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October 10, 2023

Bitcoin ETF; MakerDAO; Coinbase in Singapore

Welcome to Swarm Markets’ media memo. This weekly update provides comments from Swarm Markets’ co-founders, Philipp Pieper and Timo Lehes, on key industry news that has caught our eye, plus our own developments.


Comments available on the following news items:


  • Crypto ETF market is changing even before bitcoin approval
  • Real world assets drive MakerDAO’s success
  • Singapore emerging as eastern crypto hub as Coinbase gains license


Crypto ETF market already adapting as sector awaits bitcoin approvals


The entire crypto market appears to be holding its breath while it waits for the US SEC to begin approving bitcoin spot ETFs. But in the meantime it would appear asset managers are already beginning to adapt their offerings depending on what happens next in the market.


There is evidently an increasing move from smaller providers such as Valkyrie and VanEck to diversify out of bitcoin and into ether. This will give them an added selling point once the big institutional players are unleashed onto the bitcoin ETF market. These smaller firms are in danger of being wiped out by the big institutions if they don’t do so. 


In time, moving on chain will cut costs, which is important for the smaller players, especially if there is a race to the bottom on pricing – BlackRock and Invesco can afford to undercut others to secure bigger market share. These firms are looking at this not only from a distribution perspective but also better fund administration.


But they’re in danger of getting caught in the middle because the regulator is still eyeing them up – hence Valkyrie announced they were starting ETH futures purchases then suddenly did an about face and said they were waiting for final sign off.


Beyond this there is a real need for more institutional products related to crypto such as derivatives and structured products. It’s too capital intensive for some firms to hold crypto on balance sheets – with enormous capital requirements. 


Derivatives are needed so institutions can offset their spot trading. Many TradFi institutions don’t want to be responsible for their own private keys either which makes providing these institutional products a great opportunity for well-placed DeFi providers.


MakerDAO profits from real world asset focus


MakerDAO’s recent successes stem from its usage of real world assets (RWAs) to underpin its business model.


The decentralized lender has seen its native token soar in the past few months while much of the rest of the crypto market has languished in the doldrums. The token is now around an 18-month high. The firm took the step in 2022 to back its stablecoin DAI with RWAs such as treasury bills and corporate bonds. 


This has been a savvy move from an investment perspective, but it is also a logical step for a DeFi provider looking to base what it offers in tangible assets. This melding of the technology with assets which investors understand the value of is a powerful combination, which is playing out now in the success of the token. 


Essentially investor capital, which is blockchain-friendly, is surging toward MakerDAOs token because it offers all of the upside of crypto technology with a much clearer picture of the inherent risk. Although the surge in price is not likely to be sustained, there is an element of price discovery at play as investors figure out a natural level for such a token with the back of RWAs.


The organization has now passed a proposal allowing it to invest up to $6 billion in T-bills, double the current limit. It is a ticket to expand its RWA base which could be further inducement for investors to consider. 


Singapore’s constructive framework is making it Asia’s crypto capital


Coinbase has gained approval for a payments license in Singapore, a banner provider in what is a burgeoning sector in Southeast Asia. It would appear in one part of the world we’re beginning to see winners and losers emerge. 


Singapore is benefitting from the effects of regulatory hardship in the US, constructive progress on crypto regulation from the Monetary Authority of Singapore (MAS) and the trouble ongoing for some time in its regional competitor Hong Kong. These push and pull factors are giving real strength to the country’s appeal and turning Singapore into a significant emerging leader in the APAC region. 


Swarm is seeing a healthy amount of interest from institutional investors in this area of the world to build derivatives products on top of our tokenized assets. Among Swarm’s retail users, the top five include those from Indonesia and Australia. APAC investors traditionally have a higher risk appetite when it comes to trading, so that, plus clarity from the regulator could be driving adoption. 


The lack of specific market hours in DeFi also becomes a very real value proposition for firms sitting in these jurisdictions. Rolling market timings can create real practical problems but the emergence of DeFi trading and the technologies which underpin 24 hour secure transactions and settlements have the potential to really open markets to underserved regions.