VanEck Crypto Monthly Recap For January 2024
Bitcoin’s volatility surged with $30B cumulative volumes in new US ETFs, countered by dwindling futures and ETN outflows, suggesting potential market growth amid varied sector performance.
Please note that VanEck may have a position(s) in the digital asset(s) described below.
Bitcoin’s 30-day volatility reached its highest level since April 2023 in January after the approval and listing of 10 new spot bitcoin ETFs in the US, which attracted more than $30B in cumulative volumes and $1.5B+ in net inflows as of month-end. It has been gratifying to observe the bid/ask spread and the premium/discount to NAV of these ETFs trend lower such that these products can often be purchased at 1bps spreads and less than 30bps premium or discount to NAV.
Such liquidity proves the use case of ETFs which we believe will drive transaction costs lower and thus take some market share from centralized exchanges.
Offsetting these US ETF inflows, however, futures activity (OI) on the CME dropped by $2B from an early January peak to $4.4B at the end of the month, while European bitcoin ETNs also experienced modest outflows, as investors “sold the news.” The consequence of this tug-of-war between futures and spot is that funding costs to hold futures and other leveraged positions fell dramatically in January. For example, the cost to hold a perpetual bitcoin futures position on Binance reached 21% on January 1st before falling sharply to 6% by month-end.
We believe such a collapse in demand for leverage may set the market up for another leg higher if ETF inflows continue at the current pace, which exceeds the new Bitcoin supply.
Amidst the sideways bitcoin price, large-caps (+1%) outperformed small-caps (-9%), Ethereum (flat) outperformed Layer 1s (-6%), while Coinbase (COIN)(-26%) and Bitcoin miners (-28%) lagged.