CAM | Market Update | July 2023
- July 7, 2023
- Posted by:AssetManagement
- Categories:crypto market update, cryptocurrencies
June was again an eventful month for Bitcoin and crypto. Bitcoin rose by 10.4% and the total market capitalization by 2.7%. Rumors of possible US government sales of Silkroad bitcoins and possible sales of Mt. Gox holdings, created uncertainty and speculation. Added to this were theories that BlackRock might take these bitcoins for their ETF and not buy that many bitcoins at all. Critics think that Wall Street bought Bitcoin cheaply after the price drops caused by the SEC's charges against Binance and Coinbase and used the specifically published positive news to their advantage. The market, especially in the altcoin space (all cryptocurrencies and tokens except Bitcoin), is currently driven by narratives. Despite the turmoil, crypto showed resilience and the International Monetary Fund (IMF) also expressed that a crypto ban would not be effective. In this regard, however, it is difficult to say to what extent this relates to CBDCs or cryptocurrencies as a whole. On a side note, it looks like crypto is partially detaching itself from the stock market.
Bank of China issues securities on Ethereum (12.06.23)
Bank of China's investment banking subsidiary, BOCI, has issued tokenized securities worth 200 million Chinese yuan ($28 million) on the Ethereum blockchain. This makes BOCI the first Chinese financial institution to issue such securities in Hong Kong. The institution was supported by UBS in its product development. UBS is expanding its tokenization in various product categories in parallel and recently issued a tokenized fixed-income bond worth $50 million. Hong Kong, which recently enabled retail crypto exchange access, plans to develop a regulatory framework for stablecoins within the next year.(Source)
BlackRock Submits Bitcoin ETF Application (06/15/2013)
The world's largest asset manager BlackRock, has filed an application with the U.S. Securities and Exchange Commission for a bitcoin ETF. The proposed iShares Bitcoin Trust would use Coinbase Custody as its custodian and follow on from the spot Bitcoin private trust launched last year for institutional clients. Despite the SEC's dismissive attitude toward similar filings from companies such as Grayscale and Fidelity, experts interpret BlackRock's filing as a potentially positive sign for future regulatory approval.(Source)
Binance.US and SEC settle in court (19.06.23)
The SEC and Binance.US have reached an agreement that ensures the protection of customer funds, a US judge confirmed. Despite the SEC's original demand to safeguard funds, the agreement now allows for comprehensive transparency about wallets and transactions. One important point: access to the private keys must be exclusively through Binance.US, under clear separation from the parent company. This deal is viewed controversially: On the one hand, it allows the US offshoot to continue as a going concern and can be seen as a positive signal for other crypto service providers. On the other hand, the insights gained by the SEC could become problematic for Binance. Despite potential consequences in case of violations, the Binance CEO expresses satisfaction with the agreement and emphasizes the secure status of customer funds.(Source | Source 2)
HSBC launches crypto offering (06/26/2013)
HSBC, the largest bank in Hong Kong, now allows its clients to trade three futures-based ETFs (2 x BTC and 1 x ETH) listed there. It has also introduced an education environment in which investors must prove their risk awareness before trading digital assets. These innovations are in line with the local financial authority's desire for greater cooperation between banks and crypto companies, and strengthen Hong Kong's position in becoming an international hub for digital assets.(Source)
Fears over control to bitcoin (06/27/2013)
BlackRock has become the largest asset manager to apply for approval of a spot bitcoin ETF. This came ahead of the upcoming launch of FedNow, a new liquidity management platform from the U.S. Federal Reserve. This could allow for greater regulatory control over cryptocurrencies and Bitcoin in particular. The Bank of New York Mellon, which is involved in the digital dollar initiative, will handle the ETF's cash and escrow management. Critics fear that allowing the bitcoin ETF could spell the end for bitcoin as an independent currency.(Source)
Bitcoin ETF claims 'inadequate'(06/30/2013)
Just before the end of the month, quarter and half-year, the SEC announces that Bitcoin spot ETF applications are insufficient, whereupon crypto prices have fallen accordingly. According to initial information, this is not a consistent rejection, but a request for more details on the Bitcoin spot exchange involved and the corresponding surveillance agreement. This might turn out to be less dramatic than first thought.(Source)
Lightning Network Meets AI (06/07/2023)
Lightning Labs announced the release of new developer tools that connect Large Language Models (LLM) and other AI applications to the Bitcoin Lightning Network. This allows AI operators to continuously fund immediate further development and resources (including GPUs) needed due to higher demand.(Source)
Did you know...?
