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The possibility of up to US$100 billion (A$152B) flowing into spot Bitcoin ETFs has propelled the price upwards by 25% in the past month. This week BTC has been threatening to break through the US$38K (A$57.9K) mark – a price it hasn’t touched since April last year. Bitcoin finishes the week up 2.8% to trade around A$57,500 (US$37,500), while Ethereum is down 1.5% to trade at A$3,100 (US$2,027). XRP lost 7%, Solana gained 8%, Cardano rose 9% (interestingly, both were named securities once again in the SEC’s new case against Kraken), and Dogecoin was up 5%. Further down the list, Synthetix rose by a third. The Crypto Fear and Greed Index is at 69 or Greed.

In headlines

Crypto market update 20231121

From the OTC desk

The cryptocurrency euphoria continues – although some profit-taking has emerged in the tokens that have been the best performing over the last month. BTC in isolation has rallied more than 26%! With the majors performing so strongly – and the news flow in support of higher pricing – the broader cryptocurrency complex has become more comfortable in seeking value. In general, this is a natural progression for any well-performing asset class – and cryptocurrency has certainly performed in 2024.

Over the last two weeks, the world has become more comfortable with the geopolitical concerns of the Middle East. This is best depicted in the price of oil, where WTI crude has moved from USD $85 down to USD $77.60 over the last 7 days. Reduced concern of oil supply shock has buoyed risk assets and reduced inflation expectations. The peak yield in the US 10yr treasury note occurred on the 19th of October at 4.99%: The US 10yr treasury note yield currently trades at 4.41%. A direct sign of a lessening in inflation expectations.

Prior to this week, cryptocurrencies had moved agnostically to US tech equities and global risk asset sentiment. This appears to have now changed, with risk assets in general, being supported by lower fixed-income yields. 

The news of Fidelity filing for a spot ETH ETF has market participants keeping a close eye on the ETH/BTC ratio. Currently trading at 0.054, the ETH/BTC ratio appears well contained within the 0.052-0.058 short-term range. Historically, cryptocurrency appreciation has been broadly categorised by: 1) BTC appreciation and outperformance; 2) ETH appreciation and outperformance; and 3) Alt outperformance. For the time being, the market appears to be located somewhere between phases 2 and 3, although at a lesser momentum to previous ETH and Alt rallies.

In the economics calendar, this week we receive the US Federal Open Market Committee meeting minutes for November. These are scheduled to be delivered Wednesday at 6:00am AEDT. Otherwise, the calendar is particularly light..

On the OTC desk, we estimated that last week’s buy-side flow was near 75% of our on-desk trading activity. This week, the ratio of buy-to-sell flow has been much more balanced. In general, market participants appear to be taking profit in those coins that have outperformed, like SOL, AVAX and BTC. While the profit-taking has generally been back to fiat, there has also been a willingness to switch a small portion of sales into tokens significantly further out the risk curve – in preparation for Alt season. 

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ATO update not good for DeFi users

The Australian Tax Office has updated its capital gains tax guidance on cryptocurrency, and the changes are not good for DeFi users. Wrapping a token is now considered a sale, and you will need to pay CGT each time. The same goes with DeFi lending, liquidity provision and any time you transfer a crypto asset to an address you don’t control. The new guidance suggests staking Ethereum on Lido is a CGT event and perhaps even just using a bridge to get to a layer 2 network (although neither was specifically confirmed in the guidance, so DYOR). Australia’s Board of Taxation will provide a review on the tax treatment of digital assets to the government in February.

Argentina’s central bank hating new President

Argentina has elected Javier Milei as its President. Often referred to as “pro-Bitcoin”, Milei is more accurately described as being anti-central bank and sympathetic to private money, and he has said some positive things about Bitcoin when asked. Argentina has been wrecked by 140% inflation and Milei plans to abolish the peso and to adopt the US dollar.

