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Weekly Update: 12th of June

Hodl Team
Hodl Team
12 June 2024
Welcome to our weekly update, where we provide insights into the latest developments in the digital assets market.

What happened between the 5th and 12th of June?

  • Due to the European Union (EU) Markets in Crypto Assets Regulation, the industry witnessed various stablecoins potentially being banned within the EU, including market leader Tether’s stablecoin USDT. Read more

  • The European Central Bank has lowered its interest rate by 25 basis points, marking the first interest cut by the central bank for the first time since 2019. Read more

  • Bitcoin and Ether experienced significant inflows of institutional capital as their investment products attracted nearly $2B and $70M within a week. Read more

  • Fidelity International, a London-based funds management firm, has tokenized shares in a money market fund utilizing JPMorgan’s Ethereum-based private blockchain network, Onyx Digital Assets. Read more

Various stablecoins will potentially be banned from the EU

In May 2023, the European Council approved the Markets in Crypto Assets Regulation (MiCAR), marking the first comprehensive regulatory framework for crypto assets. MiCAR aims to regulate, simplify, and secure the post-trading of crypto assets within EU member states. Due to MiCAR, some crucial stablecoins will exit the European crypto market at the end of June as they fail to meet the capital and transaction requirements. One of these stablecoins is Tether, which is used in most trading pairs on exchanges and represents almost 50% of all digital assets' trading volume.

This is a major blow for the European crypto market, potentially isolating it from other sectors, as most stablecoins struggle to meet the new requirements. Nevertheless, the stablecoin USDC, the second-largest stablecoin by market capitalization, does meet the requirements. It is expected that euro-denominated stablecoins will be developed to comply with these standards. For Hodl participants, we want to emphasize that the Hodl Funds are unaffected by these stablecoins exit, and our operations will continue seamlessly.

The European Central Bank cuts its interest rate

On June 6th, the European Central Bank (ECB) cut its interest rate by 25 basis points, lowering the deposit rate to 3.75%. Previously, the interest rate in the European Union had been at a record high of 4%, making this the first cut since 2019. With this move, the ECB joins other central banks such as those in Canada, Sweden, and Switzerland in lowering interest rates. Although this provided some relief for financial markets, the main focus remains on the Federal Reserve and its new dot plot.

Many analysts now believe the projection will show two or even just one rate cut for this year, instead of the previously expected three. Additionally, Senator Elizabeth Warren wrote a letter urging the Federal Reserve to follow the ECB’s lead, arguing that high rates are hurting the economy. However, it is highly unlikely that this letter will influence the Federal Reserve's decisions.

Bitcoin and Ether see significant inflow through investment products

In a report published by asset managers CoinShares on June 10th, crypto investment products amassed over $2 billion in inflows during the first week of June. Bitcoin and Ethereum led the way, with $1,973 million and $68.9 million respectively, out of the total $2,038 million. Additionally, trading volumes increased to $12.8 billion, 55% higher than the previous week. For Ether, this week was its best since March, primarily due to the surprise approval of its spot ETF by the Securities and Exchange Commission. While the appetite for crypto investment products fell during April and early May, it picked up again in mid-May, with the products amassing over $4.3 billion in five weeks.

Fidelity International launches tokenized fund on JPMorgan’s blockchain

Fidelity International, a London-based funds management firm that is part of Fidelity Investments, has tokenized shares of its money market fund using JPMorgan’s Ethereum-based private blockchain, Onyx Digital Assets. This isn't their first time experimenting with digital assets; they recently collaborated with Swiss bank Sygnum on a tokenization project. The industry is seeing more traditional financial institutions exploring digital assets. Last October, JPMorgan executed its first blockchain-based collateral settlement involving tokenized shares in a BlackRock money market fund. Recently, BlackRock further embraced tokenization through its first tokenized investment fund BUIDL which was launched on the public blockchain Ethereum.

In other digital assets news

  • The daily active users on Ethereum and its layer 2s have increased over 9X since 2020, although most of the transactions take place on these L2s due to cheaper and faster transactions.

  • The total value locked of the DeFi sector reached $192B for the first time in 15 months. This move is attributed to Ether’s significant price increase, propelling its ecosystem with it.

 

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