“Most of these, essentially, will be the same, and it will come down to marketing, communicating the message,” Wood said.
The SEC is hearing from a diverse group of characters participating in the public comment process for applications for spot bitcoin ETFs.
The FTX creditors committee described the draft plan as just “ideas” and said there had been no formal talks with debtors to discuss approval.
Asset management company Grayscale used a Thursday letter to the Securities and Exchange Commission to pour cold water on excitement that has been mounting about a wave of new applications for spot bitcoin ETFs, arguing that so-called surveillance-sharing agreements with Coinbase would neither satisfy or be necessary under the current standard used by the regulator.
The SEC is currently reviewing applications for the spot funds from fund managers including BlackRock, Ark Invest, Invesco, Fidelity, VanEck and Valkyrie. It has yet to approve one and previously rejected a proposal from Grayscale to convert its flagship GBTC fund into a spot bitcoin ETF, the cause of a lawsuit by the investment firm against the SEC.
“The possibility of a surveillance-sharing agreement between a listing exchange and a spot bitcoin trading venue is not a new idea,” Grayscale lawyer Joseph Hall wrote in the letter, pointing out that Coinbase is not registered with markets regulators as either a national securities exchange, broker-dealer or futures exchange.
The lawyer argued that the SEC is already in a position to approve a spot fund, if it wanted to, using the standard it’s already used to approve bitcoin futures ETFs. He said that any move to approve only the recent wave of applications would “reflect a positive but sudden and significant change in the Commission’s application of the relevant statutory standard, and as such would improperly grant an unfairly discriminatory and prejudicial first-mover advantage to these proposals.”
Hall added that any approval, if one comes, should include all previous ones that have been disapproved. He said the company supports a regulatory approval that would facilitate the approval of all spot bitcoin ETF proposals.
“The Commission has previously questioned the relevance of pricing data produced by what it views as unregulated bitcoin trading venues,” Hall said, referring to the surveillance-sharing agreements with Coinbase that have been heralded as a breakthrough in the quest for a spot bitcoin fund.
Coincidentally, SEC Chair Gary Gensler once again expressed skepticism about crypto markets when asked about the pending applications during a televised interview on Thursday.
Earlier this month, Grayscale lawyers criticized the SEC for allowing the first leveraged bitcoin exchange-traded fund while having rejected its previous efforts for a spot fund.
“The fact that the Commission has allowed a leveraged bitcoin futures ETP to begin trading demonstrates that the Commission continues to arbitrarily treat spot bitcoin ETPs differently than bitcoin futures ETPs,” lawyer Donald Verrilli said.
© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
The performance of tech stocks is a common metric widely watched in crypto circles, but CME Group says that movements in the tech-heavy Nasdaq 100 tend to impact the price of ether more than the price of bitcoin.
“On days when tech stocks rally, ETHBTC tends to rise as ETH benefits more than BTC,” Erik Norland, a senior economist and executive director at CME Group, said in a report released Thursday, referring to the exchange rate between ether and bitcoin.
The difference can be explained in how ether and bitcoin are supplied to the market and then used, Norland said, pointing to the “practical applications” of the Ethereum smart contract network. Bitcoin, on the other hand, is mainly being used as a “highly volatile” store of value and hedge against fiat devaluation.
While bitcoin and ether are both known for volatile price swings, the exchange rate between the world’s two largest cryptocurrencies appears somewhat stable in comparison with a daily volatility rate of about 30% over the past year, according to the report. That’s compared to 42% for bitcoin’s price and 59% for ether.
“On days in which BTC rises, ETH tends to rise even more,” Norland wrote. “When BTC falls, ETH tends to fall to a greater degree.”
Still, the correlation between prices of the two cryptocurrencies has hovered at around 0.85 for the past year, suggesting a very close relationship.
U.S. dollar impact on bitcoin, ether
Ether also appears to be more sensitive to swings in the U.S. dollar, and the ETHBTC rate reacts more strongly to changes in bitcoin supply than it does to ether supply, according to the report.
“A stronger USD appears to be more negative for ETH than it is for BTC,” Norland said. “ETHBTC shows near-zero correlation to movements in interest rate, gold and crude oil futures.”
Furthermore, ether’s supply tends to rise after price increases relative to bitcoin. “In other words, ETH supply responded to price rather than drive it,” Norland said.
“If BTC rallies ahead of its upcoming April 2024 halving as it did ahead of previous halvings, that might also help ETH prices to rise even further on a relative basis,” he added.
© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
The summer doldrums may have set in, but the past weeks have seen a flurry of activity on the institutional side of crypto that hasn’t seemed to die down. From filings for spot bitcoin ETFs to broader issues surrounding custody and upcoming legislation in the U.S. Congress, debates over foundational topics continue to rage.
The Block spoke with Anchorage Digital co-founder and president Diogo Mónica in a wide ranging interview that touched on regulation, legislation and the broader global market. The firm is a federally chartered crypto bank in the U.S.
(The interview has been edited for length and clarity.)
The Block: Let’s start with a broad view of where you see things, now fully into the second half of the year. There have been so many interesting headlines on the institutional front over these past weeks, with all the ETF filings. We also saw the news about Prime Trust, and then all the ongoing regulatory uncertainty in the U.S. What are you thinking about amid all of this?
Diogo Mónica: I think the best description right now for institutional participation is that institutions are staying, and their growing interest and appetite. The curious thing is that we don’t see that from the outside. We, at Anchorage, see it from the inside. As you know, we’re institutionally focused.
