Fine Threads of Accumulation and the New Hopium

• Bitwise makes history, reveals wallet address as first spot bitcoin ETF provider
• Crypto bank Sygnum secures $40 million, achieving a $900 million valuation
• EDX announces plans for an Asia crypto exchange with funding from Sequoia and Pantera Capital

Spot ETF sprout, whales' wealth shout

In contrast to tradfi markets, the crypto markets experienced a sell-off for the second consecutive week, registering a weekly decline of 7.1% in total market cap. The bitcoin dominance edged higher, finishing the week above 50%. Among the blue-chips, bitcoin witnessed a 6.2% drop, while ether plummeted by 11.7% week on week. In the realm of newly introduced US-listed spot bitcoin ETFs, there was a cumulative net inflow of $824.4 million (as of the end of January 23rd) since inception. Notably, since inception, BlackRock's IBIT and Fidelity's FBTC recorded total net inflows of $1.9 billion and $1.7 billion, respectively. Conversely, Grayscale's GBTC saw net outflows of $4.3 billion.

Zooming in on the current week, the spot bitcoin US ETF universe has seen net outflows in the first three days. Interestingly, GBTC outflows appear to be following a downward trend or, at the very least, the GBTC discount to NAV tightening. On Monday morning, a CoinDesk report brought attention to the bankruptcy estate of the now defunct crypto exchange, FTX, which purportedly successfully liquidated its entire holding of 22 million shares of GBTC, equivalent to nearly 20,000 bitcoins, fetching close to $1 billion. If true, then more than one-third of the selling activity in GBTC was attributed to a single non-economic actor. The current scenario appears to resemble an accumulation phase, as net inflows and subdued price action often characterize this stage in a market cycle.

Another indicator of accumulation is that crypto whales (entities with ample token holdings) appear to be snapping up BTC at cheaper prices as the leading cryptocurrency continues to slide in the aftermath of the recent US spot ETF debut. That has some crypto whales bargain-hunting bitcoin on digital assets exchange Bitfinex, one of the top 10 exchanges by trading volumes. According to a CoinDesk report, the number of open BTC/USD longs, or bullish leveraged bets, has increased nearly 8% to over 73,000 contracts in one week. Stepping back from the price action, Bitwise etched its name in history on Wednesday by becoming the pioneer among the 10 spot bitcoin ETF issuers to unveil its digital wallet address to the public.

The San Francisco-based firm took to Twitter to post a screenshot revealing the Bitwise Bitcoin ETF's (BITB) Bitcoin address and holdings, indicating 11,858 bitcoins as of January 23. This move towards transparency allows the public to track live balances, aligning with the principles of on-chain accounting. This move is significant especially in the context of concerns raised by some about the traditional finance industry potentially applying the same practices to bitcoin that have transformed other assets using sophisticated packaging and derivatives. In contrast to mutual funds, ETFs are known not only for being cost-effective investment vehicles but also for their transparency. They adhere to daily reporting of holdings, publish Net Asset Value (NAV) regularly, follow a clear creation/redemption process, and provide transparency regarding the investment thesis. Bitwise's step towards enhanced transparency through a public address for live balance tracking is a resounding nod to the future of on-chain accounting. It's a leap forward.

In the last year, as discussions around ETFs gained momentum, many industry experts identified Registered Investment Advisors (RIAs) as an overlooked avenue for crypto adoption in wealth management. According to a recent survey by Bitwise and VettaFi, approximately 80% of financial advisers expressed uncertainty or incapacity to acquire crypto for their clients. Intriguingly, 98% of advisers already holding crypto in client accounts plan to either maintain or increase their exposure in 2024. When asked about their preferred crypto investments for the year, respondents leaned towards Crypto Equity ETFs. While ETFs align with the preferences of many RIAs, some may seek direct access to crypto assets. Addressing this demand, Anchorage Digital Bank has collaborated with Onramp Invest to introduce digital asset block trading for financial advisors. This new facility complements Anchorage Digital's comprehensive custody and trading offering for RIAs, catering to the diverse needs of the advisor ecosystem, including Turnkey Asset Management Programs (TAMPs), third-party technology platforms, and direct integrations with RIAs.

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Hopium renewed as litigations settle and capital influx begins

In another noteworthy development this week, the cryptocurrency investment platform Abra, which received a cease and desist order last June, has reached a settlement with the Texas securities regulator. The preliminary agreement mandates Abra to issue a check or secure a bank instrument for clients holding $10 or more in assets on the crypto platform. At the time of Texas taking action against Abra, the platform held crypto assets worth approximately $13.6 million for around 12,000 customers. The Texas Securities Board specified that Abra and its CEO, William Barhydt, have a 30-day window from the announcement of the settlement in principle to fulfill their obligations. Any remaining assets after Abra's notifications will be converted to fiat and directed to the remaining Texas investors. According to a Twitter post by William Barhydt, they have "already processed over $9M in withdrawals to over 2000 TX residents," with a remaining balance of approximately $500,000 set to be returned to over 800 Texas customers.

This week, EDX Markets hit a new milestone as it announced the successful launch of its digital asset clearinghouse, EDX Clearing. According to the press release, EDXC introduces members to a competitive non-custodial market, doing away with the need for bilateral trading agreements. All trades matched on EDX's market now seamlessly settle through EDXC in an optimized net settlement process, boosting operational efficiency and trimming the upfront capital required for trading. Serving as a central counterparty, EDXC plays a pivotal role in significantly mitigating credit risk for its members. The launch of EDX Clearing aligns with the conclusion of the company's Series B funding round, welcoming Pantera Capital as a notable equity investor. Adding to this triumph, Bloomberg reported that EDX Markets plans to leverage its fresh funding to open a derivatives exchange in Singapore.

Crypto bank Sygnum has successfully secured over $40 million in an interim close of its latest funding round, surpassing its initial ~$35 million target in the Strategic Growth Round. The completion of this interim close places the company's post-money valuation at $900 million. This influx of capital mirrors the trend of increasing investments in the crypto industry. Earlier this month, HashKey, an Asian digital asset financial services group, concluded a Series A financing round, raising nearly US $100 million at a pre-money valuation exceeding US $1.2 billion. Crypto market maker Flowdesk, now a liquidity provider for Grayscale's bitcoin ETF, also reported raising $50 million in a Series B. Additionally, Ethereum Layer 2 developer Polymer Labs recently announced a successful Series A funding round, securing $23 million from investors including Blockchain Capital and Coinbase Ventures. In a related development, Brink’s Company, renowned for its armored trucks transporting cash, has entered into a partnership with, and made an investment in, crypto custody firm BitGo. This strategic collaboration designates Brink’s as BitGo’s global secure logistics and vaulting provider.

Price action, ETF inflows, and whale activity suggest a potential accumulation phase, though it's too early to confirm. Concurrently, the resolution of major bankruptcies, ongoing litigations coming to settlement, and a fresh wave of capital entering the industry contribute to a positive outlook as the year begins.

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Macro pulse 

The traditional financial markets exhibited a risk-on tone this week, with US equities gaining 2.7% compared to the previous week. This surge was led by major tech names and optimism surrounding China's decision to enhance economic support through a reduction in its reserve requirement ratio. Oil futures also experienced a notable 4.1% rally, buoyed by a broader increase in risk appetite and a weaker US dollar as the US dollar index declined by 0.2% from the previous week. Elsewhere, 10-year US Treasury yields inched 8 bps higher, while the Gold & Silver index saw a slight dip of 0.1% week on week.

*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on January 25, 2024 

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