May 6, 2024

Kraken Head of Strategy Thomas Perfumo weighs in on overall performance across the crypto market and potential approval of spot Ether ETFs in the U.S. Plus, insights on growth in the DeFi space.

Video transcript

Thomas, what's your call of the day? I'm gonna play a little no Nostradamus here. I'm gonna say that we're gonna have another positive net inflow today for the Bitcoin ETF S Happy Monday. It's May 6th 2024. And this is Markets Daily a show where we get into the minds of some of the smartest and most experienced investors, traders, analysts, researchers, CEO S and anyone with a smart or hot take. I'm Jen Sani. Before we get into our discussion today, let's take a look at what's going on in the markets now, Bitcoin has erased last week's losses. Prices are up across the, of course, we saw Bitcoin make a recovery on Friday as we got cooler than expected us. April jobs data erasing concerns about higher interest rates. Following that report, market participants saw a 68% odd for at least one rate cut by September. That's according to CME fed watch data. If we take a look at prices now, Bitcoin is just under $64,000 and Ether is up over $3100 as of 8 a.m. Eastern time and the coin desk 20 index is up almost 1.5%. And on the ETF front, I have to say a big milestone for gray scale. They saw their first daily inflow after bleeding billions of assets. All right, let's make sense of what's going on in the markets this morning with Kraken, head of strategy Tomas. Perfumo, Tomas. Welcome back to the show. Hi, thanks for having me. Of course. Thanks for being here. Now, since you've been here, we do this fun thing where I ask you your call of the day. So let's just kick it off. Tomas. What's your call of the day? I'm gonna play a little no Nostradamus here. I'm gonna say that we're gonna have another positive net inflow today for the Bitcoin ETS. OK. I love that and tell me a little bit more about why you think it's going to be another positive day for the E ETF S. Uh The inflows have been kind of slow lately. Yeah. So we've definitely seen demand for the ETF slow down a little bit, but first and foremost, they're wildly successful still. So we're still at around $11.5 billion of total net inflows uh over the last 3.5, 4 months since the ETF launched and I like to compare this against the Spider Gold Trust GLD uh which was the most popular ETF product at the time for commodity. And that took over three years to get to that kind of level So us Bitcoin ETF starts still smashing those kinds of records. And even then uh the peak ETF A um uh when it comes to net inflows was about 12.5 billion. So we're only down about 8% from that peak level. So I like to contextualize this as kind of like a minor move. When you think about just Bitcoin prices in general, it's, it's a volatile asset at the end of the day. Uh But when it comes to the short term net flows, whether it's inflows or outflows, a lot of it is dictated by price action. And so with the price lifting, of course, you're gonna have a lot of demand today uh for the Bitcoin ETF given the fact that they have to chase the market closes on Friday versus Bitcoin being open 24 73 65. And so I think you have the price level impact and then you also have the broader us equity indices, for example, that are up on the day, at least a pre market. And so I think that also plays a role. I said at the beginning of the show, uh Bitcoin erased losses, we saw some traction over the weekend. What do you think is driving? Um The, we, we've actually been seeing a lot of action over the weekends over the past few months um in European trading hours as well. What do you think is driving that, you know, it's hard to say with Bitcoin because again, the, the market consolidates and it, and it ramps up and there's not always a clear catalyst for it. I think from my perspective, when you think about uh the ETF S because they've been such a powerful narrative, when it comes to the actual flows, them themselves, they occur mostly during the weekdays, right? They're not active on the weekends given the fact that the markets are closed in the equity markets here in the US, for example. And so that might be one factor at play here. But also let's contextual, contextualize this a little bit as well. So when I've looked at prior having, for example, or cycles, uh usually the price as of the having date or within 30 days, the low of that price represents the low of the entire four year cycle. Uh which is pretty interesting. And so if you believe that to be the case here, we've only had a drawdown of roughly 9% from the, the price on the having date down to the lows that we saw last week and we're already rebounding back up. And even then the volatility on Bitcoin is in the low 50% right now on an annualized basis. And that's quite low compared to historical standards when it comes to a lot of price action. So there isn't much signal to say that anything is like a massive departure from what we've seen in the past with Bitcoin. Where do you think the price of Bitcoin is heading? Oh man, I can't give price predictions. But as I said in the past, uh global adoption of crypto is still in that kind of early adopter phase. I think it goes a heck of a lot higher. And so uh corresponding with that kind of adoption trend, you do see a lot of demand and uh that's, that's the direction I see it going as well. I will always ask for a price prediction. I don't always get them, but I just got to ask. OK, I have to ask you another thing on the topic of ETF S, we saw Hong Kong uh launch ETF S over on that side of the world. I know CF benchmarks which is a cracking company predicts that $1 billion in assets under management um will be in the Hong Kong ETF S by the end of the year. Why do you think they've had a seemingly slow start? Uh the, the Hong Kong ETF versus the US Bitcoin ETF when it comes to like a um it, it's just really a market size question at that point. When you think about the US equity market, it's massive compared to most other countries and particularly Hong Kong, which is a much smaller population. So definitely not unexpected to see uh big differences between what us equity markets show when it comes to ETF S and then any really any country abroad, uh both in