Crypto Rallies Following Wave of Bitcoin ETF Applications From Major Investment Firms

Weekly News Wrap Up

Powell’s hawkish comments during his congressional testimony, coupled with the Bank of England’s interest rate increase in the face of the U.K.’s persistently high-inflation at 8.7% in May, rattled TradFi markets. Elsewhere, China cuts lending benchmarks as the country’s economic rebound slows, and U.S. Secretary of State Antony Blinken’s visit to Beijing eased tensions between the two countries.

In Crypto, a wave of new/reapplications for a spot Bitcoin ETF following BlackRock last week boosted market sentiment, and the trend of TradFi’s venture into the industry continues with EDX Markets – an exchange backed by Citadel Securities, Fidelity and Charles Schwab – began operations and Deutsche Bank applies for a Digital Asset License in Germany.

The equities rally lost steam last week: SPX -1.39%, DJIA -1.67% and NASDAQ -1.44% on U.S. Fed Chair Powell’s hawkish testimony to Congress and Bank of England’s rate hike, reminders that the battle with inflation is yet to be over. Cryptocurrency majors BTC +15.74% and ETH +10.43% rallied hard on the new wave of spot Bitcoin ETF applications from large asset managers following BlackRock’s footsteps in hopes that this could spark a new bull run.

On-chain, data from Glassnode Insights suggest that Bitcoin hodlers are in a phase of quiet accumulation with around 42.2K BTC per month being absorbed by the price-insensitive class. Illiquid wallets reached a new all-time high of 15.2M BTC, while exchange balances are at their lowest since January 2018 at 2.3M BTC. This gradual accumulation has been ongoing for over two years and is expected to continue for another 6 to 12 months. Entities with balances under 100 BTC have significantly increased their holdings, absorbing 254% of the mined supply in the past month. Despite regulatory challenges, this suggests there is underlying demand in the market.

Cryptocurrency News

• U.S. court approves S.E.C.-Binance.US agreement. The court dismissed the regulator’s request for a temporary restraining order to freeze Binance.US assets, and only Binance.US employees will have access to client funds until the litigation is resolved.
  
• Crypto and stablecoin laws approved by U.K. Parliament’s Upper House. The Financial Services and Markets Bill stands to recognize crypto as a regulated activity and stablecoins as a means of payment under existing laws. The U.K. is trying to catch up with the European Union, which recently finalized its Markets in Crypto Assets regulation that has a predominant focus on stablecoins.
  Our View: there is a sense globally of prioritizing crypto regulation as investor demand and financial importance of the industry continues to grow – an overall positive sign, in our view
  
• Monetary Authority of Singapore proposes digital money standards with major industry players. The MAS released a whitepaper outlining the lifecycle of its Purpose Bound Money (PBM) concept, along with the names of firms that plan to pilot it. PBM plans to enable senders of digital currencies across different systems to be able to specify conditions of transactions, including a validity period and types of shops. The study was developed in collaboration with the International Monetary Fund, Banca d’Italia and Bank of Korea, among other financial institutions. Fintech firms implementing a trial of PBM include Amazon, DBS and Grab.
  Our View: Singapore has generally adopted a balanced view towards the industry, and has delivered on protecting retail investors while not entirely stifling innovation and industry growth
• WisdomTree and Invesco follow BlackRock with spot Bitcoin ETF applications. The SEC is facing a fresh wave of spot Bitcoin ETF applications from major investment firms, in the wake of BlackRock’s filing
  Our View: BlackRock re-opened the floodgates of applications for spot Bitcoin ETF given its reputation in the asset management industry, signaling strong investor interest/demand. It will be a watershed moment for the industry if it gets approved, providing easier investor access to exposure to Bitcoin, but there are high hurdles to cross given the attitude of the U.S. SEC this year
• Prime Trust has ‘shortfall of customer funds,’ Nevada regulator says. The regulator alleged that the crypto custody firm was unable to meet customer withdrawals, and ordered the company to cease all activities that violate their regulations.
  
• Upstart crypto exchanges look to capitalize on current exchange woes. Big crypto exchanges have been hit hard by major enforcement actions and dwindling retail volumes, and while a raft of upstart crypto exchanges see opportunity, it is still a difficult climate.
  
• Crypto exchange backed by Citadel Securities, Fidelity and Charles Schwab starts operations. EDX Markets looks to apply standard practices in traditional, regulated financial markets – it is a non-custodial exchange, meaning it does not directly handle its customers’ digital assets. Instead it runs a marketplace where firms agree to execute trades, using its platform to agree on prices. It will not directly serve individual investors, instead it expects that retail brokerages will send investors’ orders to buy/sell digital coins on its marketplace.
  Our View: as we reported two weeks ago, traditional Wall Street firms are taking the opportunity of regulatory action against two of the largest cryptocurrency exchanges to apply standard practices to disrupt the current landscape of Centralized Exchanges, which could see an eventual evolution towards a model that might appease the U.S. SEC
  
• Deutsche Bank applies for Digital Asset License in Germany as TradFi pushes further into crypto. The banking giant announced plans to become a crypto custodian in February 2021.
• CACEIS Bank is the first custodian in France to obtain the PSAN registration. CACEIS Bank, the CACEIS group’s French banking entity, was granted PSAN (Digital Assets Service Provider) status by the AMF (France’s Financial Markets Authority). PSAN status enables the bank to offer digital asset custody services to third parties.
  Our View: the two headlines above show the continued trend of TradFi firms making headways into the cryptocurrency industry

Investment Consideration

Our best strategy for the moment is to take at least 1-3 years in Moderate Portfolio because it has a good defense with 50% Fixed Deposit , 30% In DCD and 20% in Staking.  After  all,  we  still  have  potential  returns  in  DCD  and  Staking,  especially in BTC.

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