Insight
August 2, 2024
On Tuesday, the trustee for the Mt Gox bankruptcy made what is likely the final distribution to the initial cohort of creditors, those that elected for early lump-sum and intermediate term repayments, ending a 10+ year overhang on bitcoin. Mt Gox made two transfers, one of 33.1K bitcoins and another of 859 bitcoins, which are likely in the hands of BitGo, the only remaining platform entrusted with making distributions to individual creditors that had not yet received bitcoins.
The Mt Gox trustee still controls 46.2K bitcoin worth $3.0B, a number that is underreported by on-chain analytics platforms like Arkham Intelligence. We expect these final coins to move to creditors who have opted to wait until the final resolution of the Mt Gox bankruptcy case, which may still take several years. However, creditors who have opted for the early or intermediate payout have all received their bitcoins, with the exception of BitGo, which has still yet to make those recently transferred bitcoins available to its clients.
Kraken and Bitstamp, the two largest platforms for retail creditors, made bitcoins available to their users last week, on Wednesday and Friday respectively. Looking at the platform daily volumes in the wake of distributions and comparing it to the average volume for the day of the week, a pattern emerges, but not one that we expected. Kraken’s daily volumes were elevated compared to the average, but the most pronounced difference occurred on Saturday, 7/27. Bitstamp was the opposite, showing depressed volumes relative to the average, but again showed a spike on Saturday. While creditors could have been disproportionately in the market on Saturday, what was probably impacting the market more was Donald Trump’s appearance at the Bitcoin 2024 conference in Nashville. This makes sense given the bigger rise in trading on Kraken, a US-based exchange, compared to Bitstamp, a Europe-based exchange. Even if we include the “Trump bump” on Saturday, and if we sum the entire excess trading volume compared to the average on Kraken, it only amounts to 3,129 “excess” bitcoin volume, while Bitstamp was 1,818 bitcoins volume lower than the average. If creditors were in the market selling, their impact was minimal at best.
The launch of ETH ETFs on July 23rd was an important milestone for the crypto industry and one that wasn’t contemplated right up until the final approval deadline. However, the day of the launch of the ETH ETFs, the BTC ETF complex, which had steadily been accumulating funds, suddenly reversed course and showed an abrupt outflow (link). With that fact fresh in our minds, now that it has been a week and a half post launch, we wanted to a see if the new ETH ETFs were taking new capital into the ecosystem of regulated crypto funds or perhaps just shuffling capital from existing BTC ETF holders. We also check in on how the launch of ETH ETFs have fared more broadly, plus any observations to be drawn from the individual funds.
The most important high-level fact about the ETH ETFs is that collectively, since their launch they have not generated net inflows. To put it simply, the outflows from the Grayscale Ethereum Trust (ETHE) have overwhelmed the inflows into the new challenger funds (all funds excluding ETHE). There was a similar dynamic at play for the BTC ETFs as well, as there was a period beginning 4 days after launch that the outflows from Grayscale Bitcoin Trust (GBTC) began to overwhelm the inflows into the challenger funds. In the case of the BTC ETFs, this was a relatively short-lived period, 6 trading days, but it certainly weighed on the price of bitcoin. While analysts were busy estimating the ultimate outflows from GBTC, the reality is that they never stopped (investors redeemed $71.3M yesterday and cumulative redemptions have topped $19.0B), they were simply overwhelmed by inflows into challenger funds. The same may happen here with the ETH ETFs although we note there has been a pronounced slowing in the daily outflows from ETHE ($78.0M yesterday vs $484.1M on the first day of trading).
Looking at the ETH ETF daily fund flows versus BTC ETF daily fund flows, it appears that there are certain days on which investors might be rotating out of BTC ETFs and into ETH ETFs, but not over the entirety of the period. Two days stick out as examples of this dynamic to us, the launch day for ETH ETFs on July 23rd, and July 30th, both which showed inflows into the ETH ETFs and outflows to the BTC ETFs. But since launch day, investors have redeemed $456M from ETH ETFs while they have subscribed $215M to BTC ETFs. It’s not possible to tell if these are independent flows or part of a rotation from ETH to BTC, but will continue to look for patterns that might shed more light on the nature of the flows.
Following up on some of the initial impressions we had last week, first, BlackRock continues to outpace its next nearest competitor, Fidelity, in fund accumulation by a wider margin than it had with the BTC ETFs, which are at a 2 to 1 ratio. Second, the initial jumpstart that Bitwise got with the likely help from Pantera has trailed off and their second-place ranking in fund flows has been taken by Fidelity. Third, the low-cost accumulation fund strategy employed by Grayscale continues to yield mixed results as investors have put $201M into the low-cost ETH (ticker) ETF, but redeemed $2.1B from the high-cost ETHE ETF. Finally, the loss of the ARK relationship for 21Shares continues to weigh on its ability to accumulate funds.
