How Long Will the Bitcoin Rally Last?
Weekly News Recap: 📰 Bitcoin's 15-year whitepaper anniversary, 📈 ETF optimism and BlackRock's influence, 🌐 UK finalizes crypto regulations, 🏦 Tether's reserves, and more!
A Manhattan jury took only a few hours to decide that former FTX founder Sam Bankman-Fried was guilty of defrauding the crypto exchange’s users of billions of dollars.
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Weekly News Recap
Bitcoin's Rally, ETF Optimism, and BlackRock's Role
This week marked the 15-year anniversary of the publication of Satoshi Nakamoto's Bitcoin whitepaper, and for fans of Bitcoin, there was an extra reason to celebrate. Following on a number of promising developments regarding what is increasingly feeling like the imminent approval of a Bitcoin ETF, the Federal Reserve left interest rates unchanged, fueling investors' risk appetite. On Thursday, the price of bitcoin jumped 16% over the past 10 days, doubling what it was a year ago, and reaching a peak of $35,300. Each of the top-ten cryptocurrencies by market cap followed bitcoin up—that is, except for dogecoin.
One of the most likely contributing factors to bitcoin’s rise is global asset manager, BlackRock, widely seen as a leading candidate to receive approval for the first spot bitcoin ETF, which would make it easier for institutional investors to gain exposure to securities tied directly to the price of bitcoin. To give an idea of what impact such an approval might eventually have, a recent false report suggesting that BlackRock had already secured the permission was enough to trigger a 10% rally in bitcoin’s price before it retreated to pre-report numbers.
Adding to the intrigue was a CoinDesk report that market-making giants Jane Street, Virtu Financial, Jump Trading, and Hudson River Trading have engaged in discussions with BlackRock about potentially providing liquidity for the ETF. Financial advisor Bernstein predicted that bitcoin could reach $150,000 by 2025 if the SEC approved bitcoin ETFs early next year. In the analyst note, Bernstein estimated that as much as 10% of bitcoin’s circulating supply could shift into the exchange-traded funds. But as we all know, crypto analysts have a long history of being “hilariously” wrong.
UK Finalizes Proposed Crypto Regulations
On Monday, the UK government unveiled its latest proposals for cryptocurrency regulations, which are expected to be implemented slowly over the next year or so. Additional controls on stablecoins backed by more stable assets like the U.S. dollar and the euro, are set to be introduced early next year, followed by so-called algorithmic stablecoins that maintain their price thanks to automated algorithms that control supply and other factors. According to the government update, these regulations will place such activities under the oversight of the Financial Conduct Authority (FCA) and align with the government's previously announced goal of making the UK a cryptocurrency hub. Treasury Minister Andrew Griffith described his optimism about the changes on social media, emphasizing that the regulator aims to position the UK as an attractive destination for crypto businesses.
This follows an update from the FCA earlier this month that included guidelines for cryptocurrency advertisers. The now clarified guidelines require firms that promote cryptocurrencies to include risk warnings to consumers and provide evidence supporting their claims. In a much needed change, the guidelines require that creators of cryptocurrencies claiming to be backed by commodities must substantiate their backing with disclosures, independent audits and proof of deposit. The FCA also stressed that investors should do their own due diligence, on the creators of assets, and the services they offer to protect themselves from fraudsters. The financial watchdog warned approved companies not to use their green light to gain competitive advantages.
Already, the newly registered UK subsidiary of payments giant PayPal is facing a number of restrictions. While existing customers can hold or sell previously approved assets, PayPal, and others, must receive separate permission from the FCA to onboard new clients in the UK or let existing clients transact in new assets.
U.S. GAO Criticizes SEC Over Crypto Rule
On Halloween, a little-known, but influential organization within the U.S. Congress, known as the Government Accountability Office, criticized the SEC for mishandling its contentious crypto accounting guidance. Issued in 2022, SAB 121 requires that financial firms holding customers' crypto assets record them on their balance sheets as a liability, which requires a balancing asset. Since banks’ business model largely relies on lending out their users’ assets, Republican politicians and crypto advocates have argued the rule could prevent SEC-regulated banks from offering crypto custody services.
The Government Accountability Office argued that the SEC should have sent the Staff Accounting Bulletin to Congress as an official rule, rather than treating it as less formal guidance. The GAO's claim didn’t immediately change the status of SAB 121, but suggested Congress should take a closer look. There’s now a December 31 deadline for lawmakers to decide whether they want to pass a resolution or invalidate the rule.
Tether’s Stable Reserves
Tether, the issuer of the $84 billion USDT stablecoin, released its third-quarter attestation, claiming $3.2 billion in excess reserves, slightly down from the previous quarter's $3.3 billion. To be clear, this is not a full audit. Rather, BDO Italia, an independent subsidiary of BDO, is the latest of a revolving door of firms claiming Tether had funds on just one particular day. In this case, September 30, 2023. It says nothing about what was there the day before, or the day after. The report highlighted what it describes as the highest-ever percentage of cash and cash equivalents, primarily consisting of U.S. Treasury bills or T-bills, believed to be among the most stable assets—and used to help maintain the stablecoin's peg to the U.S. dollar.
Similar to the so-called “risk-free” long term U.S. Treasury bonds that contributed to the collapse of Silicon Valley Bank, T-bills mature over a much shorter period, making them more liquid, and easier to sell in a pinch. The report also indicated that T-bills accounted for $72.6 billion of Tether’s reserves. While the assets may prove more stable than those previously backing the stablecoin, multiple reports this month have shown concern over the U.S. Treasury Department's plans to flood the market with $700 billion worth of new bills next year.
Separately, the attestation claims that Tether has $2 billion in secured loans in its reserves. Last year, the company said it would eliminate those loans this year, but more recently pushed those plans back even further, to next year.
Coinbase Launches Crypto Futures Trading in the US
Three months ago, a little-known self-regulatory body called the National Futures Association, gave Coinbase the right to officially launch crypto futures trading. Of note, the “F” in FTX stands for futures, and Binance and BitMex both rose to global power trading the assets with uncertain or nonexistent regulatory permission. Coinbase is now also in the same business, with regulatory permission. It’s much needed good news for the struggling giant, which has lost three-quarters of its market cap since going public in 2021, and which is now in a heated legal battle with the SEC, which claims the exchange is operating an unlicensed securities exchange.
The futures contracts include options for so-called “nano-sized” exposure to bitcoin and ether, representing 1/100th of a bitcoin and 1/10th of an ether, respectively, which could make the assets more affordable to a wider range of retail investors.
Animoca Brands Secures $50 Million Through NEOM Partnership
As the bear market continues to constrain investments into the crypto industry, Hong Kong-based blockchain gaming company Animoca Brands managed to secure a $50 million investment through a partnership with the Neom Investment Fund, the investment arm of a region in northwest Saudi Arabia dedicated to technology and innovation. This collaboration will focus on Web3 initiatives and the development of Web3 enterprise service capabilities to support technological advancements in Riyadh and Neom, a portmanteau of the Greek word for “new” and the Arabic word for “future,” according to their website. Additionally, Animoca and Neom will establish a hub in the region to foster local Web3 projects.
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