Digital assets performed steadily this week, amidst continued geopolitical concerns around the Middle East, and economic uncertainty regarding Hurricane Milton.
Bitcoin faced further challenges this week, suffering from both metaphorical geopolitical and literal atmospheric headwinds
Hurricanes in the US impacted macroeconomic data in multiple ways, undermining investor confidence; Hurricane Helene complicated employment data, whilst Hurricane Milton threatens billions of damage in the coastal South
CPI figures also exceeded forecasts, leading to some speculation on the pace of interest rate cuts
Bitcoin briefly dipped below $59,000 in late trading on Thursday for a weekly low of $58,930, following a Monday high of $64,410
The leading digital asset spent the majority of the week trading within a relatively narrow $61,000 to $62,000 range
Ether meanwhile actually displayed growth on the weekly chart (having fallen further last week following escalating conflict in the Middle East)
Ether hit a Monday high of $2,510 before following Bitcoin to a late Thursday low of $2,334
Overall digital asset market capitalisation remained unchanged at $2.12tn, as Ether and altcoin recoveries helped offset Bitcoin’s slight pullback
According to industry monitoring site DeFi Llama, total value locked in DeFi remained almost unchanged at $81.3bn
Digital assets remained virtually unchanged this week despite challenging geopolitical, macroeconomic, and atmospheric factors. Bitcoin ETFs performed strongly, PwC highlighted the growth of crypto assets within hedge funds, stablecoin development continued, a new documentary claimed to reveal the identity of Satoshi Nakamoto, and FTX creditors will be in profit after a judge approved their repayment plan.
What happened: ETF News
How is this significant?
Digital asset ETFs showcased mixed performance this week, as Bitcoin products posted net inflows, whilst Ether ETFs saw decreased trading activity
According to CoinShares data, digital asset investment products posted a total $146m net outflows in the trading week ending the 4th of September, following escalating global conflict and higher-than-expected economic data
Bitcoin experienced $159m net outflows last week, slightly mitigated by $29m inflows from multi-asset investment products (multi-coin), marking a 16th consecutive week of inflows for the category
Spot Bitcoin ETFs opened the week very strongly with $235m net inflows, led by Fidelity’s FBTC ($103.7m) and BlackRock’s IBIT ($97.9m)
Tuesday and Wednesday saw net outflows, albeit at much more modest levels ($18.6m and $40.6m respectively) as investor caution increased
IBIT was however undeterred by the challenging global circumstances; it recorded $39.6m and $13.9m inflows on Tuesday and Wednesday
At the time of writing, the largest outflows of the week were from FBTC on Tuesday ($48.8m) and ARK Invest’s ARKB on Wednesday ($44.5m)
Grayscale’s 1.5% fee converted GBTC trust meanwhile recorded two days of net zero flows, in contrast to its broad trend of consistent outflows since launch, indicating that GBTC may be approaching equilibrium or seller fatigue
Spot Ether ETFs didn’t provide much to report on, posting a cumulative $8.1m of outflows across this week’s trading at the time of writing
BlackRock’s ETHA sustained a run of net zero flows this week, following on from consecutive strong inflow days last week
In other ETF news, a new issuer entered the fray for a proposed spot XRP ETF
The application by Canary Capital Group is the firm’s first filing for an ETF after its founding in September—but the company has ample digital asset experience, featuring veterans from Valkyrie
This makes them the second firm to propose an XRP ETF, after Bitwise
FRNT Financial co-founder Stephane Ouellette commented that Ripple’s recent legal successes against the SEC strengthened the appeal of XRP; “This demonstrates that ETF providers will be closely following the regulatory landscape for perceived daylight in allowing them to offer new products… it very much makes sense for two firms born out of the crypto native landscape to try to broaden their product offerings”
Additionally, a new ETF survey by Charles Schwab found that digital assets are the most popular ETF asset category for Millennials in terms of investment intent—and the second-most popular overall
What happened: Political and regulatory news
How is this significant?
