Looking at the current state of the cryptocurrency market, there are reasons for optimism.

While the cryptocurrency industry may have experienced challenges and setbacks over the last year, there are already signs of a rebound and maturation in the sector. Crypto’s winter of discontent may be coming to an end.

One positive sign in cryptocurrency’s favour is the increase in the total value of coins locked into decentralized finance (DeFi) projects. Since the beginning of January, DeFi holdings have risen more than 25% and now sit at approximately $50 billion.¹ While lower than the $180 billion peak of December 2021, renewed growth in DeFi suggests a newfound maturity within the industry and a preference for quality over quantity.

Couple this with the growing value of Bitcoin and Ether since the start of this year, along with network upgrades and changing macroeconomic conditions, and there is reason for an optimistic outlook for the cryptocurrency sector.

Bitcoin and Ether rally in Q1

Data from the first quarter of 2023 reveals that Bitcoin’s return on investment (ROI) was 170.32% more than five major stock indexes. Bitcoin delivered returns of 69.4% during the quarter, while the average returns for the five indexes—the NASDAQ Composite, S&P 500, US Small Cap 2000, FTSE 100, and the Dow Jones Industrial Average—was only 5.5%.² All told, Bitcoin has already gained 84% in value this year.³

Ether, the second largest cryptocurrency, is also rebounding thanks in part to a successful network upgrade known as the Shanghai update. This update (the biggest change to a smart contract platform in the crypto industry since the Ethereum Merge of September 2022) allows investors to withdraw up to $36.4 billion in Ether coins that were locked up in exchange for rewards as part of a “proof-of-stake” system designed to protect the network.⁴ This development has the potential to attract billions of dollars into Ether, leading to a rise in its price above $2,100 in April, a level not seen since May 2022. Ether, which outperformed Bitcoin in both 2020 and 2021, has already gained 75% in value this year.⁵

What is noteworthy in each case is that while Bitcoin and Ether have seen significant appreciation in value, newer cryptocurrencies have not experienced the same level of growth.

Bitcoin’s first-mover advantage has always meant it had an advantage over its competitors. As the backbone of the digital asset ecosystem, the strength of the Bitcoin network means it faces less downside risk overall. And as the second most-established digital coin (and one with lots of room to grow relative to Bitcoin) Ether is likewise trusted due to its longevity in the market.

This preference for Bitcoin and Ether could indicate that investors are seeking quality and reliability in the cryptocurrency space, preferring the most established digital coins as investment returns to this asset class.⁶

Economic upheaval a boon for cryptocurrency

Why are cryptocurrencies seeing a resurgence now? Some macroeconomic factors are at play.

The fallout from recent bank collapses is one such reason. The failure of crypto-friendly banks, such as Silvergate Capital Corp., Signature Bank, and Silicon Valley Bank, has highlighted one of the primary purposes of cryptocurrency: as a hedge against the conventional banking system and fiat currency. Although these banks failed for other reasons, their unexpected collapse reminded investors of the potential benefits of using cryptocurrencies. As a result, cryptocurrency may once again become an attractive alternative to centralized financial systems in the eyes of investors.⁷

Another encouraging sign for investors is how traditional financial institutions have stepped in to fill the gap created by the loss of crypto-friendly banks. Nasdaq Inc., for example, plans to launch its digital asset custody services by the end of Q2.⁸

Recent decisions on interest rates in the United States and other advanced economies have also made cryptocurrency more attractive. After more than a year of rate hikes, the possibility that the U.S. Federal Reserve and other central banks might slow or halt the tightening of rates is in sight as inflation moderates. With the potential for borrowing costs to level off or begin to ease in the near future, crypto investment may begin to make sense again for more investors.⁹

Investing in Cryptocurrency with ETFs

Deciding which cryptocurrency to own and how much to allocate can be overwhelming for many investors.

Evolve’s Bitcoin ETF (EBIT ETF) is one of the world’s first bitcoin ETFs and provides investors with a simple and efficient way to access the price of Bitcoin through a secure investment solution. For more information on this fund, visit https://evolveetfs.com/ebit/.

Evolve’s Ether ETF (ETHR ETF) is the world’s first Ether ETF and offers a great way for investors to access the price of Ether through a secure investment solution. For more information on this fund, visit https://evolveetfs.com/ethr/.

For a more diversified cryptocurrency investment solution, the Evolve Cryptocurrencies ETF (ETC ETF) is Canada’s first multi-crypto ETF. ETC ETF is designed to be a one ticket solution to cryptocurrency exposure. It is market cap weighted and rebalanced monthly. It currently holds Bitcoin (TSX: EBIT) and Ether (TSX: ETHR) but as regulators approve other crypto ETFs, they may be added as well. For more information on this fund, visit https://evolveetfs.com/etc/.

To stay updated with insights on investing in cryptocurrency and related investment products, sign up for our weekly newsletter here.

 

Sources:

1. Regan, M. & Irrera, A., “Bitcoin Surged Past $30,000. Is Another Crypto Boom on the Way?,” Bloomberg, April 15, 2023; https://www.bloomberg.com/news/articles/2023-04-15/is-bitcoin-s-btc-rally-to-30-000-the-start-of-a-new-crypto-boom
2. Baltrusaitis, J., “Bitcoin outperforms top five major indexes by 170% in Q1, 2023,” Finbold, April 6, 2023; https://finbold.com/bitcoin-vs-indexes-q1-2023/
3. Regan, M. & Irrera, A., “Bitcoin Surged Past $30,000. Is Another Crypto Boom on the Way?,” Bloomberg, April 15, 2023; https://www.bloomberg.com/news/articles/2023-04-15/is-bitcoin-s-btc-rally-to-30-000-the-start-of-a-new-crypto-boom
4. ibid
5. Macheel, T., “Ether rises above $2,000 after the Shanghai upgrade, bringing year-to-date gain to more than 75%,” CNBC, April 13, 2023; https://www.cnbc.com/2023/04/13/ether-rises-after-the-shanghai-upgrade-bringing-year-to-date-gain-to-more-than-65percent.html
6. Regan, M. & Irrera, A., “Bitcoin Surged Past $30,000. Is Another Crypto Boom on the Way?,” Bloomberg, April 15, 2023; https://www.bloomberg.com/news/articles/2023-04-15/is-bitcoin-s-btc-rally-to-30-000-the-start-of-a-new-crypto-boom
7. Baltrusaitis, J., “Bitcoin outperforms top five major indexes by 170% in Q1, 2023,” Finbold, April 6, 2023; https://finbold.com/bitcoin-vs-indexes-q1-2023/
8. Regan, M. & Irrera, A., “Bitcoin Surged Past $30,000. Is Another Crypto Boom on the Way?,” Bloomberg, April 15, 2023; https://www.bloomberg.com/news/articles/2023-04-15/is-bitcoin-s-btc-rally-to-30-000-the-start-of-a-new-crypto-boom
9. Baltrusaitis, J., “Bitcoin outperforms top five major indexes by 170% in Q1, 2023,” Finbold, April 6, 2023; https://finbold.com/bitcoin-vs-indexes-q1-2023/

 

The contents of this blog are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. These contents are not an offer or solicitation of an offer or a recommendation to buy or sell any securities or financial instrument, nor shall it be deemed to provide investment, tax or accounting advice. The information contained herein is intended for informational purposes only.

Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds (funds). Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. There are risks involved with investing in ETFs and mutual funds. Please read the prospectus for a complete description of risks relevant to ETFs and mutual funds. Investors may incur customary brokerage commissions in buying or selling ETF and mutual fund units.

Certain statements contained in this blog may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Evolve Funds undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.