June 28th, 2024
Market Overview:
Digital assets cooled off further this week, as wider market challenges were exacerbated by the potential market entry of long-dormant coins from the Mt Gox exchange.
- Bitcoin endured one of its worst weeks in 2024, hit by a one-two punch of macroeconomic challenges (fewer interest rate cuts by a hawkish Fed) and potential supply pressure (Mt Gox approving the repayment of $9bn worth of Bitcoin dormant since the exchange was hacked in 2014)
- Bitcoin dropped from a Friday high of $64,720 to a Monday low of $58,890, before staging a modest rally back above $60,000
- For a slightly longer-term context, Bitcoin remains up over 100% from its price a year ago, and Bitcoin volatility has dropped 20% since the turn of the year
- Ether followed Bitcoin’s general movements, but to a lesser degree; a Friday high of $3,543 led to a Monday low of $3,250
- Overall digital asset market capitalisation dropped to $2.3tn
- According to industry monitoring site DeFi Llama, total value locked in DeFi dipped down to $97.1bn
Digital assets continued to face challenges in market performance this week as macroeconomic challenges were exacerbated by concerns over dormant Bitcoins entering the market. Bitcoin ETFs returned to modest inflows after initial sell-offs following news of Mt Gox customers receiving payouts, more than a decade after the exchange was hacked. Standard Chartered became one of the first banks to launch a spot trading desk for crypto, Coinbase and election discourse increased pressure on US regulators, a leading South Korean firm announced interests in the UAE, State Street began building its own crypto investment products, and much more.
What happened: ETF news
How is this significant?
- Bitcoin ETFs reversed a steady stream of recent outflows with a return to consecutive inflow days this week, albeit at relatively modest levels
- This included the first positive flows for GBTC since June 5th, with Fidelity’s FBTC leading the way for inflows at $19m
- This represented a departure from the form of the last fortnight, as in the week ending June 21st, digital asset investment products saw $600m of outflows, representing the biggest two-week drop since spot ETFs launched in January according to CoinShares data
- Despite a recent slowdown in Bitcoin ETF activity, Bloomberg senior ETF analyst Eric Balchunas took pains to provide context this week regarding their overall performance; “[BlackRock’s] IBIT is STILL up 30% since launch—double the Almighty $QQQ. Crypto Twitter (and the haters) should just get used to this "two steps forward, one step back" process. The most important number to watch NET flows which is currently +$14.3bn (our estimate for the first 12 months was $12bn-$15bn so it's already there)”
- Reuters reported that spot Ether ETFs could be approved by July 4th, with July 2nd a likely launch date considering that the 4th is a major public holiday in the US
- Unnamed executives said that revisions currently requested only reflect “minor issues”, and SEC chair Gary Gensler stated on Tuesday that the process regarding launches is “going smoothly”
- BlackRock indicated $10m in seed funding for its spot Ether ETF, albeit without specifying a fee
- Other issuers such as VanEck and Franklin Templeton did indicate their intended fees; 0.2% and 0.19% respectively, below the levels of Bitcoin ETFs
- VanEck filed an updated 8-A form, indicating further progress in its application as the 8-A filing for its spot Bitcoin product was made 7 days before launch
- Bitwise continued an advertising campaign geared towards Ether ETF approval, parodying the classic “I’m a Mac and I’m a PC” ads
- Analysts from Galaxy Digital forecast a broad potential range of inflows for Ether ETFs, estimating anything between 20% and 50% of the inflows seen by Bitcoin products within the first five months
- Matthew Sigel of VanEck revealed that the firm have filed for a new ETF dedicated to the popular altcoin Solana, although some (including Balchunas) believe that approval is unlikely given the lack of futures ETFs for the asset—but this could change if a new administration instals an SEC chief less hostile to the industry
- In Bitcoin-adjacent ETF news, the firm T-Rex filed to create new 2x Long and 2x Inverse MicroStrategy ETFs, allowing traders an alternative exposure to the share performance of the world’s leading corporate Bitcoin holder
- Furthermore, Quantify Funds filed for an ETF using leverage to provide 100% gold and Bitcoin exposure
What happened: Standard Chartered opens up crypto trading desk
How is this significant?
