“Why Bitcoin Spot ETFs failed to invigorate markets, UK AI firm closes Series B, Terraform Labs files for Chapter 11.”
TradFi & Global Market News
Global Market: S&P 500 & NASDAQ
Tech stocks rally continue pushing up the prices of US stocks in 2024. The S&P 500 has broken its highest valuation with a closing price of 4839.81, while the NASDAQ is at its highest in the last year with a price of 15310.97. Both stocks have experienced a strong surge in valuation in the past three months due to a combination of macroeconomic factors like expected interest rate cuts in mid-2024 and investor hype with technology stocks and retail in December. Ronald Temple, the chief market strategist of Lazard, warns that the growth of tech stocks like NVIDIA and Meta is insufficient to drive market trends in the long run. Hence, cautious investors need to be mindful that although gradual upward trends are still expected, there has been reduced momentum since the turn of the year.
Global Market: FTSE100
The US rally has strong spillover effects into the UK as January 22 opens with a sharp spike to over 7500 before petering out to about 7475. Nevertheless, markets are still experiencing an overall decline of 2.89% from a month ago. The slight increase fails to paint over the poor corporate climate plaguing the UK’s financial health for the past year. Research by restructuring firm Begbies Traynor finds a 15% increase in the number of firms in “significant distress” to 54000. More crucially, 47000 of these firms are on the edge of collapse. These signals reflect the underlying inflationary pressures and poor consumer confidence in the region.
Technology News: ElevenLabs
Despite poor public market performance, the UK’s pivot towards an innovation economy seems to continue prospering in the face of macroeconomic headwinds. ElevenLabs recently closed a $80million Series B round led by acclaimed backers in Andreessen Horowitz, bringing the net worth of its founder, Mati Staniszeweski, to over $1billion. London has been quietly building its ecosystem to support a new wave of AI capabilities that have come to market in recent years. While layoffs continue to plague the industry, Google has plans to invest $1billion into an AI-specific data centre in anticipation of a huge wave of startups. Globally, US firms like OpenAI and C3.AI have already planted their first European offices in London, which will hopefully generate momentum from digital industries in the city. Innovation-led growth engines have a solid foundation in London. However, a poor macroeconomic situation could halt the ecosystem development at the financing stage. Additionally, there are calls to investigate how the political leadership will balance these high-growth engines with the needs of existing industries struggling to stay afloat. With a strong demand for high-skilled workers for the AI industry, it remains to be seen if London can attract the right talent during this economic downtrend.
DeFi & Digital Assets News
Cryptocurrency Market: Bitcoin & Ethereum
Intuitively, the approval for the Bitcoin Spot ETF was expected to drive the valuations of cryptocurrencies to the moon. However, Bitcoin’s prices trended downwards by 17% to around 40600 from as high as 49000. Ethereum also experienced a similar crash to a roughly 2400 valuation within the same period. Earlier this month, the wallet of the mysterious founder Satoshi Nakamoto, mysteriously became active again after 10 years, receiving 26 bitcoins worth $1million. JPMorgan’s CEO has proclaimed that this might lead to the erasure of Bitcoin, which spooked the entire market into a mini crash.
ETF News: Bitcoin
On January 10, the Bitcoin Spot ETFs finally received approval from the SEC, and about 11 different Bitcoin futures products entered the market, the most prominent being BlackRock’s iShared Bitcoin Trust. In the months prior, cryptocurrency investors rallied prices in anticipation of the ETF finally overcoming SEC approval. Yet once the watershed moment occurred, prices stagnated and even fell slightly.
Grayscale Outflows
The ETF products have received $3billion in inflows, with the biggest winner being BlackRock, with more than $1billion and then Fidelity’s Fidelity Wise Origin Bitcoin, with over $600million in inflows. One product that has traded slightly differently is the Grayscale Bitcoin Trust. Initially, the Grayscale Bitcoin Trust operated as an open-ended fund where Bitcoin could be stored in exchange for Over-The-Counter traded shares. While this gave some market value to Bitcoin as a legitimate investment product, traders could not return their Bitcoin until this recent approval. A quick look at the numbers suggests that over $1.4billion worth of GBTC was cashed out, and it was expected that GBTC would have a higher management fee of 1.5%, much higher than competitors’ rates; thus, it was expected that most of the money cashed out would be reinvested into the newer products. Yet analysts who have seen that the total outflows from Grayscale exceed the total inflows from the other products suggest many investors have chosen to cash out from the Bitcoin ETF market entirely. The reason for this is that the Grayscale trust no longer traded at a premium and instead was traded at a discounted price of around 48% of its net asset value, thus incentivising investors to cash out their money entirely.
What’s Next
The ETFs value will eventually flow with the US macroeconomic situation in the next few months. This event of outflows is viewed as a market correction that will eventually stabilise. A key event that investors are even more eager about will be the Ethereum Spot ETF approval, which is expected to happen sometime in May. Confidence in its approval is at an all-time high since the first barrier between crypto and fiat markets has already been broken. Ethereum may be a product that traditional investors may be more interested in as their Dencun update is set to make technological improvements to the product as a financial tool. Technical analysts suggest that Ethereum’s correction phase could be ending, and a rally of 22% could be expected. On the products end, the next battle that cryptocurrencies are looking to fight will be the diversification into options rather than just futures. To date, the NASDAQ and Cboe have begun drafting proposals for options to the SEC. This provides greater risk mitigation to Bitcoin products, attracting hedge fund players to add extra volume into the market.
Fraud News: Terraform Labs
The legitimacy of cryptocurrencies comes in two forms. Above, we have seen more positive trends to legitimise and bring the product to market. Conversely, an equally important direction to follow is the crackdown on fraud in the space. As of 22 January, Terraform Labs has filed for Chapter 11 bankruptcy protection to help recover losses by employees and vendors and eventually resume operations as a Web3.0 business. Pivot is back to its product roots. The company has recently launched the Station v3 extension, a cryptocurrency wallet, to facilitate cross-chain activity. Cleaning out the ecosystem cannot just come in the form of removal. Still, steps should be taken to help these companies continue innovating while maintaining safety nets for their investors.
In Other News…
Short Updates:
Lamborghini – The Italian sportscar producer is helping license a patent for TAQ, a material composite of carbon, nitrogen, oxygen and hydrogen discovered by scientists in MIT. This latest in battery tech is expected to hold more energy at a lighter mass while reducing battery costs between 10% and 15% but at the cost of requiring completely new manufacturing procedures.
Opportunity Spotlight
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