But these companies have started in the past two years actually participating in the ecosystem and starting projects that take 18 to 24 months for these large organizations, especially for something like crypto that has to be so carefully thought through before it’s launched. So now, these ETFs for BlackRock and all of these things are coming out. And so what you’re seeing is actually the continued carried momentum with crypto, in the fact that institutions are not shying away from it.
The narrative has shifted a little bit back to real world assets and tokenization, which makes sense because institutions that are talking about it talk about this particular use case that is very friendly toward the regulators and the public at large. We’ve already been back and forth. Whenever the market is in a bull market, all institutions talk about crypto. And whenever it’s not a bull market, they talk about blockchain or tokenization of global assets. This is no different.
The thing that is different this time around is that there are so many legitimate, capitalized institutions in the space. They’re not going anywhere. So Anchorage Digital has seen a massive flight to safety in the beginning of the year.
Prime Trust is yet another reason as to why this is continuing. In Q1, we actually grew over 80% the assets on the platform. We are supposed to be in a bear market, and we almost double in one quarter the amount of assets on platform. So that tells you the narrative.
Yes, the larger pie is getting smaller, but the institutional pie is getting bigger.
Growing appetite for staking ether
The Block: You’re a federally chartered chartered digital bank. Where do you see the the most growth potential in terms of products that you offer at the moment? Is it just flat out custody or are there other things going on in your platform that might draw interest?
Diogo Mónica: Let me start by saying that we are not “a federally chartered bank”. We are “the only federally chartered bank.” That dramatically changes the question, right?
Something that has been very exciting is, post-Ethereum Shapella upgrade, staking for Ethereum. In the beginning of the year, we had billions of dollars in deposits of Ethereum, and less than 10% of them were being staked. So a very small percentage. And now, we are actually quickly coming closer to 50%. And I’m betting that it will actually land closer to 70% to 80%.
They do not want to take smart contracts risks, and they want to use a bank that has in the charter, we actually have in our charter, staking as one of the services that we offer our clients from the bank charter, so that’s very unique because it gives all the regulatory confidence that they’re using a provider that can offer these services.
With all of the things that are coming out of the SEC, something unique about being a bank is that we can actually custody securities.
The Block: What’s your take on the debate in the U.S. going on right now in terms of whether or not there is regulatory clarity in the industry? Do we need new laws? More laws? Or do the current laws work?
Diogo Mónica: There wasn’t really clarity, and there still isn’t clarity in very many pockets of the world of crypto, but crypto is not one thing, right? Crypto ranges anywhere from stablecoins to NFTs to commodities like bitcoin to potential securities out there. So there’s different degrees of clarity in different places.
However, what we did is from day one, we said, ‘hey, if there’s no clarity, let’s get some regulatory apparatus that allows us to do everything effectively regardless of what the outcome is.’ That’s what we’ve done.
So everybody else in the space is effectively saying that they have no clarity because they don’t want to do the hard thing of actually going to the highest level of scrutiny. We’ve done the strictly harder thing, so we can operate in regulatory uncertainty, which still exists.
And by the way, our position has always been the more clarity, the better. Regulation coming, regardless of whether it’s fantastic regulation for crypto or not, at least that gives us a standard, something to follow, something to work with. And right now there’s very little to work with when it comes to securities in crypto and digital assets. That is very much true.
Operating at the federal level
The Block: We’ve seen a lot talk about regulation at the federal level versus regulation at the state level. You’re federally regulated. Do you think there should be one primary regulator? Or could this industry work with state regulators, as happens in parts of the banking industry. Where should the locus of crypto regulation be?
Diogo Mónica: I do think that for this asset class to have the impact that we want it to have, it needs to be at the federal level. There’s a reason why every single big bank is regulated at the federal level. It makes sense because it’s the highest level of scrutiny.
It is dramatically different to be regulated in a state, especially if you’re talking about a state like Nevada, or a state like Wyoming. It makes a dramatic difference to be regulated by a regulator that just doesn’t have the resources. It doesn’t have the people. It doesn’t have the historical view with the court cases that we do. We have 200 years of federal cases that say exactly what happens in bankruptcy…and by the way, individual states means individual risk. There’s a court in that state that can make an arbitrary decision about the outcome of a specific case, like we are seeing with Celsius, like we’re seeing with BlockFi. So that is not beneficial to crypto. It is not beneficial for the same clarity that people are asking from the regulators. And so if people want to be consistent, we want both clarity and the highest level of scrutiny in the land, and that really stands with the federal regulators. So I think that’s what we need.
We should do the harder thing first, rather than start by having a totally disbursed, completely separate set of expectations of what we actually need to do.
The Block: Just to switch gears a bit, I know Anchorage has operations internationally. What’s your view of the market abroad right now? Are there any jurisdictions that you’re excited about? Is the U.S. at risk of losing out? Are you seeing evidence of that?
Diogo Mónica: Yes. We are. We are seeing evidence of that. We’re seeing evidence that companies do not want to do business in the U.S. And in fact, we have a Singaporean license where people can actually still have a regulated entity and still participate in crypto while being outside of United States.
Let me just start by saying though, there’s many compounding factors. Tax effects is one of the biggest factors. Lots of companies actually wants to be outside of the United States from a regulatory perspective, and from a tax perspective.
I’ve had lots of conversations with people that really want to be outside and want to have a hedge.
Europe, Singapore leading the way
The Block: What jurisdictions are getting it right?
