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Wall Street’s latest crypto moves

Wall Street’s latest crypto moves

The first week of June saw $2 billion of new capital flow into crypto investment products.

There’s never a dull moment on the blockchain. Here’s what you need to know this week:

Bitcoin ETFs saw massive inflows. Plus, crypto markets jumped on inflation data, and analysts estimated the potential size of the ETH ETF market.

Wall Street and Silicon Valley are expanding crypto investments. The latest moves from Franklin Templeton, Fidelity International, and more. 

This week in numbers. Metaverse platform The Sandbox’s latest fundraise, the scale of Polygon Labs’ community grants initiative, and more stats to know.

MARKET BYTES

Crypto prices jump on inflation data, analysts make ETH ETF predictions, and more

Crypto prices seesawed this week, with BTC falling below $67,000 on Tuesday before bouncing back toward $70,000 on Wednesday morning, boosted by cooler-than-expected inflation data. ETH swung from around $3,440 to $3,640 in the same period — while a wide range of smaller tokens (including Solana and Dogecoin) also recovered from early-week losses. 

Crypto markets remained relatively unfazed after the Federal Reserve said Wednesday afternoon that it anticipated just one rate cut in 2024, citing “modest” progress on inflation.

But prices aren’t the only news this week! Let’s dig into three more crypto updates you should know about.

BTC ETFs kicked off June with huge week

Despite $200 million of BTC ETF outflows on Tuesday, crypto investment products have been on a tear, with five straight weeks of inflows and more than $2 billion in new capital flowing into crypto investment products in the first week of June, according to CoinShares.  

About $1.97 billion of the new capital came from BTC products alone, with just one fund — BlackRock’s IBIT — accounting for nearly $1 billion in inflows. As The Block noted, “the funds absorbed more than two months of new bitcoin mining supply — now averaging 450 BTC per day post-halving — in just one week.”

  • Why didn’t BTC fly to a new all-time high as a result? In part, according to Bloomberg ETF analyst Eric Balchunas, because BTC holders are taking advantage of the heightened demand to sell their crypto. “Time and again ETFs go on flow-a-thons and it's met with selling from other holders.”

ETH inflows rise as ETFs approach 

ETH investment products saw $69 million in inflows last week, the highest number since March. The uptick was all the more notable given that the biggest potential ETH investment products — spot ETFs — haven’t begun trading yet.

After gaining the first part of SEC approval last month, spot Ethereum ETF issuers including BlackRock and Fidelity are still waiting for comments from the agency on their draft filings before they can begin trading. Nobody knows when that process will conclude, with SEC Chair Gary Gensler declining to say whether it could take weeks or months.

  • How big would the market be for ETH ETFs? Estimates vary, but here’s what several analysts have said recently:  According to Bitfinex’s Head of Derivatives, ETH ETFs could see between 10% and 20% of BTC ETF inflows. Bloomberg’s Balchunas makes a similar prediction, noting that the total market for ETF ETFs could “struggle” to get past 20% of the BTC ETF market — although that would still be around $12.5 billion in value. A JPMorgan report was among the least bullish, predicting a “modest” $1 billion to $3 billion of net inflows in 2024.

A medical device company is doubling down on BTC

Semler Scientific, a publicly-traded company that specializes in “point-of-care testing for early chronic disease detection,” is now probably best known as one of the bigger corporate holders of bitcoin. 

In late May, the company purchased around $40 million in BTC and saw its stock spike in value by 37%. This week the firm added another $17 million in bitcoin to its balance sheet and announced plans to raise $150 million so it can buy more.

“Our bitcoin treasury strategy and purchase of bitcoin underscore our belief that bitcoin is a reliable store of value and a compelling investment,” said Eric Semler, the company’s chairman. 

  • What other companies hold BTC? Publicly-traded tech company MicroStrategy pioneered the strategy of using its corporate treasury to buy and hold bitcoin, and now has around $15 billion invested in BTC.  Other firms that have BTC on their balance sheets include Tesla, Block, and Coinbase. Meanwhile, the rise of BTC ETFs have made it possible for many more corporate investors to access crypto, with more than 600 financial institutions revealing holdings via SEC filings.

TUNE IN

Can blockchains help update our financial infrastructure?

In the latest episode of “Evolving Money,” Franklin Templeton’s Sandy Kaul joins the podcast to share her insights on how blockchain technology is helping modernize our aging financial infrastructure and pushing us from a platform economy to a protocol economy.

DEAL FLOW

Amid bull run, institutional interest in crypto keeps heating up

For much of crypto’s history, traditional financial institutions on Wall Street and beyond were measured and gradual in their embrace of digital assets.

