Insight
January 24, 2025
Donald Trump was sworn in as the 47th President of the United States on Monday and shortly after began executing some of his campaign promises. Most of his actions have come through Executive Orders, Memoranda, and Proclamations regarding the administration’s most pressing issues - immigration and border security, energy and environmental policies, government workforce and diversity programs, international relations, pardons, and cultural changes.
Before Trump was even sworn into office though, he and his wife launched memecoins, TRUMP and MELANIA. These are digital collectibles “intended to function as an expression of support for, and engagement with, the ideals and beliefs embodied by the symbol.” TRUMP has a fully diluted value (FDV) of $36B down from a peak of $75B right after launch, 80% of which is owned by Trump and the team behind the project. MELANIA has an FDV of $2.7B down from a peak of $13.6B, with 35% allotted for the team, 20% to its treasury, and 20% to the community. We’d add that the distribution of MELANIA coins doesn’t seem to align with the stated token distribution even at a cursory glance – 30% of coins are in its treasury instead of 20% for example.
Regarding bitcoin and crypto more broadly, there were some specific campaign promises that Trump executed as well as some important changes in the undercurrents of the legislature and regulators that happened as well. Trump pardoned Ross Ulbricht who was sentenced to two life sentences plus 40 years without the possibility of parole for his role in creating and running the Silk Road darknet market. A groundswell of support had built up for Ulbricht over the years given the harsh sentence, the way the case was handled by the government, and the belief in libertarian ideals.
Regarding regulatory developments, changes were afoot with the turnover in administration. Mark Uyeda was named Acting Chairman of the SEC until Paul Atkins’s or another successor’s confirmation, while Caroline Pham was named Acting Chairman of the CFTC before a permanent head is named and confirmed. Regarding agency-specific initiatives, Harry Jung will lead the CFTC’s efforts on crypto while a newly created crypto task force at the SEC will be headed by Hester Perse. The task force will be focused on providing regulatory clarity, registration procedures, and disclosure frameworks for the digital asset industry.
Wyoming Senator Cynthia Lummis was named to chair the Senate Banking Subcommittee on Digital Assets focused on passing market structure and stablecoin legislation, oversight of federal financial regulators to ensure Operation Chokepoint 2.0 doesn’t happen again, and a strategic bitcoin reserve.
Thursday afternoon Trump signed the “Strengthening American Leadership in Digital Financial Technology” Executive Order, which emphasizes supporting private-sector innovation in blockchain and digital assets, safeguarding individual rights, promoting dollar-backed stablecoins, and prohibiting central bank digital currencies (CBDCs). The order did not explicitly create a bitcoin strategic reserve (BSR) as many had hoped, instead, it directed a Working Group to evaluate the creation of a national digital asset stockpile, potentially derived from seized assets. The broadness of the definition left the possibility open for the US to acquire other digital assets, not just bitcoin. The Working Group is to submit a report to the president in 180 days, July 22nd, with recommendations regarding the stockpile as well as regulatory and legislative proposals.
On Thursday evening, the SEC repealed the controversial SAB 121 rule, which had required companies, such as banks, that custody crypto on behalf of clients to report those assets on their balance sheets. Although this was not the sole obstacle for banks to offer crypto custody, it eliminates the burdensome accounting requirements that do not apply to the custody of other asset types. While we anticipate that the FDIC and OCC may soften their positions on banks engaging in crypto custody—especially in light of recent revelations about their actions that deterred such activities—it may take time for banks to fully reenter this space.
With the recent shift in administration and leadership at the SEC, ETF issuers are actively vying to launch new crypto ETFs. These proposals include ETFs for major cryptocurrencies beyond bitcoin (BTC) and ether (ETH), such as Solana (SOL), XRP, and Litecoin (LTC). Rex-Osprey filed for an ETF on the newly created TRUMP coin, which was less than 4 days old at the time. While the buzz around these potential ETFs has been growing, investors should note that most of these funds are still in very early stages and most have yet to even start the formal SEC review process.
There are some exceptions, however. These include the conversion of two multi-asset funds, the Grayscale Digital Large Cap Fund (GDLC) and Bitwise 10 Crypto Index Fund (BITW), from over-the-counter (OTC) traded trusts to ETFs. These two funds hold a wide array of cryptocurrencies (GDLC – BTC, ETH, XRP, SOL, ADA; BITW - BTC, ETH, XRP, SOL, ADA, LINK, AVAX, DOT, BCH, UNI) which could prove to be an important litmus test for the new SEC under Trump. The SEC will have until 7/2 for a final decision on GDLC and 7/31 on BITW.
