Idiosyncrasy in Market Volatility

Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any of the assets or projects discussed on this website.

‍

Blackrock Making More Moves

Largely overshadowed by the swings in the market, Blackrock announced an intriguing step forward towards enabling institutional adoption of tokenized assets. Specifically, the $10T asset manager announced its “BUIDL” fund for institutional investors, providing direct on-chain ownership, trading and settlement of the tokenized positions. 

Per Blackrock: 

BUIDL “expand[s] investor access to on-chain offerings, providing instantaneous and transparent settlement…[and] seeks to offer a stable value of $1 per token and pays daily accrued dividends directly to investors' wallets as new tokens each month. The Fund invests 100% of its total assets in cash, U.S. Treasury bills, and repurchase agreements, allowing investors to earn yield while holding the token on the blockchain. Investors can transfer their tokens 24/7/365 to other pre-approved investors”

What makes this move so interesting is that Blackrock elected to issue these assets directly on Ethereum, a fully open and permissionless public blockchain as opposed to their own private/federalized chain. For many in the market, this is viewed as a potential harbinger of newfound interest in “Real World Assets”, that is, the tokenization of off-chain or traditional assets such as treasuries, credit, trade finance, carbon credits and real estate.

Having eclipsed $1.5B in total active loans last cycle, RWAs have been staging a moderate comeback since early 2023. Below showcases several RWA projects, but this is by no means exhaustive. Blackrock normalizing this sector would go a very long way towards nudging these projects’ offerings into more widespread adoption by investors. Note that Franklin Templeton has long-offered an onchain government money market fund, FOBXX, available through their own Benji app with $324M in total net assets currently. The institutional focus of Blackrock’s offering is what sets it apart. 

‍

‍

In response, projects in this vertical caught substantial bids over the following week despite the market being largely down otherwise: Ondo (61%), Centrifuge (33%), Polymesh (73%), Pendle (33%), Maple (56%), TokenFi (105%), were all up substantially, to highlight but a few. It will be interesting to watch if the digital asset hot-ball-of-money continues to flow towards these projects or if attention begins to wane once again.

‍

Elsewhere: Uncertainty

Bitcoin and the markets broadly sold off over the past week before rebounding again, seeing BTC briefly fall below $62,000 and ETH flirt with $3,000 after having crested $4,000 just 1 week earlier. Given the recent rapid run up in the market and further complications introduced by the upcoming halving and a moderation of BTC ETF flows, participants seem to be largely uncertain of where things are heading in the near term.

Implied volatility has reached its highest level since November 2022 per DVOL (implied volatility index). Interestingly, given the unique ability of digital assets to see massive intraday price movements in either direction, implied volatility effectively signals both fear and greed, as opposed to e.g. the VIX which is largely seen as a barometer for stress in the markets. That is to say, the markets have been increasingly expecting some major movements and any triggers could lead to outsized short term impacts, up or down.

‍

‍

Enter the halving and a sudden drop in BTC ETF Flows. 

While one would assume the impact of the upcoming halving has long been priced in – it is after all literally programmed to occur when Bitcoin’s block height hits 840,000 -  historically this has led to major downside price movements a few weeks ahead of it happening, but followed by sustained upwards trends. It appears that, at least so far, this time is no different, with a major sell off just 4 weeks out from the expected adjustment (now expected to happen April 15).  For a deeper discussion of these dynamics, Glassnode has an excellent in-depth analysis here. 

‍

‍

As mentioned above, the rising volatility in the markets has been signaling major swings in the near-term. Last week, the market got a major negative trigger to react to: BTC ETF flows moderated  substantially, overwhelmed by the outflows from Grayscale’s GBTC, leading to just the second net-negative week since launches in January. See our piece from last week for a more detailed discussion of these spot BTC ETFs and other potential market catalysts. While these flows have largely been positive and substantial, there has been a certain level of volatility to them. Whether these newest numbers are an indication of a longer-term reduction in flows or if it is just an idiosyncratically down week remains to be seen. We are of the view that the long-term inflows are far from finished given how much of the market is still waiting for access to these ETFs but will be watching closely to see if this is the new lower-for-longer trend now that the pent-up demand has subsided.

‍