Traditional Assets Surpass Crypto Performance in Q2

Investing.com – In its latest research report, Canaccord Genuity noted that the digital assets market experienced mixed performance in the second quarter, despite increased interest in exchange-traded funds (ETFs). The performance of cryptocurrencies lagged behind more traditional assets.

Key events, including the Bitcoin halving and the SEC’s approval of spot ETFs, did not significantly impact Bitcoin’s price, which remained relatively stable. Canaccord attributes this stagnation to ongoing regulatory challenges, macroeconomic uncertainties, and a natural cooling off following a strong first quarter.

Nevertheless, the broker observed a clear maturation within the institutional investor base for cryptocurrencies. Canaccord Genuity highlighted that favorable supply-demand dynamics following the halving could bolster positive momentum for Bitcoin’s price, particularly with the anticipated approval of spot Ethereum ETFs likely to enhance institutional interest in various digital assets.

The SEC’s approval of both Bitcoin and Ethereum spot ETFs represents a significant development for the industry. Although cryptocurrency prices experienced a dip in the first quarter, potential inflows from ETFs could shift this trend, especially as retail investors look to incorporate crypto into tax-advantaged accounts. Canaccord anticipates that spot ETFs will increasingly influence cryptocurrency price movements in the future.

During the second quarter, inflows into Bitcoin ETFs decreased from the highs seen in February. However, the potential for Bitcoin ETFs remains in its infancy, with over half of the largest hedge funds globally now trading or holding spot Bitcoin ETFs. Notably, major institutions have begun to disclose their holdings, and the SEC may soon approve spot Bitcoin ETF options.

In the second quarter, the SEC greenlit initial applications for approximately eight spot Ethereum ETFs. Final approval of these registrations could lead to trading starting as early as July 8, creating a significant opportunity for Ethereum and the broader market.

Additionally, digital assets have emerged as a crucial topic in the run-up to the 2024 U.S. elections, with candidates increasingly adopting supportive positions toward cryptocurrencies. While the SEC continues to be cautious about approving key crypto IPO applications, progress has been made in the House committee regarding a stablecoin bill.

Aside from Bitcoin, the digital assets ecosystem remained resilient in the second quarter, staying above its lows for 2023. Layer 2 solutions have outperformed Ethereum’s Layer 1, with Coinbase’s BASE surpassing Optimism to become the second-largest Layer 2 within a year of its launch. Furthermore, the total value locked (TVL) in the DeFi project EigenLayer has exceeded $20 billion.

New infrastructure developments have enhanced the accessibility of digital assets, and the potential for a “killer app” to onboard thousands of new users has become more realistic due to efficiency improvements across Layer 2 solutions.

Canaccord Genuity remains optimistic about the approval of Bitcoin and Ethereum spot ETFs. While the macroeconomic outlook and timing for potential rate cuts are uncertain, the evolving regulatory environment and increasing institutional interest could foster positive momentum for digital assets in the future.