September 28, 2023|Commentary

What We See in the Markets: September 28, 2023


Crypto ETFs – First ETH futures ETF approved, BTC spot ETFs delayed once again but for how long more?

  • Overnight Valkyrie has won the race to offer the first ETH futures ETF (EFUT), an actively managed ETF that - will invest in Ether (ETH) futures contracts. The fund will be listed on CBOE and will invest in cash-settled ETH futures contracts traded on CFTC registered commodity exchanges.

  • ETH rallied on the news and has caught a decent bid this week, up 5% since Monday. There are a total of 15 Ether futures ETFs from nine issuers currently awaiting approval - I do expect several more to get the green light soon prior to the potential US Gov shutdown on Oct 1st now that the floodgates are open.

  • The implications on the approval itself are pretty exciting as well – it is likely that the SEC will not be declaring ETH a security, and BTC futures ETFs would have a higher chance of success as well.

  • That being said, while the first ETH futures ETF was greenlit overnight, the SEC has again delayed BlackRock, Invesco and Bitwise BTC spot ETF applications. All in all, the 7 BTC spot ETF applicants will now have the next deadline on mid-January, and the SEC will have to make a decision by mid-March at the latest.

  • Regardless on when the ETF gets approved, I do think that the time to own some BTC optionality is here if you don’t already. In particular, while vols have picked up for the June24 option, it is still trading on the cheaper side compared to previous years, and gives you coverage for the halving as well – can express it either through an outright call or call spread structure.

Defi outperformance has gone under the radar

  • While ETH’s strength following the Valkyrie ETF news is all over the mainstream feed, what has flown under the newsradar this week is just how silently Defi has been recovering (and outperforming vs ETH!).

  • MKR and COMP, governance tokens of top Defi lending platforms enjoyed 21% and 18% respectively this week. Maker protocol generates positive cash flows, which accrue to MKR holders through the surplus buffer and the buy and burn mechanism, so in the current rising rate environment it is one of the few tokens that can actually benefit. LDO, the token of the leading liquid staking platform Lido Finance, also jumped nearly 9%.

AVAX as a catch-up play?

  • AVAX, the native currency of Avalanche looks primed to catch up to the rest of the L1 space. As we can see in the chart below, it has lagged the rest of the space this month and is currently bottoming out.

  • This 2-year low in price is despite several strong underlying fundamentals:

  • Partnerships with high-profile cloud platforms such as Amazon Web Services and Alibaba Cloud this year

  • Publicly traded Korean firm Neowiz announcing this month that they will be building games on the Avalanche Network

  • Avalanche’s HyperSDK blockchain upgrade hits 143K TPS on testnet

  • With its lightning fast blockchain and near-zero fees, AVAX is also well positioned to hop on the emerging asset tokenization trend (the transformation of real-world assets such as stocks, bonds or even art into digital assets that can be traded on a blockchain). A real-life example would be when KKR previously placed a portion of its $4 billion healthcare private equity fund on the Avalanche blockchain in 2022. Today, several large tradfi players such as BlackRock are backing the asset tokenization trend, which is one big reason why I think it has staying power - and Avalanche is well positioned to become a blockchain of choice here.

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