Three legislative wins for digital asset industry in the U.S. and one surprise win at the hands of an otherwise recalcitrant SEC helped drive digital assets and related players like Coinbase (COIN, +13.6% WTD, +35.6% YTD) higher.
The SEC’s unexpected approval of several spot ETH ETFs applications pushed ETH (+21% WTD, +64% YTD) to its largest 1-day gain since May 2021, closing the YTD gap on BTC’s +65% YTD gain.Of the three legislative wins, FIT21 (see story below) and the repeal of the SEC’s SAB 121 that unduly punished a firm for acting as a digital asset custodian, are the most noteworthy for industry impact and degree of non-partisan support.
This week’s news flow did NOT translate to gains for equities, bonds (BBerg Agg, -0.3%), and most commodities (Gold, -3.3% / WTI, -3.3%) as investors digested the impact of higher for longer rate realities which were substantiated by several investment firms.
The lone bright spot in equities was the EPS beat by NVIDIA (NVDA, +15% WTD), which continues to benefit from the tsunami of spending by firms on Artificial Intelligence.
Below we include the 1-year graph of NVDA with those for BTC and ETH to demonstrate a potential reason for the shift in sentiment by U.S. lawmakers. The fact that over 50% of the YTD gains in the S&P 500 are coming from just four large cap tech stocks is NOT lost on the CEOs of banks, industrials and other companies which are all but locked out of such earnings and expansion.
Bitcoin is more efficient than the current banking system’s equity securities settlement process that is only now switching to a T+1 settlement. But the approval of the spot BTC ETF was more a boon for asset managers than banks as retail and now institutions have adopted it for its apparent store of wealth properties and ‘moneyness’.
The BTC asset that rides on the globally distributed Bitcoin network is a digital alternative money and store of value, but won’t hold a digital USD, or settle a digital contract.
But the Ethereum network can. Approving FIT21 allows banks and other industries to further engage the value proposition of the Ethereum network, leveraging the open architecture of the Ethereum Virtual Machine.
The 5-year annualized gain for banks (S5BANKX,+8.5%) barely kept pace with the growth in the money supply and is less than half of NASDAQ’s+17.4% price gain over the same period.
Can Ethereum adoption help the beleaguered banking system shift to the fintech platforms they aspire to be? We do not know, but FIT21 was likely a result of many in the banking industry lobbying for the chance to find out. (NB: The banks may be a bit more motivated to secure new efficiencies as higher rates may cause bring defaults, a dynamic that has already caused the regional bank index to flatline in 2024.)