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  • Writer's pictureVimal Gor

Trovio September Flash Report

Updated: Feb 15

Macro Overview

The MSCI World equity index continued its slide in September and was down -4.28% for the month and -3.36% for the third quarter. Technical factors weighed on equity markets with persistent selling from momentum models unwinding bullish exposure after signals turned neutral and then bearish since July’s multi-year high. The macroeconomic data reports are still in line with expectations but there is less certainty in inflations downward trend. The primary driver of renewed inflationary concerns was oil, which surged 7.15% for the month and 20% for the quarter. By mid-September, Fed officials began signalling one additional hike is probable in the fourth quarter.

Higher for longer interest rates have been signalled by central banks for most of the year and is consistent with a soft landing to mild recession scenarios. Ten-year US treasuries added 0.74%, twenty-year 0.82%, and thirty-year 0.84% yields for the quarter are all at 15-year yield highs. Higher rates in those maturities will add significant strains to the US economy in the coming months as higher interest payments increase both government and private sector debt payments. A flattening yield curve was anticipated through rate cuts and not by long end yields equaling short-dated yields. These recent moves could be the catalyst to bring the once inevitable recession to fruition.

Digital Asset Overview

Digital assets finished September up 2.8% after another month of relatively low volatility, and a notably mixed result across the altcoin market. Blue chips cemented the positive month for the total digital asset market, with Bitcoin up 4.0% and Ethereum 1.5%. Alts were mixed with narrative and headline fuelled rallies from the likes of Solana (+9.44%), Toncoin (+20.8%) and Chainlink (+44.1%), whilst others from the top 20 by market cap such as Polygon (-3.2%), Cardano (-0.35%) and Polkadot (-4.9%) weighed on the market.

The first ETH Futures ETFs launched on the first trading day of October in the US, with 9 ETFs coming to market. Despite much fanfare in the cryptosphere, the ETFs saw comparatively low volumes to BTC Futures products which launched in the late stages of the 2021 bull run, just 0.2% of the BTC product volumes. Many pointed to the low opening volumes as an indication that there is little interest or appetite for digital assets from retail investors. Similarly, Blockchain intelligence firm Messari found that crypto fundraising in Q3 fell to its lowest level in 3 years, totalling just under $2.1 billion across 297 deals. Despite the somewhat bleak macro landscape, hope remains for greater interest in spot ETF launches in the coming months.

At first glance, network data similarly points to lowering interest levels. Following an initial surge in activity earlier this year largely driven by memecoin trading craze, gas fees on Ethereum have tapered to record low levels, with the average transaction fee less than $2, far below the prices paid during bull markets

However, whilst lower fees have historically been attributed to less network activity (i.e., less demand for block space), a closer look shows that a lot of activity has moved to cheaper Layer-2 (L2) Ethereum scaling networks, which are increasingly being adopted by leading blockchain applications, new and old. Faster and cheaper transactions make these Layer 2 scaling solutions the ideal venues to test the latest applications of blockchain technology. The below shows the growing number of total Ethereum and L2 transactions. In particular, activity on Base, Coinbase’s optimistic rollup, has spiked since its launch.

Since the Merge to Proof-of-Stake (PoS) in September last year, Ethereum has largely remained in a deflationary state thanks to steady network activity resulting in more fees being burnt than new ether issued. However, reduced base layer fees have caused Ethereum's 30-day supply to revert to an inflationary trend, with over 30k ether added to circulation, according to It's worth noting that since the Merge, Ethereum's overall supply has still seen a reduction of over 270k ETH (over $420m), though this past month serves as a vivid illustration of Ethereum's dynamic supply mechanism, in stark contrast to the steadfast supply schedule ingrained in Bitcoin's ethos.

Trovio attended the Token2049 conference in Singapore this month, one of the largest crypto-focused events in Asia. Despite the bear market, the excitement and innovation in the digital space continued. There were several key takeaways observed:

  1. Asia, and in particular Singapore, is quickly becoming (or arguably has already become) the hub for the crypto industry, housing a full spectrum of participants including exchanges, service providers, funders, and project builders. Other favourable jurisdictions mentioned include Dubai, Hong Kong and Japan thanks to their clear(er) regulatory guidelines, particularly in comparison to the US. Many leading speakers including CZ (Binance), and Winklevoss twins (Gemini), noted the fall of US dominance due to recent SEC enforcement actions.

  2. Many industry leaders are pointing to Tokenisation and Real-World Assets (RWAs) as the driver of the next wave of digital asset adoption. Stablecoins have proven to be one of the leading applications of current Blockchain technology, and new applications providing access to US Treasury yields and money market returns are becoming increasingly popular.

  3. Venture firms still have capital to deploy and are looking for quality projects to invest in. A large focus from many of these groups is improved UI/UX onboarding, as well as real applications and utility, not more infrastructure (alt-layer 1s and decentralised exchanges of which there are many). The low capital activity mentioned previously shows that whilst VCs are still cashed up, most appear to be waiting for the next innovation with real product market fit.

On point #2, prominent digital asset commentator and investor Nic Carter pointed to stablecoins as the ecosystem's “killer app” (so far). The below chart from his Token2049 presentation shows the rapid increase in value settled via stablecoins compared to traditional financial networks – an interesting data point when you consider the adoption of stablecoins by the same financial incumbents listed and the role base layers such as Ethereum and Solana will play in the next wave of financial innovations.

The development and maturity of the stablecoin market is setting frameworks for the tokenisation of RWAs by incumbent financial institutions. Most recently, UBS Asset Management announced it was launching a tokenised version of its money market fund on Ethereum as part of the Monetary Authority of Singapore’s Project Guardian. A Galaxy report noted that the total value locked in RWAs has nearly doubled since the start of the year thanks to “changing tides in the broader macroeconomic environment”.  We believe as regulatory clarity and infrastructure continue to improve, an increasing number of TradFi names will continue exploring the benefits of tokenisation, leading to further adoption and acceptance of underlying networks like Ethereum.

On this front, Fidelity Digital Assets, the crypto-focused arm of the global investment giant, recently released an Ethereum Investment Thesis paper that provides insight into how some of the largest asset managers think about the digital asset ecosystem. The report discusses Ethereum as a technology platform as well as the role of ether as a means of payment, comparing its monetary characteristics to bitcoin. You can view the full report here.

The lower volatility and price stability demonstrate the ongoing evolution of digital assets from speculative trading instruments to longer-term investment holdings. The progress of continued project building and less focus on hype-driven schemes are contributing to a sustainable digital asset ecosystem.

If you’d like to speak with our team about any of the above market views or discuss our Funds further, please contact

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