The start of the year usually offers some time to recuperate and reflect on the year past, this however was not the case for 2024, where instead crypto markets were catapulted into a rollercoaster of emotions as we hit arguably the largest milestone in Bitcoin's recent history: the approval of a spot Bitcoin ETF out of the US. After more than 10 years since the first application was filed by the Winklevoss twins in 2013, on 10th January 2024 Gary Gensler's SEC announced their order to accelerate approval for 11 spot Bitcoin ETF applications. The market response for Bitcoin was fairly muted on approval, as most market participants who could access the spot market ahead of time had expected approval and positioned accordingly. Since trading began on Thursday 11th , Bitcoin rallied up to $49k before falling dramatically to below $42k within the space of a few days, despite over 12,000 Bitcoin pouring into the various ETFs at the time of writing*. 

Ethereum strengthens 

Conversely, Ethereum responded with strength, rallying over 10% on the day outperforming other previously favoured alts like Solana, Avalanche or Chainlink. The current reasoning is that since altcoin prices began to recover in the summer, Ethereum had continued to lag behind the pack. This led to some questioning the long-term value proposition of a smart contract platform with high fees and transaction times alongside increasingly fragmented liquidity as it implements its modular roadmap. This view was reflected in the ETH/BTC ratio, which looks to have bottomed out on 8th January at 0.048 before rallying to 0.057 at the time of writing, showing that Ethereum's strength relative to the premium in the space is recovering and that in the midst of general bearishness lies opportunity^. Particularly in reference to the second largest chain by market capitalization with the largest Total Value Locked (TVL) across its ecosystem of applications... However, another likely factor is that Blackrock has already filed an Ethereum spot ETF, and given that the SEC lost the Grayscale case on the grounds that approving a futures ETF and not spot was arbitrary and capricious, and there are already ETH futures ETFs trading, many are drawing the conclusion that an ETH spot ETF is next. 

Unpacking December 2023 

Looking back to December, the two main focuses were consistent with the last few months; anticipation surrounding the approval of a Bitcoin spot ETF out of the US, and Solana hype hitting yearly highs. Starting with the latter, as highlighted in last month's update, momentum has continued to snowball for Solana across 2023, with December seeing a 111% price increase from open to its top, pushing Solana past $100 and through to $120 for the first time since March 2022*. Attention has been skewed towards Solana because the tech proposition is fundamentally unchanged since its previous highs of $400, plus the ecosystem and its developers have now been battle hardened after the severe price drawdown to $8 and liquidity drain in December 2022. Throw in some truly sophisticated apps with superior UI/UX, memecoins with large pools of liquidity, and the promise of token airdrops for some of these applications, and it’s unsurprising that Solana hit $1b in TVL on Dec 14th and that Solana stablecoin volumes have now surpassed that of Ethereum's. 

Despite the SEC not delivering the gift of a spot ETF for Christmas, December was nonetheless a strong month for BTC; rallying over 18% in the first 8 days of the month from around $38k, up past $44k and thereafter chopping around the $42k mark to close the month around $42.5k*. The most interesting development surrounding the ETF was the early release of the Authorised Participants (APs) for Blackrock's submission on the 29th. Alongside the likes of Jane Street and Valkyrie, many were surprised to see Jamie Dimon's firm JP Morgan listed. Just a few weeks prior, Dimon had stated in congress that if he were responsible for running the US government, he would shut down the crypto industry. Now his firm is to act as participants for one of the largest Bitcoin ETFs... Despite being big advocates for Blockchain and DLT adoption, JP Morgan has thus far followed Dimon's line in focusing solely on private blockchains, making this their first foray into 'crypto'. However, it's not as exciting as it may seem, as it's likely the AP's role will be focused solely on the creation and redemptions of the security, as opposed to touching the underlying Bitcoin itself. 

2024: the year of ‘institutional adoption’ 

Regardless of specific firms' choices to participate in this market or not, it seems clear that 2024 is poised to be the year where institutional adoption begins to move the needle of the wider market. 'Institutional adoption' has long been lauded as a meme in the space with many overhyping the reality to date and yet the second half of 2023 saw several healthy indications that more and more institutions are entering and building in the space. One such indicator was the impressive growth in open interest for CME Bitcoin futures in the final quarter of 2023, where the TradFi commodity exchange surpassed $5 billion in OI, surpassing Binance to become the largest Bitcoin futures market*. After Ripple Labs' landmark victory against the SEC in court earlier this year, we're also now seeing more TradFi firms beginning to look beyond simply trading Bitcoin and beginning to become actors and builders in the space in a meaningful capacity. For instance, earlier this year one of the largest banks in Brazil announced they'd been mining Bitcoin and have released their own stablecoin. More recently, French bank Société Générale also launched their own Euro stablecoin. Add to that the news that both Brevan Howard and Hamliton Lane are looking to tokenize certain funds through a partnership with a Laser Digital & WebN backed start-up Libre Capital, and it feels like the vision of onchain tokenised finance, that's sophisticated enough for TradFi actors to participate, is no longer a far-off pipedream, but an imminent reality. 

As always please send any feedback, suggestions, or comments to the Team mailbox. 

Best Oliver Wink, on behalf of the Digital Assets team. 

* Data sourced from Bloomberg 

^Data sourced from Trading View