Q9 Weekly: The Herd is (*Still) Coming
21 June 2023
- BTC breaks past $28k for first time since May
- Citadel Securities, Fidelity Investments, and Charles Schwab launch crypto exchange
- BlackRock files for spot ETF application, WisdomTree follows
Bitcoin rebounded after a flurry of institutions announced their latest crypto ambitions within a matter of days. Wall Street stalwarts BlackRock, WisdomTree, Deutsche Bank, Citadel Securities, Fidelity Investments, and Charles Schwab all made significant moves into digital assets this week, brightening the sour mood that had grown in recent weeks from increasing US regulatory pressure.
BTC Rallies to $28,327
Source: TradingView
The rapid price surge liquidated some $122mn of short positions in the past 24-hours, the most this month.
Total Daily Short Liquidations Most Since May
Source: CoinGlass
Ethereum staking also continues to accelerate and liquid staking protocols have emerged as a popular low-cost capital-efficient way to stake without the large capital commitment and technical requirements of direct staking. There has been a Cambrian explosion of new applications experimenting and building on LSTs. For the first time in DeFi short history, applications are building on predictable, low-risk real yield.
ETH Staking Accelerates Post Shapella
Source: Messari
Rockin’ Around the SEC
BlackRock, the world’s largest asset manager, on Thursday filed for a Bitcoin exchange-traded fund (ETF) that would allow investors to get exposure to the cryptocurrency. BlackRock’s iShares Bitcoin Trust will use Coinbase Custody as its custodian, according to a filing with the SEC. The US regulator has yet to approve any applications for spot bitcoin ETFs.
The fact that BlackRock, an established Wall Street darling, has filed for a Bitcoin ETF can be seen as a positive development in crypto’s quest for regulatory approval. It also shows resilience of the public’s interest in crypto.
Winds of Wisdom
WisdomTree, a prominent provider of ETFs, has also filed an application seeking approval for the launch of the WisdomTree Bitcoin Trust, to be listed on the Cboe BZX Exchange.
WisdomTree’s approach involves conducting “in-kind” transactions with Authorized Participants, enabling them to deliver or facilitate the delivery of bitcoin to the Trust’s custodian, U.S. Bank, National Association. Although the name indicates a trust, both WisdomTree’s filing and BlackRock’s filings function as spot ETFs.
A New Exchange
Crypto exchange EDX Markets, supported by Citadel Securities, Fidelity Investments, and Charles Schwab, launched yesterday, offering trading in Bitcoin, Ether, Litecoin, and Bitcoin Cash.
EDX will operate as a “non-custodial” exchange, meaning it does not directly handle customers’ digital assets. EDX aims to address security concerns by utilizing third-party banks and a crypto custodian for holding customer assets. While it won’t serve individual investors directly, it expects retail brokerages to route investors’ orders through its platform.
The exchange has also received backing from Paradigm, Sequoia Capital and Virtu Financial and will announce the closure of a second funding round today, the Wall Street Journal reported.
For now, EDX’s scope is limited but its entry into the market is a strong sign that the crypto market’s old way of doing business, where trading platforms profit from providing all those functions at once, is on the way out.
Banking on Crypto
$1.4tn lender Deutsche Bank has applied for a digital assets license with Germany’s financial regulator, BaFin, signaling its intention to operate a custody service for cryptocurrencies and other digital assets. The move marks a shift in Deutsche Bank’s stance on cryptocurrencies, previously considering Bitcoin “too volatile” to be a reliable store of value in its 2020 research reports.
Grayscale NAVigating the BlackRock Announcement
GBTC trading volume spiked 400% after BlackRock filed for a Bitcoin ETF. Daily trading volumes jumped from $16mn to $80mn.
Daily Volume of GBTC
Source: The Block
Grayscale’s attempt to convert GBTC into a spot Bitcoin ETF was rejected last year, and although Grayscale has been fighting the decision, there has been no final ruling. Optimism around BlackRock being successful in their bid for their own spot ETF could pave a clearer way for Grayscale to get their non-redeemable trust shares changed too.
The BlackRock announcement has caused GBTC’s discount to NAV to shrink as investors push the price of the trust up closer to the price of BTC.
GBTC Discount to NAV Narrows
Source: Y Charts
However, against the backdrop of US regulatory action against two of the biggest extant exchanges, suspicions from conspiracy theorists over the timing of the new products and applications from Wall Street were easy to spot.
Wall Street Symphony
As Wall Street prepares to take on the crypto establishment and build their own trading platforms, renewed focus has been on an old idea — the separation of functions.
The infrastructure being built by large institutions is markedly different to the crypto industry’s original structure. Wall Street executives are keen to separate business units such as trading from custody, as a way to reduce risk and potential conflicts of interest. This is good. You don’t want your custody to be run by the same person as your exchange or trading venue. Plus this separation in roles is exactly what SEC Chair Gary Gensler has been calling for in recent months.
They are also betting that fund managers will prefer familiar and trusted brands to the opaque exchanges that currently dominate the sector. The large, pedigreed, traditional institutional investors definitely prefer dealing with counterparties who they know have been in existence for years and have been regulated in the traditional sense.
However, the newcomers are breaking into a market dominated by companies such as Binance and Coinbase, which have their own institutional customers. But they are betting that their finance industry expertise and their reputations, unsullied by the wave of crypto scandals and enforcement actions from US regulators, will prove persuasive.
Crypto Native Exchanges Still Dominate Spot Trading
Source: FT
A survey of 250 asset managers published this month by consultancy EY-Parthenon found that half of them would switch from a crypto-native group to a traditional-backed company that offered the same services. Moreover, 90% said they would trust a traditional financial group to act as custodian of their crypto tokens.
Source: EY-Parthenon
Source: EY-Parthenon
Source: EY-Parthenon
Source: EY-Parthenon
The report also found that the majority of institutions (69%) plan to allocate to digital assets in the next two to three years, and that 93% believe in the long-term value of blockchain technology.
It’s plain to see from this data and this week’s outburst of announcements… Despite the recent FUD, Wall Street is still coming for digital assets.
In the News…
- Do Kwon sentenced to four months in Montenegro
- FTX bankruptcy ‘on track to be very expensive’ as fees top $200mn
- Binance.US to slash headcount in wake of SEC lawsuit
- JPMorgan says Ethereum could be put into ‘other category’ by US Congress
- Colombia’s central bank partners with Ripple to explore blockchain use cases
- Gemini expands Singapore hub as it looks beyond the US for crypto adoption
- Ethereum developers propose raising validator limit to 2,048 ETH from 32 ETH
- How the SEC could cripple crypto venture capitalists
- Bakkt delists Solana, Polygon and Cardano amid regulatory uncertainty
- Mitsui invests in web3 firm Animoca Brands
- Solana’s crypto smart phone is searching for niche in crowded field
- Atomic wallet hackers use THORChain to conceal stolen $35mn funds
- Is Fortnite adding Nike NFTs? Apparel giant teases gaming collab
- Sotheby’s second 3AC NFT sale nets $10.9mn, with ‘The Goose’ alone netting $6.2mn