terms of size and style. You know, the ETF S for example, are very popular and well understood product in the US, maybe not so much abroad. All right, the summer months have been historically, uh kind of boring, right. There have been lower investor returns, especially in crypto markets. What do you think is gonna happen this summer? Do you think it's gonna be similar to the summers of the past June to September are gonna be boring. Everyone's gonna be on vacation, not paying attention to the markets. Yeah, I mean, this usually happens in equity markets too. Everyone calls it a sell in May and go away. And so I think with crypto, it might be a little bit different only in the sense that you have some catalyst coming up that I think are, let's call it on the time horizon of the next 36 months. And so you do catch some of the summer here, of course, the ETF for, for Ethereum and the decision around that's coming up in just about 2.5, 3 weeks. And so that's gonna be an important one as well and any follow on action or activity with respect to that, which I think may extend into the summer, of course, whether it's approved or denied. And then beyond that, you know, you still have uh kind of the what I call like the dark horse when it comes to a lot of the venture investments that were made uh 34 years ago, coming to fruition these things tech, uh typically mature over 3 to 4 year cycles. And so to the extent that we see any kind of real pickup in adoption or trends with those new applications that might prove interesting. And I've heard a lot of rumblings, for example, in Game five, which received a ton of funding in the last cycle. And so, uh perhaps we see some kind of a mystery event that, that we weren't expecting much like Dhi summer uh several years ago. You're not the first to bring up uh the Game Five theory on this show. So I wanna come back to it in just a second, but let's go to the E ETF S now. Uh do you think we're gonna see an approval in May? It's really hard for me to say we haven't seen as much detailed scoops or press coverage with respect to the theorem ETF like we did with the Bitcoin ETF in the fourth quarter of last year. Uh I will say that some analysis I've done on the gray scale, Ethereum Trust. Uh Ethe given the discount to net asset value on that one, I think the market's pricing closer to a 25% odds that it gets approved in three weeks. Uh Of course, if you think of it, you know, if you believe that it's going to get denied, uh the eventuality of it getting approved, I actually think is much higher. I think the market's pricing above fif well above 50% given today's price on e uh e when the gray scale Ethereum Trust. And so we'll have to see. I, I think the important thing here is that the market is already seemingly pricing in expectations that it might not happen or it's less likely to happen. Uh But from my perspective, there's not much difference between Ethereum and Bitcoin outside of the fact that you can stake Ethereum. And so uh from a technicality standpoint, I don't see why. Uh II, I would be very curious to see what the rationale is for blocking an Ethereum ETF in particular, there have been a lot of reports that the SEC is possibly looking at Ether as a security. Do you think that that could introduce some complexity to this? And we may not see an approval in May because of that, that's a little bit out of the realm of my expertise? I think this is also a reflection of some of the ongoing uncertainty when it comes to the regulatory side. So of course, you already have the CME for example, that's been trading Ethereum teachers for several years now and they treat Ethereum as a commodity. And so it's really difficult for me to uh lay down any kind of wisdom on this topic. Unfortunately, I think that was a great point to bring up that ether is already being considered a commodity, um, in different aspects. And so you did lay down some wisdom. Don't worry about that. And I want to get to game five. Now, before we wrap up, um, this conversation, any particular Game Five project you're watching. Nothing in particular. Actually, it's something that I haven't really explored too much lately. It's something that I'm actually trying to dip my toes in. Um, I've been more interested in like the D I side and some trying out really some of the decks that have been uh more notorious nowadays, like for example, Jupiter on Solana and whatnot. So I, I'm still yet to really get deep on the game I side. But again, when I go to dinners and meetings with others in the industry, it's typically a topic that comes up almost every time. Now besides ETF S. What are you watching? I mean, maybe let's venture into the D I space. You said you've been watching um D I very closely. Any particular project that you want to highlight or anything really interesting that's going on that you think uh investors, traders, people who are interested in the market should know about. I, I can't highlight any particular project, but I will say, I think what's been interesting in this cycle is just seeing the explosion of activity on des in general. Uh We're seeing like a lot of pick up. I think a lot of that has to do with scalability solutions that have come up, whether it's L twos or even really testing the limits of an L one like SOLANA, for example, uh where people can really cheaply transact either on the deck or even the creation of a new project. So that's been really interesting to see as a trend overall. And in general, defi, you know, total value lock has been keeping up pretty well. Uh If you look at it on a trend over the last several years, it's been doing pretty well itself. And then of course stablecoins provides another area of interest when it comes to D I. And you're seeing some experimentation there uh like for creating a stable coin that's based trading futures effectively. So I'd say that there's on the margin, like pretty interesting innovations happening and quite a bit of it from my side is interest in how changes in the the layer one layer two infrastructure is shaping or, or paving the way for new ways to express DFI in a way that's cheaper and more accessible to people. Tomas. Thanks so much for joining the show. Thank you.

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