Digital assets: DAO examines limits to on-chain structured product market

Index Coop, a decentralised autonomous organisation (DAO), has released a report pinpointing a number of challenges facing structured products in the digital asset industry such as infrastructure limitations, intending to improve the experience of investing in cryptocurrency.

The infrastructure limitations of this sector include a need for cross-chain asset support, high and volatile issuance and redemption costs to maintain products and difficulty rebalancing on-chain products due to slippage, according to its report published on 11 July.

‘At the Index Coop, engineers are exploring auction-based rebalancing as a potential solution to lessen net asset value (NAV) decay,’ the report stated.

The report defines structured on-chain products as ‘any token, platform or vault that enables access to digital asset risks and returns and is delivered via a blockchain without the involvement of a centralized or traditional financial institution’.

Structured products remain a small sector, making up 0.21% of the crypto market overall and holding the total value locked of just over US$2.4 billion across all protocols, according to the report.

Regulatory ambiguity, little use of on-chain products as collateral, high correlation across crypto assets, and varying institutional engagement are among other challenges in the on-chain structured product space.

Click the link to download the report.

Cryptocurrency derivative sentiment improves in June, data shows

Spectrum Markets, the pan-European trading venue for securitised derivatives, noted in its latest report that European retail investor sentiment towards Bitcoin (BTC) and Ethereum (ETH) had grown consistently since the beginning of the year.

The Spectrum European Retail Investor Index (SERIX), a sentiment index for BTC and ETH, reached 110 and 113 points in June, respectively, reaching their highest level in 2023 so far, according to its latest data. Above 100 indicates bullish sentiment and below 100 indicates bearish sentiment.

The gradual return of bullish sentiment among European cryptocurrency retail investors followed the broader crypto market’s recovery, with BTC’s price rallying above US$30,000 from around US$16,000 at the start of the year and ETH’s price pushing to roughly US$1,900 from US$1,200.

‘We expect this momentum to continue, supported by more and more diverse products coming onto the market,’ said Michael Hall (pictured), head of distribution at Spectrum.

Hall highlighted that the ‘much clearer’ cryptocurrency regulatory regime in Europe, with the Regulation on Markets in Crypto-Assets (MiCA), will ‘give further reassurance’ to investors in this asset class.

J.P. Morgan: Approval of spot Bitcoin ETF will not be game-changer for cryptocurrency markets

The U.S. Securities and Exchange Commission's (SEC) approval of a spot bitcoin exchange-traded fund (ETF) will not be a game-changer for cryptocurrency markets, the banking giant J.P. Morgan analysts suggested.

​​‘Spot bitcoin ETFs [have] existed for some time outside the U.S., in Canada and Europe, but have failed to attract large investor interest,’ the analysts wrote in a research report published on 6 July.

‘Bitcoin funds overall, including futures based and physically backed funds, have attracted little investor interest since Q2 2021, also failing to benefit from investor outflows from gold ETFs over the past year or so,’ the report noted.

The remarks came after a flurry of asset management firms including BlackRock and Fidelity stirred up a spree of filing for spot Bitcoin ETF applications over the past month. The SEC previously rejected numerous applications and suggested some recent filings aren’t clear and comprehensive.

Saxo Bank ordered to dispose of its digital currency holdings

Copenhagen-based investment bank Saxo Bank has been ordered to dump its digital assets by Danish Financial Supervisory Authority (DFSA) for operating outside the confines of regulations.

Saxos Bank has been offering ETFs and exchange-traded notes (ETNs) to customers tracking certain digital assets’ movement. The Danish regulators claimed that the bank’s decision to accumulate a portfolio of digital assets to offset market risks is a breach of the local financial rules.

‘Annex 1 of the Financial Business Act is an exhaustive list of activities which are clearly covered by the legal business area of financial institutions,’ DFSA’s notice stated. ‘Trading in crypto assets does not appear in Annex 1 of the Financial Business Act’.

Despite the approval of the European Union’s MiCA that allows financial institutions to hedge their assets with digital currencies, the DFSA’s notice stated that the MiCA rules are not expected to come into effect until the end of 2024, noting that the issue ‘remains unregulated for the time being’.

South Korean cryptocurrency exchanges launch market volatility monitor system

The Digital Asset Exchange Association (DAXA), an alliance of South Korea's five major cryptocurrency exchanges such as Upbit and Bithumb, has launched a system that alerts users of abnormal changes in cryptocurrency prices.

The system will notify users when there’s a sharp change in the cryptocurrency’s prices within a day and the daily trading volumes or deposits, according to DAXA. 

The latest development came after South Korea’s National Assembly approved a bill on 30 June that focuses on protecting the interests of cryptocurrency investors. The legislation is expected to go into law in a year.