In markets

‘Uptober’ is shaping up as one for the history books, with the odds of a Bitcoin ETF approval growing by the minute. The Bitcoin price grew steadily over the week and suddenly spiked from US$32K to US$34K (A$50.5K to A$53.7K) in a few minutes this morning. Crypto market volumes have grown 50% over the past day, although they’re still at relative lows equivalent to mid-2019. Public Bitcoin ETF funds saw US$43M (A$68M) of inflows today, equating to around 10% of the year-to-date figure. At the time of writing, Bitcoin was changing hands for A$51,755 (US$32,780), up 18% for the week, while Ethereum had gained 11% to trade around A$2,790 (US$1,760). Bitcoin dominance is at a two-year high, which old hands will tell you can be a good time to invest in altcoins, which tend to surge on delay after a rally draws in new participants. Some altcoins are already starting to outperform, with Solana gaining 33% and Chainlink up 39.5% this week. XRP gained 10%, Cardano was up 12%, and Dogecoin increased 12%. The Crypto Fear and Greed Index was at 53, or Neutral, but expect that to change shortly.


From the OTC desk

The cryptocurrency impulse is very much alive and well; despite increasing global geopolitical risks. While SOL and BTC appear to be leading the complex, stablecoin market caps have also been rising – for the first time in a long time! Historically, stablecoin market caps have provided key insight into the broader market impulse and are worth following closely.

The Solana tech upgrade, increasing network activity, and strategic alignments with major tradfi operators like Visa, have taken the market’s interest and are likely attributable to the recent price growth of SOL. The story of BTC, however, seems slightly more ambiguous, with borrowing costs moving higher.

Last week, we hypothesised that BTC is now profiling as a defensive asset, due to its lack of correlation with other high-beta risk assets. Whether this narrative proves to be true, whether the BTC complex is trading forward-looking inflation, or whether BTC holders are placing an increasingly higher probability on a US spot ETF approval – only time will tell. Importantly though, the 10th of January 2024 remains the critical date of a US-based BTC ETF, as it corresponds to the final deadline of the ARK 21 Shares Application – the first ETF application listed by date.

In financial markets, US long-end Treasury bonds fully retraced their post-October jobs report rally, trading to 5.02%, before collapsing back to 4.86%. This retracement in yields (off their 16-year highs) are being attributed to a lack of geopolitical escalation and softer commodity markets.  AUD/USD has remained under constant selling pressure, to trade near US 63c.

In the economic calendar this week, Wednesday at 11:30am AEDT delivers the critical Australian Q3 inflation data. Currently forecast to move down to 5.3% from a Q2 reading of 6%, any surprise to the upside could see the Reserve Bank of Australia’s meeting on Melbourne Cup Day become a ‘live’ decision.

Additionally, the US will receive US GDP (Q3) on Thursday at 11:30pm AEDT, as well as the US PCE Price Index (September) on Friday at 11:30pm AEDT. PCE inflation is the preferred measure for inflation for the Federal Open Market Committee (FOMC). Currently, Core PCE (YoY) inflation is forecast to lower to 3.7% in September, relative to 3.9% in August.

On the OTC desk, our trading volumes continue to rise, with token pricing requests pushing further out the risk curve. The market seems to be much more comfortable with the positivity surrounding the cryptocurrency complex and is now in ‘value-seeking mode’. We continue to watch the price of USDT/USD as a broad indicator of market sentiment. For a while now, we have highlighted that when USDT sustains a price over 1:1 USDs, the market has a positive impulse. This has proven to be very accurate more recently. Additionally, the ETH/BTC ratio also seems critical at the current market juncture. With ETH/BTC trading at 0.053, this most recent rally has been very much BTC-led – and it feels like this is likely to remain.

For any further information, please feel free to reach out to the crypto OTC desk.

In headlines

Bitcoin ETF approval excitement grows

The big news overnight was that the world’s largest asset manager, BlackRock’s Bitcoin ETF, has appeared on the Depository Trust and Clearing Corporation list. According to Decrypt, the DTCC provides post-trade clearance, settlement and custody services for US$2.3 quadrillion (A$3.62Q) worth of stock sales annually. The filing states the “seed capital investor would buy this month”, meaning it’s gearing up to buy Bitcoin (but probably not a large amount) to get the ETF off the ground. Bloomberg senior ETF analyst Eric Balchunas said: “Def notable BlackRock is leading charge on these logistics (seeding, ticker, dtcc) that tend to happen just prior to launch. Hard not to view this as them getting signal that approval is certain/imminent.” EY’s global blockchain leader Paul Brody told CNBC this week he believes there is massive demand from institutional investors, and an approval could trigger an enormous rally. Volatility Shares Chief Investment Officer Stuart Barton believes it’s likely that all Bitcoin spot ETF applications will be approved together.

