Crypto Assets Start The First Quarter Off Strong As Investors Watch For BlackRock’s Next Steps
As we approach the final days of the first quarter of 2024, crypto assets have bounced back following last week’s correction. In fact, crypto assets are on pace for an excellent start to the year. Bitcoin is up approximately 67% year-to-date, thanks to massive capital inflows poured into the eleven new spot Bitcoin ETFs. These gains have come at the end of a quarter full of uncertainty, Ether ETF rumours, SEC courtroom battles, fake-news headlines, and growing market volatility.
Figure 1. Bitcoin staged an impressive bounce after the move lower last week.
In many ways, the stars have lined up for crypto assets so far this year. The highly anticipated spot Bitcoin ETFs have experienced the most successful ETF launch in history. In particular, Blackrock’s IBIT and Fidelity’s FBTC ETFs have received the bulk of the inflows.
Figure 2. The IBIT and FBTC ETFs have broken several records since their launch.
Additionally, this year is a Bitcoin halving year, an event that will happen in less than a month and has signalled the beginning of the crypto bull market in the past. On top of that, 2024 is also an election year, which typically bodes well for risk assets - which so far is proving to be the case with the Nasdaq index up 8% year-to-date.
Figure 3. Nasdaq has had a stellar quarter, rising over 8% YTD.
While these positive factors have certainly contributed to the rise of crypto this year, there seems to be a sense that the industry may have finally recovered from the chaos and embarrassment of 2022. On that front, today also happens to be the day that Sam Bankman-Fried was sentenced to 25 years by a Federal Judge in New York. The hefty penalty may help put a bookend to the dark days of 2022, which saw 80% drawdowns, the collapse of many crypto lenders and exchanges and a general black eye for the entire industry.
That being said, crypto bull markets tend to attract a great deal of froth, snake-oil salespeople and grifters, and we are certain that this cycle will be no different. In fact, if you take a look at the mania that is occurring in the memecoin space, it may make crypto bulls keep a wary eye out for a more significant correction to wash out some of the excesses we can see in names like dogwifhat ($WIF) and other mostly Solana-based memecoins. For those keeping track, dogwifhat is up to $3.50 cents as of this writing (we first flagged the silly coin a few weeks ago when it was a mere $0.7).
On the other hand, the river of capital flowing into the spot Bitcoin ETFs may be further stoked by developments such as the London Stock Exchange declaring the launch of spot Bitcoin and Ethereum ETNs in the coming months. Additionally, BlackRock’s USD money market fund on Ethereum (effectively a USD stablecoin with a yield), mentioned last week, has already attracted $250 million in the first week alone! These developments hint at a changing paradigm spearheaded by BlackRock, the biggest asset management company in the world. Larry Fink has not been shy about espousing his dream of tokenizing all financial assets - a move that could be a game changer for settlement times, collateral arrangements, financial innovation and a dramatic reduction in back office costs. So, while the crypto bulls have had a good start to the year, the question still remains as to whether they are too bullish or not nearly bullish enough.
Market Returns
Latest Crypto Developments
In this section, we highlight the latest developments that may be significant in either the price action or the trajectory of the crypto space overall.
Goldman Sachs Sees Resurgence in Crypto Interest
Goldman Sachs has reported a resurgence of interest in cryptocurrency-related products among its hedge fund clients, spurred by recent U.S. approvals of spot bitcoin ETFs. According to Max Minton, Goldman Sachs' Asia Pacific head of digital assets, clients are actively exploring or engaging in the crypto space, with a current focus on bitcoin-related products. However, interest could expand to include ether-related products if spot ether ETFs receive approval in the U.S. This renewed interest comes as Goldman Sachs explores investing in crypto bankruptcy claims and as the cumulative volume of spot bitcoin ETFs saw significant movements.
Federal Judge Denies Coinbas’s Motion to Dismiss
A federal judge in New York, Katherine Polk Failla, has ruled that the lawsuit against Coinbase by the Securities and Exchange Commission (SEC) can proceed, rejecting Coinbase's motion to dismiss the case. The judge agreed with the SEC's allegations that Coinbase operated as an unregistered exchange, broker, and clearing agency, particularly through its staking program, while dismissing the claim that Coinbase acted as an unregistered broker through its Wallet application. This decision allows the case to move to trial, expected to start no earlier than 2025, and requires both parties to submit a proposed case management plan by April 19. Coinbase's Chief Legal Officer, Paul Grewal, expressed readiness to further explore the SEC's stance on crypto regulation through the continuation of the lawsuit.
CFTC Reiterates Ether is Commodity in Complaint Against Kucoin
The U.S. Commodity Futures Trading Commission (CFTC) has reiterated its stance that ether, along with bitcoin and litecoin, are commodities. This assertion came as part of a legal complaint against the operators of the crypto exchange Kucoin. The CFTC's position marks a continuation of the regulatory tug-of-war for oversight of the digital assets industry, particularly against the backdrop of differing views from the Securities and Exchange Commission (SEC), which has hinted at cryptocurrencies potentially being securities, especially those using staking protocols like Ethereum's proof-of-stake consensus mechanism.
UK Treasury Explores Fund Tokenization
The UK Treasury's Technology Working Group has published a report on the potential for tokenizing funds, highlighting the use of tokens as collateral for money market funds and their role in the on-chain investment market. The report outlines how the UK's funds industry can leverage tokenization to enhance asset management sector efficiency and competitiveness, offering detailed models for adoption and various use cases to optimize business operations like money market fund collateral management.
DeFi Education Fund and Beba Sue SEC Over Enforcement Stance
The DeFi Education Fund and Texas-based apparel company Beba are suing the SEC, challenging the commission's "regulation by enforcement" approach and requesting a Texas district court to declare their $BEBA token airdrop not a security. The lawsuit also calls for the SEC to adhere to the Administrative Procedure Act regarding its rule-making process. The plaintiffs argue that the BEBA token airdrops are free, lack common enterprise between Beba and recipients, and do not involve an expectation of profits based on others' efforts, challenging the application of the Howey Test to their case.
That's Some Good Content!
Recommended articles, podcasts, and other content from this week:
Unchained podcast - How BlackRock’s New Fund on Ethereum Got a Very Crypto Welcome
DAS Macro Live Panel 2024 - Stocks (And Bitcoin) Poised To Outperform Bonds In 2024
Forward Guidance podcast - Russell Napier On The Rise And Fall Of The Age Of Debt And China’s Choice Between Deflation and Devaluation
On the Margin podcast - The Game Changing Impact Of A Spot Bitcoin ETF | DAS London 2024
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