Digital assets mounted a modest recovery from last week’s losses as the market returned to growth.
After suffering amidst multiple macroeconomic and geopolitical challenges last week, Bitcoin returned to growth following its long-awaited supply issuance “halving” event
Bitcoin rallied as high as $67,220 on Tuesday, up from a Friday low of $61,920
Bitcoin spent the majority of the week trading in a relatively narrow range, between $64,200 and $65,100
Ether also bounced back, from a Friday low of $2,994 to a Wednesday high of $3,291
Overall digital asset market capitalisation recovered to $2.37tn
The crypto industry fear/greed index remained in “neutral” territory, at 60/100
According to industry monitoring site DeFi Llama, total value locked in DeFi increased to $93.6bn
Digital assets experienced slight growth following last week’s significant drop, as calm returned to the market after the shock of macro headwinds and rising geopolitical tensions. More news emerged regarding Hong Kong ETFs, Franklin Templeton improved DeFi accessibility for its tokenised funds, numerous payment processors moved forward with digital asset adoption, Korea continued its crypto momentum, and Bitcoin successfully completed its quadrennial “halving” event, cutting the supply of new Bitcoin entering the market going forwards.
The funds will begin trading on April 30th, as per a spokesperson from one of the approved issuers, HashKey
HashKey will offer spot Bitcoin and Ether products in partnership with Bosera International; the other successful applicants were ChinaAMC, and Harvest Global— Hong Kong units of major mainland China asset managers
This has led some analysts to speculate that “Chinese wealth parked in the city” could be a source of demand for the ETFs, since crypto trading (and thus acquiring crypto exposure) remains officially banned in mainland China
In total, six funds are expected to start trading; spot Bitcoin and Ether ETFs from each of the three approved issuers
One key differentiator of the forthcoming ETFs is their in-kind redemption mechanism, removing the need to immediately sell for fiat
Evgeny Gaevoy of market makers Wintermute notes in-kind mechanisms are “particularly appealing to crypto natives, market makers and digital-asset exchanges” thanks to greater efficiency and arbitrage
Bloomberg ETF analyst James Seyffart dubbed this situation “a potential fee war”, with the other announced fees currently standing at 0.6% and 0.99%
However, a host of analysts have urged investors to manage expectations on the impact of Hong Kong ETFs, vs US spot Bitcoin products
A key factor is the relative size of the issuers; as local crypto analysts Roger Li told Bloomberg “Hong Kong doesn’t have the ‘BlackRock’ effect to call on”
The overall size of the Hong Kong ETF market is also dwarfed by the US market, leading to current inflow estimates of around $1bn within the first year
In the US, ETF momentum cooled off, with analysts CoinShares hypothesising higher-for-longer rates signals as the main culprit
Bloomberg Intelligence forecast BlackRock’s IBIT to overtake Grayscale’s converted GBTC by the end of April, following a sustained run of inflows from the former and outflows from the latter
Grayscale may attempt to mitigate the outflows caused by GBTC’s 1.5% management fee with a 0.15% fee (the lowest among US issuers) on its new “Mini Bitcoin Trust”, which will receive 10% of GBTC’s assets
Nonetheless, Bloomberg senior ETF analyst Eric Balchunas insists that IBIT’s performance (the 10th-longest inflow streak ever) should be lauded as nothing short of remarkable
He provided context by calling IBIT’s run “one for the ages and utterly smashing the record for a new launch. For context, $GLD had awesome launch and its 'out of the gate' inflow streak was 3 days”
Additionally, he wrote that “While $IBIT's daily inflow streak is over at 71 days, it is not done setting records [in assets post-launch]... The league of own-ness of IBIT, FBTC et al shows how overheated it all was, a breather was overdue… Also try and wrap your head around this one: out of all the 10,698 registered funds in the US (incl ETFs, mutual funds, CEFs) $IBIT currently ranks 2nd in YTD flows”
According to sources speaking to Advisorhub, “Morgan Stanley is exploring expanding sales of Bitcoin exchange-traded funds by allowing its roughly 15,000 brokers to solicit customer purchases”
An executive told the publication that the finance giant intends to include “guardrails” in their offering “We’re going to make sure that we’re very careful about it. We are going to make sure everybody has access to it. We just want to do it in a controlled way”
Meanwhile, Reuters reported this week that the SEC is likely to reject proposals for spot Ether ETFs next week, as industry sources described SEC meetings as one-sided and unsubstantive
What happened: Multiple blockchain organisations sue SEC
How is this significant?
