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June Alpha Report
July 11, 2024
In June 2024, the U.S. Supreme Court overruled the Chevron Doctrine, a landmark decision that previously granted federal agencies significant discretion in interpreting ambiguous laws. This has profound implications for the cryptocurrency industry, as it is expected to lead to clearer and more stringent regulatory frameworks. With agencies like the SEC and CFTC now needing to explicitly define their regulations, the crypto market might experience more stability and predictability, potentially encouraging greater institutional investment.
In June, multiple applications for Solana (SOL) ETFs were submitted to regulatory authorities. Cboe officially requested the SEC to consider allowing asset managers VanEck and 21Shares to introduce a Solana-based exchange-traded fund (ETF) to the market. The exchange lodged a pair of 19b-4 filings with the SEC, seeking approval to list these products. Upon the SEC's acknowledgment of the filing, a 240-day window opens during which the regulator must decide on the products, which would be backed by SOL. While these ETFs have not yet been approved, the applications signal strong interest from financial institutions in providing more accessible investment vehicles for Solana. Approval of these ETFs could increase liquidity and institutional investment in Solana, significantly impacting its market presence.
Spot Ether exchange-traded funds (ETFs) may start trading soon, sparking excitement about an imminent launch. However, certain steps still need to be completed before this can happen. Several potential issuers updated their S-1 forms recently, indicating progress. Notably, these filings lacked fee information, hinting at another round of feedback from the SEC before trading commences. Invesco and Galaxy disclosed a fee rate of 0.25%, while VanEck was the sole issuer to reveal a fee before the recent updates.
There is no set timeline for approval. Unlike the 19b-4 filings approved by the SEC in May, there is no imminent final deadline that the agency must adhere to. Consequently, the interaction between regulators and issuers could conclude by Friday or stretch out over a few more weeks. According to an informed individual speaking to CoinDesk, ongoing discussions are anticipated for several weeks. If crucial details, like expense ratios, are included in the amended filings, it could signify that they are the final revisions.
These amended forms need to incorporate fee details and any other information mandated by the regulator. When it comes to spot Bitcoin ETFs, the SEC took two days to issue final approvals after receiving fees from issuers. If this pattern persists, and issuers submit their fees by Wednesday, there is a chance that approval could be granted by Friday. Subsequently, the trading of these products could commence relatively promptly.
2024 is notable for the introduction of ETF products for crypto investors. The first spot crypto ETFs approved were for Bitcoin in January. In the last 48 hours, $438 million has moved into spot BTC ETFs amid a major correction for Bitcoin (-20% in the last 30 days) as news surrounding Mt. Gox repayments and German Government liquidations have stoked fear.
On Tuesday, July 9th, more capital ($121 million) went into Blackrock’s BTC ETF (IBIT) than the total assets in nearly 90% of all 300+ other ETFs launched this year. This indicates that institutional investors were ready to buy the Bitcoin dip.
According to Nate Geraci, President of ETF Store, most ETFs would jump at the prospect of a $121 million inflow. Keeping in mind IBIT alone has taken in $18 billion in 6 months, it’s clear the market was eager for a Bitcoin ETF. Eric Balchunas, Senior ETF analyst for Bloomberg, noted that this $121 million inflow day for IBIT is more than a majority of the ETFs launched this year will have in total AUM by year’s end.
In summation, BTC spot ETFs are off to a historic start in terms of capital interest. The institutional appetite is undeniable as many funds were waiting for a product they trusted before they poured capital into the crypto space.
Germany originally seized nearly 50,000 Bitcoin back in 2013 from the operators of the now-defunct piracy website Movie2K. In June 2024, the German government transferred approximately $390 million worth of Bitcoin to various cryptocurrency exchanges. This move signals potential intentions to liquidate parts of its reserves, causing volatility in Bitcoin’s price, which dipped below $55,000 last week. Despite these sales, Germany still holds around 14,000 Bitcoins, valued at nearly $760 million, a significant share of daily Bitcoin trading volumes. Experts caution that further liquidations could continue to cause turbulence in the market, especially as long-awaited creditor payouts from the Mt. Gox collapse are set to begin, compounding selling pressure amid an already bearish macro environment.