- Reports this week suggest that global bank Standard Chartered is in the process of launching its own crypto trading desk dedicated to Bitcoin and Ether
- This would make it one of the first major banks to specifically enter spot trading for digital assets
- Sources speaking to Bloomberg indicated that launch was imminent, and that the desk would be based in London as part of the bank’s FX trading unit
- Although some banks such as Goldman Sachs have actively traded digital asset derivatives, direct trading of the underlying assets themselves has seen less adoption thus far in the banking sector
- Bloomberg point out that the lack of spot trading is partly down to BIS Basel Committee recommendations applying an unattractive “1,250% risk weighting to any unhedged crypto exposure”
- A Standard Chartered spokesperson provided an indication that interest in the asset class may nonetheless drive adoption despite restrictive standards; “We have been working closely with our regulators to support demand from our institutional clients to trade Bitcoin and Ethereum, in line with our strategy to support clients across the wider digital asset ecosystem, from access and custody to tokenization and interoperability”
- The bank has precedent for digital asset support, acting as co-founder of the institutional crypto firms Zodia Custody and Zodia Markets, as well as launching its own tokenisation unit last November
What happened: Coinbase sues SEC over industry debanking
How is this significant?
- Leading US digital asset exchange Coinbase hit back against litigious regulators this week, suing the SEC and Federal Deposit Insurance Corporation (FDIC) over non-compliance regarding Freedom of Information Act (FOIA) requests
- FOIA requests allow the public to ask any federal agency for records, and Coinbase sought insight into the SEC’s views on Ether (prior to the agency dropping investigations last week) and the FDIC’s “Pause Letters” requesting banks and financial institutions to stop activities related to the digital asset industry
- Coinbase accused regulators of a deliberate and spiteful effort to debank digital asset firms, writing “The Pause Letters weren’t a good-faith effort to supervise the crypto-related activities of financial institutions. They were a transparent effort to stop those activities altogether—part and parcel of the FDIC’s and other regulators’ scheme to cut off digital-asset firms from necessary banking services”
- The lawsuits against the agencies seek to force compliance with the FOIA requests, as Coinbase lawyers argued “For nearly two years, a wide array of federal financial regulators—including the Securities and Exchange Commission, the FDIC, and the Federal Reserve Board—have used every regulatory tool at their disposal to try to cripple the digital-asset industry”
- Both the SEC and FDIC refused to comment to industry publication TheBlock
- In other Coinbase news, the exchange announced a new partnership with payments processor Stripe, “to increase onchain adoption and provide faster, cheaper financial infrastructure”
- Stripe will add support for Coinbase’s proprietary Ethereum Layer-2 Base, and Coinbase will add support for Stripe’s fiat-to-crypto onramp into its Coinbase wallet app
What happened: South Korean digital asset firm Hashed expands into the UAE
How is this significant?
- South Korean crypto investment firm Hashed became the latest major industry player to set up a presence in Abu Dhabi, expanding into the United Arab Emirates via a partnership with local tech ecosystem Hub71
- Hashed CEO Simon Seo-Joon Kim stated that the firm will introduce Korean startups valued above $1bn to Abu Dhabi investors and firms, as well as opening an office and potentially raising funds in the city
- Hashed currently manages $700m of assets across offices including Seoul, Singapore, and San Francisco, but the allure of the UAE was evidently enough to break this streak of alliteration
- Kim told Bloomberg “UAE is a very special market for us because regulatory-wise, Abu Dhabi has the most friendly and clear guidance for the web3 startups. So these days, so many Web3 startups are opening Abu Dhabi offices”
- Hub71 CEO Ahmad Ali Alwan agreed, stating “We are excited about the prospect of welcoming more Korean startups to Abu Dhabi and attracting the most promising Web3 and digital asset technologies to the UAE capital”
What happened: Bybit grows to second-largest exchange by global volume
How is this significant?