In somewhat of a role reversal, the SEC found itself on the receiving end of numerous lawsuits from the digital asset industry this week, following a prolonged period of regulatory hostility under Gary Gensler’s stewardship
Consensys, a developer active within the Ethereum ecosystem (and creators of the popular browser-based Metamask crypto wallet) sued the SEC on Thursday over the commission’s perceived “campaign to seize control over the future of crypto”
The lawsuit filed in Texas posits that if the SEC classifies Ether as a security, it would have the effect of “crippling one of the internet’s greatest innovations”
In a statement, Consensys co-founder Joseph Lubin referred to the SEC’s investigation of the Ethereum Foundation, but indicated his company weren’t concerned over censure themselves “They’ve made extensive requests for documents and testimony regarding our involvement with the code and the asset… Absent any indication from the SEC otherwise, we have no reason but to believe an action against Consensys regarding Ether to be imminent”
On Wednesday, industry groups the Blockchain Association and the Crypto Freedom Alliance of Texas filed a complaint in federal court that the SEC’s recent expansion of “dealer” definitions “threatens to bulldoze innovations” and “exceeded its authority and approved a rule that was arbitrary and capricious”
This re-definition was identified as “particularly problematic” for the DeFi sector according to a Blockchain Association spokesperson, who noted that the SEC ignored the crypto industry during the comment-making process
Two lawyers resigned this week following a federal judge’s belief that the SEC’s case against Debt BOX was “marred by false statements and misrepresentations, as well as a lack of evidence”
According to sources, the lead attorneys were essentially told to leave of their own volition, rather than force the agency to terminate them
After the recent 25-year sentence for disgraced FTX founder Sam Bankman-Fried, another former exchange CEO now faces sentencing; previous Binance head Changpeng “CZ” Zhao
Zhao stepped down as CEO in November after Binance agreed a $4.3bn settlement with the DOJ over sanctions violations, and Zhao himself pled guilty on an AML charge
“CZ” however presents a very different picture to “SBF”, having voluntarily stepped down and pleaded guilty, whilst Bankman-Fried denied all charges over a lengthy trial process; in a letter accompanying his resignation, Zhao stated “I know it is the right thing to do. I made mistakes, and I must take responsibility”
More than 160 colleagues, family members, friends, and customers submitted 350 pages worth of letters of support for Zhao ahead of his sentencing, including “Fosun International co-founder Xinjun Liang, two members of ruling families in the United Arab Emirates, senior leaders at crypto miner Bitfury, the founder of venture capital firm Antler and former US ambassador to China Max Baucus”
The impact of that support (and Zhao’s conduct) will likely be measured by the difference between the DOJ’s recommended sentence (three years) and Zhao’s desired outcome (probation)
DOJ officials wrote that three years behind bars “will not just send a message to Zhao but also to the world”, whilst Zhao’s legal team argued that there is no precedent for incarceration in similar cases
On Thursday, Franklin Templeton announced that its tokenised US Treasuries fund, BENJI, can now be transferred peer-to-peer on Ethereum Layer-2 Polygon and the Stellar blockchain
This follows from a recent initiative by Circle and BlackRock, which enable smart contract redemption’s of BlackRock’s tokenised money market fund BUIDL for Circle’s USDC stablecoin, reducing friction between TradFi funds and DeFi transfers
BUIDL’s aggressive growth—securing 25% of the tokenised government securities market within a month of launch—may have catalysed Franklin’s decision to simplify movement of the fund’s tokens for holders
Head of digital assets Roger Bayston stated “We are excited that BENJI token holders will have the ability to transfer shares amongst each other. Eventually, we hope for assets built on blockchain rails, such as the Franklin OnChain US Government Money Fund, to work seamlessly with the rest of the digital asset ecosystem”
Jason Chlipala, chief business officer of Stellar Development Foundation, told Coindesk “Allowing fund shares to be transferred peer-to-peer puts Franklin Templeton on the cutting edge of the financial sector where tokenized real-world assets are an industry staple and more open, transparent, and accessible”
In other tokenisation news, digital asset exchange Woo X became the first to offer retail customers access to tokenised US Treasury bills, via a partnership with London-based institutional tokenisation firm OpenTrade
Woo X CEO Willy Chuang told industry publication Coindesk “For the first time, retail users on a centralised exchange can invest in USDC real-world asset vaults, with U.S Treasury Bills as the underlying assets. This initiative bridges a crucial gap between traditional financial securities and the dynamic world of crypto”
According to co-founder John Collison, the decision to reintegrate crypto payments was made as the asset class demonstrates “real utility”, and “there’s been a lot of technical improvements happening in crypto” improving issues like transaction speed and cost
However, integration will—at least initially—be limited to stablecoins, particularly USDC
Meanwhile, the similarly-named Bitcoin payments app Strike expanded services into Europe this week, after operating in the US since 2020
