Markets Daily

Crypto Update | Rising Venture Capital Investment in Crypto

Noelle Acheson, the mind behind the Crypto Is Macro Now newsletter, explores new inflows into the crypto ecosystem, inflation, a false XRP ETF report and more.

November 14, 2023

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This episode was hosted by Noelle Acheson. “Markets Daily” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl. All original music by Doc Blust and Colin Mealey.

Audio Transcript: This transcript has not been edited and may contain errors.

It’s Tuesday, November 14th, 2023 and this is Markets Daily from CoinDesk. My name is Noelle Acheson, CoinDesk collaborator and author of the Crypto is Macro Now newsletter on Substack. On today’s show we’re talking about new inflows into the crypto ecosystem, inflation, a false report and more. So you don’t miss an episode, be sure to follow the podcast on your platform of choice, and turn on notifications. And just a reminder, CoinDesk is a news source and does not provide investment advice.

Now, a markets roundup.

Crypto prices were heading down earlier today, but then we got some good news on U.S. inflation, I’ll talk more about this in a moment. This has turned the mood around, with many assets clawing back some of the day’s losses. According to CoinDesk Indices, at 9 a.m. Eastern time today, bitcoin was trading at 36,546 dollars, down almost 1% over the past 24 hours, although up 1.5% over the past hour.

Ether was trading down three quarters of a percent over the past 24 hours, at 2,043 dollars. Elsewhere, Cosmos, Filecoin and the Lido DAO token were down 9%. Dogecoin and Shiba Inu were down around 4.5%. Solana and Polkadot were down 3.5%, Chainlink and Tron were down 4%.

Ripple’s XRP token had an interesting day yesterday. A tweet reported that BlackRock had filed for an XRP trust in Delaware. This was taken as a sign that the asset manager was planning to file a proposal for a spot XRP ETF, and the asset jumped 12% in just a few minutes. The news turned out to be fake, however – I mean, it’s very, very unlikely BlackRock would file for an ETF based on an asset that not only doesn’t have a CME derivatives market, but is still in active securities litigation.

Needless to say, the XRP price corrected sharply shortly after, with both moves triggering significant losses in derivatives positions. Earlier today, XRP was still up over the past 24 hours, but only around 1%.

In macro indicators, the U.S. inflation data for the month of October is in. And it came in soft, which is very good news. To recap, in September, the headline CPI index increased by 3.7%, and consensus estimates for October pointed to a 3.3% increase. That itself would have been good. But the number came in even softer, at 3.2%.

Even more relevant for the U.S. Federal Reserve is the core CPI index, since this strips out the volatile components of food and energy. In September, core CPI jumped by 4.1% year-on-year, and expectations were for that rate of increase to hold steady in October. The actual figure came in at 4.0%, the smallest increase since September 2021.

According to the Bureau of Labor Statistics, shelter accounted for the bulk of the increase in the core inflation index, but much less so than expected.

And it seems lower energy prices are also doing their bit. On a monthly basis, core CPI grew by 0.2%, less than expected. This brings the three-month average monthly gains for the index down to 0.3%, lower than last year’s average of 0.5%. The average needs to come down further to give the Fed some breathing room, but it is progress.

A U.S. rate hike at the December FOMC meeting was unlikely anyway, given market tension, geopolitical fragility and the likelihood of a government shutdown starting this weekend. This release now takes that totally off the table. As we head into record, U.S. yields are heading down, with the 10-year treasury yield plummeting down below 4.5%.

In stocks, the leading U.S. indices were largely flat yesterday as investors were holding their breath for the inflation report. The good news in figures has given the market a jolt of energy, with futures pointing to a very strong open.

European indices were more positive yesterday, with the FTSE 100 up 0.9%, the German Dax up six tenths and the Eurostoxx 600 up three quarters of a percent. The U.S. figures are extending this trend for the Dax and the Eurostoxx indices. The FTSE 100 this morning is slightly down, as investors digest the UK cabinet reshuffle.

In Asia, stocks were cautiously positive, with both Japan’s Nikkei index and China’s Shanghai Composite climbing three tenths of a percent, and the Hang Seng losing almost two tenths.

In commodities, oil continues to head up, despite a report out this morning from the International Energy Agency that insists global oil markets won’t be as tight as expected this quarter – the agency recognizes that demand is growing, as OPEC said yesterday, but non-OPEC supply apparently is growing even more. The market doesn’t seem convinced yet, however, and the Brent crude benchmark is up four tenths on the day, trading at 83 dollars and 67 cents a barrel.

After falling more than 1% yesterday, gold today is benefitting from a drop in the dollar DXY index as U.S. yields digest the good inflation figures. Earlier today, gold was trading up over half a percent, at 1,956 dollars per ounce.

Stay with us – after the break we’re going to talk about new crypto investment.

Welcome back! Today I want to talk about new money coming into the crypto ecsosytem. We can see this in two channels – there’s new money coming into the market, via investment in crypto assets. And there’s new money coming into crypto businesses via venture capital funding.

In the market, one way to keep an eye on this is the CoinShares weekly funds report that I’ve mentioned on previous episodes. It doesn’t cover all new money coming in, just net new inflows into listed crypto-linked funds. But it’s a good proxy for overall interest.

The latest report published yesterday revealed the third consecutive week of strong inflows. This brings the year-to-date total to $1.14 billion dollars, making this the third strongest year ever for inflows – and the year’s not over yet.

As usual, most of the inflows went into bitcoin funds. But ether funds also did very well, for the second week in a row, which signals a strong turn in sentiment around the asset. The category with the strongest net outflows was short bitcoin funds, which bet on the asset’s price dropping. There seems to be less conviction there.

Moving on to new money coming into the crypto ecosystem as a whole, I’ve noticed a pickup in announcements of new funds gearing up to invest in crypto startups. And I’m not referring to teensy tiny raises, either – we’ve seen quite a few of those over the past few months. The ones I’m noticing now are orders of magnitude more substantial.

This matters for markets in that it brings more capital into the industry, which supports asset investors by helping to develop new services and applications, broaden networks and improve overall market participation and liquidity. And, it’s an indicator of increasing institutional interest.

Here are a few examples:

Late last week, the venture capital arm of Standard Chartered Bank announced a joint venture with Japan’s SBI Holdings. Standard Chartered is one of the largest multinational banks in the world, and SBI Holdings is a Tokyo-based financial conglomerate spun off from SoftBank. The joint venture will be based in the United Arab Emirates, and will invest $100 million dollars in digital asset ventures.

Also, Amsterdam-based crypto venture capital firm Maven 11 announced the launch of its third fund, targeting a raise of $100 million dollars. And venture capital fund Lightspeed Faction announced a $285 million dollar fund to invest in early-stage blockchain projects. That’s not all. Yesterday, Japan’s SBI Group, which I mentioned earlier, unveiled a $660 million dollar fund to invest in web3 and metaverse companies.

Put together, or even taken individually, that’s a lot of new money coming into crypto, and is a very welcome sign that spring is definitely here after the venture funding winter startups have been coping with for the past year.