One of the surprising developments from the launch of ETH ETFs was the addition of numerous crypto counterparties for BlackRock’s iShares Ethereum Trust ETF (ETHA). As a refresher, BlackRock’s bitcoin ETF, iShares Bitcoin Trust (IBIT) relied solely on Coinbase for custody and execution, and Coinbase’s agency execution fee was likely an impediment from having shares trade closer to NAV. But looking at trading at ETHA, as well as current data on IBIT, it appears that this regime is still in place, and BlackRock has not onboarded more crypto counterparties.
Bitcoin’s difficulty, the biweekly adjusted measure of how hard it is for miners to create new blocks, hit a new all-time high on Wednesday. The 10.5% increase is reflective of new hash rate coming online causing block times to be quicker than the expected 10-minute average. Bitcoin’s “difficulty adjustment” is the self-correcting mechanism that occurs every 2,016 blocks and resets block times to 10-minute averages amidst varying network hash rate.
Making strong conclusions about any one difficulty adjustment, especially during the summer months, is a challenge. Seasonal weather patterns and high electricity prices can result in the curtailment of electricity usage by miners that can cause significant variations in hash rate provided to the network over short periods of time. With Q2 earnings season underway, we’ll get a sense of what the various public miners are doing with their hash rate. Our guess is most are continuing to grow, and that Bitcoin’s difficulty will continue to hit more highs in the future.
The price of bitcoin fell 2.0% in another up and down week. Bitcoin rallied into the events of the Bitcoin 2024 conference in Nashville before bouncing off $70K on Monday as the US government moved $2B worth of bitcoins seized from Silk Road in 2013. While some have asserted the coins were being sold, the only activity the blockchain tells us definitively is that 29.8K bitcoins were split in two, and 2 new addresses (same style as the original address) now hold 10K (link) and 19.8K (link) bitcoins (and have yet to move again). Some critics thought the move was uncannily close to Trump’s speech in Nashville in which he proposed to take the US government’s stash of forfeited coins worth $13.3B and never sell them. While the movement might have happened in the wake of Trump’s speech, the US government simply just does not act in that manner. The movement of coins was likely subject to an order that was executed on a Monday morning and was preceded by a significant amount of work behind the scenes.
The other big event on the week, the FOMC interest rate decision on Wednesday afternoon, seemed to be a boon for risk assets, such as equities, but not for bitcoin. While the FOMC did not change interest rates, during the press conference Chair Powell left the door open for a September rate cut, with the market now pricing in certainty for 1 rate cute (25 bps) and 75% for another rate cute (another 25 bps). Stocks seemed to initially love what the Fed had to say as indices screamed higher (they have now, however, roundtripped the entire trade and are now lower), but bitcoin languished, leaving many scratching their heads. There could be many factors as to the reason for bitcoin’s trading performance. Bitcoin is only weakly correlated with stocks in the first place (90d rolling correlation with QQQ is only 0.19), the US government could be in the market selling bitcoins, and investors are searching for the next catalyst post the events of Bitcoin 2024. Remember, and we warned ahead of this, the annual Bitcoin conference is typically not a price catalyst (link).
Investing:
Morgan Stanley Wealth Advisors Can Pitch Bitcoin ETFs - CNBC
Goldman Sachs CEO David Solomon Says Bitcoin Could Be 'A Store of Value Case' - The Block
Silk Road Token Movement Sends Bitcoin Price Below $67K - CoinDesk
Regulation, Taxation, and Politics:
Trump Says He'll Fire SEC Chair Gensler and Create Strategic Bitcoin Reserve if Elected: Bitcoin 2024 - The Block
Sen. Cynthia Lummis Announces Bill for US Treasury to Buy 1 Million Bitcoin Worth $68 Billion: Bitcoin 2024 - The Block
Dark Angels Ransomware Receives Record-Breaking $75 Million Ransom - Bleeping Computer
SEC Intends to Amend Complaint Against Third Party Tokens in Binance Case - CoinDesk
Senator Lummis Publishes Paper Arguing Against a Mining Tax - Sen Lummis
Democrats Pushing Harris Campaign for 'Reset' on Crypto Stance, House Rep Says - CoinDesk
Montenegro to Extradite Do Kwon to South Korea, Rejecting U.S. Request - CoinDesk
Companies:
OneMedNet Announces $4.6 Million Private Placement to Buy Bitcoin - OneMedNet
Tether Releases Q2 2024 Attestation - Tether
Cantor Fitzgerald to Launch Bitcoin Financing Business - Cantor Fitzgerald
Aug 14 - August CPI reading
Aug 22 - Jackson Hole conference
Aug 30 - CME expiry
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