World Liberty Financial (WLF), a DeFi project closely linked to Donald Trump and the Trump family revealed further details this week about its proposed design and funding
According to a roadmap for potential investors seen by industry publication TheBlock, WLF seeks to raise $300m at a $1.5bn valuation
This raise will be undertaken through an initial sale of the platform’s native WLFI tokens, with a total 20% of supply allocated at the fully-diluted $1.5bn
Co-founder Zak Folkman indicated in a X (formerly Twitter) Spaces recently that 63% of the project’s tokens would be sold to the public, indicating future sales tranches
Meanwhile, 17% are earmarked for user rewards, and a considerable 20% token allocation for the team—the project has criticised “outdated regulations” in the US that restrict sales to accredited investors
WLFI will serve as a governance token, allowing users to guide the development of the protocol
According to TheBlock, WLF’s first phase is based around launching “a version of DeFi lending platform Aave on the Ethereum Layer 2 network Scroll to let users lend and borrow tokens, starting with Bitcoin, Ether and stablecoins”
In the context of the US presidential election, Bloomberg identified crypto as “an asset class primed to gain regardless of the outcome of the election”
High levels of industry campaign funding have been identified as a potential catalyst for greater regulatory clarity—and support—regardless of which candidate emerges victorious
Meanwhile, current SEC chair Gary Gensler maintained his policy that the 1946 Howey Test is fully applicable to digital assets
If anything, his agency may be increasing prosecution efforts ahead of the election, as this week it brought enforcement actions against Cumberland DRW and crypto.com, which led to a countersuit from the latter—alleging “an unlawful rule that trades in nearly all crypto assets are securities transactions no matter how they are sold”
The FBI rang a sting operation, launching its own token in order to identify market makers engaged in wash trading activities
The Bureau’s “NexFundAI” token was used to attract 18 individuals and entities offering wash trading and price pumping services
Product lead Jeff Weinstein tweeted “We, as a principle, do things that internet businesses want; and they want to reach more customers at lower cost. Stablecoins, while still early, show some sign that they can help achieve that”
Hagerty stated “Stablecoins have the potential not only to enhance transactions and payment systems, but also to help create new demand for U.S. Treasuries as we work to address our unsustainable deficit… For too long, these benefits and the broader promise of stablecoins have been hindered by the lack of clear regulations”
Yala, a startup developing stablecoins backed by Bitcoin rather than fiat currencies, raised $8m in an oversubscribed seed funding round this week
The firm allows users to deposit Bitcoin in order to mint the yield-bearing YU stablecoin, claiming that over 2,000 Bitcoin have already been committed
In adjacent news, SWIFT announced trials of blockchain-based money and asset transactions with a set of commercial and central banks, starting next year
Interoperability across various chains is a key consideration according to SWIFT’s head of innovation Nick Kerigan; “We’ve tried to help the industry figure out a way to ensure that wherever a digital asset or a digital currency is created, and whatever technology that’s created on, that those can successfully work together with each other and the existing financial system”
He added “As we see the greater adoption of blockchain by the financial community, particularly in the digital assets and digital currency space, then it’s incumbent on us to also be able to incorporate those technologies—and platforms based on those technologies—into our ecosystem”
Kerrigan indicated asset transactions (i.e. tokenisation) and payments sit within the remit of the trial, although he declined to name participants in the scheme
Previous participants in SWIFT blockchain trials include Deutsche Bank, HSBC, NatWest Group, Santander, Sumitomo Mitsui Banking Corp. and Shanghai Commercial & Savings Bank
Almost half of all hedge funds surveyed carry exposure to digital assets, indicating “a steady recovery in confidence over the last year” according to James Delaney of AIMA
Edward Chin, co-founder of Parataxis Capital Management, commented that “The application of traditional investment strategies can generate much higher returns in crypto given the market is less efficient… Simple market-neutral arbitrage trading strategies that generate mid to high-single digits returns in traditional asset markets can yield high 20% to low 30% type returns”
In total 47% of surveyed hedge funds had exposure to digital assets; a record figure up from 29% in 2023 and 37% in 2022
Additionally, 33% of those invested expressed an interest in fund tokenisation, with 12% of crypto-centric hedge funds already exposed
Of those currently invested, “67% plan to maintain the same level of capital in crypto while the rest plan to invest more by the end of 2024”
However on the flipside, 76% of non-invested hedge funds are unlikely to reconsider within three years, up from 54% last year, citing exclusion from investment mandates as the top reason
Alongside crypto assets, the fund will also focus on AI and fintech startups
This includes funding in both the pre-seed and seed stages for chosen projects
The new VC fund is led by Circle Ventures veterans Wyatt Lonergan and Juan Lopez
Lonergan told Bloomberg that VanEck’s fund will deploy capital to around 30 firms, with a maximum investment of $1m
Apropos for the industry, “startups of interest may use stablecoins for fast settlement and payments”
VanEck CEO Jan Van Eck commented “We look forward to supporting founders of what we believe are some of the most disruptive companies in fintech—those building the future of finance”
Earlier this year, portfolio manager Pranav Kanade disclosed that the firm plans to substantially increase its exposure to crypto assets, from around 1% of AUM to 15%
This week, broadcasters HBO released a highly-publicised documentary; “Money Electric: The Bitcoin Mystery”, which sought to uncover the identity of Bitcoin’s pseudonymous founder, Satoshi Nakamoto
Todd told CNN “For the record, I’m not Satoshi… He [the filmmaker] is playing up a few coincidences into something much more. Ironic really: that’s a hallmark of conspiracy thinking”
The identity of Satoshi Nakamoto has been a mystery since the founding of Bitcoin; and the mystery has only grown since Satoshi’s last public message was posted almost 14 years ago
Numerous potential developers have been proposed as Satoshi’s true identity; but the only one to publicly claim so, Craig Steven Wright, was forced to add a disclaimer to his website refuting his claims, after a UK court determined his assertions to be “brazen lies”
The mystery around Nakamoto (and their long-time silence) is an important aspect of Bitcoin’s appeal, as it removes it from the influence of any one individual and thereby supports its decentralisation
The collapse of FTX represented the nadir of the digital asset market in 2022’s crypto winter—but creditors of the massive corporate crisis will soon find themselves in profit, after a judge cleared a repayment plan giving them 119% of their fund value
A key caveat here is that the value is returned in fiat currency rather the digital assets held by FTX customers
98% of customers will be paid within 60 days of the effective date, in what bankruptcy judge John dorsey described as “a model case for how to deal with a very complex Chapter 11 bankruptcy proceeding”
Customers will be repaid before any other unsecured creditors
According to Reuters reports, “FTX has estimated that it will have between $14.7 billion and $16.5 billion available to repay creditors, enough to pay customers at least 118% of the value in their accounts as of November 2022, the date that the company filed for bankruptcy”
This rare instance of profit for creditors was enabled by a combination of cash and crypto recovery (bolstered by Bitcoin tripling and a wider market recovery vs November 2022), alongside the sale of stakes from FTX’s venture investments
FTX CEO John J Ray III commented “Looking ahead, we are poised to return 100% of bankruptcy claim amounts plus interest for non-governmental creditors through what will be the largest and most complex bankruptcy estate asset distribution in history”