Is the crypto winter over?

The speakers were Torsten Dueing, head of ETF platforms at HANetf, Bradley Duke, co-founder and CEO of ETC Group, John Freyermuth, crypto research analyst and strategist at Enigma Securities and Tom Bailey, head of research at HANetf

The future forecast of the crypto winter, innovation in the crypto exchange-traded product (ETP) space and an update on the regulatory landscape were the topics covered in ETF Stream’s webinar with HANetf.

The discussion, titled Is the crypto winter over?, began by noting that while the current crypto drawdown – also known as a ‘crypto winter’ – started almost a year ago, broader macroeconomic conditions from the onset of 2022 and the impact of the terra/luna collapse has also contributed its downward trajectory.

Despite this, John Freyermuth, research analyst and strategist at Enigma Securities, said potential demand drivers for crypto over that period were wiped out by the collapse of terra, which sent shockwaves through the ecosystem.

“During the early days of the Russian invasion of Ukraine there were some potential bull cases and demand drivers, but those stories disappeared in May when the terra ecosystem collapsed. That shocked in ways that we have never seen before,” he said.

Bradley Duke, co-founder and CEO of ETC Group added that the collapse was an “important moment in the history of crypto” that brought a lot of crypto natives back down to earth.

“There was a euphoric belief that with crypto and digital assets the rules were being rewritten, that is true to an extent, but what is not being rewritten is the very real relationship between risk and rewards. That is very well understood in traditional finance,” he said.

The panel also noted that the terra crash, which caused some ETP issuers to shutter products tracking the coin, has impacted what issuers place inside of the wrapper in the future.

Tom Bailey, head of research at HANetf, said: “Issuing an ETP is not necessarily an endorsement of the coin itself. ETC Group, which HANetf partners with will always ensure robust criteria is met to ensure we are not putting junk inside of the wrapper.”

Assessing how investor’s view cryptocurrency in correlation with other assets, a recent survey by HANetf found that 40% of respondents viewed the asset class as most similar to gold, while 30% said it is most similar to tech stocks.

Year to date, the Nasdaq 100 is down 35.2% versus 51.4% for bitcoin.

Bailey added: “It depends on what kind of asset class you see crypto as, it is too early to have a clear idea on how crypto is meant to behave in different market environments and also in comparison to other assets.”

A busy year for crypto

Another landmark moment for cryptocurrencies this year was the ethereum merge from a proof-of-work (PoW) to a proof-of-stake (PoS) network.

ETP issuers have reacted to the change with ETC Group launching a new ethereum ETP that will rely on the coin’s PoW network. The ETC Group Physical EthereumPoW (ZETW) launched ahead of the merge on 16 September.

Duke said: “It all goes back to transparency, we wanted investors in our ethereum product to have the same opportunities as someone invested directly into the cryptocurrency token.

“We did not want to speculate on the outcome of the fork and we certainly were not endorsing the fork itself.”

Regarding the future innovation in the crypto ETP space, Torsten Dueing, head of ETF platforms at HANetf said regulation will help with this but added investors must educate themselves to start driving demand for new products.

“When you have a basket of equities tracking the European market you have an intuition of what company does what, and that really needs to be picked up in the crypto space,” he said.

“Adopting to the demands of the investor base would help drive innovation forward in Europe, but in terms of product innovation, we are really at the very early stages.”

Duke added: “There is a lot of innovation going on in the crypto space, we are at the very early stages of a remarkable technology shift. Developers will continue to innovate, it is just a matter of selecting which of those innovations are suitable for an ETP wrapper.”

To watch the full webinar, click here.

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