Cryptocurrencies are fairly synonymous with volatility from an investment standpoint for a variety of reasons, but thinning markets may mean spot exposure will only be more susceptible to rapid, extreme price changes, reports CoinDesk.
Crypto markets have been a lot quieter of late after their massive recent drop, with many cryptocurrencies leveling out once more, albeit at much lower prices than their record highs from November of last year. Another reason for the more subdued feel is because trading volumes for most of the major cryptocurrencies are lower now than they have been in months.
Bitcoin was trading at similar prices a year ago, around $47,000 on February 13, 2021, while trading volume across all exchanges (decentralized and centralized) was roughly $62 billion with a market cap of $840 billion. This equates to trading volume of around 8% of the market cap. Wednesday, February 9, 2022 saw bitcoin trading at $44,000 with a market cap of $837 billion; trading volume was $29 billion, only 3% of the value.
This is not confined to bitcoin; a trend is being seen across most of the major cryptocurrencies. Ether has seen larger drops, the trading volume compared to value was 20% in February, 2021, and is just 4% now. Over the same timeline, daily volume has dropped for BNB, the native token of Binance, from 22% to 2%; cardano, from 25% to 5%; solana, from 9% to 6%; and avalanche, from 17% to 4%.
The data is not skewed by the impact of DeFi, as decentralized exchanges were included in the volume calculations, and it reflects a greater sensitivity to larger price swings with less trading volume. As institutional investors continue to enter the space, their impact could be felt on a much larger scale unless trading volumes grow once more.
Investing Broadly Across the Crypto Economy With SATO
The Invesco Alerian Galaxy Crypto Economy ETF (SATO) invests across the crypto industry in a variety of crypto-related categories and invests across all market caps within developed and emerging markets. By investing across a range of crypto assets, investors can capture potential within the space while also mitigating the risk compared to a singular spot exposure and the increased volatility that spot exposure carries in thinner markets.
The fund seeks to track the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index, an index that is divided into two different security types: digital asset companies that are engaged in cryptocurrency or the mining, buying, and enabling technologies of cryptocurrency; and exchange traded products (ETPs) and private investment trusts traded over-the-counter that are associated with cryptocurrency.
To be considered for the index, a company must have a minimum full market cap of $50 million, a minimum float-adjusted market cap of $10 million, a minimum free-float factor of 20%, a minimum average daily trading value of $1 million over the last three months, and it must also be listed on a global exchange. This portion of the index is given an 85% weighting.
ETPs and private investment trusts must have a minimum market cap of $1 billion (or $500 million for current constituents), a minimum average daily trading value of $15 million over the last three months, and an open structure to be considered for the index. This portion of the index is given a 15% weighting.
SATO does not invest directly in bitcoin, cryptocurrencies, crypto assets, or initial coin offerings or futures contracts for cryptocurrencies, and it is non-diversified. The fund may gain exposure to securities within the ETP and trust component indirectly through a Cayman Islands subsidiary. The subsidiary is wholly owned and advised by Invesco and may constitute no more than 25% of the fund.
SATO carries an expense ratio of 0.60%.
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