Ben Strack and Casey Wagner are pleased to welcome you to the On the Margin Newsletter. You’ll discover the following in this edition:
- What is the history of? “reputation risk” The allocations of advisers to institutions that allocate crypto in certain ways has reversed.
- NVIDIA’s Q2 Results are about to be released. You should know what you can expect.
- What should you make of the upcoming crypto-related Russian tests?
More institutions viewing digital assets as ‘inevitable’
It used to be “reputation risk” For financial advisors and institutions, the crypto segment is a mystery.
This has now changed, as the regulatory development (and tools for gaining access to a category) continues to multiply.
“What we’ve seen now with the spot bitcoin and spot ethereum ETFs is that risk, in a lot of ways, has inverted,” said Grayscale Investments managing director John Hoffman. “Investors now see they have potential career risk and reputation risk if they have not done the work on this asset class.”
What is the reason? Hoffman said to Blockworks “Their clients are asking them about this space now in a much more pronounced way than we’ve ever seen before.”
It is a combination of survey results and commentary from executives compiled into the OKX Report on Wednesday. The results reflect the sentiments expressed at a Dubai Roundtable Discussion hosted by the Crypto Exchange in Q2.
Asset management and banking customers seeking out this exposure coincides with institutional recognition that crypto assets have low correlation to equities and fixed income — making them a good portfolio diversifier.
Rams Kanouni is the chief executive officer of Capmetric. He notes in his report that cryptocurrency can be used as a hedge to inflation. Stablecoins are often seen as an alternative to cash by many.
Regulatory disclosures this year have indicated that institutions — from hedge funds and RIAs, to the state of Wisconsin — are holding bitcoin ETFs.
Hunting Hill Global Capital increased its exposure to BlackRock BTC and Bitwise BTC Funds in Q2. Adam Guren of Blockworks told Blockworks the crypto market not only has high potential returns, but it can also help to counteract traditional market volatility.
He added that decisions to increase or reduce the firm’s crypto holdings would depend on market liquidity and political benefits for crypto-products. Also, opportunities for ETF trading will be considered. Hunting Hill’s analysis of crypto-credit markets is also crucial for such assessments.
OKX quotes a survey indicating that institutional investors are expecting crypto to account for 7.2% of portfolios in 2027. Guren noted that current crypto allocations typically span from 1% (conservative) to as high as 10% — a range consistent with financial advisers I spoke with a few months back.
Some people are waiting for real-world tokenization to take place if they’re not interested in cryptoassets.
In a survey conducted in 2023, a third (33%) of hedge funds cited tokenization as their most important future market. BlackRock, Franklin Templeton and State Street are among the financial titans that already provide tokenized money-market funds.
“What’s clear is that institutions see digital assets as inevitable, as…securities, bonds and central bank digital currencies are tokenized on the blockchain,” Lennix Lai, OKX’s chief commercial officer and Blockworks.
A further point was made “forcefully” Throughout the roundtable, Mr. Addison said, more clarity in regulatory matters will be crucial for institutional adoption.
Jagadeshwaran Kottidapani, a Citi Services representative, asked, for instance, if fiat currencies that operate as tokens using distributed ledger technology are considered currencies (for purposes of regulation) or assets.
You also have to take into account the timeframe. Lai noted that he was surprised by the confidence of participants in regards to this revolution’s speed and scope.
Anthony Scaramucci, founder of SkyBridge Capital and quoted by the report in this article as saying that mainstream consumers will adopt SkyBridge Capital. “seamlessly” In the next 10 year, you may be doing business on blockchains without even realizing.
Many people seem to have the same idea. All that remains is for it to unfold.
— Ben Strack
9
Number of consecutive trading day the US spot ETF segment net outflows. Grayscale Ethereum Trust has been the main beneficiary of the investor’s capital. Other products, however, haven’t managed to compensate for the loss.
Bitcoin funds have seen net inflows in eight out of nine of the past days. For the BTC spot segment, seven consecutive days were recorded as being the longest outflow (occurring in both April and June).
Further education about Ethereum — particularly among financial advisers and institutional investors — is likely to be a flow catalyst coming out of the summer doldrums, and beyond.
You better not crash NVIDI!
NVIDIA’s Q2 earnings will be released this afternoon, after the closing bell.
NVIDIA is the main beneficiary of AI so far. The shares are up by 158% in the last year and nearly 2,900% for the past five.
Analysts have called it the largest stock on the planet. NVIDIA will be able to either reinforce or derail the AI narrative, which markets are so fond of. Given that it’s now more than 6% of the S&P 500, its earnings are going to have a ripple effect on tech stocks and beyond.
There’s no pressure at all, right?
NVIDIA has seen triple-digit increases in revenue over the last three quarters. Analysts are predicting that today’s announcement will be no exception. The analysts expect the revenue to increase by 112% in the quarter. However, this would still be lower than NVIDIA’s earlier performance.
Listen to what executives are predicting for the next quarter on their earnings call today. For sustained growth, it will be important to demand that AI capabilities are built out.
“Good news feels baked in; bad news, not yet,” Noelle Acheson (author of Crypto is Macro Now) spoke about NVIDIA’s impact on earnings.
The market seems to have recovered somewhat from its decline earlier in the summer, which was largely driven by Japanese rates of interest and US employment woes. NVDA shares were trading at roughly $124 at 2 pm ET Wednesday — down from a high of about $136 in July.
Holders of NVDA, I wish you luck. You could also say, “Good luck to everyone who holds any kind of asset.”
Russian cryptomoves
Bloomberg said this week that Russia will soon begin testing crypto exchanges, as well as cross-border crypto payment. Bloomberg reported this week that Russia is poised to start testing out crypto exchanges and cross-border crypto payments.
According to reports, the country will begin testing such systems on September 1.
In June, US officials announced that they would be imposing greater restrictions on the foreign banks and other entities that assist Russian companies in settling payments for their exports.
In the month following, the Russian parliament approved bills that legalized crypto mining. They also paved the way for the testing of crypto-cross-border payments under the supervision of the central bank. Putin has signed these bills into law.
OFAC oversees US sanctions. “takes the view that its sanctions apply to activity conducted in cryptocurrency,” according to Steptoe & Johnson attorney Evan Abrams.
In 2022, regulators around the globe were still trying to isolate Russia from the global financial systems. They were concerned about how and whether Russian entities would be able to use cryptocurrency to avoid sanctions imposed on them by the US.
Industry experts believe that Russia’s recent move into crypto has implications far beyond possible sanctions evasion.
“America has a choice,” Blockworks President Chris Perkins spoke to CoinFund president Chris Perkins. “It can allow its adversaries, like Russia, to lead in their adoption of emerging technology, like crypto payments. Or it can pass principles-based stablecoin policies that improve the system and enhance national security.”
Bulletin Board
- OpenSea was the most recent company to receive an SEC Wells notice. Devin Finzer stated that OpenSea believes NFTs are securities. “ready to stand up and fight.”
- Bitcoin briefly fell below $58,000 in the middle of Wednesday’s day before rising to $58,690 at 2pm ET. Ether’s price had fallen to about $2,460 before it rebounded to $2,500.
- XBTO Global’s CEO Philippe Bekhazi spoke of recent crypto price drops and said they could partly be attributed to Telegram founder Pavel Durov being arrested. “Telegram is home to many crypto discussions and deals, and as we don’t yet know the extent of the crackdown, there is some fear and nervousness across the community,” Bekhazi replied via email. CNN reported on Wednesday that French police had released Durov and taken him before a court to be questioned.
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