IN TODAY'S ISSUE:
- Mt Gox coins move one step closer to creditors’ hands, but our math suggests that nearly 77K bitcoins will be held and could be employed in a variety of return-enhancing manners.
- Bitcoiners are set to descend on Nashville with Trump set to speak, but the annual conference usually isn’t a price catalyst.
- ETH ETFs are teed up for launch next week, with a lot of familiar faces, but some recent changes in entrants and service providers may result in different outcomes than the bitcoin ETFs.
Mt Gox Moves a Portion of Coins into Position for Distribution
Late on Monday night, the trustee overseeing the bankruptcy moved 48.6K bitcoins (equivalent to $3.1B) to a new address outside of their control, ultimately identified as belonging to Kraken. Kraken, along with platforms such as Bitstamp, BitGo, Bitbank, and SBI VC Trade, has been entrusted with the final distribution of creditors' coins to individual accounts. In a recent communication to clients, Kraken assured that the distribution process will be completed within 7 – 14 days which, when completed, would alleviate a big overhang on the price of bitcoin.
The movement of these coins initially went unnoticed by the market, but eventually led to a 3.5% decrease in bitcoin's price as the news spread. Investors are feeling anxious about the potential impact of selling, but we want to reassure readers that not all coins will be entering the market. Additionally, with billions of dollars traded daily, the market has the capacity to absorb these movements, something we pointed out in a timely note last week.
Our back-of-the-envelope math suggests that of the roughly 90K bitcoins distributed to early and intermediate payout election creditors, only 22K bitcoins will be sold to the market. For investors holding the other nearly 77K bitcoins, albeit mostly small holdings given the nearly 25,000 creditors, there are ways to enhance returns and continue to hold onto bitcoin balances, including derivatives and lending strategies, core services of NYDIG.
All Eyes on Nashville, but the Conference is Rarely a Price Catalyst
In one week, all eyes in the Bitcoin world will turn to Nashville, Tennessee, the host of the upcoming Bitcoin 2024 conference. Organized by BTC Inc, this annual gathering has attracted a crowd of 35,000 attendees in the past. Excitement is building as it has been confirmed that presidential candidate Donald Trump will be making a special appearance. Speculation is rife about the nature of his speech, scheduled for 3 PM ET on 7/27, with whispers hinting at a potential announcement of a "strategic bitcoin reserve." We can only surmise that would be something like the Strategic Petroleum Reserve in the US (or the National Syrup Reserve in Canada).
Although this year's event might unfold differently, it's disappointing to note that this annual Bitcoin conference has historically failed to spark a significant price increase. Despite bringing Bitcoin enthusiasts from around the globe together, the aftermath of the event often sees prices drop, even with all the exciting announcements and activities during the conference. We highlight this as, year after year, we are questioned about the disappointing price reactions post-event.
ETH ETFs Set to Launch with Many Similarities from BTC ETFs, but Some Big Changes
Next week spot bitcoin ETFs are likely to get some company on US markets. If all goes according to media reports, 10 spot ether ETFs will begin trading on Tuesday. Recent developments have brought about significant changes, such as the approval of two new funds, the introduction of a new sponsor to the spot crypto game, and the disclosure of fees.
On May 23rd, the SEC gave the green light to 8 spot ether ETFs with the approval of their Form 19b-4s. Many sponsors of spot bitcoin ETFs made a return for a second round, except for Valkyrie, which was acquired, and WisdomTree, which has the smallest bitcoin ETF. Interestingly, ProShares also entered the arena with the approval of a spot ether ETF recently. While it doesn't have any spot crypto ETFs, ProShares boasts a range of futures-based bitcoin and ether ETFs. Notably, their ProShares Bitcoin Strategy ETF (BITO) stands as the largest bitcoin futures ETF, with assets totaling $1.95B. Comparatively, their ether futures ETF is much smaller, with assets of $113M, making it less than 6% the size of BITO. The ProShares spot ether ETF is still lacking major details at the moment, such as fees and a ticker. It also has an underlying index from a new provider, Bloomberg.