In a highly anticipated development, Mt. Gox, the infamous Bitcoin exchange that crumbled in 2014, has commenced repaying its creditors. This resolution marks the conclusion of one of crypto's most infamous scandals, not only closing a dark chapter in Bitcoin's history but also actively influencing the asset's market dynamics in real-time.
On July 5, Nobuaki Kobayashi, the rehabilitation trustee for Mt. Gox, revealed the initiation of debt repayments to creditors in Bitcoin (BTC) and Bitcoin Cash (BCH). The repayments are being facilitated through a sophisticated network of exchanges, each playing a pivotal role in the distribution process. The scale of these repayments is remarkable. Approximately 47,288 BTC, valued at around $2.7 billion, has already been transferred from Mt. Gox-associated wallets to new addresses. This is just the beginning, with a total of about 140,000 BTC, equivalent to a staggering $9 billion at current prices, slated to be returned to the victims in the upcoming weeks. The sheer size of these transfers has kept the entire crypto market on edge, with traders and investors vigilantly monitoring every movement.
The repayment procedure appears to be a significant logistical achievement on paper. Five exchanges, namely Bitbank, SBI VC Trade, Bitstamp, Kraken, and BitGo, are entrusted with disbursing the funds. Each exchange has its own timeline for processing the payouts, ranging from immediate distribution to a 90-day window. Both Japanese exchanges, Bitbank and SBI VC Trade, have already concluded their distributions, processing the payments within hours of receiving the funds. This prompt action brought relief to creditors but also contributed to the ongoing market volatility as some recipients swiftly sold their newly acquired Bitcoin. Bitstamp has also committed to expediting its distributions, with exchange officials expressing their dedication to compensating investors prior to the stipulated 60-day timeframe.
The market is currently pricing in a 70% chance of a rate cut in September and a 49% chance of a rate cut in December of this year. If inflation and labor data come in light this month, then Jerome Powell, Fed Chairman, will likely tell the market that September will be a live meeting at the FOMC on July 31, 2024. If this catalyzes a worldwide monetary easing cycle, then our team predicts crypto as being one of the best-performing assets over the course of this policy change.
Institutional adoption of cryptocurrencies is expected to rise, with more financial institutions, hedge funds, and corporations integrating digital assets into their portfolios. This trend is driven by the potential for high returns, portfolio diversification, and growing acceptance of cryptocurrencies as a legitimate asset class.
The DeFi sector is projected to continue its rapid growth, offering new financial products and services such as decentralized lending, borrowing, and yield farming. Innovations in DeFi protocols and improved security measures are likely to attract more users and capital, further legitimizing the sector.
Non-fungible tokens (NFTs) are set to gain further traction, expanding beyond digital art into industries such as gaming, entertainment, and real estate. The mainstream adoption of NFTs could drive substantial market growth and create new investment opportunities as more use cases emerge.
Ethereum's transition to Ethereum 2.0, focusing on scalability, security, and sustainability, is a key bullish factor. Successful implementation of these upgrades is expected to enhance the network's performance, attract more developers and projects, and potentially increase the value of Ether (ETH).
Progressive regulatory developments worldwide could provide a more stable and predictable environment for cryptocurrencies. Governments and regulatory bodies are working towards comprehensive frameworks to protect investors while fostering innovation. Clearer regulations could reduce market volatility and encourage long-term investments.
June 2024 was marked by significant cryptocurrency events, including the overruling of the Chevron Doctrine, the submission of Solana ETF applications, and Germany's strategic sale of its cryptocurrency holdings. Looking ahead, the rest of 2024 holds promising bullish trends, such as increased institutional adoption, the expansion of DeFi, mainstream NFT integration, Ethereum's ongoing upgrades, and global regulatory advances. Investors should stay informed about these trends and consider how they might impact their investment strategies. Diversification and thorough research remain key components of a successful investment approach in the dynamic world of cryptocurrencies.
Path maintains optimistic views on the crypto markets for the medium to long term (6-12 months). The convergence of monetary stimulus from the Fed, the rise of crypto spot ETF products, and insights from past crypto cycles all indicate a sustained bullish trend in this cycle.