In this week’s edition of The Context, we look at two major crypto narratives: First, will Bitcoin exchange-traded funds really be the boon crypto watchers anticipate? Then, we get into a recent spate of centralized exchanges jumping into product development.
[Gauging the ETF Effect 🔎]
Anticipation is building around what a Bitcoin ETF, now seemingly inevitable, will mean for crypto. Many believe the introduction of spot exchange-traded funds will boost the price and market cap of BTC and other cryptocurrencies by making it easier for American retail investors to get exposure to digital assets. 📈
What Journalists Said 🧑💻:
A new JPMorgan report says the impact of an ETF is overhyped. In a reiteration of previous arguments, the investment bank’s analysts contend that much of the capital flowing into the ETF won’t be new but redirected from the Grayscale Bitcoin Trust (GBTC) and Bitcoin futures ETFs, reported Yogita Khatri (The Block). The report adds that crypto spot ETFs in Canada and Europe haven’t interested retail investors.
Coinbase has its own analysis, which makes the case that it’s not just about access but also about timing, wrote Will Canny (CoinDesk) in a piece summarizing the report. 🕗 There’s a need for an asset like Bitcoin as the world’s political and economic systems appear to becrumbling.
Either way, the current Bitcoin spot ETF isn’t nothing, relayed Suzanne McGee (Reuters). According to CoinGecko data, investors have over $4 billion allocated in such funds. Estimates for a U.S. version are “starting at $1 billion or more in first-day demand.” 🇺🇸
BlackRock, in particular, is bullish, following up its June Bitcoin ETF application with a recent one for an Ether spot ETF. But be careful. Not long after, a fake filing for a BlackRock XRP ETF made the rounds on social media, leading XRP’s exchange price to quickly swell. Crystal Kim (Axios) warned: “When markets are primed for good news, it pays to be a bit more discerning.”
Why It Matters ⁉️:
No one can say with certainty that Spot ETFs will bring in ‘new money’ or be the catalyst for a crypto boom. However, it will certainly be a boost in convincing skeptics that this asset class is maturing and growing. Can we trust JP Morgan as an actor in the space when they have acted contrary to their statements in the past? Finally, we’re not giving investment advice, but a standard mantra is “buy the rumor, sell the news.” The question everyone is asking is: How big and how relevant is the rumor?
[Binance et al 👪]
Centralized exchanges: They’re not just for trading. Last week Binance launched a self-custody wallet. Then this week, OKX announced it’s building an Ethereum layer-2 called X1—and Kraken is reportedly considering its own L2. Centralized exchanges are building to attract new revenue streams. 🏗️
What Journalists Said🧑💻:
The Binance Web3 Wallet is a sort of bridge to DeFi, wrote Stephen Graves (Decrypt). 🌉 “Built into the company’s mobile app,” it comes complete with handpicked decentralized apps and Binance-approved staking and lending options. Bonus: It does away with seed phrases. 🌱
Coinbase has had its own self-custody wallet for some time. More recently, it launched its own layer 2 network. Unlike Base’s optimistic rollup solution, though, OKX is using Polygon’s zero-knowledge rollups. The latter “can offer settlements on both the L1 and its own network almost instantly,” explained Bessie Liu (Blockworks).
It’s a win for Polygon and OKX. “With the X1 rollout, OKX engineers will become a core contributor to Polygon’s CDK, meaning that they will work on the project's codebase as it evolves,” wrote Margaux Nijkerk (CoinDesk). Kraken has reportedly considered going with Polygon as well, but Polygon Labs CEO Mark Boiron doesn’t think this “major deal with a big exchange competitor” will torpedo that deal.
Why It Matters ⁉️:
Crypto winters of the past have been prime times for building and creating more robust fundamentals. When token prices are down, everyone—including centralized exchanges—must focus on keeping people engaged with new and better products that challenge the existing industry standards. While the latest bear cycle might be waning, keep an eye out for more innovation in the coming months.
[Tweet Of The Week]
Credit: @BitcoinMagazine
[DeFi Definitions]
A segment exploring one particular aspect of DeFi.
This week: “Liquidity” by Sara Peoples.
The concept of liquidity in DeFi refers to how quickly and easily one can sell or purchase a particular cryptocurrency without it having a significant impact on the price of that asset. It’s typically used as a gauge to assess the market’s efficiency and the availability of participants willing to engage in transactions.
A liquid market allows investors to realise gains when a price rises. Equally, a liquid market enables investors to minimise their losses, as it enables them to sell quickly and efficiently when a token price is in decline. The concept applies not just to transactions where an investor wishes to convert crypto tokens into fiat, but also when people wish to exchange one token with another. A liquid market is generally desirable as it is conducive to efficient transactions and indicative of stable and efficient market conditions.
Liquidity is a crucial concept in economics. When there is a lack of liquidity, even relatively small transactions can easily move the market and impact prices. This creates a risk of market manipulation by people seeking to profit from sudden changes in the price of a given token. Crypto markets have generally suffered from liquidity issues during this most recent bear market.
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Andrew Wickerson, Tiffany Mac Sherry, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.