Shifting Sands of Market Structure, Tether's Billion-Dollar Quarter, and CZ's Legal Closure

• BlackRock's IBIT experiences its first net outflow day amidst a record ETF bleed
• Tether Holdings reports a record $4.52 billion net profit in Q1 2024 for USDT stablecoin
• Binance founder CZ sentenced to 4 months in prison following a plea deal

The shifting sands of bitcoin market structure

The cryptocurrency markets mirrored the downward trend in TradFi risk assets this week, experiencing a collective decline of 7.6% in total market capitalization. Bitcoin led the downturn, with its dominance dropping below 52.5%. Among the major large-cap names, bitcoin plummeted by 9.4% compared to the previous week, while ether saw a 5.4% decline during the same period. In the US-listed spot bitcoin ETF universe, there were daily net outflows for the past six consecutive trading days. May 1st recorded the largest net outflow day from the universe, amounting to $563.7 million. Notably, this week marked the first time both the IBIT and FBTC ETFs saw daily net outflows, compared to daily net inflows seen for the rest of the year. The six ETFs that launched in Hong Kong on Tuesday failed to meet expectations.

Despite the widespread market downturn, bitcoin experienced a more pronounced decline compared to several major altcoins, a deviation from typical market behavior during sell-offs. Traditionally, during broad market sell-offs, investors tend to rotate risk from altcoins to bitcoin and stablecoin/fiat. One significant shift in the cryptocurrency market structure is the emergence of an active spot-only ETF market for bitcoin. Throughout the first quarter, both bitcoin's price and these ETFs (excluding GBTC) saw inflows. However, in April, as the price encountered resistance, it marked the first instance where new investors through spot ETFs faced adverse price action, prompting them to unwind positions to prevent losses or realize profits. This selling pressure likely contributed to the intensified downward movement in bitcoin's price relative to alts.

Asset management firm Franklin Templeton has listed its spot Ether ETF (EZET), on the Depository Trust and Clearing Corporation (DTCC) website. This platform is known for facilitating securities transactions in the United States. Notably, the ETF is listed in the "Create/Redeem" column on the DTCC website, indicating its availability for creation and redemption. However, it's important to note that the listing of the Franklin Templeton Ethereum spot ETF on the DTCC website does not guarantee approval of Franklin's spot ether ETF application by the United States Securities and Exchange Commission (SEC). The DTCC website often features securities eligible for trading and settlement within its systems, including ETFs that have completed specific registration or compliance processes. The approval status of an ETF filing is ultimately determined by the SEC, based on various regulatory criteria and considerations. The SEC recently postponed a potential decision on Franklin Templeton’s ETF application on April 23. The commission cited the need for additional time to review the proposed rule change for the listing and trading of Franklin Ethereum Trust shares on the Cboe BZX Exchange. As a result, the SEC now has until June 11, granting an additional 45 days for evaluation.

Tether's billion-dollar quarter, and  CZ's legal closure

On Tuesday, Tether Holdings Limited released its attestation report for the first quarter of 2024, revealing a significant $1 billion profit generated by the group's entities responsible for issuing stablecoins and managing their reserves. The majority of this profit was attributed to holdings in US Treasuries, with additional gains stemming from bitcoin and Gold positions. Wednesday's attestation underscored Tether's substantial ownership of US Treasuries, which now surpasses $90 billion. Furthermore, Tether disclosed its net equity for the first time, revealing a total of $11.37 billion as of March 31, 2024. This represents a noteworthy increase from the recorded equity of $7.01 billion on December 31, 2023, as stated by Tether. In terms of Tether's reserves supporting its fiat-denominated stablecoins, the attestation highlighted that Tether-issued tokens are backed by up to 90% in cash and cash equivalents. This reassurance provides transparency and clarity regarding the robustness of Tether's stablecoin reserves.

Real-world asset (RWA) tokenization firm Securitize announced a $47 million funding round led by BlackRock, the world's largest asset manager. This investment will enable Securitize to enhance its efforts in utilizing blockchain technology to digitize capital markets. Coinciding with the funding round is the launch of BlackRock's inaugural tokenized fund issued on Ethereum, known as the BlackRock USD Institutional Digital Liquidity Fund (BUIDL). Investors can access BUIDL by subscribing to the fund through Securitize. BUIDL aims to maintain a stable value of $1 per token and distributes daily accrued dividends directly to investors' wallets in the form of new tokens each month. 

The fund allocates 100% of its total assets into cash, US Treasury bills, and repurchase agreements, providing investors with the opportunity to earn yield while holding tokens on the blockchain. Participants enjoy the flexibility of transferring their tokens to other pre-approved investors 24/7, 365 days a year. Additionally, through Circle, BUIDL holders can convert their shares into USDC via its smart contract functionality. Investors in the fund also benefit from flexible custody options, enabling them to choose their preferred method of token storage. This innovative approach represents a significant advancement in leveraging blockchain technology to enhance liquidity, accessibility, and transparency in traditional financial markets.

Changpeng "CZ" Zhao, founder and former CEO of cryptocurrency exchange Binance, was sentenced to four months in prison this Tuesday. According to court documents released after the hearing, the judge recommended that Zhao serve his sentence at the Federal Detention Center, SeaTac, though the final decision will be made by the Bureau of Prisons. The Probation and Pretrial Services Office will determine a reporting date for Zhao to surrender himself. 

Last year, Zhao reached a plea deal where he agreed to pay a $50 million fine, a small fraction of his estimated net worth, which Bloomberg recently reported to be around $43 billion. Despite pleading guilty in November to one count of violating the Bank Secrecy Act, a charge that could typically carry up to 10 years in prison, Zhao's guilty plea and cooperation resulted in a reduced sentence. A presentence report filed by the court's Probation Office recommended a five-month prison term for Zhao. However, there were significant disparities in recommendations from both prosecutors and defense lawyers: the Department of Justice (DOJ) sought a three-year prison sentence, twice the duration outlined in Zhao's plea agreement, while his defense requested no prison time, proposing probation instead. This marks the resolution of one of the most significant legal overhangs from the previous cycle.

Macro pulse 

TradFi markets saw risk off tone this week, Oil futures plunged 4.6% compared to previous weeks and US Equities posted a weekly decline of 1%. The Federal Reserve expressed fresh concerns regarding inflation and hinted at maintaining elevated borrowing costs for an extended period. Chair Jerome Powell indicated that the Fed's next move is unlikely to involve raising interest rates, emphasizing the need for compelling evidence that current policy isn't sufficiently restrictive to bring inflation back to its 2% target. However, Powell refrained from suggesting that rate cuts were imminent this year or that rates had peaked, a departure from his previous stance. Following numerous indications of ongoing price pressures in the US economy, officials unanimously agreed to maintain the target range for the benchmark federal funds rate at 5.25% to 5.5%, where it has remained since July. Elsewhere, the US Dollar index slipped by 10 bps and 10 Year US Treasury was unchanged while Gold & Silver index rose 0.9% week on week.

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*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on May 02, 2024 

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