CF Benchmarks Quarterly Attribution Reports

Possible ETF Approval Sparks Year-End Rally as Ether Joins Approvals Queue

Despite the existing regulatory challenges and roadblocks that remain, institutional interest in digital assets has witnessed a swell in activity over recent months. Open interest on the Chicago Mercantile Exchange (CME) has risen - the total number of outstanding futures contracts for both Bitcoin and Ether has increased over 76% and 40% respectively since our last rebalance period, with the former surpassing its all-time high set back in June. Perhaps the largest contributing factor for this renewed interest is the potential of spot Exchange Traded Fund (ETF) products for the two largest tokens. Many investors also see the approval of spot ETFs as a major 'unlock' for the crypto industry. The ETF fund structure has grown exponentially since they were first introduced in the 1990s, breaching the $7tn level this past year in the U.S. Spot token ETFs would mark a major catalyst for adoption as retail investors would have access to the pure exposure of Bitcoin and Ether in a traditionally practical fund structure for the very first time. While many regulatory headwinds remain, the approvals of these spot ETFs could be seen as the very first steps in deconstructing these aforementioned challenges and hurdles that have plagued the digital asset class.

Over the last few months, several macroeconomic trends have impacted global markets. Inflation pressures have continued to steadily decline across the globe. With the latest data points coming in below expectations for both the U.S. and the Eurozone, this has allowed interest rate expectations for 2024 to shift in dovish manner. Some forecasters are now anticipating that the Federal Reserve could begin decreasing their benchmark rate as soon as March 2024. Furthermore, economic weakness, such as slowing job growth and cyclical demand, could give the central bank more slack in adjusting its tightening stance to the downside.

Given the current backdrop, investor sentiment has become more constructive for the digital asset class. All of our flagship portfolio indices posted strong performance over the last rebalance period, outperforming traditional risky assets, such as U.S. and global equity markets by a wide margin. The CF Web 3.0 Smart Contract Platforms Index led the pack, with the CF Blockchain Infrastructure Index coming in a close second. Both category indices outperformed the broader market (as measured by the CF Floating Broad Cap Index) by a significant margin. Lastly, the CF Digital Culture Composite Index continued to struggle, lagging behind the rest of the major portfolio indices for the second straight rebalance period.

Index Performance

Source: CF Benchmarks, Bloomberg, as of 12/01/2023

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Lastly, our Quarterly Attribution Reports are designed to help investors understand the performance of digital assets through a purpose-centric lens called the CF Digital Asset Classification Structure (CF DACS). To learn more about CF DACS, please utilize our interactive CF DACS Token Explorer.

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