Diogo Mónica: Europe has actually done extremely well with Mica. I think there’s a couple of things in that law that are literally shooting themselves in the foot, especially around stablecoins, where there’s like $200 million limits and things like that are just artificial, don’t really help anyone.
But the law actually provides a lot more clarity and an order of magnitude more clarity that we have in the U.S. So I think that’s actually fantastic.
But Singapore has definitely done things right. They have a regime that is extremely tough and extremely thorough in the way that they do things.
And then finally, we have Hong Kong which has been a little bit of whiplash type situation where they are either hot or cold. Now they’re very much very hot in terms of supporting. And they seem to understand that they would lose this, this financial institution center, if they lose crypto.
In Hong Kong, the regulators are actually putting pressure on the banks to onboard crypto companies, which is very different from the U.S., very different from Singapore. Very different from everybody else.
Why would you want crypto outside of the banking perimeter? No, you want a bank that does crypto so that the regulator actually has oversight. You shouldn’t push it abroad. You shouldn’t push it outside of the regulatory perimeter. So you should be giving licenses, not rejecting people that apply for licenses.
So those are the three biggest ones, Singapore, Hong Kong, Europe, and obviously the United States continues to be the bigger market.
The Block: Back to the U.S., what do you hope lawmakers and regulator focus on? What should they be thinking about, or paying attention to?
Diogo Mónica: Basics. Regulate stablecoins. Tell us what’s a stablecoin and what can be called a stablecoin. And don’t push it outside of the U.S. perimeter.
And number two, tell us which regulator regulates digital assets. And are they a new thing? Are they securities? Are they commodities? And who gets to decide that?
Right now, the state of the United States is regulations through enforcement. Every day, there’s a new data point for us to integrate into our frameworks that tells us whether something’s a security or not, and that’s just bad for for everyone.
The United States just delays innovation; what we want is clear regulation there. So they have to tell us who makes the decision and force them to make fast decisions.
There’s lots and lots of different things around what’s sufficiently decentralized, around treatment of NFTs, all these other things, but those are secondary, and those all depend on the first two.
© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
Bankrupt crypto lender Celsius Network reached settlements that could clear the path to obtain court approval to return customer assets, the Wall Street Journal reported on Friday, citing court documents.
The agreements would resolve customer claims over fraud allegations by raising recoveries 5%, the WSJ said, adding that a total of 30,000 claims seeking $78 billion could be settled.
Celsius will see court approval for the settlements on Aug. 10 at a hearing, according to the report.
A confirmation hearing on Celsius’ reorganization plan is set for October, and customers could start to see disbursements of crypto and other assets before the end of the year, the WSJ added. While Celsius lawyers have argued that customers are owed no more than that they had deposited, some users filed claims seeking damages for alleged misconduct by former management.
SEC sued Celsius earlier this month
The Securities and Exchange Commission earlier this month filed a lawsuit against Celsius and its former CEO Alex Mashinsky in federal court, accusing them of raising billions through fraudulent and unregistered sales, lying to investors and manipulating the price of a native token.
Celsius filed for bankruptcy about a year ago in one of the highest profile crypto implosions ever. At one point the crypto lender held $30 billion in assets.
BlackRock CEO Larry Fink sang crypto’s praise again on Friday, just a week after he highlighted the role of bitcoin as a kind of “digitizing gold.”
“It’s an international asset,” he said in an interview with CNBC, referring to crypto on broad terms. “It has a differentiating value versus other asset classes, but more importantly, because it’s so international, it’s going to transcend any one currency.”
“If you just look at the value of our dollar, how it depreciated the past two months and how much it appreciated over the last five years, a international crypto product can really transcend that,” he continued. “And that’s why we believe there’s great opportunities. And that’s why were seeing more and more interest. And that interest is broad-based, worldwide.”
The asset manager last month filed an application with the Securities and Exchange Commission for a spot bitcoin ETF, triggering a widespread rally in the sector. The SEC has yet to approve a spot bitcoin fund.
BlackRock wants to ‘democratize investing’
“We believe we have a responsibility to democratize investing,” Fink said, commenting on broader growth in the ETF market and highlighting how gold funds had brought down the costs of transactions for the metal. “Now, with crypto, the idea of democratizing that role…the cost right now to transact, it’s quite expensive. We’re talking points, not decimal points.”
Fink said that he couldn’t talk specifically about bitcoin because of the pending application.
“We are working with our regulators,” he added. “If BlackRock’s name is going to be on it, we’re going to make sure that it’s safe and sound and protected.”
Even though the percentage of traditional hedge funds investing in crypto declined from 37% to 29% in 2023, confidence in the value proposition and long-term sustainability of crypto assets “appears robust,” PwC said Wednesday in a report.
Traditional hedge funds with current crypto investments plan to either maintain or increase exposure, the report found. And that’s regardless of market volatility and ongoing regulatory uncertainty that have challenged the sector.
Over the past year, the average allocation to crypto by traditional hedge funds increased from 4% to 7%. Still, slightly over half of traditional funds surveyed said they are unlikely to invest in crypto over the next three years.
The report, conducted with the Alternative Investment Management Association and CoinShares, surveyed both traditional hedge funds and crypto hedge funds. Of that second group, 93% expect the overall crypto market capitalization to be higher at the end of the year.
Traditional hedge funds appear committed to crypto
“Despite market volatility, a fall in digital asset prices and the collapse of a number of crypto businesses, investment in crypto-assets is expected to remain strong in 2023,” John Garvey, a global financial services leader at PwC U.S., said in a statement. “Traditional hedge funds, committed to the market in the longer term, are not only increasing their crypto-assets under management, but also maintaining – if not increasing – the amount of capital deployed in the ecosystem.”