Singapore’s CBDC

The Monetary Authority of Singapore will issue a wholesale CBDC to be used as “as a common settlement asset in domestic payments.” MAS managing director Ravi Menon explained that “retail customers will be able to use these tokenised bank liabilities in transactions with merchants who can in turn credit these tokenised bank liabilities with their respective banks.”

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Binance to clean up and pay $4B to settle charges

Bloomberg reports that the US Department of Justice is in negotiations to settle its criminal case against Binance for US$4 billion (A$6.1B). The Deferred Prosecution Agreement would allow the company to keep operating so long as it cleans up its act and complies with US regulations. Founder Changpeng Zhao may need to step down and potentially face criminal charges in the US. A deal that averts the closure of the exchange is seen as positive for the industry, and a more regulated Binance would also help stem SEC concerns over price manipulation, which are behind its Bitcoin ETF refusals.

SEC sues Kraken

The news broke this morning the SEC is suing US exchange Kraken, alleging it violated securities laws, commingled customer crypto assets with its own, and failed to register as a securities exchange, broker-dealer or clearing agency. The list of alleged securities is the same as in the Coinbase case. “We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws,” SEC enforcement division director Gurbir Grewal said.

Bitcoin ETF developments

The SEC has once again kicked the can down the road on the various ETF filings, including the Franklin Bitcoin ETF and Hashdex’s Bitcoin ETF applications. They were punted until January, along with the Hashdex Nasdaq Ethereum ETF and Grayscale’s spot Ethereum ETF. However, the refiling of various applications in response to SEC comments suggests progress is happening. BitGo CEO Mike Belshe says the SEC is still concerned about the separation of exchange and custody roles. Meanwhile, Bloomberg ETF analyst Eric Balchunas says the SEC has strongly suggested that ETF applicants shift from in-kind (using Bitcoin directly) to cash creates (where the issuer transacts in cash). Only a couple of applicants had proposed cash creates, and Balchunas says the others have been asked “to get in amendments in next couple wks. This isn’t unexpected but a good sign nonetheless.”

Interestingly, Ark has updated its S-1 filing for the third time, doubling down on in-kind. If the Bitcoin ETFs do get approved, Bloomberg Intelligence analysts estimate they could grow into a US$100B ($152B) juggernaut in time. Current crypto investment funds saw US$176 million (A$268B) in inflows last week, marking eight weeks of growth.

CoinDesk gets bullish

One of the biggest crypto media outlets, CoinDesk, has been bought in an all-cash deal by Bullish exchange, which was launched by Block One, who famously raised US$4 billion (A$6.1B) in the EOS ICO. Blockworks founder Jason Yanowitz said the sale raised issues around bias and compared it to BlackRock buying Bloomberg. However, former Wall Street Journal Editor in Chief Matt Murray will chair an editorial committee to ensure independence. CoinDesk was owned by Digital Currency Group.

Bits and pieces

Asset manager Fidelity has followed Black Rock’s lead and filed to launch the Fidelity Ethereum Fund, which would trade on the Cboe BZX Exchange. Around $2.1 billion of Bitcoin held in ancient wallets from 2011 to 2015 is at risk from a vulnerability called Randstorm. Polygon’s version of Ordinals, PRC-20 tokens, saw a massive 500% increase in transactions on the network. “At its peak, [Polygon] PoS had a throughput of 255 tps— that’s around 2-3 times of the entire Eth ecosystem combined,” said cofounder Sandeep Nailwal. An alternate stock-to-flow model created by Greg Cipolaro back in 2019 predicted a cycle high of US$60,592 after the 2020 halving – which was pretty close to the actual ATH of US$69K. The model predicts a cycle high of US$732,000 (A$1.1M) per coin after the 2024 halving. ARK Invest CEO and founder Cathie Woods says her stock pick right now is the Grayscale Bitcoin Trust. She says the current discount of around 12% will disappear the minute the SEC approves it as an ETF, which she thinks will happen “within the next few months, and that will be the seal of approval that institutions have been waiting for, before they move into this new asset class.”

Until next week happy trading!