In markets

Welcome to 2024, which is widely expected to see falling interest rates, rising stock prices and Bitcoin ETF approvals that change crypto forever. Then again, all of last year’s predictions about a looming recession and a stock market crash turned out to be wrong, so who knows what will really happen? The Nasdaq gained 43% in 2023 thanks to the AI boom, and the S&P 500 was up 24%. Like crypto, most of the significant gains happened from October onward, which also saw the ASX 200 flip from underwater to finish with a 7.8% gain. Bitcoin started 2023 at A$24,350 (US$16,530) and finished at A$62,335 (US$42,734), which equates to a 155% return (or 157% in US dollars due to currency fluctuations). But it was soundly beaten by more than a dozen crypto-related stocks, including Marathon (up 591%), Coinbase (418%), Riot (359%) and MicroStrategy (336%). Bitcoin finished the week up 3% to trade around A$65,945 (US$43,734), while Ethereum gained 2.2% to trade around A$3,430 (US$2,369). After huge recent gains, Solana fell 9% this week, XRP lost 2.2%, Cardano was flat, and Dogecoin lost 3.3%. The Crypto Fear and Greed Index is at 71 or Greed.

Crypto Market Update 20240102

In headlines

When Bitcoin ETF?

Crypto markets are eagerly anticipating SEC approval for up to 14 Bitcoin ETFs anytime between now and January 10, when the final deadline for the Ark Investments/21 Shares application expires. Judging by the sheer volume of refinements and revisions the applicants have made to their filings after SEC feedback, most people now expect approval to be a mere formality. Reuters quoted “people familiar with the filing process” as saying the SEC may notify issuers they have been approved as early as Tuesday or Wednesday US time. However, Fox Business reporter Eleanor Terret says the SEC still needs to review and comment on the amended S1 filings and believes the end of the week is more likely. The competition for customer funds is already heating up, with Bitwise intending to seed its ETF with US$200M (A$293.6M), which is 20X more than BlackRock’s US$10M (A$14.7M). Valkyrie and Ark have announced a 0.8% fee, Invesco will offer a 0.59% fee but waive it entirely for the first six months, and Fidelity has a cut-price fee of just 0.39%. Beleaguered Digital Currency Group chair Barry Silbert has also resigned from the Grayscale board, which many believe clears the decks for the SEC to approve Grayscale’s application to convert its Bitcoin Trust to an ETF.

Is the Bitcoin ETF news priced in?

The big question is whether the Bitcoin ETF approvals are already priced in and if the announcement itself will be a “sell the news” event. With ludicrous crypto media reports that up to US$30 trillion (A$44T) could flow in (which is three times more than the value of all other ETFs put together), expectations are arguably overinflated. Options platform Greeks.Live says the data for Jan 12 shows the news is already priced in. However, Bitcoin has never benefited from a major advertising campaign, and ETF issuers, including VanEck, Bitwise and Hashdex, have already put out commercials. Van Eck advisor Gabor Gurbacs believes the market is likely overestimating the launch flows and that just a few hundred million will flow in initially but says that longer term, the ETFs may attract trillions. Bloomberg ETF analyst James Seyffart agrees the initial launch could be a “letdown” and tips US$10B (A$14.7B) net flows in the first year but says over the longer term, a Bitcoin ETF will be massive. However, Adam Back, CEO of Blockstream, takes a more optimistic view – he believes the news is not priced in and that Bitcoin should already be priced over US$100K (A$147K).

SEC court win against Terraform Labs

A US Federal Judge has made a summary judgement that Terraform Labs and former CEO Do Kwon sold unregistered securities in the form of Luna, wLuna, TerraUSD and Mirror. The judge accepted the SEC’s argument that investors tipped money into the coins in the expectation of “profits solely from the efforts of the promoter or a third party, namely, Terraform and Do Kwon himself “, which satisfies the Howey Test for what constitutes a security. The SEC also alleges Kwon orchestrated a fraudulent investment scheme, but those charges will head to a jury trial starting later this month.

SBF won’t face trial over political donations

Jailed FTX and Alameda founder Sam Bankman Fried will not face trial on charges of conspiracy to make unlawful political donations and for the alleged bribery of foreign officials. Federal prosecutors said the decision to drop the proceedings was in the public interest for an expedient resolution of the case. However, Crypto Twitter and Republicans believe the expedient dropping of the case is in the political interests of those he donated to.

Boring Ethereum keeps plugging away

In terms of narrative excitement, Solana is clearly the winner among large-cap coins and surged 68% in the past month. Ethereum, meanwhile, is suffering from high (relative to Solana) gas fees and a lack of retail understanding about scaling. Getting to 100,000 transactions per second will need to happen on layer two chains like Optimism and StarkNet as the base layer becomes priced out of the reach of retail users. Cofounder Vitalik Buterin released an updated roadmap with helpful little green progress bars to show how much has been achieved so far. He wants to make “Ethereum cypherpunk again”, but the updated roadmap only contains “relatively few changes” to resolve some issues around the centralisation of liquid staking pools and MEV.

Separately, the Dencun upgrade, which brings proto-danksharding to the chain, hits the testnet later this month and is expected to be implemented around late February or March. It’s expected to reduce fees on L2s to a fraction of the current price.

Until next week, Happy Trading!