF's assets under management reach $2.5 billion—these fees will be reduced to 0.12%.

Shifting focus from markets to the blockchain, Stacks—a layer-2 blockchain designed to enhance the Bitcoin network—has initiated its Nakamoto upgrade, aimed at further accelerating transactions. Named after Bitcoin's enigmatic creator, Satoshi Nakamoto, this upgrade will separate Stacks' block production schedule from that of Bitcoin. Network operators have a two-week window to implement the Nakamoto upgrade, culminating in a hard fork to finalize the process.

The upgrade introduces a new method for producing Stacks blocks via a proof-of-transfer consensus algorithm. In this system, users burn bitcoin (BTC) to mine Stacks blocks and earn rewards. This process, which began in April, involves block "signers" who validate "tenures" of transactions—periods during which miners are responsible for producing multiple blocks that are ultimately settled on the Bitcoin network.

Stacks' broader goal is to bring additional utility, such as smart contracts and decentralized finance (DeFi) functions, to Bitcoin's base layer. To support this, Stacks is also launching sBTC, a bridging asset that enables users to integrate their BTC into the Stacks economy.

Ongoing winds of change in the east, inflows slow but consistent

Hong Kong has introduced a sandbox for Project Ensemble, a wholesale central bank digital currency (CBDC) initiative, as the region advances towards integrating tokenization within the traditional financial sector. Wholesale CBDCs are designed primarily for financial institutions, facilitating interbank settlements and large-value payments, unlike retail CBDCs, which are intended for everyday consumer transactions. The Hong Kong Monetary Authority (HKMA), the region's de facto central bank, announced the sandbox launch on Wednesday. It will initially concentrate on four key areas: fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain finance.

The sandbox aims to support interbank settlements using experimental tokenized money, with major participants including the Bank of China, HSBC, Hang Seng Bank, Standard Chartered Bank, Ant Digital, HashKey, and Microsoft. Additionally, asset managers such as BlackRock, CSOP Asset Management, Franklin Templeton, and China Asset Management plan to take part in Project Ensemble. This sandbox launch follows the establishment of Project Ensemble in March, as part of the second phase of the HKMA’s e-HKD pilot, which explores the programmability, tokenization, and atomic settlement associated with the CBDC. The HKMA has been researching CBDCs since 2017, with a heightened focus on the potential of an e-HKD at both wholesale and retail levels since 2021.

With cryptocurrency prices on the rebound and the market recovering from the previous cycle's overhangs, crypto firms and venture capitalists have been actively raising capital throughout the year. Digital asset management firm ParaFi Capital has successfully secured $120 million from investors, including Theta Capital Management and Accolade Partners, reflecting the strong momentum in crypto funds. According to a Bloomberg report, ParaFi plans to use part of the funds to acquire general-partner (GP) stakes in other crypto funds, aiming to build a portfolio of up to 50 such stakes over the next three to five years. This capital raise follows Lemniscap, a crypto-focused venture capital firm, which recently raised $70 million to invest in a variety of blockchain-based businesses. Their investment focus includes zero-knowledge infrastructure, consumer applications, emerging Bitcoin ecosystems, security, and decentralized physical infrastructure (DePIN). Arch Lending has raised $75 million in equity and debt financing to expand its crypto-backed loan platform. The funding includes a $5 million oversubscribed equity seed round led by Morgan Creek Digital and Castle Island Ventures, with support from Galaxy Ventures, BitGo Ventures, and Perpetual Value Partners. Additionally, the firm has secured a $70 million debt facility with Galaxy Ventures to fund its crypto-backed loans.

Macro pulse 

Among the TradFi risk assets, Oil futures rose by 3.6%, while US equities declined by 0.5% compared to the previous week. The drop in US stocks was primarily driven by weakness in the Nasdaq and semiconductor names, with investors cautious ahead of Nvidia's earnings report. Despite surpassing expectations and more than doubling its sales, Nvidia's shares dropped in the after-hours trading session. The company reported record revenues of $30 billion over the past quarter, but market concerns about a slowdown in growth seem to have weighed on the stock. Meanwhile, the US Dollar index dipped by 10 basis points, 10-year US Treasury yields edged up by 4 basis points, and the Gold & Silver index decreased by 3.7% week-over-week.

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*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on August 29, 2024 

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