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At the crossroads

We talked about the newest Franklin Templeton announcement late last week, and I want to follow up on a chat I had with Polygon’s Global Head of Institutional Capital, Colin Butler. 

Butler and I, admittedly, spoke before the Franklin drop, but our conversation touched on a range of topics, including what needs to happen to really see the institutional wave catch on. 

Butler, like we’ve heard from other folks, thinks that the bitcoin ETF launches at the beginning of 2024 acted as a match to the flame. Specifically, they finally gave non-crypto native folks a chance to really look at and assess their potential entrances to crypto. And we’ve definitely seen how quickly that’s caught on, with both.

In conversations with folks, Butler noted that the tone is “excited.” 

“I think some of these topics were talked about in 2016 like, ‘[the] global financial system will be rewired on blockchain,’ and here we are eight years later, and a lot of the stuff that they had thought is just now starting to happen. I feel like the inflection point has been reached. I feel like the people involved in this process at the top level globally are very excited that now we finally can see where this thing is going to go, because we can implement it,” Butler explained. 

But hitting this point also means potential change on the horizon for some parts of crypto, too. 

Butler noted that Polygon had a TVL of $20 billion during DeFi summer (RIP those good times), and now has a TVL just under $1 billion. 

The current metrics, he thinks, could be rendered “meaningless” once we see broader adoption because there’ll be far more value added. 

“In a scenario where there’s, say, an institutional stablecoin, which you could think of as maybe a money market fund with the right permissioning from the regulators, has $5 to $10 billion. And in that scenario, the TVL that I think some of the protocols fight over becomes a lot less relevant because the numbers get so much bigger,” he said. 

Crypto is still fairly young, and that arguably shows in the amount of money in the space. Not to say that it’s not impressive, but in comparison to the amount of money being traded over on Wall Street and by financial institutions across the world, it’s kind of chump change…for now.

“There’s just gotta be a much bigger pie,” Butler said, noting that once this type of adoption spreads even further then folks will perk up and pay more attention. And that’s when we’re likely to stop talking about TVL, and instead talk about AUM. 

We’re just getting started, and getting to see a lot of the ideas and the benefits that blockchain technology and crypto in general bring to the table could redefine not only crypto, but other industries across the world. As if it hasn’t already. 

— Katherine Ross

Data Center

• Only one top-100 crypto is up more than 0.5% in the past day: HNT with 4%.
• BTC and ETH are otherwise down 2.5% and 4.2%, to $62,370 and $2,620 apiece.
• TON and its native memecoin NOT have been hit hard by Durov’s arrest, both losing 20%.
• Every fifth bitcoin transaction right now is either BRC-20s or Ordinals.
• Daily stablecoin transfer volume on Base reached over $4.21 billion on Monday, a new all-time high per Blockworks Research data.

Devs do something

Would ether have been better off without ETFs?

Maybe. All the hoopla aside, to date it’s still unclear exactly how spot ETFs impact crypto prices.

Granted, buzz around the funds largely drove bitcoin’s most recent bull run to an all-time high, between last October and March. 

Bitcoin ETFs had launched in January, or halfway through that price action. BTC actually slipped more than 15% in the first two weeks of live ETF trade before recovering — and then some.

The SEC hadn’t yet approved filings for ether ETFs at the time. But there was a general belief that they would without too much hassle. 

ETFs eventually got the green-light in late July and began trading two days later. Bitcoin and ether had been tightly correlated in between.

To be clear: the launches of both types of ETFs were a huge success going by trading volumes, as well as the rate of inflows into anything that wasn’t a Grayscale vehicle. 

BTC flows, at least, have been net positive to date. Over $19.7 billion has been pulled from GBTC since Jan. 11 — all of which would need to be sold for fiat to satisfy redemptions. 

At the same time, $37.4 billion has been put into bitcoin ETFs other than GBTC, mostly BlackRock’s IBIT and Fidelity’s FBTC, which have much lower fees. 

That gives bitcoin ETFs positive net flows of $17.73 billion, and it would be hard to argue that those flows could be anything but great for bitcoin markets.

The ether equivalent has, however, seen net negative flows since their launch last month. As you can see on the chart above, the $1.35 billion in net outflows for Grayscale’s converted ETH trust correlated with an over 30% drop in ether prices, causing it to significantly underperform bitcoin in 2024.

The crypto market is different now than it was in January or March. Still, plotting the net flows for both bitcoin and ether funds against each other — as if they were launched simultaneously — shows both types of funds have similar flow trends: lots of inflows and outflows in the beginning before tapering off.

Right now, there isn’t much of anything happening with any ether ETF, Grayscale or otherwise. Most funds are reporting zero daily flows, with vehicles from Fidelity, Franklin Templeton, VanEck, Bitwise and BlackRock posting numbers more regularly.

And the average net flows of ether ETFs over the past 10 trading days is negative $7.7 million – not enough to move the price needle in any significant way.

So, what effect do ETFs have on crypto prices? At least for ETH funds, the answer right now is little to none, but it was worse before.

— David Canellis

The Works

• Wyoming is pushing forward with crypto payments and plans to launch its own stablecoin, CNBC reported.   
• At current prices, the bitcoin mining opportunity stands at about $74 billion, JPMorgan said in an analyst note.  
• The magistrate in France has until Wednesday to decide whether or not to charge Telegram CEO Pavel Durov, Bloomberg reported. 
• India’s CBDC has over 5 million users, central bank governor Shaktikanta Das said in a speech.
• Ethereum’s trading volume is down by 55% over the past month, per The Block. 

The Riff

Let’s get specific, shall we?

Polymarket bettors are once again a bit grumpy thanks to last week’s exit by Robert F. Kennedy Jr. from the 2024 US presidential campaign. 

As CoinDesk noted in its coverage yesterday, the sticking point (for some) is the word “withdrawal” — that is, a complete removal from the race. RFK himself said he’s “suspending” his campaign and indicated that, technically, he’s still kind of, sort of running for president…while still throwing his support behind Trump.

Make it make sense.

Anyway, Polymarket rated the bet’s outcome as “yes”, and to be honest, I see the point. A presidential campaign “suspension” has always struck me as more about the pride of the candidate than anything truly practical or reflective of reality. RFK is, functionally, out of the race, his presence on some ballots be damned. 

Burned bettors are, predictably, trying to get Polymarket’s dispute resolution system to throw the bet in their favor. The stakes are real: nearly $10 million was bet on the outcome. It’s not the first time we’ve been in this situation, and it’s unlikely to be the last. 

My advice? In the future, get really specific about your bets, and stick to those specifics.

— Michael McSweeney

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