Crypto Investor Briefing – September 2023

crypto investor briefing

September 2023

In Q3 2023, the cryptocurrency market witnessed both new historical lows and unprecedented highs. These occurrences can be classified as follows:

Historical Lows:

  • Volatility and open interest in futures contracts hit unprecedented lows.

In July 2023, Bitcoin’s 30-day volatility was near five-year lows, at levels only observed on eight occasions since January 2019, according to data from K33’s Bendik Schei and Vetle Lunde. The drop-off occurred as volatility also decreased, with the digital currency’s five-day volatility falling below that of the S&P 500, tech stocks, and gold.

As a result, Bitcoin’s open interest continued to decline, hitting its lowest level since the Terra collapse in May 2022. The number of open contracts aggregated on four top exchanges decreased by over 20% between August 16 and 19 following the largest liquidation event since FTX. Capital flows have remained lackluster even though funding rates have slightly flipped positive and spot prices have stabilized around $26K, as reported by Kaiko Research.

Historical Highs:

  • Applications for exchange-traded funds (ETFs) reached all-time highs.
  • Mining difficulties surged to historical peaks.

 

Conversely, the present surge in Bitcoin ETF applications by financial institutions signifies a transformative moment in financial history, where traditional investment vehicles intersect with digital assets. These applicants encompass major asset managers like BlackRock, Fidelity, WisdomTree, and VanEck, among other crypto-centric funds.

Regarding the supply side, the Bitcoin mining difficulty increased by 6.17% on August 22, reaching an all-time high of 55.62 trillion hashes. This rise in mining difficulty persists even as the Bitcoin network hash rate continues to climb, despite previous increases in the difficulty adjustment.

The historical lows witnessed in volatility and open interest within the futures market indicate a decline in speculative activities. On the other hand, the historical highs recorded in institutional interest and mining difficulties signify a favorable momentum for the ongoing adoption of Bitcoin and the reinforcement of its underlying fundamentals.

For those who have not yet included Bitcoin exposure in their traditional investment portfolios, now is an opportune moment to reconsider allocation decisions. A recent report from Bitwise Asset Management highlights that a modest 2.5% allocation to Bitcoin has the potential to augment the performance of a standard 60/40 portfolio, resulting in a cumulative return increase of 38% over the past 9 years. The evidence supporting this proposition is unequivocal.

 

Christian Hsieh 

CEO, Tokenomy

Crypto sector scores landmark U.S. legal win with Grayscale ETF ruling. The U.S. Court of Appeals for the D.C. Circuit has sided with Grayscale in a lawsuit against the Securities and Exchange Commission which had denied the company’s application to convert the Grayscale Bitcoin Trust to an ETF. 

A federal court said that the Securities and Exchange Commission’s denial of Grayscale Investments’ proposal was “arbitrary and capricious”, handing the crypto asset manager a landmark victory that could pave the way for the first spot ETF product of its kind.

Bitcoin gained more than 7% on the news, setting it on course for its best day since March and cutting some of the heavy losses incurred over the summer.

BlackRock, the world’s largest asset manager, is increasing its exposure to Bitcoin through investing in the top five miners of the flagship digital asset. Due to Bitcoin’s recent price struggles, these miners have lost between 11% and 42% of their stock value in the past month. BlackRock took advantage of this dip to increase its position as a significant shareholder across these firms. Per available data, the asset manager increased its holdings to 6.14% in Riot shares, 6.44% at Marathon Digital, 0.88% in Cipher Mining, and 2.88% in TeraWulf. BlackRock’s total holdings in these miners amount to approximately $411.54 million.

The U.S. House of Representatives has passed a significant bill concerning the oversight of digital assets. The Clarity for Payment Stablecoins Act establishes a comprehensive regulatory structure specifically for asset-backed stablecoins issued by U.S. entities, aiming to strike a balance between fostering technological advancement and safeguarding consumer interests.