Other ETF developments

Grayscale has filed a new application with the SEC to list shares of the Grayscale Bitcoin Trust on the New York Stock Exchange as a spot Bitcoin ETF. “Importantly, GBTC is ready to operate as an ETF upon receipt of these regulatory approvals,” the company said. The official court mandate came through today, formalising Grayscale’s victory in its court case against the SEC for denying its application. It’s now being sent back to the SEC for review, which may be related to the accelerating advancement of BlackRock’s competing application. This week, both JPMorgan and Coinbase stated they believed a Bitcoin ETF approval was likely. More and more companies are also applying for spot Ethereum ETFs, with an application for the Invesco Galaxy spot Ethereum ETF becoming the fifth hopeful this week.


Lightning strikes out

Bitcoin developer Antoine Riard has sensationally quit working on Bitcoin’s Lightning Network scaling solution due to a security hole he believes can only be fixed by changing Bitcoin itself. He said that he discovered and thoroughly tested a new category of replacement cycling attacks that allows bad actors to steal funds by exploiting a timelock contract timeout. While the exploit can be partly mitigated, there’s no way to completely avoid the risk. Influencer Joey Valenzuela says it may be the “end of the road” for Lightning: “We’re in an existential crisis moment for Bitcoin, whether its supporters admit it or not.”

Charges filed against Gemini, Genesis and Digital Currency Group

The ongoing, slow-motion crisis enveloping Digital Currency Group looks like it is coming to a head, with New York’s attorney general filing a lawsuit against the company along with its crypto lender Genesis and exchange Gemini for defrauding investors through the Gemini Earn program. Genesis and DCG allegedly cooked the books to make themselves look much more financially secure than they were via a dodgy loan agreement. Gemini is accused of not telling customers how risky the program was, although Gemini has consistently claimed the other two made false representations about their financial health. The AG wants to ban all three from operating in New York.

Ripple executives’ charges dropped

In other signs the SEC’s war on crypto is starting to flag, the regulator told a court it no longer wishes to pursue its case against Ripple CEO Brad Garlinghouse and Executive Chair Chris Larsen for allegedly violating securities laws. It has cancelled a trial scheduled for next year with prejudice (meaning they cannot be charged again) although the SEC will pursue its claims against Ripple the company. Previously the court had ruled that Ripple’s sale of XRP on crypto exchanges to retail investors was not a securities violation, though its sales to institutional investors was. Bloomberg Intelligence analyst Elliott Stein says dropping the charges will allow the SEC to appeal the parts of the case it lost sooner, rather than get bogged down going after individuals. Any appeal would likely happen in 2024 according to FOX Business journalist Eleanor Terret.

Hong Kong’s SFC tightens crypto regulations

Hong Kong’s Securities and Futures Commission (SFC) plans to revise its regulations on digital currencies “in light of the latest market developments and enquiries from the industry”, according to a notice released on October 20. The updated rules will restrict certain crypto products to professional investors only and mandate that intermediaries gauge a client’s familiarity with virtual assets before proceeding with transactions. The SFC’s revised guidelines classify digital assets as “complex products,” putting them under the same regulatory framework as comparable financial offerings. The commission particularly cites crypto exchange-traded funds and products originating outside of Hong Kong as examples of such complex products.

Bits and pieces

Tether’s new CEO Paolo Ardoino told Bloomberg the company intends to publish real-time proof of reserves by next year. It currently publishes daily reserves showing its backing. The defence in FTX founder Sam Bankman Fried’s trial will kick off on October 26, but the prosecution has already moved to head off any suggestion his Effective Altruism beliefs provide him with any cover. “The motive that defendant had or claimed to have had for committing a crime charged is irrelevant to his guilt or non-guilt,” it said. The New York Times published a compelling narrative summing up the court case so far. The Wall Street Journal’s claim that Hamas and Palestinian Islamic Jihad had received US$41M (A$65M) and US$93M (A$147M) in crypto respectively, has been exposed as fake news. Chainalysis says they confused a whole exchange’s funds with the terrorist outfits’ wallets, who likely received just a fraction of the amounts cited. Swan lead analyst Sam Callahan called on the WSJ to retract the article, but it hasn’t.

Until next week, happy trading!