- New research by digital asset analytics firm Kaiko indicates that the Dubai-based exchange Bybit overtook Coinbase in March as the second-largest exchange in the world, trailing only behind Binance
- Analyst believe this growth was driven by Bitcoin ETF volumes, as the exchange’s market share doubled between October 2023 (8%) and March 2024 (16%)
- Growth for the exchange has been particularly strong across Bitcoin and Ether, which increased from 10% and 7% of global volumes to 31% and 22% respectively
- The report also highlighted Bybit as a beneficiary of low trading, growth of derivatives trading, and Binance’s woes, as the leading exchange dropped from 60% to 54% market share in the same timeframe
- According to CEO Ben Zhou, around 30-35% of volumes come from Europe, making it their strongest market
- Bybit was founded in Singapore, but after initial operations in the city-state it relocated to Dubai in 2022 as part of a broader digital asset industry exodus, drawn by the UAE’s more liberal digital asset regulatory approach
What happened: Coatue hedge fund makes $150m Bitcoin miner investment
How is this significant?
- Billionaire Philippe Laffont’s hedge fund Coatue Management became the latest institution to make a major investment into Bitcoin mining this week, with an eye towards both Bitcoin mining and hash power allocation towards AI
- The firm is financing its $150m investment into Bitcoin miners Hut8 through the issuance of a new convertible note
- Many Bitcoin miners have recently diversified their hash power (and thus revenues) into the burgeoning (and power-intensive) field of AI, making them an attractive investment proposition for firms looking to leverage their existing processing hardware
- This shift was spurred by the recent Bitcoin halving event, which reduced block rewards (and thereby new issuance of Bitcoin) from 6.5 Bitcoins per block to 3.25 Bitcoins, forcing several miners to sell off reserves or exit the industry
- Hut8 commented in a press release that “Many traditional data centre operators are failing to meet the surging demand for AI compute capacity due to power shortages, long lead times to bring new capacity online, and the extensive upgrades required for existing data centres to support the latest generation of high-density compute”
- Incidentally, Coatue is also a stakeholder in CoreWeave, which recently attempted to acquire Bitcoin mining firm Core Scientific for around $1bn
What happened: State Street and Galaxy Digital partner to create crypto trading products
How is this significant?
- US institutional giant State Street (through its State Street Global Advisors arm) and crypto investment firm Galaxy Digital announced a partnership this week to “build crypto products that offer exposure to crypto companies as well as spot and futures-based ETFs”
- According to an SEC filing, the joint venture would be called SSGA Active Trust, and will invest in a wide range of ways, including equity, ETPs, and futures
- In a press release, the firms stated that SSGA Active Trust “will provide investors access to the $2.4tn digital asset ecosystem through manager-directed strategies”
- SSGA chief business officer Anna Paglia commented “We believe that the digital assets landscape is so much more than the single crypto components and that crypto native companies are best equipped to understand that ecosystem and its correlation with financial markets”
- State Street’s banking business is expected to provide the administrative and accounting services behind the ETFs developed by the partnership
What happened: US political news
How is this significant?
