October 13, 2023
Greg Cipolaro

Research Weekly - Industry Keeps Inching Towards a Spot ETF


  • The notably low bitcoin volumes and soggy trading amidst the conflict in Israel is a marked change from the price action seen during 2022’s significant geopolitical event, Russia’s invasion of Ukraine.
  • As the industry inches towards a spot ETF, one indicator shows investor bullishness.
  • The specter of the past 2 years, inflation, is down, but not entirely out based on recent data.

Soggy Bitcoin Trading Even as Conflict Erupts

Despite the rebound of risk assets like equities from the early October lows, bitcoin has continued to trade heavily this past week with low volumes. While one might anticipate broader financial implications from the events in Israel, apart from the brief rally in oil and 3% surge in gold, the affect on markets has been light thus far, with little impact on bitcoin.

This is a marked departure from bitcoin’s price action when Russia invaded Ukraine in February 2022. During that episode, bitcoin fell initially on the news, as did other risk assets, including equities. Bitcoin then rallied significantly as the discussion shifted to the devaluation of the Russian ruble, which fell more than 50% in the wake of financial sanctions. The move in the Israeli shekel, down 3% over this past week, has been nowhere near as severe as the fall in ruble, which was all but cut out of interaction with the world's banking system.

Geopolitical upheaval in the past has usually been a benefit to bitcoin’s price, shining a light on its importance as a non-sovereign issued store of value. The fact that little is changed in the trajectory of bitcoin is perhaps indicative of the general malaise in crypto markets at large. Since 1Q - 2Q regional banking crisis, bitcoin has been largely rangebound, with short term price movements driven by news on the ETF front, regulatory actions, or legal proceedings. And while we are still hopeful for the eventual approval of a spot ETF, the backdrop of rising interest rates results makes investing in assets, especially novel ones like bitcoin, a bit like swimming against the current at this moment. But that could change rapidly, as we explore in the next section, as the industry continues to push steadily to a spot bitcoin approval.

Industry’s Spot ETF Effort Keeps Inching Forward

Progress on the industry’s first spot ETF in the US continued to inch ever closer this week, with two important events. First, today, October 13, 2023, marks the final day in which the SEC can challenge the Grayscale decision from the DC Circuit US Court of Appeals. Given the lopsidedness of the decision, it has seemed unlikely that the SEC would issue a challenge since the ruling was handed down. The closing of the official review window, however, is an important symbolic event for the industry’s collective effort.

The other important event this week was an update to the registration statement (S-1) for the ARK 21Shares Bitcoin ETF. While spot markets jumped on the back of the bevy of spot filings back in mid-June, the reality is that most registration statements at the time omitted key pieces of information required to get an ETF off the ground. Now we are seeing the first of the filers come back and update important information needed to flesh out the operations of the funds. Our expectation is that we see other applicants also update their registration statements, especially as the SEC appeal window closes in the Grayscale case, an important sign of readiness across the industry. Of course, the SEC has yet to give the green light to any product and still may deny any and all applicants.

While spot prices might not reflect investor enthusiasm for a spot ETF, one indictor does. The discount that the Grayscale Bitcoin Trust (GBTC) shares trade to Net Asset Value (NAV), which was as low as nearly 49% at one point, continues to narrow. If the SEC were to allow spot bitcoin ETFs, we would expect the Grayscale Bitcoin Trust, which is hoping to convert into an open-ended ETF, to trade at or close to NAV if the conversion is approved. Therefore, this narrowing of the discount is one market-based indicator that offers a different interpretation of investor sentiment for the prospect of a spot ETF compared to the heavy price action in spot markets.

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Inflation Remains Stubborn

On Thursday morning, the Bureau of Labor Statistics released the September Consumer Price Index (CPI), a widely followed, but often critiqued measure of inflation. Core inflation, including volatile food and energy prices, came in as expected, up 4.1% year over year, with headline inflation (including food and energy prices) slightly ahead of expectations.

The market’s response to the “as expected” news was to send asset prices, including stocks and bonds, lower, a bit surprising given that the numbers were in line with expectations. The implication of the market move is that given the inflation reading, the Fed is more likely to continue to raise rates, impinging upon asset prices.

While inflation may indeed be well off the highs, the trend last month was less than encouraging. Looking at 2-year stacked growth (adding 2 year-over-year returns together to normalize for year-over-year comparisons) shows a slight bump up in September, reminding us that inflation can be a stubborn enemy.

It was a year ago that we made the connection between Paul Volcker’s memoir “Keeping at It: The Quest for Sound Money and Good Government” and a recent speech from current Fed Chair Jay Powell who said in a speech that the Fed “must keep at it until the job is done.” While it appears as though much headway has been made on the matter of inflation, its specter has not been fully banished.  

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Market Update

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As discussed previously, bitcoin continues to trade heavy, falling 2.9% on the week. This price action comes even as other asset classes rallied this week. For equities, the S&P 500 rallied 2.8% while the Nasdaq Composite rose 2.7%. Bonds traded higher, even with the higher-than-expected inflation data. Investment grade corporate bonds rose 0.5%, high yield corporate bonds rose 0.3%, and long-term US treasuries rose 0.3%. Oil and gold both rose this week, largely on the back of the conflict in Israel. Oil rose 1.4% while gold rose 2.8%.

Important News This Week


Legendary Investor Paul Tudor Jones: U.S. Might Be in Weakest Fiscal Position Since World War II (Video) - CNBC

Bitcoin and Gold Favored by Paul Tudor Jones After Geopolitical Risk Rises - CoinDesk

The Lightning Network Grew by 1212% in 2 Years - River

Regulation and Taxation:

CFTC Charges Former Chief Executive Officer of Digital Asset Platform with Fraud in Massive Commodity Pool Scheme - CFTC

FTC Reaches Settlement with Crypto Company Voyager Digital; Charges Former Executive with Falsely Claiming Consumers’ Deposits Were Insured by FDIC - FTC

Coinbase Tells IRS It Has 'Serious Concerns' About Proposed Tax Rules - The Block


Binance’s $1 Billion Plan to Save Crypto After FTX Has Quietly Fizzled Out - Bloomberg

JPMorgan Launches Blockchain Settlement in BlackRock-Barclays Trade - Bloomberg

New Clues Suggest Stolen FTX Funds Went to Russia-Linked Money Launderers - Wired

Blockstream’s New Service Aims to Make Lightning Integration A Breeze - Blockworks

Mastercard's CBDC Pilot Ventures into Ethereum and NFTs - Blockworks

Upcoming Events

Oct 27 - CME expiry

Nov 1 - FOMC interest rate decision

Nov 14 - October CPI reading

Nov 17 - US federal budget deadline

Jan 10 - Final ETF decision deadline for the first spot bitcoin ETF, ARK 21Shares


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