Research Summary
The report provides a comprehensive analysis of the digital asset market in September 2023. It covers market fluctuations, key events, and regulatory developments. The report also discusses the performance of Bitcoin and Ether, the Federal Reserve’s decision to maintain the federal funds rate, and the Financial Accounting Standards Board’s (FASB) approval of fair value accounting for digital assets. It also highlights Citigroup’s expansion of digital asset offerings and the filing for approval of the first spot Ether ETF by Ark and 21Shares.
Key Takeaways
Market Fluctuations and Performance
- Bitcoin and Ether Performance: Despite a drawdown of 9% and a subsequent rally of 8%, Bitcoin ended September down by around 3.5%. Ether followed a similar trajectory, declining by 10% before recovering around 7% to finish the month down by approximately 4%. This resulted in a year-to-date (YTD) price appreciation of 63% for Bitcoin and 38% for Ether.
Regulatory Developments
- Federal Reserve’s Decision: The Federal Reserve decided to leave the federal funds rate unchanged from a target range of 525 – 550 bps. Fed Chairman Jerome Powell maintained his hawkish stance towards fighting inflation.
- FASB’s Approval: The Financial Accounting Standards Board (FASB) approved fair value accounting for digital assets, which will allow entities to report the value of their digital assets at market value.
Corporate Developments
- Citigroup’s Expansion: Citigroup announced the expansion of its digital asset offerings through an expanded custodial partnership with BondbloX Bond Exchange (BBX) and the launch of a pilot tokenizing client deposits.
- Ark and 21Shares’ Filing: Ark Invest and 21Shares filed for regulatory approval for the first spot Ether ETF.
Industry Events
- Future Proof 2023: The conference focused on preparing wealth managers for the inevitable change and evolution that technology will bring to financial markets. The perception of digital assets from these advisors was overwhelmingly positive.
- Permissionless II: The conference focused on the intersection of digital assets, decentralized finance (DeFi), Web3, technology, and the future of finance. The event highlighted the need for a regulatory path forward for digital assets.
Data Points
- Ethereum’s Layer 1 and Layer 2 Transactions: While the number of transactions on Ethereum’s base layer (L1) has barely changed, Layer 2 usage is increasing. Layer 2 transactions have grown more than 180% YTD.
- Bitcoin Address Count: Bitcoin saw an uptick in active addresses over the past month, representing an upward trend in active addresses after a drop-off in May.
Actionable Insights
- Monitor the Performance of Digital Assets: Investors should keep a close eye on the performance of Bitcoin and Ether, given their significant price fluctuations and overall market influence.
- Understand Regulatory Changes: The approval of fair value accounting for digital assets by the FASB is a significant regulatory development. Investors should understand its implications for the valuation and reporting of digital assets.
- Assess Corporate Developments: Citigroup’s expansion of its digital asset offerings and the filing for approval of the first spot Ether ETF by Ark and 21Shares are notable corporate developments. Investors should assess their potential impact on the digital asset market.
- Consider the Impact of Industry Events: The insights and discussions from industry events like Future Proof 2023 and Permissionless II can provide valuable perspectives on the future of digital assets and the broader financial market.
- Analyze Key Data Points: The growth of Layer 2 transactions on Ethereum and the increase in active Bitcoin addresses are important data points. Investors should analyze these trends to gain insights into user behavior and market dynamics.
