As the Bank of Japan hiked interest rates by a meager 15 basis points in the first week of August, many American companies sold off Japanese stocks due to growing fears about the carry trade, which involves borrowing money at cheap rates to fund investments. This caused a sharp collapse in global stock markets. Black Monday in 1987 was the lowest point reached by the Nikkei 225, the Japanese stock market, when it fell more than 12 percent.
The fear caused a 2.5 percent sell-off in U.S. stocks across all major indices, and in response, the price of bitcoin dropped by 17 percent to less than $50,000. Given that the gold price dropped by 1% at this time, there were doubts about bitcoin’s standing as “digital gold” in these strongly connected markets. Within a day, most U.S. and cryptocurrency markets saw a reduction in losses, and by the start of the next week, they had returned to their previous levels.
The $19 billion spot bitcoin ETF offered by Blackrock, the iShares Bitcoin Trust Fund (IBIT), suffered a sell-off. Even on August 5, when the price of bitcoin fell, IBIT did not see any outflows, according to data from Farside Investors. Instead, for the next two days, more money entered the market as investors took advantage of the dip. Remarkably, other spot BTC ETFs performed admirably as well, attracting inflows after the brief flash crash, with the exception of GBTC.
The aforementioned flows demonstrate how institutional products, such as exchange-traded funds (ETFs), provide an inherent stability that might mitigate bitcoin volatility and suggest a more enduring investment approach.
ETFs have inherent risks, as noted by Shibtoshi, the CEO of SquidGrow, a platform that advances private cross-chain aggregators like SilentSwap. These risks include the possibility of excessive asset consolidation, which can jeopardize decentralization, as well as other problems that are typically associated with centralized products. But as the markets have been volatile recently, their performance has shown that investors in (crypto) ETFs possess a resilience that is essential to the development of cryptocurrency markets.
Shibtoshi further explains this resiliency by pointing to the characteristics of the investors who use ETFs most frequently. Many are more seasoned investors with decades of expertise navigating unpredictable market situations, in contrast to speculative traders or novices. Their methodical decision-making and emphasis on long-term strategies—rather than ephemeral or short-term ones—characterize their approach to trading and investment.
The primary factor influencing volume is the growing popularity of publishing SEC 13F filings, which reveal institutional firms’ holdings in cryptocurrency exchange-traded funds.
By highlighting the traits of the investors who utilize ETFs most often, Shibtoshi goes on to explain this resilience. Unlike beginners or speculative traders, many are more experienced investors with decades of experience handling volatile market conditions. Their meticulous approach to trading and investing is characterized by their emphasis on long-term tactics rather than ephemeral or short-term ones.
The principal determinant impacting volume is the increasing prevalence of disclosing SEC 13F filings, which expose institutional corporations’ crypto exchange-traded fund holdings.
The CEO of DeXe, an AI launchpad with a TVL of over $480 million that facilitates the creation and governance of DAOs and Memecoins, Serhii Kravchenko, states that although bitcoin is still a risky commodity, it is gradually catching up to more conventional assets like tech stocks. One of the main enabling elements in this regard is the institutional adoption of spot ETFs.
Alejo Pinto, CEO of Pontem Network, highlighted that institutional goods and adoption start a positive feedback cycle, giving this movement yet another dimension. On the one hand, more institutional demand pushes builders and projects to fulfill an elevated standard of overall excellence. They stimulate healthy competition in the market in this way. However, in order to counterbalance the growth of centralized institutional goods and instruments, more decentralized crypto-native solutions are emerging, increasing the industry’s overall versatility.
Notwithstanding volatility, the case for cryptocurrency is supported by the demand for ETFs. ETF holders are increasing the industry’s time preference, which can be a useful indicator for encouraging those who are still holding out. It also aids in making the case for cryptocurrency to regulators and lawmakers, who frequently see it as an asset class akin to a speculative casino.
Increased External Assistance
Similar to ether and bitcoin, AI ETFs have developed gradually over the past 12 months. The combined value of 13 AI ETFs has increased to over 10% YTD and 25% since August 2023, citing data from ETF Central. With daily inflows of about $1.6 billion, their current AUM is $2.91 billion.
Krystal Zhang, co-founder of Owlto Finance, claims that the concurrent growth of AI ETFs is a significant macro development for blockchain and cryptocurrency, noting that Spot BTC and ETH ETFs have increased awareness of the market. Delivering a smooth, scalable, and intuitive UX is crucial to properly capitalise on this flood, ensuring that incoming Web2 users receive what they want. The key to achieving this much-needed UX upgrade is combining cutting-edge blockchain innovation with AI developments.
Although there have been numerous, mostly pointless discussions in the past pitting AI against cryptocurrency, there is growing agreement that these technologies are mutually beneficial. AI is being used in blockchain and cryptocurrency initiatives to increase functionality and efficiency, particularly in the areas of analytics and access. Owlto Finance is a fantastic application for GenAI Small Language Models (SLMs) that allows users to transfer assets across over 45 blockchains and has over 2 million users across 200 nations and regions.
In response to this question, Network3, which just introduced the N3 Edge V1 physical dual mining device, spoke with Rock Zhang, the founder of the DePIN-EdgeAI synergy project. He believes that decentralizing AI computations, data storage, etc. using blockchain and encryption could be crucial to freeing AI—a technology with the capacity to change the world—from Big Tech’s apparent hegemony and control.
Zhang states, “AI is a tool for community empowerment, just as blockchain and cryptocurrency. They have to cooperate in order to realize the promise of decentralized intelligence, which is essential in this increasingly data-driven and networked world. Edge AI improves security and efficiency while expediting decision-making by analyzing data closer to the source.
Crypto ETFs have made a name for themselves as a catalyst for the widespread use of cryptoassets. Numerous ongoing initiatives are attempting to capitalize on this accomplishment, and it’s possible that more widely used products will be released in the future. It’s critical that innovators and industry participants maintain a competitive and watchful perspective and avoid becoming sidetracked by hype and frenzy, as we are seeing with GenAI.
The use case for digital and Web3 will be demonstrated by a larger network of more initiatives utilizing these still-relatively-nascent but rapidly-evolving technologies, such as DLT, digital assets, and AI. The next generation of society will ultimately be impacted by the significant tasks that these new digital technologies must perform in terms of changing markets, industries, and sectors.
The fight to dominate the digital space is quite fascinating right now, particularly for the financial services industry. We’ll probably look back on this period in the bitcoin ETF history as the critical turning point that sparked the widespread adoption of new global digital money in the future.
