Ethereum April 2024 Update

Market Data

Market Commentary: 

In April, markets fell as inflation data remained elevated above the Federal Reserve’s 2% target rate and the likelihood of interest rates staying higher for longer increased. The latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics showed a surge in price pressures from 3.2%  in February to 3.5% in March 2024, surpassing forecasts of a 3.4% increase. The S&P 500 fell 4.1%, while the NASDAQ fell 3.5%, ending a 5-month winning streak for equity holders. This was not surprising for a month that saw geopolitical tensions in the Middle East and sticky inflation data. With the latest economic data showing that prices are still rising too quickly, the Federal Reserve decided to hold interest rates steady for the sixth time and acknowledged “lack of further progress” on cooling inflation. One month ago, markets were pricing in two rate cuts this year. Those odds have now dropped to an estimated 40% chance of one rate cut by year-end. As a result, treasury two-year yields topped 5% - the highest level since November while the dollar notched its fourth consecutive monthly advance, its longest winning run since September 2022. These macro factors did not help as ETH ended the month down 18%, falling from $3.7K to $2.9K, its worst monthly performance since January 2022. Conversely, gold had a great month, hitting an all-time high at $2,400 per troy ounce. Given the economic outlook, as a supportive mechanism, the Fed also announced it would slow the run-off of its multi-trillion-dollar balance sheet from $60B to $25B. While we are still far away from another era of quantitative easing, a reduction of the current tightening regime by more than half is something worth paying attention to.

Hong Kong’s first spot ETH (and BTC) ETFs started trading on April 29th. First-day flows reported $12M in trading volume, a drop in the bucket compared to the US BTC ETFs’ first day which was measured in the billions. However, the size of ETF markets between the two nations is vastly different, with the US Bitcoin ETF market larger than the entire Hong Kong ETF market combined. One differentiator between the two products is that the HK ETFs allow for in-kind redemption (vs cash-only redemption in the US). This design allows those already holding ETH or BTC an easier process to enter the market and vice versa. Overall, the launch of HK crypto ETFs may not move the needle in initial flows but rather is more symbolic of the global markets' newfound acceptance of crypto as a legitimately investable asset class.

Restaking demand continued to surge on EigenLayer, with TVL crossing $16B, however, TVL for liquid staking protocols declined from $56B to $48B (primarily due to a decline in the ETH price). The demand for LRTs is starting to show signs of slowing down, and we expect inflows to decrease more especially as points programs come to an end. 

The Dencun upgrade went live on March 13 and has since reduced data posting costs for L2s by 90%. However, there is much more work to be done to make Ethereum cost-competitive with pure DA es like Celestia and EigenDA.