In other news of payments processors, Jack Dorsey’s Block (formerly Square) announced a new feature allowing merchants to automatically convert between one and ten percent of their daily sales into Bitcoin via the firm’s Cash App
The firm stated “Block believes that Bitcoin is an instrument of economic empowerment and provides a way for people around the world, including business owners, to participate in a global monetary system. According to direct feedback from Square sellers, many are interested in Bitcoin and believe it presents a wide range of use cases, such as long-term savings and diversifying their businesses’ holdings”
Telegram, a major messaging app with over 900 million users, announced an expansion of the closely-associated TON blockchain ecosystem this week
Speaking at the Token2049 crypto conference in Dubai, CEO Pavel Durov revealed his intention to “create the first real power app that can both serve as a communication system, but also as a bank account”
This includes a recent integration of Tether’s USDT stablecoin (and its gold-backed XAUT coin) onto the blockchain, allowing users to transfer the asset directly via the app
Tether CEO Paolo Ardoino stated “The launch of USDT and XAUT on TON will allow seamless value transfer, increasing activity and liquidity while offering users a financial experience that can match those found in the traditional financial system. This furthers our mission of powering open financial infrastructure across the blockchain space”
Additionally, Telegram recently enabled profit-sharing from advertising for channel owners, processed via the TON blockchain and its native TON token
The TON Foundation explained that “The move will mean channel owners can distribute Toncoin in giveaways to their audiences, growing awareness of TON's ecosystem even further, and decentralising the token supply to Telegram's best and brightest creators”
TON was initially developed internally by Telegram developers, but subsequently spun off as a separate independent entity following SEC fines over an ICO
Its local position was already unassailed, accounting for approximately 80% of Korean trading volume
A localised exchange like Upbit growing to be a global player is perhaps not surprising when one considers that the Korean Won overtook the US Dollar as the most popular (direct) fiat trading pair in digital assets during Q1
New legislation, requiring demonstrable reserves and investor protection insurance, will likely increase Upbit’s dominance, as compliance necessitates significant “capital and manpower” as per a spokesperson for another leading exchange
The firm stated “Korea is a difficult market for international exchanges to enter, but we are committed to working with regulators to advance the industry responsibly for Koreans. We will postpone our launch and take this opportunity to make sure Korean regulators understand our thorough policies, procedures, systems and controls”
According to official statistics, more than a tenth of the Korean population traded crypto via regulated centralised exchanges last year; and altcoin trading dominates with around 80% of Korea’s total volume
Meanwhile, as the US continues to grapple with regulatory uncertainty (as evidenced by firms actively suing regulators for clarity), talk at the recent Token2049 conference in Dubai indicated that Asia is in the ascendancy
Sergey Nazarov, founder of blockchain oracle project Chainlink, stated “Between UAE, Singapore and Hong Kong, those are the hubs I’m seeing emerge as the places where people generate their entities and have legal standing”
It was a long-awaited event for Bitcoin enthusiasts, with the first satoshi (the smallest denomination unit of a Bitcoin, also known as a “sat”) under the new issuance paradigm selling for $2.13m in a post-halving auction
As this was the fourth-ever Bitcoin halving, there are only four of these so-called “epic sats” in existence, and there won’t be another for four years
This trade was only made possible by the advent of Ordinals, an NFT system that allows for the identification and trading of specific “sats”
In other post-halving auction news, a legal pad which snuck a “Buy Bitcoin” message into a televised testimony of federal reserve chair Janet Yellen during a 2017 congressional hearing sold for over $1m, with its owner Christian Langalis saying he plans to fund Bitcoin software development with the proceeds
Following the halving, the weighted average cost of Bitcoin production is estimated to hit $53,000, leading to an expected exodus of smaller miners
CoinShares head of research James Butterfill believes miners in “energy secure” locations may increasingly divert their hashpower towards A.I. projects, rather than Bitcoin production
JP Morgan analysts believe that “Publicly-listed Bitcoin miners are well positioned to take advantage of the new environment, mainly due to greater access to funding and in particular equity financing [helping] them to scale their operations and invest into more efficient equipment”
Payment processor Block revealed the development of a new Bitcoin mining chip on Tuesday, indicating a desire to become a significant player in a post-halving landscape
This marks the culmination of a year’s development for Block, which first announced Bitcoin mining intentions in April 2023
In a statement, the firm announced “This marks an important milestone in our Bitcoin mining project. With our chip design complete, we are excited to share that we are developing a full Bitcoin mining system… Our mining chip will utilise the most advanced semiconductor process currently available and will deliver the performance required for mining operators of all types to survive and thrive in the fifth mining epoch (the period following the recent 4th halving of the block subsidy) and beyond”