...that the Bitcoin Lightning network could process over 1 million transactions per second ? As a secondary layer on the Bitcoin blockchain, the Bitcoin Lightning network enables faster and cheaper transactions through the use of "payment channels." These channels allow Bitcoin transactions to be made without immediate confirmation on the main blockchain. Final balances are not transferred to the blockchain until the channels are closed. While a normal bitcoin transaction can take up to several hours, transactions on the Lightning network are executed almost instantly. With the capacity to process over 1 million transactions per second, it surpasses even the Visa network (approximately 24,000 transactions per second) and can make Bitcoin a viable option for everyday payments. This innovation enables novel use cases such as micropayments for services like streaming, gaming, and social media, and could play a key role in driving mass adoption of Bitcoin.
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Despite market fluctuations due to SEC charges and Wall Street news, low BTC transactions by Bitcoin whales (over 1,000 BTC) indicate fewer intentions to sell. They repurchased Bitcoin during the market downturn. Moreover, the steady flow to long-term investors indicates that Bitcoin is being accumulated. The announcements of BlackRock's spot ETF and the launch of the regulated crypto platform 'EDX-Markets' created euphoria, which was slightly dampened by potential legal difficulties for Binance. The positive price trend was mainly driven by solid spot buying. Microstrategy's bitcoin purchases may have contributed. Positive comments from the IMF on CBDCs, a pilot project by the SNB for its own wholesale CBDC, and FED head Powell's support for 'crypto' boosted sentiment. Studies of gold prices before and after the launch of the first gold ETF in the US in 2004 showed an increase in volatility and annual returns. Bitcoin could benefit simply by other investors following the example of the largest asset manager. The SEC's rejection of ETF applications due to lack of data had initially moved prices, but then subsided, while the very high expiration volume of options had no major impact.
Ethereum On-chain analysis
It's worth taking a look at Ethereum again this month due to positive on-chain developments. Staking, or "locking" Ethereum into the blockchain to secure the network and earn rewards, has continued to increase and is now close to 20% - a 5% increase in just two months. These large deposits into the staking contract show that the so-called whales (large investors) are happy to let their Ethereum tokens "work" at current prices, meaning that they do not trade their tokens immediately. So they tend to view Ethereum's current price level as favorable. With the deflation introduced since the 'Merge', which is achieved through a mechanism that "burns" tokens, Ethereum offers attractive tokenomics that could likely attract further interest.
The stock markets seem to fear a recession. However, the FED is expected to step in and support the economy. The statements of the central bank heads at the ECB forum seemed rather restrictive and there is a focus on core inflation. Interest rate cuts are now not expected for another year, although the FED generally acts rather cautiously in election years so as not to intervene excessively. There were fears that the new borrowing by the U.S. Treasury could drain too much liquidity from the economy. However, this does not seem to be the case for the time being, as the FED reduced its reverse repo holdings, which made more liquidity available to banks. As shown in Figure 8, the Treasury account was replenished. All 23 banks passed the FED's stress test and lending would not be threatened even if there were turmoil in the commercial real estate sector. However, new capital requirements for larger banks could slow them down.
Crypto-related financial products posted gains of $200 million last week, according to the CoinShares report, breaking the downtrend and seen as a bullish sign, despite the manageable amount. Regarding the ETF euphoria, however, there are skeptics. They argue that despite the assumption that BlackRock will only apply if there is a good chance of success, a rejection or delay is possible until February 2024. They also point out,
that BlackRock may not need to acquire many spot BTCs, which would only increase the BTC price to a limited extent. The world's largest asset manager also has access to Bitcoin through a relevant stake in a Bitcoin mining company called Marathon Digital. A general positive effect is expected, although an ETF could change the volatility and influence possibilities.
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(*Information: bitcoin and Bitcoin: bitcoin lowercase is used in the crypto domain to denote the monetary unit. Bitcoin capitalized refers to the network as a whole. For simplicity, we use upper case in this newsletter).
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