An additional development that could significantly influence the SEC’s decision on crypto ETFs was the premature disclosure of potential SOL and XRP futures trading by the CME on February 10. A beta website posted by the CME, which announced the launch of trading on February 10th, was spotted and posted on social media. Although the CME acknowledged that it was indeed its website, the announcement was premature, and no decision had been made yet. The trading of regulated futures on SOL and XRP would be an important marker for the ETFs that rely on them. The fact that regulated futures for BTC and ETH were trading on the CME was a decisive factor in the SEC’s decision to (begrudgingly) allow those ETFs to trade.
The issuer that may be the pole position for a non-BTC or ETH ETF, however, is ProShares with its XRP ETF, which seeks to invest in XRP futures, not spot. ProShares has structured this fund as a ’40 Act fund, allowing for a shorter SEC review timeline compared to the ’33 Act process used by most other ETFs. Under the ’40 Act, the SEC has a 75-day notice period to review the prospectus, after which the registration becomes effective unless the SEC explicitly objects. ProShares filed its registration statement on January 17, which means the effective date would be no later than April 2, in which case the ETF would begin trading shortly thereafter. This is how the ProShares Bitcoin ETF (BITO), which invested in CME-listed bitcoin futures, came to life in October 2021, dragging bitcoin to a cycle high with it. However, for the ProShares XRP ETF to proceed, the CME would first need to list and trade XRP futures, making the CME’s actions a key area to watch.
Bitcoin hit a new all-time high this week, surpassing $109K for the first time, as optimism surrounding potential changes under the Trump administration rose into the inauguration. While Bitcoin gained 3.0% over the week, the market experienced significant volatility as traders reacted to political developments. Thursday's trading was particularly turbulent due to Senator Lummis's announcements and an Executive Order that fell short of investor expectations for immediate action on a strategic bitcoin reserve. Despite this, the events of the week are seen as highly supportive of bitcoin and the broader cryptocurrency industry moving forward. Money began to flow into the industry’s largest stablecoin, tether (USDT), last week. Funds had been flowing out of USDT since mid-December when bitcoin hit a high but began to reverse last Wednesday, January 15th. While money had consistently flowed into USDC, the second largest stablecoin, the total stablecoin industry market cap had been flat from mid-December until mid-January and now has turned up.
In the stablecoin market, funds began flowing back into USDT, the largest stablecoin, last week. After outflows since mid-December, when Bitcoin hit a high, inflows resumed on Wednesday, January 15th. Although USDC, the second-largest stablecoin, had been attracting consistent inflows during this period, the overall stablecoin market cap had remained flat from mid-December to mid-January but has now started to increase.
Spot Bitcoin ETFs also saw a reversal in flows, beginning on January 15th, aligning with the uptick in USDT inflows. Since then, spot ETFs have recorded $3.7 billion in net inflows, marking six consecutive trading days of positive activity. It seems as if the general market positivity is overwhelming any lack of immediacy and specificity the announcements may have left.
Politics and Regulation:
Strengthening American Leadership in Digital Financial Technology - White House
SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force - SEC
Silk Road Founder Ross Ulbricht Pardoned by Donald Trump - CoinDesk
How Trump Decided to Pardon Silk Road Founder Ross Ulbricht - NYT
Lummis to Chair Historic Senate Panel on Digital Assets - Senator Lummis
Staff Accounting Bulletin No. 122 - SEC
SEC Charges Nova Labs, Inc. with Fraud and Registration Violations - SEC
White House Crypto Czar David Sacks: NFTs and Meme Coins Are 'Collectibles' - Decrypt
Appeal Reverses Opinion on Tornado Cash Saying OFAC Overstepped Sanction Authority - Court Document
Investing:
BlackRock CEO Larry Fink Says Bullish Bitcoin Adoption Could Push Price to $700K - Decrypt
Bitcoin's Outlook is Bullish, Prices Expected to Remain Elevated: Deutsche Bank - CoinDesk
Bitcoin Buffer ETF Offer Downside Protection - ETF.com
Companies:
MicroStrategy Bitcoin Holdings Rise to 461K - CoinDesk
Corn Raises $8.3 Million In Community Funding to Push Bitcoin’s Use on Its Ethereum Layer 2 - The Block
Co-founder of French Crypto Startup Ledger Freed After Kidnapping - Bloomberg
Jan 29 - FOMC interest rate decision
Jan 31 - CME expiry
Feb 12 - CPI release
Mar 4 - FTX creditor payment deadline
Jul 2 - Final SEC deadline for decision on GDLC ETF conversion
Jul 22 - EO Working Group report deadline
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