The United States’ top tax authority, the Internal Revenue Service (IRS), has issued a new ruling clarifying that staking rewards should be considered income. This is not surprising as it’s aligned with the view taken for mining and other activities. Interestingly, while the SEC determines that exchanges offering these services are illegal, the IRS still wants to tax the gains. 

KPMG has released a report on Bitcoin and ESG (environment, social, and governance) issues. It concluded that Bitcoin “appears to provide several benefits across an ESG framework.” The 12-page research report improved strategies to reduce Bitcoin’s carbon footprint, such as using more renewable energy and energy produced from methane for mining.

PayPal is rolling out a stablecoin, a potentially significant boost to the sluggish adoption of digital tokens for payments. The Ethereum-based token, PayPal USD (PYUSD), will soon be available to PayPal users in the U.S. This is the first time a major financial company is issuing its own stablecoin. Stablecoins—crypto tokens that are pegged to an asset like the dollar—have been around for almost a decade, but they’re mostly used by traders to move digital assets between exchanges and have made limited inroads into consumer payments.

A federal judge has denied Terraform Labs’ motion to dismiss an SEC lawsuit and has also rejected the use of the recent ruling that Ripple did not violate securities law in selling XRP to retail investors through an exchange intermediary. This could potentially complicate Coinbase’s use of the XRP ruling in its own case against the SEC. That said, Coinbase cited the Ripple Labs case in a brief filed in early August in a motion to dismiss the SEC lawsuit.

Class action lawsuit against prominent venture capital firms for supporting fraudulent crypto activities. Eighteen prominent venture capital investment firms, including notable names such as Temasek, Sequoia Capital, Sino Global, and Softbank, have been listed as defendants in a class action lawsuit recently filed in Miami. This lawsuit alleges that the defendants utilized their substantial resources, authority, and influential positions to facilitate the expansion of FTX into a multi-billion dollar enterprise. The lawsuit noted that FTX violated several securities laws and stole customers’ funds while the defendant VC firms offered an illusive picture of the exchange claiming they had done their due diligence.

Coinbase is acquiring a minority stake in Circle Internet Financial and dissolving their partnership in the Centre Consortium that issued USD Coin (USDC), the second-largest stablecoin. Consequently, Circle will take over USDC issuance and governance back in-house, while expanding its support to six more blockchains. The exact stake that Coinbase acquired was undisclosed and the acquisition was reportedly done without cash payments. Previously, Circle raised $400 million in a funding round last year with well-known investors like BlackRock and Fidelity.

A Bitcoin on-chain-analysis model is introduced. BTC asset manager ARK Invest and cryptocurrency research house Glassnode developed Cointime Economics, a new framework for analysis of the Bitcoin economy based on coinblocks and how often it moves. It relates the concepts of time and supply to derive dynamic metrics of Bitcoins economic activity which account for both supply and demand forces.

  • Bitcoin’s role in the ESG imperative – A research conducted by KPMG.  
  • Why tokenization of financial assets makes sense and how are the Wall Street banks doing it? Blockchain technology can be used to improve our financial infrastructure, especially regarding asset settlement. CNBC reports on how large financial institutions are adopting this technology.
  • Bitcoin Volatility Crush. This research report by Glassnode looks at the current volatility compression in comparison to history.
  • The last crypto cycleBankless explores a handful of signs that point towards crypto entering its last market cycle before evolving into its mature era.
  • Chainalysis published a Token Health Report. You will see how on-chain data gives investors unparalleled insights into crypto assets — data that simply isn’t available for traditional assets.

  • Fixed Deposit of BTC, ETH, TEN, and a few others at varying rates of up to 5% p.a.
  • Dual Currency Deposit is an excellent tool for short-term speculators when price volatility is high! Earn enhanced returns on BTC, ETH, and USDT deposits. 
  • Tokenomy Loan is live! Pledge your crypto assets to borrow IDK in just a few clicks! 

 

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Crypto Investor Briefing is a Tokenomy newsletter—the content is for informational purposes only. You should not construe any such information or material as legal, tax, investment, or financial advice.

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