But that pace of adoption has accelerated in a major way this bull run, which was boosted by the launch of spot BTC ETFs from some of Wall Street’s biggest firms. 

Now, with crypto markets sitting near all-time highs, institutional giants across the financial world are also ratcheting up their crypto exposure via tokenization experiments, new investment funds, mergers and acquisitions, and more. 

Here’s what you need to know.

Franklin Templeton wants to help institutional investors buy altcoins

The Silicon Valley-based asset manager, which oversees more than $1.6 trillion, is reportedly considering a new crypto-focused investment fund targeting institutional investors. The firm would be by far the largest to explore offering exposure to altcoins, though it isn’t yet clear which tokens the fund would consider.

The firm is already a major player in crypto: Its spot BTC ETF has nearly $500 million in assets; it has plans to offer a spot Ethereum ETF; and it runs nodes on 11 blockchains. 

Last week, the company also announced that it was enabling USDC purchases for its tokenized money market fund, which holds nearly $400 million in assets.

Since the beginning of April, the fund has grown by 27% (BlackRock’s similar fund grew by 65% in the same period). The total market cap for tokenized U.S. treasuries is now worth around $1.5 billion, up from around $845 million at the start of the year. 

Fidelity International is tokenizing a money market fund on JPMorgan’s blockchain 

Fidelity International, a U.K.-based asset management firm, announced this week that it has tokenized shares of a money market fund using Onyx Digital Assets, a private Ethereum-based blockchain run by JPMorgan. (A money market fund is a type of mutual fund that typically invests in low-risk, short-term debt like Treasuries, government debt, or corporate bonds.)

The tokenization of traditional financial assets has become a major blockchain use case for institutions, with advantages that include near-instant cross-border settlements and 24/7 markets. 

By tokenizing shares of the fund, Fidelity International can potentially use them as collateral for other financial transactions. In a similar experiment last year, JPMorgan’s blockchain was used to tokenize shares in a money market fund run by BlackRock, which were then used as collateral for an “over-the-counter” derivatives trade involving Barclays. 

“Tokenizing our money market fund shares to use as collateral is an important and natural first step in scaling our adoption of this technology,” said Stephen Whyman, Fidelity International's head of debt capital markets. 

Crypto industry dealflow is on the rise

The surge in crypto markets this year has seen increased potential for more U.S. IPOs from crypto-related companies, and a rise in mergers and acquisitions activity. 

Last Thursday, trading platform Robinhood announced a $200 million acquisition of the crypto exchange Bitstamp, a move that could increase the company’s institutional exposure. On the same day, news broke that crypto exchange Kraken was in talks to raise $100 million in anticipation of an IPO that could happen as soon as next year.

As Bloomberg noted: “If crypto prices keep increasing, the next 18 months could see the biggest wave of crypto-related IPOs on record according to Renaissance Capital, a pre-IPO researcher.”

Analysts also believe the mining industry could be especially ripe for merger activity, as financial pressure caused by bitcoin’s recent halving could force industry consolidation. 

In two recent examples, Bitfarms has been working to stave off a hostile takeover bid from rival miner Riot Platforms, and Core Scientific recently rejected a $1 billion bid from cloud computing firm CoreWeave. 

As Elliot Chu, partner at M&A consultancy Architect Partners, said recently, the crypto mergers and acquisitions industry “has officially transitioned from #TheGreatPurge and entered into #TheGreatSurge.”

NUMBERS TO KNOW

1 billion

Number of tokens that Polygon Labs plans to seed to developers over the next decade as part of its new community grants program, which launched on Tuesday with 35 million MATIC tokens (worth about $23 million) earmarked for distribution. Per a Polygon blog post, “The grant program follows proposals to ensure that Polygon becomes a strong, community-governed aggregated network of chains.” 

$215 million

Value of a new fund that will support gaming projects on the Arbitrum blockchain. The DAO that governs the Ethereum layer 2 network approved a proposal to distribute 225 million ARB tokens over three years, mostly to game publishers, with 75% support. 

$20 million

Amount raised by metaverse platform The Sandbox in a funding round led by Kingsway Capital and Animoca Brands. The company said it plans to use the money to “develop a decentralized metaverse for mobile devices,” among other feature enhancements. Following the announcement, The Sandbox native token SAND rose 4.5%.

TOKEN TRIVIA

What is the most secure form of two-factor authentication?

A

Authenticator app

B

Hardware keys

C

SMS codes

D

Face ID

Find the answer below.

Trivia Answer

B

Hardware keys