Tech Crashes, Ether Falls After ETFs Debut And Bitcoin <> Nasdaq Correlation Falls
The dramatic fall in technology shares this past week has caused a great deal of consternation for investors who have been riding the AI-powered hype train all year. The exact catalyst is difficult to pinpoint, but some analysts suggest that it may be the selection of JD Vance, who has been a vocal critic of “big tech” and has even suggested that the government should break up Google (Alphabet), as Trump’s running mate. Another contributing factor is the rather disappointing earnings results from Tesla and Alphabet, which reported their quarterly figures this week.
Figure 1. Tech shares have seen some sharp declines over the past several trading sessions.
Crypto assets had managed to defy the sharp sell-off in tech shares for several days, but the bearishness has taken hold over the past 24 hours as Bitcoin fell from around $68K on Monday to approximately $64K today. Despite this drop, Bitcoin is up 2.9% this month, while the Nasdaq 100 index is down approximately -3.4%.
Figure 2. Bitcoin has so far managed to stay green in July, despite the selloff in tech shares.
The correlation between tech stocks and Bitcoin (and other crypto assets) has been declining over the past several weeks. Over a very long timeframe, Bitcoin has generally offered investors uncorrelated returns, but there have been concerns that Bitcoin and crypto, in general, will be lumped in with other technology investments now that there are readily available ETP vehicles that investors can more easily access. Over the past several weeks, however, there has been a notable divergence between the price action of technology shares and Bitcoin. After peaking around 0.8 in May, the correlation between IBIT, Blackrocks spot Bitcoin ETF, and QQQ, the populous Nasdaq ETF, has been trending down towards 0. There will likely be ebbs and flows in this correlation, but if Bitcoin can maintain uncorrelated returns over the long term, it will provide asset managers with another reason to consider crypto when they are constructing portfolios.
Figure 3. The correlation between the IBIT Bitcoin ETF and the QQQ Nasdaq ETF has been trending lower since May.
On Tuesday of this week, we saw the launch of the first US-based spot Ether ETFs and we now have data on the first two trading days. The aggregate volumes across all nine ETFs have thus far beaten most analyst expectations, with over $2B in trading volumes within the first two days. It is a rarity for new ETFs to trade that much size upon launch. An ETF launch is often considered successful if it sees a few million in volume on day one. Yesterday, the Ether ETFs traded about 75% of the notional value of the bitcoin ETFs that same day, despite Ether having a market capitalization that is 70% smaller.
Image 1. Ether ETF volumes compared across other recent ETF launches.
What has also beat expectations was the significant outflows from Grayscale’s ETHE ETF. Grayscale, who had for years offered multiple closed-end crypto funds to institutional investors, converted the fund into an ETF, allowing for redemptions. Much like Grayscale’s GBTC product, ETHE is experiencing significant outflows since not only does it charge the highest fee (2.5% vs 0.25% for most other products), but ETHE has been trading at part with its Net Asset Value (NAV) on day one of trading. When the GBTC ETF launched in January, it was still trading at a discount for the first few trading days. Grayscale’s closed-end products have been notorious for trading at a discount, especially during the last crypto bear market, and now, with the conversion to an ETF, investors can exit at par. Despite these outflows, the first day saw positive net flows of $106M on the first day, and negative flows of -$133M yesterday.
Image 2. Data on Ether ETF flows.
With the ETFs seeing significant traction among investors, Ether bulls will want to see a scenario similar to how the launch of the Bitcoin ETFs played out over the coming weeks, with ETHE outflows slowing and inflows into the other 8 ETFs continuing to remain positive. It took approximately 11 days for Bitcoin to halt its decline and begin rallying after the debut of the spot Bitcoin ETFs in January.
One other event for investors to keep in mind is the Nashville Bitcoin conference, which begins today and has Donald Trump as the keynote speaker on Saturday. The conference is packed with Senators, and has talks from presidential hopeful Robert F. Kennedy Jr. and many other influential politicians and policy markers. There is some speculation that Trump may make an important announcement, such as adding Bitcoin to the US’s foreign reserves, at this event. In the meantime, investors would be wise to observe how deep and long this correction in tech shares can go on for, and what type of impact this may have on crypto assets.
Latest Crypto Developments
In this section, we highlight the latest developments that may be significant in either the price action or the trajectory of the crypto space overall.
South Korea's First Crypto Law in Effect
South Korea's inaugural crypto law has officially come into effect, introducing comprehensive regulations for the crypto industry. This law aims to increase transparency and protect investors.
Australia's Treasury to Include Stablecoin Rules in Crypto Bill
Australia’s Treasury plans to incorporate stablecoin regulations in its upcoming crypto bill draft. The Australian Securities and Investments Commission (ASIC) has issued warnings to crypto entities regarding compliance with these new rules.
Aave Proposal Considers Fee Activation and Token Buybacks
A new proposal from the industry's largest decentralized lending platform, Aave, proposed activating the protocol's fee switch and buying back tokens from the open market. This aims to enhance the protocol's sustainability and increase the value of Aave tokens.
Galaxy Digital Secures $113 Million for Crypto Venture Fund
Galaxy Digital has secured $113 million for its crypto-focused venture fund. The fund will invest in startups and projects within the crypto and blockchain sectors.
Revolut Secures UK Banking License
Crypto-friendly fintech Revolut has obtained a banking license from the UK financial regulator, enhancing its ability to offer traditional banking services alongside its cryptocurrency offerings.
Market Returns
That's Some Good Content!
Recommended articles, podcasts, and other content from this week:
The Ben & Marc Show podcast - The Little Tech Agenda: Biden vs. Trump
The Breakdown podcast - ETH's Successful First Day ETF Launch
Forward Guidance podcast - How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran
On the Margin podcast - The Rise Of Fiscal Dominance | Lyn Alden
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