Risk-Off, Risk-On
Hong Kong Launches Six New Spot ETFs
The anticipated Hong Kong based spot ETFs were launched during the early hours of Tuesday (30.4). Originally, analysts expected the issuance scale to reach 200-300 million US dollars.
Although the early figures have been rather modest, the first Asia-based spot crypto ETFs can be estimated to gain incremental popularity. Including the seed capital, HK's spot ETFs saw $292M in assets on day one, and Bloomberg predicts the amount to reach $1b within two years.
Despite having the highest management fee of the Hong Kong launched spot bitcoin ETFs, China Asset Management's fund grabbed $124M worth of inflows, effectively 2x compared to its competition. The Harvest Global Investments has the lowest fee of 0%, rising to 0.3% after a period of six months. All three new spot ETFs use the same BOCI-Prudential as custodian.
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China Asset Management
Ticker: 3042 HK
Management Fee: 0.99%
Custodian: BOCI-Prudential
Inflows: $124M
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Harvest Global Investments
Ticker: 3439 HK
Management Fee: 0% (0.3 After 6 Months)
Custodian: BOCI-Prudential
Inflows: $63M
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Bosera International
Ticker: 3008 HK
Management Fee: 0.6%
Custodian: BOCI-Prudential
Inflows: $61M
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Parzival Song from Three Keys Lab recently commented on Hong Kong's spot ETF launch, mentioning the volume still being low compared to western markets, yet he sees the ETFs as an important pilot project and a signal to the larger market.
He also mentions that the mainland Chinese currently can't pass the KYC in order to invest in these products, meaning that the demand must come from other sources.
As China has traditionally been hostile to cryptocurrencies, why were the HK's ETFs approved? Song sees China's rationale being based on de-dollarization: China aims to draw attention away from the US dollar hegemony and bitcoin is one of the instruments to achieve a new multi-polar currency environment.
Parzival Song on X: https://x.com/0xparzival_xyz
Three Keys Lab on X: https://x.com/3keyslab
The spot ETF saga is set to continue as Australian Securities Exchange (ASX) is expected to approve the first batch of local spot bitcoin ETFs before the end of 2024.
Additionally, Morgan Stanley recently filed with U.S. Securities and Exchange Commission (SEC) to get bitcoin exposure to twelve of its funds. Morgan Stanley currently has a AUM of $1.4 trillion.
Accumulate in May and Go Away?
Trailing the famous "sell in May" effect, the digital have been in decline, correlating with the stock market. Within the past seven days, bitcoin was momentarily weakened by -8.8 percent, however an upward correction brought the leading cryptocurrency back to previous week's levels.
Nikolaos Panigirtzoglou, a leading strategist at JPMorgan, assessed the shifting digital asset market in his recent report, mentioning retail investors taking profit. According to Panigirtzoglou, quantitative funds have also exited their bitcoin positions after the long positive trend.
"The past weeks saw significant selling/profit taking in both equity and crypto markets with perhaps retail investors playing a bigger role than institutional investors. Retail investors appear to have sold both crypto and equity funds. And several proxies of the retail impulse into equities have downshifted over the past month such as those based on small traders’ option flows, on the relative performance of retail Investors' favorites vs. S&P500 index or on retail investors’ sentiment surveys such as the AAII survey.
In terms of institutional investors, it has been mostly momentum traders such as CTAs or other quantitative funds that appear to have taken profit on previous extreme long positions in equities, bitcoin and gold. For other institutional investors outside quantitative funds/CTAs we detect a more limited de-risking so far, thus leaving room for further position reduction from here."
- Nikolaos Panigirtzoglou
From a purely technical perspective, bitcoin might face a further leg down, bringing it to 50,000 US dollar level. However, the quarter two (Q2) and three (Q3) might be an epoch of elevated spot prices. Bitcoin could mimic the year 2021 and form a similar double top structure.
Source: 21metrics
The last quarter of 2023 and first quarter of 2024 were an epoch of risk-on sentiment, which might shift towards de-risking action in May. Despite its unique scarcity features, from a mainstream perspective bitcoin still is a risk-on asset. When the market sentiment is favorable for more risk taking, investors buy risk-on assets, and vice versa.
Source: CrossBorder Capital
The global liquidity environment looks promising, as mirrored by CrossBorder Capital's model above. Analysts expect the central bank Fed's first-rate cut coming in June or July, which will be mirrored to higher risk digital assets.
MicroStrategy Launches a Decentralized Identity Platform
Profiled as the de facto leading Bitcoin institution, MicroStrategy (MSTR) launched a new decentralized identity (DID) platform this week, naming it "Orange".
The platform uses the "did:btc" DID method specification, which exclusively uses the Bitcoin blockchain to store and retrieve DID information. This allows for pseudonymous DIDs that are not directly tied to real-world identities, providing privacy benefits.
According to MicroStrategy, the potential of MicroStrategy Orange and decentralized identifiers on Bitcoin could also be used to verify users on social media applications, or authenticate text messages or medical records.
MicroStrategy is encouraging developers to build applications that integrate with the MicroStrategy Orange DID platform and is offering partnership opportunities to further develop the platform.
Source: MicroStrategy
In late April, MicroStrategy also announced the increase of its balance sheet by 194 new bitcoins. These recent acquisitions expand the company's balance sheet to 214,440 units.
In the spot ETF market, BlackRock's iShares Bitcoin Trust (IBIT) now holds 274,062 bitcoins, overtaking MicroStrategy's balance sheet this spring. MicroStrategy, known as the unofficial bitcoin ETF, may need to defend its position amid the crossfire of new investment products.
MicroStrategy employs a dollar-cost averaging (DCA) strategy in its purchases, but cyclically weights its buying program. When spot prices sharply declined in 2022, the company's purchases were modest at 8109 bitcoins, while in 2023, acquisitions rose to 56,650 units. On an annual basis, the growth of MSTR's buying program from 2022 to 2023 was an impressive 599 percent.
Source: 21metrics
Previously, Preston Pysh has viewed MicroStrategy's buying program as a speculative attack against the dollar. The company's loan arrangements ultimately rely on unlimited fiat currency, which is borrowed for the purchase program of a limited supply asset class (i.e., bitcoin). Scaled up, this model implies the weakening of the dollar as bitcoin continuously strengthens.
Pysh has likened the buying program to George Soros's famous attack against the Bank of England (BoE), where he shorted the pound (GBP) by nearly a billion units. The BoE central bank was believed to be close to collapse at that time.
About High Beta Tokens Floats
In our earlier article, we analyzed Ethena (ENA), the new "synthetic dollar protocol" that has been one of the most hyped launches this spring, reaching a market capitalization of 1.19 billion US dollars. At the same time, its new stablecoin USDe has reached a $2.3 billion circulating supply.
While these new tokens have offered significant returns and entail future potential, it's good to take a deeper look under their hood. First thing to notice is that the float (supply available to the public to trade) is extremely low in many cases. For Ethena's ENA token, the current float is only 0.09, meaning that 91 percent of the supply is at the hands of the founders or locked in by VC investors.
Source: Thor Hartvigsen
As the float of the cohort above is just 0.136, many high beta tokens are about to see their supplies shift by upcoming unlocks. Ethena's major VC unlocks are scheduled for January 2025, giving a "safe corridor" for this year.
However, the VCs who bought these tokens from early private sales, have an incentive to hedge their tokens. Retail investors resort to buying these tokens from expensive secondary markets, making the playfield somewhat unfair. The information asymmetry is real, stay safe!