Garvey added that regulatory uncertainty is continuing to weigh on many funds, and that more than half of those surveyed would invest more once greater transparency, regulatory certainty and risk management are in place.
The report found that 23% of traditional hedge funds are reassessing their crypto strategy due to the regulatory environment in the U.S., while 12% of crypto hedge funds are considering relocating away from the country.
Top executives at Binance resigned this week over CEO Changpeng Zhao’s handling of regulatory investigations into the company, Fortune reported, citing sources.
Senior officials at the company including general counsel Han Ng, chief strategy officer Patrick Hillmann and SVP for compliance Steven Christie told Zhao they are leaving the company, Fortune said.
The departures follow the recent exit of Matthew Price, a former IRS agent Binance had placed in charge of global investigations and intelligence.
Binance did immediately responded to a request for comment, Fortune said, adding that the executives decided to depart because of Zhao’s response to an ongoing investigation being conducted by the Department of Justice.
BlackRock CEO Larry Fink said Wednesday that he wanted to work with regulators and hear any concerns they may have about a recent filing from the asset manager for a spot bitcoin ETF. He also said he viewed the largest cryptocurrency by market capitalization as having the role of “digitizing gold.”
“We have a good track record working with our regulators and trying to make sure we’re thinking about all the issues around any filing,” he said in an interview with Fox Business, adding that he couldn’t get into specifics about the application. “We work really closely with our regulators, and we want to hear from the regulators.”
“What we’re trying to do with crypto is make it more democratized and make it much cheaper for investors,” he continued. “Right now, the bid ask spread for crypto is very expensive. It does erode a lot of the returns…We hope our regulators look at these filings as a way to democratize crypto,” he said.
Nasdaq last week refiled a 19b-4 form for BlackRock’s iShares Bitcoin Trust, just days after The Wall Street Journal reported that the U.S. Securities and Exchange Commission said recent filings for spot bitcoin ETF funds had not been “clear and comprehensive.”
The updated filing from the exchange included language that it expected to enter into surveillance sharing agreements with Coinbase.
Bitcoin as digital gold
Speaking more broadly on bitcoin, Fink compared the asset to digital gold, although he said he didn’t own any personally.
“Specifically on bitcoin, as I’ve said in the past, we’re a believer in digitization of products,” he added. “Bitcoin is an international asset…It can represent an asset that people can play as an alternative.”
BlackRock made an initial filing for the bitcoin ETF on June 15 in a move that was quickly followed by other asset managers including Fidelity. Bitcoin has surged in the aftermath, rising 19% over the past month, according to CoinGecko.
The SEC has yet to approve a spot bitcoin ETF, and the recent applications could face challenges from the agency as it has in the past cited concerns about fraud and potential market manipulation when assessing potential spot funds.
Cboe on Friday submitted four updated 19b-4 filings for spot bitcoin ETFs, according to it its website.
The updated filings were submitted for Invesco Galaxy Bitcoin ETF, VanEck Bitcoin Trust, WisdomTree Bitcoin Trust and Wise Origin Bitcoin Trust.
The move followed an earlier report from the Wall Street Journal that said the U.S. Securities and Exchange Commission told the Nasdaq and Cboe exchanges that recent filings from BlackRock, Fidelity and others for spot bitcoin ETF funds weren’t “clear and comprehensive.”
Cboe had said it intended to update its filings.
The U.S. Securities and Exchange Commission told the Nasdaq and Cboe exchanges recent filings from BlackRock, Fidelity and for spot bitcoin ETF funds weren’t “clear and comprehensive,” the Wall Street Journal reported, citing people familiar.
The SEC said it returned filings because they didn’t provide enough information about surveillance arrangements, the WSJ said.
Bitcoin quickly plunged on the news, declining from over $31,000 to $30,080.
Paxos is teaming up with Mercado Libre to make the regulated Pax Dollar available in Mexico.
The stablecoin, which is backed by the U.S. dollar, will be accessible on the Mercado Pago payment platform to all customers in the country, Paxos said Wednesday in a statement.
Mercado Pago has nearly 40 million active users and is a leading online payment provider in Mexico. Paxos said the partnership represented the continuation of its investment in Latin America.
“Mexico is one of the most active marketplaces for digital assets with millions of users tapping into the ecosystem to gain access to key financial services,” Paxos head of Latin America Arnoldo Reyes said in the statement. “The launch of USDP within Mercado Pago represents another way that Mercado Libre continues to democratize access to commerce and financial services through innovative digital asset solutions throughout Latin America.”
Paxos said in April that it would exit the Canadian market.
Bitcoin’s price has surged this month, rising nearly 14% in the wake of BlackRock’s move to file for a spot bitcoin ETF that was quickly followed by other asset managers.
While most attention over the next few months will be on the U.S. Securities and Exchange Commission’s response, as the regulator has yet to approve a spot bitcoin fund, the filings pose a larger question of just how much the funds could start to affect the broader market, and price of bitcoin, should they ultimately get the green light.
Chung, who says he’s been intimately involved in the bitcoin ETF filing process over the years, spoke about what makes BlackRock’s recent filing different from previous efforts. He also spoke about the size of the potential market for the funds.
(The interview has been edited for length and clarity.)
BlackRock’s Bitcoin ETF move
The Block: How was CF Benchmarks involved in BlackRock’s recent move to file for a spot bitcoin ETF?
