The month in brief

April brought a general cool-down and range-bound environment after a red-hot Q1, with the peak and downturn of cumulative flows into the US ETFs highlighting the at least temporarily flagging momentum.

While trading volumes remained strong, at $1.6 trillion in monthly spot exchange trading volume, this was also significantly short of the prior month’s peak.

Despite the market pause, mainstream attention continues to flow in on a lagged basis.

Hong Kong became the latest jurisdiction to announce ETF news, with three bitcoin and three ether ETFs going live for trading on 30 April, and Australia rumoured to have similar plans.

Stripe re-enabled crypto payments; Visa released a stablecoin activity data dashboard; and ARK, Coinbase Institutional and Chainalysis all published reports pointing to revitalisation of metrics.

Per Coinbase Institutional’s portfolio commentary, Bitcoin in particular is riding on the narrative of being the top-performing asset of the last decade with regard to annualised returns, with an allocation to cryptoassets demonstrated to increase both total returns and risk-adjusted returns in the classic 60/40 portfolio. 

In other news, a U.S. survey found that Gen Z is more likely to own crypto than stocks, with crypto ownership rates peaking in the millennial cohort (22%). 

Coinbase also released strong Q1 2024 earnings: reporting total revenue of $1.6 billion, a QoQ increase of 72%, of which $935 million was consumer transaction revenue.

From the market

• Bitpanda entered a partnership with German state bank LBBW to provide ‘investment-as-a-service’ buy/hold/sell functionality for cryptoassets including BTC and ETH. The solution will be for corporate customers only.
• Ledger struck a new partnership with FCA-registered provider MoonPay, which will become a feature partner for buying, selling and swapping crypto within Ledger Live.
• Turkish neobank Misyon entered into a technology provider agreement with Swiss provider Taurus, focused on provision of custody and tokenisation infrastructure.
• Zodia Markets partnered with Fireblocks to facilitate cross-border stablecoin payments for institutional clients.
• Zodia Custody introduced an off-venue settlement solution that allows institutional customers to trade digital assets without pre-funding exchange accounts, employing asset mirroring from cold storage.

• Finally, Paxos published its 2023 Digital Assets Enterprise Adoption survey, which canvassed 400 senior decision makers employed at US-based enterprises with >5M users, $50B assets under management or $50B annual payments volume. Key takeaways included: (a) acquiring new customers was stated as the most important aspect of digital assets for fintechs; for banks it was offering customers new payment methods (b) Paxos’s earlier 2023 consumer survey found 75% of respondents were likely or very likely to purchase crypto from their primary bank, were it to be offered (c) 35% of enterprise respondents claimed to have already launched access to trading cryptoassets, with 62% actively exploring or implementing (d) complexity of implementation, market volatility and financial cost were cited as main barriers; less than 10% cited lack of stakeholder buy-in or company expertise (e) 80% are working with a service provider to enable crypto buy/sell.
• All in all, plenty of digital asset infrastructure is being developed and partnerships struck in and around the Crypto Invest space.

In the UK

• UK Finance announced a new experimentation phase for the UK Regulated Liability Network, which seeks to enable value transfer across existing and tokenised asset types.
• MP Lisa Cameron called for digital skills investment in crypto, blockchain and AI.
• UK law enforcement was given sweeping new powers to confiscate cryptoassets without arrest, seize written passwords and memory sticks, send assets to police controlled wallets, and burn cryptoassets if they are deemed ‘not conducive to the public good’.
• The Government published its 2022-3 AML/CTF report, citing the equivalent of 15.8 financial crime specialist employees supervising cryptoasset businesses, and 95 cases relating to crypto financial crime and sanctions opened in the 2022-3 reporting period.  

Regulatory and operational

• Sitting alongside last month’s open review of the MLRs, the FCA launched a consultation on proposed updates to its Financial Crime Guide. 
• Cryptoasset firms registered under the MLRs will be explicitly told to consult the guide, with the expectation that it is taken into account when implementing financial crime systems and controls to comply with obligations under the MLRs and UK Financial Sanctions regime. 
• The wider context to this is preparing cryptoasset firms for the future financial services regulatory regime for cryptoassets; with another reminder issued to firms that, once that regime is in place, they are likely to be subject to the same financial crime standards and rules under the Financial Services and Markets Act that apply to equivalent or similar traditional financial services activities.   

Upcoming 

• News reports suggested that UK secondary legislation enabling implementation of UK crypto framework Phase 1 (stablecoins and staking activity) may be laid as soon as June/July. This is based on comments made by City Minister Bim Afolami at the Innovate Finance Global Summit on 15 April, and is broadly consistent with his earlier statement in February outlining a Government commitment to a timeframe of 6 months for phase 1 implementation.
• As noted last month, public consultation on Phase 2 is officially expected in H2 2024 – though there is a chance this may now come forward in light of an added urgency to lay groundwork before elections later in the year.
• ESMA has started to publish final reports on the Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) to be adopted under MiCA. Of particular interest will be the final report on the second package, which includes the details of sustainability disclosure requirements for MiCA-bound cryptoasset service providers.

Sustainability in cryptoassets

• The Science Based Targets initiative (SBTi) released an update acknowledging the use of environmental attribute certificates for abatement purposes on Scope 3 emissions. 
• PayPal and partners including EnergyWeb presented a proposal to incentivise green mining by adding on transaction processing rewards accessible only by verified sustainable miners.
• The ‘State of ReFi’ report examined the ecosystem of emerging web3 projects and their efforts to contribute to ‘regenerative finance’.
• Overall, SBTi’s announcement is a positive for the legitimacy of environmental attribute certificates including RECs. Meanwhile, industry action seems to be splitting between evolving Bitcoin-targeted solutions and the body of organisations seeking to harness blockchain tech at large for ecological and social impact.

As the digital asset landscape evolves, stakeholders will need to stay informed and adapt to changing market conditions and regulatory requirements. With innovation driving the industry forward, collaboration and compliance will be key to unlocking the full potential of cryptoassets in the global economy.