20th February 2024 > > Japan & a top graph.

tl;dr

Japan begins what might be a slow embrace of cryptos. Meanwhile, the rest of the world’s financial services industry is getting fully involved.

Market Snap

Market Wrap

A quiet and gentle start to the week. There is a lot of focus now on ETH and other alts but I do try to not get distracted too much by the rest of the noise.

Curious Cryptos’ Commentary – Japan

Japan is about to join the party.

As one of the most heavily regulated financial services industries in the world, and one of the most conservative in many respects, crypto adoption in Japan was always going to be a slow burner. But perhaps we might be surprised. Perhaps that might be about to change.

Mooted amendments to the country’s “Industrial Competitiveness Act” add cryptos to the list of assets that can be held by venture capital and other investment funds.

Granting approval is only the first step, but much like BlackRock et al pushing for spot BTC EFTs in the US because of customer demand, it is unlikely that the politicians would countenance this move if it was not for some intense industry lobbying.

This is not going to presage an overnight change, but I think it is a very interesting development, which might well have some legs.

Curious Cryptos’ Commentary – Top graph

It is worth breaking this down a little, as the presentation could be confusing.

The LHS shows net weekly flows globally into BTC investment vehicles, commonly known as ETPs (exchange traded products) or ETFs (exchange traded funds), though there are some variations on this theme. In general, these vehicles look and act like stocks with a bid and offer price available to trade on an exchange, all with the shared objective of replicating the performance of the underlying asset(s).

The RHS shows the number of BTC in these funds. Looking at the number of BTC is a far more useful indicator than looking at the dollar value of those funds, in my opinion. I seem to be in the minority on this point as most analysis looks at dollar values.

The first thing that stands out is that adoption of BTC by funds was a slow-burn until 2020. This is not a surprise to anyone – the number of vehicles was limited, and back then public awareness of BTC was very limited. Project fear – scammers, drugs, carbon emissions etc. – was in full flow at the time. As was most of TradFi’s public rejection of blockchain tech.

In 2020 and 2021, there is an acceleration of investments in these products, culminating in the ATH for BTC at over $60k at the end of 2021. Coincidence, correlation, or causation? Pay your money and take your choice.

What is very interesting is that during the crypto winter that lasted the whole of 2022 we saw no discernible or material change in the number of BTC held in these funds. Sure, there are drawdowns, and up days, but the net impact is negligible, suggesting that these holders are like those of us here – diamond hands.

Now we are seeing another huge ramp-up in funds buying BTC, because of the newly minted US ETFs.

If these ETFs are selling into diamond hands – which I suspect may well be the case – that helps the argument for a supply shock.

The key question is whether the enthusiasm for these ETFs has peaked, or is only just getting going.

If it is the latter, the demand shock will surprise us all.