Sui Chung: CFB is the provider of the index BRRNY, Bitcoin Reference Rate — New York Variant, that will be the NAV for the fund.
The Block: How is this latest filing ETF different from ones that have been tried in the past? Ones that didn’t receive approval?
Sui Chung: CF Benchmarks has been involved in more bitcoin ETF filings than any other company in the world. Of the 13 filings I think there have ever been, seven have used a CF Benchmarks index.
Once the S-1 is filed, what actually matters is the 19-b4 process, and in this case Nasdaq has to argue why the listing of this ETF will not compromise the exchange vis-à-vis the Securities and Exchange Act. So what’s different is something called SSA with bitcoin spot market, which you will find on page 36 of Nasdaq’s 19-b4. That has never featured in any previous 19-b4 by any national stock exchange in the U.S. attempting to rule change to allow a bitcoin ETF. So that is the thing that is different.
The Block: What does it do?
Sui Chung: It seeks to address the Commission’s concerns that it has previously stated in its disapprovals of other 19-b4 processes. Previously, disapprovals have been stated by the SEC because there are insufficient measures taken by the listing exchange to ensure that there are mechanisms in place to impede and detect manipulative trading, potential manipulation of the shares of the ETF. It’s the listing exchange that needs to have this in place.
Nasdaq moves to address concerns
The Block: So theoretically, Nasdaq has made changes to address these concerns?
Sui Chung: If you read the actual 19-b4, which is all public, this is something that Nasdaq proposes to put in place to to be able to fulfill that requirement that the SEC has.
The Block: How much has CF Benchmarks worked with some of these other parties to address these concerns?
Sui Chung: I think it’s fair to say that it’s a collective effort to understand, to interpret what that bar looks like. The SEC puts a bar there. So obviously, collectively, we analyze, ‘okay, how can that bar be met? What have people tried before, which obviously wasn’t enough, and so therefore where is that bar? What does reaching that bar look like? And what can we do to to meet that bar?’
The Block: So what’s changed?
Sui Chung: I’d point you to the Nasdaq’s words. They’re public. They’re in the filing. They call it the Spot BTC SSA. So this Spot BTC SSA is expected to have the hallmarks of a surveillance sharing agreement between two members of the ISG.
The Block: How long could this approval process last?
Sui Chung: There is a standard amount of time, and that standard amount of time is 45 days. However, the SEC has the ability to extend that by another 45 days. And then secondly, after that 90 days is up, they can also extend it. It’s not quite an extension…but it’s another way to delay it basically. So they can stretch it out, I think in total of 230 days, before they have to finally come up with either a disapproval or nothing. And it’s the nothing that means you can go.
The billion-dollar bitcoin question
The Block: If a spot is eventually approved, how do you see that changing the broader bitcoin market? Who influences who here? Will the ETFs just follow the market, or will they start to influence it?
Sui Chung: That’s the sort of multi-billion dollar question. If we think about ETFs as a class of instruments, I think in the U.S., something like 60% of the investing public holds at least one ETF. If you say that’s the potential audience for this product, that’s a big audience.
Now, how many of that audience who are already familiar with ETFs will want to invest in this one, or indeed any others? So how many of them will want to invest in any given bitcoin ETF? Well, there’s another stat which is that 20% of investing Americans already own cryptocurrency. And so you’re going to think that, at the very least, those that have held an ETF before and today own crypto will, through their long term savings plans like 401(k)s etc., if they have an option to allocate to a bitcoin ETF, you would think it would make sense that at least some part of their 401(k) will end up in a bitcoin ETF.
That’s quite a lot of capital. And of course, it’s an ETF, so therefore it’s effectively a long-only vehicle. So everyone that subscribes to shares in the ETF, because of the creation/redemption mechanism, you never have a shortage of shares of the ETF. Every time you create a share of ETF you go out and buy some bitcoin.
And so there’s only one way it can go. Once you have an ETF, it’s only going to have one type of effect. Now what is the magnitude of that effect? We can guess, we can guesstimate. How big is the investing public? How much money have they got to invest? How many of them might be interested in bitcoin? And when you do that math, the number is pretty big.
The size of the ETF market
The Block: There are tax benefits too…
Sui Chung: With ETFs, you don’t have unrealized gains and losses. There is no tax on the unrealized gains and losses. Now, obviously, your entry and exit will be taxed, depending how you enter an exit. But within a 401(k) wrapper, you’re not racking up taxes. Whereas if you sit there on Coinbase, you buy some bitcoin, then you decide to sell some bitcoin, move the dollars into Schwab to buy the S&P 500. There’s a taxable event, right?
Even if you are someone who is familiar and comfortable with self custody, with using crypto exchanges, for most people there is a portion of their wealth sat inside a certain wrapper, in the U.S. a 401(k) being the most popular. You can only use that money to buy certain types of instruments. ETFs are one of them. It doesn’t say you can’t buy bitcoin ETFs. You can buy whatever ETF you want.
It’s that part of people’s capital. It’s very easy, being inside the crypto sphere, to think in this binary matter of like ‘oh, you either use traditional financial instruments, or you self custody.’ Well, that’s not true. You can certainly do both. I mean, myself, I have an active stock trading account. I also have, you know, our UK version of a 401(k) that’s chock full of stocks that are managed by fund managers.
The now defunct FTX.com crypto exchange owed customers about $8.7 billion, debtors said in report released Monday, accusing previous management at the company of comingling and misusing customer deposits.