Grayscale also had a new fund approved this week, the Grayscale Ethereum Mini Trust (ticker ETH). With an industry low fee of 0.15%, investors now have a more affordable option compared to the Grayscale Ethereum Trust (ETHE) with a fee of 2.5%. This strategic move by Grayscale allows them to compete for inflows while maintaining a high-fee ETF with significant assets under management ($8.95B). Unlike the launch of bitcoin ETFs, where a low-cost "accumulation" fund was lacking, Grayscale is now positioned to compete for inflows. Therefore, the battle for market share will depend more on the marketing and distribution efforts of the different sponsors this time around rather than fees.
Anticipated fees for ether ETFs were expected to be similar, if not slightly higher, than bitcoin ETFs. However, with the recent fee disclosures, all sponsors are matching or even coming in below their previous bitcoin ETF fees (excluding any fee breaks, which will also be available for the upcoming ETH ETFs). As previously mentioned, Grayscale is leading the pack with their competitively priced fund at 0.15%, but there is a possibility that other sponsors may further reduce fees leading up to the launch.
There have been significant shifts in the service providers for ETFs, particularly with BlackRock iShares product expanding crypto counterparties. The iShares Bitcoin Trust currently relies solely on Coinbase for bitcoin acquisition, causing ETF shares to consistently trade at a premium to NAV during inflows (should be the opposite for outflows). This suggests Coinbase charges an agency execution fee of around 20 bps. With the introduction of the ether ETF, however, BlackRock has diversified its ether trading counterparties, aiming to bring shares closer to NAV. We will know if BlackRock has onboarded all these counterparties at launch based on the premium to NAV the shares trade in the market.
Market Update
Bitcoin rallied 10.7% this week, shrugging off concerns about the Mt Gox situation in favor of the upcoming Bitcoin 2024 conference and the growing excitement surrounding Trump's interest in the cryptocurrency. Trump's endorsement of bitcoin and his performance in the polls recently have reignited enthusiasm for the asset. Despite turbulence in the stock market, bitcoin’s upward trajectory pointed to little signs of correlation with equities.
Surprisingly, BTC is even surpassing ETH in price performance as we approach a significant event for ETH, the launch of spot ETFs. The market seems to view the Trump BTC trade as a more impactful catalyst than the introduction of ETH ETFs, or perhaps investors have lower expectations for ETH ETFs. Data indicates that the demand for ETH ETFs may be significantly less than that of BTC, exemplified by previously cited statistics, ProShare's ETH futures ETF being less than 6% the size of its BTC futures ETF. Naturally, this is all speculation, but we'll have concrete data points next week once the ETFs hit the market.
Important News This Week
Investing:
Blackrock CEO Larry Fink: I Believe Bitcoin is a Legit Financial Instrument - CNBC
Mt. Gox Creditors Reportedly Hit By Failed Login Attempts Amid Repayments - CoinDesk
BlockFi to Start Interim Crypto Distributions This Month Through Coinbase - X
Deribit to Provide Crypto Options Letting Traders Target Bets on US Election - Bloomberg
Regulation and Politics:
Trump Seizes on Crypto as ‘Wedge Issue’ as Donors Cheer Him On - Bloomberg
Pro-Crypto Ohio Senator J.D. Vance Is Donald Trump's Vice President Pick - CoinDesk
FTX And CFTC Agree to $12.7 Billion Settlement Following Months of Negotiations - The Block
SEC Drops Investigation of Bitcoin L2 Stacks and Builder Hiro, Filing Says - CoinDesk
Companies and Industry:
Arthur Hayes' Maelstrom Launches Bitcoin Developer Grant Program - The Block
Alan Howard-Backed Elwood to Sell OTC Business To Standard Chartered's Zodia Markets - The Block
Upcoming Events
July 23 - ETH ETFs expected to begin trading
July 25 - Bitcoin 2024 conference
July 26 - CME expiry
July 31 - FOMC interest rate decision
