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The CoinDesk Market Index (CMI) functions as a benchmark for the performance of the digital asset market, delivering institutional quality information to digital asset investors. Subsets of the CoinDesk Market Index (CMI) are investible CoinDesk Crypto Sectors and the CoinDesk 20 Index, designed to measure the performance of the top digital assets. Today’s takeaways are provided by Pallavi Chintam and Max Good of CoinDesk Indices with additional analysis from Gorast Tasevski, product analyst of Purpose Investments. For more on CoinDesk Indices, visit: coindeskmarkets.com.
This episode was hosted by Jennifer Sanasie. “Markets Daily” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl, alongside Senior Booking Producer Melissa Montañez. All original music by Doc Blust and Colin Mealey.
Audio Transcript: This transcript has not been edited and may contain errors.
Wondercraft AI voice here to give you three crypto markets takeaways from last week. And stick around, at the end we'll have additional analysis from Gorast Tasevski, product analyst at Purpose Investments. First, Pallavi Chintam and Max Good of CoinDesk Indices provide markets highlights as of Friday, January 19th.
Solana continues to dominate the narrative outside of the bitcoin ETF news as it leads the recently launched CoinDesk 20 Index month-on-month. Solana is up 26% over that time period. Meanwhile, AVAX has been the month-on-month CoinDesk 20 loser, down 18%.
The past week has been heavily negative with 19 of the 20 CoinDesk 20 names in the red week-on-week, except for ChainLink, up two point six percent. Meanwhile, 168 of 188 CoinDesk Market Index names are in red week-on-week.
Ethereum-associated names are filling the bottom spots in CMI week-on-week, including: EthereumPoW, down 23%, Ethereum Classic, down 23%, Ethereum Name Service, down 22%, Optimism, down 21%, and lastly, Arbitrum, down 20% week-on-week.
Gorast Tasevski, product analyst at Purpose Investments, writes:
The recent launch of spot bitcoin ETFs in the U.S. has proven to be an important milestone in the growth of the crypto ecosystem globally. Investors have embraced this more convenient investment avenue, with the new spot bitcoin ETFs attracting inflows upwards of $2 billion. But what exactly is a bitcoin ETF, what advantages does it offer and why has the price of bitcoin dropped since the launch of the spot bitcoin ETFs?
At a high level, a spot bitcoin ETF is simply a fund that is meant to track the spot price of bitcoin. A fund does this by buying actual bitcoin and owning and maintaining a stockpile of it. When an investor purchases a unit in a spot bitcoin ETF, these units represent a fraction of this bitcoin stockpile. This type of product is appealing for the average investor for many reasons, including:
Convenience: Bitcoin ETFs operate and trade like traditional ETFs or stocks, eliminating the need to navigate crypto exchanges or wallets for bitcoin investments.
Tax efficiency: Similar to other ETFs, spot bitcoin ETFs can easily be incorporated into tax-advantaged accounts such as TFSA/RRSP in Canada and IRAs in the U.S.
Safety: While the appeal of holding crypto independently or with a “trusted” third party exists, the lack of strict regulatory oversight in crypto on and off-ramps poses risks. Bitcoin ETFs adhere to the most rigorous regulatory standards, ensuring the highest levels of safety and trustworthiness working with the most trusted global crypto custodians.
Institutional grade pricing: Spot bitcoin ETFs engage in substantial daily transactions with crypto partners, allowing investors to leverage economies of scale for significantly more favorable rates.
Just five business days post-launch, U.S. spot bitcoin ETFs have witnessed strong inflows and trading volumes. However, despite this, as shown in the CoinDesk 20 Index, bitcoin prices have declined by 9.9% since U.S. spot bitcoin ETFs launched.
As strong believers in the long-term value proposition, we don’t think this drop in price signifies that these launches were a failure. Rather, it appears that the ETF launch was priced into markets. Some bitcoin holders decided to take advantage of the market exuberance surrounding the approval of these ETFs by the SEC, and take profits.
An interesting sidenote is the relative outperformance of Ethereum on the CoinDesk 20 Index compared to bitcoin during the same time period. A possible reason being the market trying to price in the possibility of a US spot Ethereum ETF in the future. Additionally, the world's largest bitcoin fund, the Grayscale Bitcoin Trust, continues to experience substantial outflows due to selling pressure caused by long-term holders who have been looking to liquidate their holdings post-ETF conversion. These two factors have put short-term downward pressure on bitcoin. However, looking five or ten years down the line, this pullback is unlikely to be particularly consequential. There are a lot of parallels investors can draw between the launch of gold ETFs in the 2000s and the launch of U.S. spot bitcoin ETFs. The reality is that now a much broader and more significant part of the population has direct access to Bitcoin. The positive ramifications of that on the price action of the asset class will probably only truly start getting realized over the coming years as capital gradually flows into these ETFs.