“The image that the FTX Group sought to portray as the customer-focused leader of the digital age was a mirage,” CEO and Chief Restructuring Officer John J. Ray III said in a statement. “From the inception of the FTX.com exchange, the FTX Group commingled customer deposits and corporate funds, and misused them with abandon at the direction and by the design of previous senior executives.”
A review by debtors is ongoing, and the report is part of a series regarding issues that preceded the company’s bankruptcy filing.
BlackRock’s filing for a spot bitcoin ETF earlier this month could be a “significant turning point in bitcoin’s path to institutional acceptance,” Ark Invest said in an emailed note on Monday.
“BlackRock’s decision to file for a Bitcoin ETF signals that large institutional players are positive on the long-term outlook for the digital asset,” Ark analyst Yassine Elmandjra wrote.
BlackRock’s June 15 filing has been followed by other asset managers looking to launch their own spot bitcoin funds including Invesco, WisdomTree and Valkyrie. Ark had previously filed for a similar fund on April 25 with 21 Shares.
BlackRock’s work with Nasdaq on bitcoin ETF
“While it looks much like previous ETF filings, BlackRock worked with Nasdaq to distinguish its application with a unique surveillance-sharing agreement designed to prevent the risk of bitcoin-related market manipulation,” Elmandjra said. “Based on our research, however, other applicants will be able to amend their filings with similar agreements at little cost.”
The price of bitcoin has surged since the BlackRock filing, rising 15.3% over the past week. It’s currently trading at $30,410, according to CoinGecko.
CoinShares, meanwhile, reported the largest inflows into crypto investment products since July 2022, with $199 million pouring into funds last week. Of that, bitcoin was the biggest winner, with inflows totaling $188 million.
Crypto miner Hut 8 has snagged a $50 million credit facility from Coinbase Credit, the company said in a statement on Monday.
Proceeds from the loan will be used for general corporate purposes. The facility provides an initial $15 million term loan, and an additional $20 million delayed-draw term loan tranche.
The agreement includes the option for an additional $15 million tranche, according to the statement. The loan is secured by Hut 8’s interest in bitcoin held at Coinbase Custody Trust Company.
“This credit facility gives us additional financial flexibility,” Hut 8 CEO Jaime Leverton said in the statement. “At the same time, it ensures that we can maintain our dynamic Bitcoin treasury management strategy going into the halving.”
BitGo said Thursday that it’s terminating the planned acquisition of crypto custodian Prime Trust, just two weeks after it announced plans for the deal.
“This decision was not made lightly and BitGo remains committed to our mission to deliver trust in digital assets,” the company said in a post on Twitter. It said the decision came “after considerable effort and work to find a path forward.”
BitGo Holdings said earlier this month that it had signed a non-binding term sheet to acquire 100% of the equity of Prime Core Technologies, the parent company of Prime Trust. The company said the deal would bring business continuity and long-term stability to clients of Prime Trust.
Prime Trust clients
Prime Trust began offering services to crypto companies in 2018, and the firm has said it served nearly 700 fintech and crypto clients. It’s recently lost several clients, however, including the Binance.US. exchange that was sued by the U.S. Securities and Exchange Commission earlier for allegedly violating the country’s securities laws, among other charges.
The SEC lawsuit mentions a “Trust Company B,” which has drawn speculation on social media that it could be Prime Trust.
Valkyrie Funds, which already offers a Bitcoin Strategy ETF and a Bitcoin Miners ETF, is joining the race for the first spot bitcoin ETF with a new filing submitted to the U.S. Securities and Exchange Commission on Wednesday.
Called the Valkyrie Bitcoin Fund, the ETF will hold bitcoin to reflect the performance of the CME CF Bitcoin Reference Rate, New York Variant. The trust intends to list shares on the Nasdaq exchange under the ticker BRRR.
The SEC has yet to approve a spot bitcoin EFT. WisdomTree, Invesco and BlackRock have all filed for spot bitcoin funds over the past week.
The price of the world’s largest crypto by market capitalization has surged with the interest, rising 16% over the past week. It rose 6.3% on Wednesday to trade at $30,114, according to TradingView.
Alex Obadia, a co-founder of the Ethereum infrastructure service Flashbots formed to battle negative consequences of MEV extraction techniques on Ethereum, is departing the Paradigm-backed company. He’s also warning of serious challenges ahead.
“The system we committed to protect is still vulnerable to centralization from phenomena such as cross-domain MEV and exclusive orderflow,” he wrote in a letter posted to Twitter. “To top it off, as we’ve grown into an incumbent, we now also need to protect the system against ourselves, to avoid becoming the very Moloch we’re fighting against.”
Obadia said he was leaving the company for multiple reasons, “some more personal than others.”
Flashbots North Star
“What it boils down to is that I feel my vision and values will be better served somewhere else,” he added. “This is normal, and happens in every growing organization.”
Flashbots’ service proposes blocks for validators running the Ethereum blockchain, and the company earlier this year was looking to raise funds at a billion-dollar valuation. Its website says it was born out of the “the existential crisis of MEV.”
Maximal Extractable Value, which MEV refers to, is a technique that involves manipulating transaction sequencing to capitalize on certain types of trades.
“We founded Flashbots to confront a looming crisis we saw on the horizon, standing up for a technology we believe in, and protecting values dear to us,” Obadia said. “In an industry often caught in the short term, the decision to invest in fundamental research may seem counterintuitive, but this is precisely our edge.”
Ethereum blockchain explorer Etherscan has unveiled a new AI tool that will use OpenAI’s large language model to help users learn about the source code of any smart contract.
