Welcome to the Deep Dive! This week we will take a closer look at our latest quarterly report. Prices plateaued after BTC reached record highs in the first quarter. However, there were still some positives in Q2, like the SEC's approval of spot ETH ETFs and two surprising SOL ETF applications. This Deep Dive looks at some of the topics from the report, including:
Despite registering the longest consecutive days of inflows between May and June, volumes were far lower than in Q1. Net inflows took a hit in Q2. Most ETFs experienced outflows for the first time — including BlackRock’s IBIT, that overtook Grayscale's GBTC in terms of assets under management during Q2.
Trading typically slows over the summer months, and liquidity tends to dry up. Issuers expect volumes to rebound in Q4 as more advisors offer clients BTC ETFs.
Additionally, BTC ETFs have affected the spot BTC market structure. Since their approval and subsequent launch in January, trade activity has become more clustered around US market hours, and liquidity has improved. In particular, the final hour before market close — when data is collected to calculate the net asset value of the ETFs — has seen a significant uptick in activity.
Traditional finance takes on tokenization.
BlackRock's BUIDL, its tokenized liquidity fund, continues to grow and has now accumulated over $460 million. Since its launch in March, BlackRock's fund has outpaced several crypto-native firms, as well as Wall Street rival Franklin Templeton.
Overall, tokenized funds have surpassed $1 billion in assets under management as investor demand for on-chain yield-bearing funds rises. Discover more about these new offerings, including those from Franklin Templeton and Ondo Finance, in the full report.
What does MiCA mean for stablecoins?
At the end of June, the European regulation MiCA officially came into force, shaking up the stablecoin market. Several exchanges have already announced restrictions on trading stablecoins for EEA users or have delisted non-compliant stablecoins.
Despite traditionally lagging behind USD-backed stablecoins, EUR stablecoins have seen robust growth in volume since the beginning of the year, indicating rising demand in European markets.
In Q2, the combined weekly volume of Tether's EURT, Stasis EURS, Société Générale's EURCV, Anchored's AEUR, and Circle's EURCV averaged $42 million, double the 2023 average. However, Europeans still primarily use USD-backed stablecoins, as shown in previous research. For more insights on MiCA's impact on stablecoin market share, see the full quarterly report.
Sentiment shift.
Crypto trading volumes declined across all exchanges in Q2 as risk sentiment soured.The shift in sentiment was evident in derivative markets, with perpetual funding rates remaining neutral to slightly positive and significantly below March’s multi-year highs. Although ETH open interest hit an all-time high of $11bn following the spot ETH ETF approvals at the end of May, bullish demand remained subdued.
The approval of ETH ETFs has played a major role in global crypto market trends this quarter. Learn more about their impact on derivatives and spot markets in our full report.
Conclusion
Despite a strong start to the year, Bitcoin lost momentum in Q2. However, several potentially bullish market events occurred during this period, including Bitcoin's fourth halving on April 20, the SEC's approval of spot ETH ETFs a month later, and the filing of a SOL spot ETF by VanEck and 21Shares, indicating growing institutional demand. While these events did not have an immediate impact on the market, their full effects are expected to unfold gradually as the market moves out of the historically low-volume and low-volatility period of summer doldrums.
Download the full quarterly report here for more insights.
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Kaiko's research newsletter is written by the Kaiko research team: Clara Medalie, Dessislava Aubert, and Adam McCarthy. This content is the property of Kaiko, its affiliates and licensors. Any use, reproduction or distribution is permitted only if ownership and source are expressly attributed to Kaiko. This content is for informational purposes only, does not constitute investment advice, and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. For any questions, please email research@kaiko.com.
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