Calm market, strong inflows
The crypto market appears calm. Major price swings are few and far between, and the attention of many investors has turned to other themes. However, the underlying data tells a different story. Institutional channels are quietly seeing positions build, while major banks are increasingly moving towards on-chain products. In this edition of Market News, we look at a market that has become less noisy, but is far from dead.
Market update
A key feature of this phase of the bear market is that long-term investors are steadily and quietly expanding their positions. In the past, this was mainly the domain of whales, insiders, and seasoned bitcoiners, but now it includes investors guided by asset managers and financial advisors.
Speaking at the Consensus crypto conference on 7 May, Hunter Horsley said: “In the first quarter of this year, the market was down. And we had more inflows from the wealth management channel in the US than in any prior quarter in eight years. They bought the dip.”
A similar signal is reflected in the weekly reports published by CoinShares, which outline the cash flows into crypto funds worldwide. Of the past eleven weeks, no less than ten recorded net inflows. In the week ending May 8 alone, there were inflows of 858 million dollars.
A third signal can be seen in the number of IBIT shares in circulation. This is BlackRock's bitcoin ETF. After the peak in October, it fell by about 9%, partly due to reduced arbitrage activity. Since then, the 'number of shares outstanding' has risen to a new all-time high.
The crypto market is quiet. Passers-by and tourists have moved on to sunnier destinations. First to gold and silver, and now to chip stocks. This, too, is part of this phase of the bear market. The good news? They will naturally return when summer comes back round to the crypto market.
Featured
JPMorgan launches on-chain money market fund
The name of the fund sounds as if it was invented in the bank's legal basement: JPMorgan OnChain Liquidity-Token Money Market Fund, trading under the symbol JLTXX. But behind the rather dry packaging lies an interesting product.
The fund runs on ethereum and primarily invests in short-term US treasury bills. Investors who deposit money receive tokens in return, representing their position in the fund. In the future, these tokens could potentially be used within the crypto ecosystem, for example, as collateral in other protocols. To secure a flying start for the fund, JPMorgan is seeding it with 100 million dollars of its own capital at the outset. Anchorage Digital is also committing funds.
A money market fund such as this is a bit like a savings account. You set aside dollars, earn a return, and JPMorgan takes a cut along the way. But the comparison is slightly skewed.
A savings account is essentially a secure pot held at the bank. It is often insured, immediately accessible, and almost frictionless. A money market fund, however, is an investment product with savings-like characteristics. The capital is invested in short-term, relatively safe assets. In return, investors typically receive a higher yield, but also take on slightly more risk and a bit more complexity. You pay management fees, the product comes with more regulation, and you often have to wait for a period to access money tied up in the fund. The familiar sluggishness of the traditional financial system.
Tokenization aims to remove this friction from the product. It remains a fund, but because the tokens can be used instantly and round the clock, it behaves more like digital cash than a dusty financial share. This is particularly attractive for stablecoin issuers, who look for safe places to park reserves while still generating returns, but without the capital being tied up in aging infrastructure.
The costs are also notable. According to Bloomberg analyst Eric Balchunas, the fund charges 16 basis points, or 0.16% per year. This is remarkably cheap for this type of product, which is why Balchunas calls it a “big deal”. There are a handful of cheaper money market funds, but they are not on-chain. That's the crux here: this is primarily about usability, not yield.
JPMorgan is not the only Wall Street giant that has been making moves. Last Tuesday, Schwab Crypto opened its doors to its first group of individual investors. They can now trade bitcoin and ether through the bank, on the same screen as their stocks and ETFs. The rollout will continue in phases over the coming months.
On the same day, Franklin Templeton announced plans to bring more traditional financial products on-chain. The firm is teaming up with Payward to make it happen. “Our goal is to blur the line between traditional and digital assets,” the CEOs wrote in a joint statement.
In other news
Senate Banking Committee votes in favor of the Clarity Act. The legislation is intended to finally provide the US crypto sector with a clear regulatory framework. Although several political hurdles remain, the vote is seen as a significant breakthrough. Notably, parts of the crypto sector now seem willing to accept compromises in order to advance regulation, including around restrictions on stablecoin interest. This shifts the focus from principled objections to political feasibility.
Beneath the surface, the crypto market is reaching new records. Bitcoin's price is often used as a benchmark for success. It is still well below its previous all-time high. But behind the scenes, strong growth is visible. Last week, analytics firm Artemis tracked down 59 record highs, ranging from the total number of open contracts on prediction markets, to payment volumes via crypto payment cards. This picture fits this phase of the market: the hype may be absent from the price charts, but elsewhere the engine is running at full speed.
Kevin Warsh approved as new Fed chair. Warsh was put forward by Trump as his preferred candidate to succeed Jerome Powell. The Senate approved the nomination with 54 votes in favor and 45 votes against. Powell will remain chair until Warsh is sworn in by Trump. The date has not yet been announced. Trump has presented Warsh as a chair who will help stimulate the economy. That may prove difficult however, as rising inflation appears to have significantly reduced the scope for lowering interest rates compared with earlier this year.
Iran launches maritime insurance platform that accepts bitcoin payments. Captains sailing tankers through the Strait of Hormuz can now arrange insurance and settle payments with cryptocurrency via ‘Hormuz Safe’. That means transactions can take place outside the traditional financial system. Iran hopes the platform will reduce dependence on SWIFT and Western banks. The move fits within broader efforts by Iran to mitigate the impact of international sanctions. About one-fifth of global oil trade passes through the Strait of Hormuz.
Satoshi Radio: Kevin Warsh has been officially elected chair of the US Federal Reserve. In the latest episode of Satoshi Radio, the hosts explore what this could mean for financial markets. In addition, a wide range of interesting topics awaits you, from the vote on the Clarity Act to new AI tools designed to protect Bitcoin. To conclude, there is a market update featuring several all-time highs.
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