Dubbed “Code Reader,” Etherscan said the beta tool can be used to “gain deeper insights into the code by generating AI prompts for specific code sections or functions that you want to understand better.” It added that targeted questions will produce AI-generated explanations for specific smart contract code, thereby “enabling you to delve into the inner workings of the code.”
“This feature is particularly valuable when interacting with a smart contract for the first time, as it provides a thorough understanding of its operations and functionality,” Etherscan added.
Code Reader’s use cases
Among other use cases, Etherscan said the tool can be used to obtain a comprehensive list of smart contract functions related to reading and writing Ethereum data. The tool can be used to explore code to integrate a smart contract with decentralized applications.
Etherscan posted a disclaimer stating that an OpenAI API key with sufficient usage limits will be required to use the AI service on its website. It also advised users not to assume that all answers are correct. To get started, a user can insert the API key, enter a contract address, select a source file to interact with, and then begin asking questions.
“Don’t assume answers are correct!” Etherscan warned on Twitter. “This is very much a *Beta* release – please let us know what you’d like us to add or improve!”
Financial firm Republic and U.S.-regulated broker-dealer INX are joining forces to build blockchain-based infrastructure and expand asset tokenization for primary and secondary markets.
As part of a deal announced Monday, Republic will invest $5.25 million in INX at a pre-money valuation of $50 million. After the transaction, Republic will own about 9.5% of the outstanding shares of INX, the companies said in a statement.
Republic and INX have also committed to enter into a non-binding term sheet that outlines a deal in which Republic will acquire 100% of INX common equity at a valuation of up to $120 million.
Primary and secondary markets
“By combining their expertise and resources in both TradFi (traditional finance) and DeFi (decentralized finance), both companies are poised to introduce a wide range of compliant solutions that cater to both primary and secondary markets while also building the underlying retail-focused infrastructure to support the needs of a booming digital economy,” the companies said in the statement.
As part of the collaboration agreement, INX will offer tokenized asset services to Republic’s portfolio of companies.
BlackRock took a giant leap toward a spot bitcoin ETF, filing a registration statement with the U.S. Securities and Exchange Commission on Thursday.
Known as the the iShares Bitcoin Trust, the Delaware statutory trust will hold assets primarily consisting of bitcoin held by a custodian designated as Coinbase Custody Trust Company.
The price of bitcoin will be determined using the CF Benchmarks Index, according to the filing.
The Texas State Securities Board said Thursday that it filed enforcement actions against various entities collectively known as Abra and CEO Bill Barhydt.
The actions allege the respondents committed securities fraud and engaged in deception in connection with the offer and sale of investments in Abra Earn and Abra Boost, the state regulator said in a statement.
Specifically, it alleges that the entities offered or sold Abra Earn to accredited and unaccredited investors and Abra Boost to accredited investors.
“The alleged misconduct includes the intentional concealment of financial information reflecting the capitalization of parties, defaults on loans and the transfer of assets to Binance,” the regulator said in the statement, adding that the actions also allege that the firms “were or were nearly insolvent” as of March 31.
The regulator noted that Abra has not yet had the opportunity to challenge the allegations. It said that the enforcement actions don’t prevent the respondents from returning assets to clients.
The Texas regulator said the parties collectively had around $116.79 million of assets under management for U.S. Abra Earn and Abra Boost investors. The agency noted that it’s been leading a working group of state securities regulators organized through the North American Securities Administrators Association.
Secret transfers to Binance
A 30-page enforcement action document notes exposure to failed crypto exchange FTX, in addition to Genesis, 3AC, Auros and Babel Finance. It also accuses Abra entities of “secretly transferring assets to Binance.”
Founded in 2014 by Barhydt, Abra provides a crypto platform for both individual and institutional clients with services such as trading, lending and borrowing. It cut jobs last year, and in 2020 settled charges with the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission.
The SEC had accused Abra of “offering and selling security-based swaps to retail investors without registration and for failing to transact those swaps on a registered national exchange.”
The company didn’t immediately respond to a request for comment from The Block.
New York Attorney General Letitia James on Thursday announced a settlement with CoinEx, a Hong Kong-based virtual currency trading platform the state sued earlier this year for failing to register.
As part of the agreement, CoinEx must refund nearly 5,000 New York investors a total of $1.2 million and pay more than $600,000 in penalties. The company is banned from offering securities and commodities in New York and prohibited from making its platform available in the state.
“Unregistered crypto platforms pose a risk to investors, consumers, and the broader economy,” James said in a statement. “Today’s agreement should serve as a warning to crypto companies that there are hefty consequences for ignoring New York’s laws. My office will continue to crack down on crypto companies that brazenly disregard the law, mislead investors, and put New Yorkers at risk.”
New York’s crypto crackdown
James has escalated her office’s crackdown on the crypto industry this year and last month introduced proposed legislation that could force companies to refund customers who are victims of fraud. She has also sued KuCoin, along with former Celsius CEO Alex Mashinsky.
New York state has one of the toughest regulatory regimes for crypto companies in the U.S. with its BitLicense that’s overseen by the state’s Department of Financial Services.
James renewed her call on Thursday for New Yorkers “affected by deceptive conduct in virtual assets” to report issues to state authorities.
“Attorney General James also encourages workers in the cryptocurrency industry who may have witnessed misconduct or fraud to file an online whistleblower complaint with her office,” her office said.
Ripple is partnering with Colombia’s central bank to explore blockchain technology use cases in the South American country.
Banco de la República will work with the information and communications ministry to pilot use cases to enhance the country’s high-value payment system using Ripple’s CBDC Platform.
