Cryptocurrency Corner: January 2022

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

Cryptos See Largest Weekly Outflow

By James Butterfill, CoinShares

Digital asset investment products saw outflows totaling $142 million for the week ended Dec. 17, the first outflow following a 17-week run of inflows, and the largest weekly outflow on record. The largest previous outflow on record was in early June 2021, where weekly outflows totaled $97 million.

While this outflow appears alarming, there are several points to consider. First, it came at a time during which there had been considerable outflows across all risk assets following the recent U.S. Federal Reserve statement on tapering. Second, those outflows represent only 0.23% of total AUM, and from a historical perspective, they’re small relative to the outflows in early 2018, when weekly outflows represented up to 1.6% of AUM. Finally, the outflows came at a time of record yearly inflows peaking at $9.5 billion, relative to inflows totaling $6.7 billion in 2020.

Bitcoin saw outflows totaling $89 million, well below the outflows seen in June, when they were as much as $150 million.

Ethereum saw record outflows totaling $64 million, and has, in the past, countered Bitcoin’s outflows. Other altcoins softened the blow, with Solana, Polkadot and multi-asset investment products seeing inflows totaling $6.7 million, $2.5 million and $1.5 million, respectively.

2 More Spot Bitcoin ETFs Rejected

By Dan Mika, ETF.com

The Securities and Exchange Commission shot down two more attempts by ETF issuers to establish the first spot bitcoin exchange-traded product in the U.S. on Dec. 22, adding to the ongoing list of denials.

Regulators issued denials for the Kryptoin Bitcoin ETF Trust, which was due for a final decision on Christmas Eve, and the Valkyrie Bitcoin Fund, which was due for a decision on Jan. 7.

Valkyrie launched the second bitcoin futures-based ETF in the U.S. with its Valkyrie Bitcoin Strategy ETF (BTF), and has the Valkyrie Balance Sheet Opportunities ETF (VBB), which tracks companies that have bitcoin and other cryptocurrencies on their balance sheets.

The SEC said both funds’ arguments that Bitcoin prices are inherently resistant to price manipulation due to the asset being traded on multiple exchanges at once were insufficient, and reiterated its stance that a surveillance-sharing agreement be put in place before approval of a fund.

The SEC used that line of reasoning to deny both VanEck’s and WisdomTree’s attempts to launch a spot product earlier in 2021.

The Wise Origin Bitcoin Trust and the First Trust SkyBridge Bitcoin ETF Trust are the next proposed funds in line, with the SEC required to issue decisions by Jan. 22.

1st NFT-Focused ETF Debuts

By Sumit Roy, ETF.com

In early December, Defiance ETFs launched the first fund to specifically target the nonfungible token (NFT) space. The Defiance Digital Revolution ETF (NFTZ) tracks the BITA NFT and Blockchain Select Index and trades on the NYSE Arca. It comes with an expense ratio of 0.65%.

NFTs are basically unique digital assets for which the ownership and authenticity can be verified through the blockchain. Defiance’s website notes that in the first quarter of 2021, more than $2 billion was spent on NFTs.

NFTZ doesn’t invest in cryptocurrencies or derivatives related to them, though cryptocurrencies are generally used in transactions involving NFTs. Companies included must generate at least half of their revenues from business activities related to the blockchain or cryptocurrencies or offer exposure to the NFT space. The covered categories include crypto asset management and trading companies; crypto banking, payments and services companies; crypto mining companies; crypto mining hardware companies; and blockchain technology companies, according to NFTZ’s prospectus.

On its day of launch, the fund’s top holdings included Silvergate Capital (6.74%), Playboy Group (5.27%) and Cloudflare (5.17%).

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