The Bitcoin price is down almost 7% this week, now quoting at 42,641. By contrast, altcoins are up, led by Ether. The price of the second cryptocurrency by market cap reached 2,710 us dollars last Friday, but the upward movement mostly happened on Wednesday and Thursday just after the ETF approval. The price rallied then from 2,345 to 2,687, which is a 14% positive performance recorded in the span of 2 days.
Among the best performers in the top 25 this week, we have Chainlink (+15%), Ethereum classic (+26%) and Uniswap (+12%). Bitcoin is the worst performer and one of the few cryptocurrencies in the red this week.
Events and consequences around the ETFs approval
First let’s get back to last Wednesday’s context:
- The first Bitcoin ETFs were finally approved by the SEC.
Looking at the ETF list on Blockworks, We have nearly a dozen Bitcoin Spot ETFs that started trading on US exchanges. We have exactly 9 ETFs with a market price available, and 10 ETFs in total.
If we exclude the Grayscale Bitcoin Trust with its 28.6 billion dollars of Assets Under Management (AUM), AUMs range from 3.3 million to 500 million us dollars. The most successful one is Blackrock’s IBIT fund with 500.7 million dollars, followed by Fidelity with 427 million dollars and Bitwise with 225 million dollars. Summing up the AUMs of Grayscale competitors, we are nearly at 1.5 billion AUMs.
Issuers engaged in what the press called a ‘fee war’, filing with the SEC last minute amendments to their offering with lower fees.
Looking at Blackrock’s IBIT first, it offers one of the most competitive fee structures. We have a 25bps fee. But this website mentions here that:
‘BlackRock will waive a portion of the Sponsor’s Fee for the first 12 months commencing on January 11, 2024, so that the fee will be 0.12% of the net asset value of the Trust for the first $5.0 billion of the Trust’s assets’
So, it’s very competitive but it’s not the most competitive fee structure out there.
Ark Invest decided to waive the 21bps fee completely for the first 6 months and for the first 1 billion in Assets Under Management.
So naturally Grayscale’s GBTC fund, the largest fund still and by far, has some serious reasons to worry. The SEC approved the fund’s conversion from a Mutual Fund to an ETF, and Grayscale dropped the fund fee from 2% to 1.5% in the process, but it’s still too high compared to the competition.
So far the fund lost 844 BTCs in the past 30 days, which is close to 36 million us dollars, according to Coinglass.
- Recalling the events around the SEC approval: two days before, the X account of the SEC was presumably compromised, announcing that the ETFs were approved. The SEC Chair Gary Gensler issued a denial shortly after.
- On January 10th, after the market close, approval files were posted and subsequently, mysteriously, removed from the SEC website, creating additional confusion. For the reader, Blockworks described this series of events with further details. I am adding the link to the draft for the interested reader.
- Then the SEC posted the same day one last statement from Gary Gensler that explains the approval, and reminds everyone that, I quote:
‘ … today’s action does not endorse the disclosed ETP arrangements, such as custody arrangements’
Quote:
‘Today’s action does not approve or endorse crypto trading platforms or intermediaries, which, for the most part, are non-compliant with the federal securities laws and often have conflicts of interest.’
And last quote:
‘While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin.’
This could be interpreted as a clear signal that the SEC is not necessarily giving up on its ongoing cases, and especially its case against Coinbase.
The SEC-COINBASE federal court face-off
The SEC sued Coinbase back in June, accusing it of violating securities laws, acting basically as an unregistered broker. Of course, Coinbase is arguing that the SEC doesn’t have jurisdiction. It is also arguing that the lawsuit is not coherent with the fact that the SEC approved the IPO and the listing of the Coinbase shares on regulated exchanges in 2021, with the same operating business they now have.
So on this basis and more, Coinbase filed to get the lawsuit dismissed in August.
Why am I bringing this up?
Well the face-off in federal court between Coinbase and the SEC is happening today. And needless to say that the result of this confrontation can determine the future of the centralised crypto exchange ecosystem in the US. So given the inconsistent actions of the SEC, and the judge’s track record, the odds seem to be in Coinbase’s favour. At least the SEC would be seriously challenged on their approach.
Market movements and Flows
Of course, the legal developments around the SEC actions in the crypto sector are disturbing the markets and hurting investors confidence. There are also movements across ETFs that exacerbate volatility: investors unwinding their GBTC position, either rebalancing their exposure, or switching for a lower fee ETF.
From a market perspective, after the ETF approval, the Bitcoin price experienced a sell-off in the span of 48 hours. It is one of the most severe corrections since at least August last year. The correction marks the end of an 85% rally that started in October when Grayscale won its court case against the SEC.
So who has been selling exactly?
- Grayscale GBTC investors who are more than happy to exit the fund at a fair valuation.
- Profit takers, speculators. Among them, BTC futures holders that incur significant cash and carry. The Bitcoin open interest dropped from 6.4 billion to 5.1 billion over the same period.
- And Miners. Miners have accelerated Bitcoin transfers to exchanges. F2Pool in particular has recently moved to Kazakhstan: there is a new Kazakhstan offering on their website. The move bears of course high capital expenditures. Miners also need to upgrade their hardware. The price rally up until the ETF approval was likely an opportunity to sell.
In the meantime, Coinshares recorded 1.18 billion dollars of net inflows for the week ending on Jan 12th. And funds trading volumes reached their highest level on record at 17.5 billion dollars over the week.
To conclude this session, I believe that we’ve entered a new promising era for cryptocurrencies, and the ETFs are already shaking things up. The Asset Management world is always slower to embrace new technologies, and the true impact of the approvals must be considered over years.
*This is not financial advice. Not intended for UK customers.