Joe Vollono, a director of CBDC business development at Ripple, said the company had been in talks with the Colombian central bank for over a year. The pilot is being run with Spain-based blockchain technology firm Peersyst Technology.
“When we’re talking about the high-value payment system, what we’re generally referring to is large scale, wholesale payments, RTGS systems, and related financial operations and infrastructure that might benefit from leveraging distributed ledger technology,” Vollano said in an interview. “And so that’s really the focus of the exploration here.”
Ripple’s efforts with central banks around the world
Besides improving speed, the efforts could ultimately reduce costs. The project will run through the end of 2023, Ripple said in a statement, noting that tests will be conducted in a controlled environment without compromising resources.
Ripple has worked with monetary authorities in Hong Kong, Montenegro, Bhutan and Palau.
“One of the advantages of the reasons to explore this technology for high value payments is around the infrastructure, and the idea that this these transfers can be done with finality, speed and scale in a way that existing infrastructure may not provide for the same flexibility,” Vollono said.
Securitize, a blockchain firm that specializes in tokenizing real-world assets, doesn’t buy the argument that crypto companies don’t know how to register with U.S. regulators — it’s done it.
“People don’t know how to register?” Carlos Domingo, the company’s founder and CEO, asked. “Well, we know how to register. It’s just the normal registration path.”
He was referring to some of the heated discourse that’s occurred as crypto exchanges Coinbase and Binance battle fresh lawsuits brought by the U.S. Securities and Exchange Commission and argue for new legislation for the sector. On Tuesday, Gemini co-founder Tyler Winklevoss called the SEC “downright evil” for bringing lawsuits in an attempt to ” destroy crypto companies under the false premise that the rules are clear when they know they are not.”
Coinbase CEO Brian Armstrong has also been a vocal critic of the regulator and argues that the registration process for crypto firms has not been clear.
‘These are the rules’
Securitize, for its part, was founded in 2017 and has raised over $120 million. The company obtained a registered transfer agent license in July 2019 and owns a broker-dealer.
“We have this set of licenses, and the underlying technology, to be able to take the tokenization process from end to end,” Domingo said in an interview, acknowledging that tokenization “starts with the premise that this is regulated.”
“What the SEC is telling everybody is that ‘if you want to register, these are the rules,'” he continued. “The SEC is not going to create a different path for crypto people that is that is completely different than what other companies do.”
While Domingo said Congress could eventually pass new legislation, he said it would be unlikely in the next two to three years given. And despite concern that crypto firms could start to offshore some activities, he doesn’t see too many companies leaving the country outright.
Going to Dubai?
“It’s 20% of the world’s economy, but it’s 40% of the world capital markets,” Domingo said. “Whoever thinks that they can ignore the U.S. is probably missing out on the biggest, most mature, most sophisticated financial services market.”
“This narrative that people can go to Dubai operate, it means first they’re operating from a jurisdiction that is very small, and it doesn’t actually allow you to then solicit investors in other parts of the world,” he said.
While Europe has made strides with its new crypto rules, Domingo said it’s still not perfect.
The U.S. “is the most reliable, trustworthy capital market in the world for a reason,” he said. “It has a very strong regulatory framework, and that’s why it attracts capital.”
While there’s always been interest in the tokenization sector, he said there hadn’t been massive adoption in the past, with many crypto firms focusing on initial coin offerings, decentralized finance, governance tokens and NFTs. Now, amid the regulatory crackdown in the U.S., there’s more interest in the space, and the company is seeing more institutional adoption.
“Crypto people have realized that issuing magic beans on chain, you know, goes as far as it goes,” Domingo said. “These are assets that don’t have any intrinsic value, that are problematic as we’ve seen. They’re very illiquid, and they’re easy to manipulate.”
The company last month launched a new feeder fund that offers tokenized exposure on Polygon to a private credit fund from asset manager Hamilton Lane.
Securitize, meanwhile, doubled its revenue in 2022, and Domingo said the company expects to grow 50 to 100% this year, despite the so-called crypto winter.
“Binance have not sold BTC or BNB,” he said Tuesday on Twitter. “We even still have a bag of FTT. It is amazing they can know exactly who sold based on just a price chart involving millions of traders. FUD.”
The comments came as the exchange is embroiled in a legal dispute with the U.S. Securities and Exchange Commission over allegations of major malfeasance and legal violations at its Binance.US unit the regulator argues should result in prohibiting the company from doing further business in the country.
Earlier in the day, a judge asked the two sides in the dispute to work out a deal in an attempt to avoid a full asset freeze.
Bitcoin was mostly flat in Tuesday trading, declining 0.1% to $25,874, according to TradingView. It’s down 3.5% over the past month.
Binance.US, the U.S.-based entity of crypto exchange Binance, and the Securities and Exchange Commission agreed to work on a deal to avoid a complete asset freeze, Bloomberg News reported.
U.S. District Judge Amy Berman Jackson said the two sides seemed “not that far apart” on Tuesday and referred them to a magistrate judge to work out the compromise. The SEC had been seeking an asset freeze as part of a lawsuit it filed against the company last week.
“Shutting it down completely would create significant consequences not only for the company but for the digital asset markets in general,” Bloomberg cited Judge Jackson as saying at a Tuesday hearing in Washington, adding that she wouldn’t decide on the asset freeze until work with the magistrate is finished.
In a June 5 lawsuit, the SEC alleged major malfeasance and legal violations at Binance.US that it argued should result in prohibiting the company from doing further business in the country.