Cryptocurrency Corner: October 2021

October 01, 2021

ETF Report takes the pulse of the cryptocurrency space, including the performance of leading cryptocurrencies and the top related news items


Cryptocurrency News

El Salvador Approves Crypto
Cryptocurrencies plunged on Sept. 6 as a multiweek rally in prices stalled below the highs from earlier in the year. Bitcoin was trading on Sept. 7 at $47,320, down 8.8%, while ether traded at $3,525, a decline of 10.5%.

For bitcoin, news that the cryptocurrency had officially become legal tender in El Salvador did little to stem the selling. The country—the first to adopt a cryptocurrency as an official currency—now has two forms of legal tender: bitcoin and the U.S. dollar.

El Salvador’s president, Nayib Bukele, tweeted that the country had purchased 350 bitcoins on Sept. 5 and Sept. 6, bringing its total holdings up to 550 coins.

While a significant milestone, the news of bitcoin becoming legal tender in El Salvador wasn’t a surprise, as the law to make it so had passed three months ago. El Salvador is also a small country, with GDP of around $25 billion.

The Sept. 6 drop in crypto prices seems to be a routine occurrence in a highly speculative market. Over the past few months, there has been a mania in parts of the crypto ecosystem, particularly in nonfungible tokens, which has driven up the price of cryptocurrencies native to smart contract platforms like Ethereum and Solana.

Report Favors Blockchain ETFs
A recent report authored by Scott Chronert, managing director and global head of ETF research at Citi, titled “Uncorrelated Growth Opportunities in Blockchain ETFs” makes the core assertion that the suites of blockchain ETFs available in Europe and the US currently represent a good opportunity for diversification, given what Citi considers to be “muted” connections with macro and factor considerations.

There has been some overlap between blockchain strategies and growth-focused products, the report said, however, the connection between the two exposures that existed between 2017 and 2020 has subsided since the second half of last year as the blockchain theme received greater news coverage and practical applications.

In fact, the blockchain thematic ETF category and growth factor have moved largely in opposite directions since last September but the report warned against drawing connections between economic cycles and the performance of blockchain equities.

The main cause of blockchain’s idiosyncrasy, Chronert said, is based both on the intensity of news coverage and the actual adoption of blockchain technologies.

Billionaire Paulson A Crypto Skeptic
Nearly a decade and a half after successfully betting against the U.S. housing market, John Paulson says he has identified another bubble. Speaking in a Bloomberg interview, the billionaire investor called cryptocurrencies a massive bubble that is sure to pop.

“I would say that cryptocurrencies are a bubble. I would describe them as a limited supply of nothing,” said Paulson. “There’s no intrinsic value to any of the cryptocurrencies except that there’s a limited amount.”

“Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless,” he added. “Once the exuberance wears off, or liquidity dries up, they will go to zero.”

Unlike during the financial crisis, when Paulson used credit default swaps to profit from the implosion of the subprime mortgage market, he says it was far too risky to bet against cryptocurrencies.

“The reason we shorted subprime in size was because it was asymmetrical—shorting a bond at par that has a limited duration that trades at a 1% spread of Treasuries. So you can’t lose more than the spread in the duration. In crypto, there’s unlimited downside,” the billionaire explained.

Source: CoinMetrics; data as of 8/31/2021

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