- As the US elections (and first presidential debate) draw closer, digital assets continued to make news in the context of the American political landscape
- Several industry representatives spoke out about crypto and the election; Haun Ventures general partner Diogo Monica opined that single-issue crypto voters view the current administration as “completely hostile to crypto at large… they’re looking for clarity”
- He advocated for “clear rules of the road” across three areas; stablecoin legislation, clarity on who the regulator is (as FIT21 has yet to pass the Senate, the SEC vs CFTC issue remains unresolved), and “an end to unelected bureaucrats debanking crypto businesses”
- Coinbase Global Advisory Council member Keisha Lance Bottoms identified crypto as an opportunity for the unbanked, reducing fees for vendors
- She also noted “it’s not often an industry is asking for regulation”, and said that it was particularly beneficial to communities of colour often excluded from traditional financial infrastructure
- Kraken CEO Dave Ripley called the Trump campaign’s stance “extremely encouraging”, noting an evolution in the former president’s views on the asset class
- He advocated for an end to “regulation by enforcement”, identifying the bipartisan FIT21 bill as an example of positive momentum
- Gemini exchange co-founders Cameron and Tyler Winklevoss were both refunded on their recent $1m Bitcoin donations towards the Trump campaign; because they exceeded the maximum $844,600 personal donation limit
- This reflects the fact that the Trump campaign has out-raised the Biden campaign for the second straight month, with the former president now leading the incumbent in overall campaign funding
- In a new research note, Bernstein analysts Gautam Chhugani and Mahika Sapra speculated that crypto may become the new “Trump Trade” during the election cycle
- They wrote “The Republican side sees crypto not just as a vote bank but also a meaningful source of funding. If the election sentiment shifts more Republican, crypto would end up as the primary ‘Trump trade’ and hopes of a favourable regulatory regime would change the ‘use-case’ narrative around blockchains”
- Meanwhile, analysts from TD Cowen cautioned that current positive declarations are no guarantee of positive policy—the only real commitments may emerge if digital assets are mentioned over the course of the upcoming presidential debates
- Florida congressman Matt Gaetz introduced a new bill on Tuesday proposing to allow payment to government bodies via Bitcoin
- According to Gaetz, the bill would “modernise our tax system by allowing federal income tax to be paid with Bitcoin”
- Addresses linked to the US government by analytics firm Arkham Research transferred nearly 4,000 Bitcoins to Coinbase, indicating likely sale intent following earlier seizure of assets from an Indian national prosecuted for running an illegal marketplace
- There was a certain irony to this news; as one prominent Bitcoin advocate pointed out “The US government [i.e. the SEC] declared Coinbase an illegal brokerage, and then proceeded to use Coinbase as its brokerage”
What happened: Mt. Gox signals intent to begin repayments to 2014 exchange hack victims
How is this significant?
- Defunct Japanese exchange Mt. Gox announced the long-awaited distribution of Bitcoin to former customers affected by a hack over a decade ago, commencing in July
- In total, rehabilitation trustees will distribute over $9bn in Bitcoin (and Bitcoin Cash, which was issued based on Bitcoin holdings in a hard fork of the Bitcoin blockchain)
- Rehabilitation trustee Nobuaki Kobayoshi stated “The Rehabilitation Trustee has been preparing to make repayments in Bitcoin and Bitcoin Cash under the Rehabilitation Plan. Now that these preparations are in place, the Rehabilitation Trustee will commence the repayments in Bitcoin and Bitcoin Cash… from the beginning of July 2024”
- The market reacted somewhat nervously to this news, causing cascading long liquidations and dropping Bitcoin to nearly $58,000
- Analyst opinion on the potential impact of this dormant supply entering the market was mixed; JP Morgan analysts led by Nikolaos Panigirtzoglou argue that negative market movement since Gemini Earn customers were repaid in kind indicates a tendency by retail traders to sell in profit after prolonged forced inaction
- JP Morgan stated “Going forward, a similar downside risk looms in July with Mt. Gox creditors… Assuming most of the liquidations by Mt. Gox creditors take place in July, [that] creates a trajectory where crypto prices come under further pressure in July, but start rebounding from August onwards”
- However, analysts at Galaxy Digital disagreed, noting creditors have had the option to sell their claims for the best part of a decade, but declined due to a long-term faith in Bitcoin“
- They also don’t expect immediate distribution of all 142,000 Bitcoins; “Creditors have been stuck in Mt. Gox bankruptcy for 10+ yrs—finally trustee says in-kind distribution of #BTC #BCH will begin in July. We think fewer coins will be distributed than people think & that it will cause less #Bitcoin sell pressure than market expects”