Insight
July 26, 2024
This week, Mt Gox took a big step forward in resolving its long-running bankruptcy as two key distribution partners successfully transferred coins to creditors. But as we had surmised, the movement of coins did not seem to cause any major disruptions in the market, easing long-standing concerns from investors.
On July 16th, the Mt Gox bankruptcy trustee transferred 48,641 bitcoins (currently valued at $3.2 billion) to the exchange Kraken, causing a stir in the market. Kraken, alongside BitGo, SBI VC Trade, Bitbank, and Bitstamp, has been tasked with making final distributions of bitcoins to creditors. This week, Kraken announced the completion of these distributions to the end creditors. Despite the long wait, over 10 years, trading volume does not indicate that creditors suddenly rushed to the market to sell. Kraken’s trading volume on Wednesday was 1,565 bitcoins and on Thursday it was 1,784 bitcoins, both well within the range of recent historical volumes. Even if the entirety of this trading volume came from Mt Gox creditors, it would only account for 6.9% of the bitcoins moved from Mt Gox.
In the case of Bitstamp, the Mt Gox trustee sent it 9,325 bitcoins (currently valued at $606M) on Tuesday, July 23rd. Following the transfer, Bitstamp acknowledged the receipt on Wednesday and noted that following security checks, coins would be made available to creditors within a week. Trading volume remained as usual, but then again, creditors have yet to get their coins back.
The Mt Gox bankruptcy trustee still has one more distribution partner, BitGo, to reach. However, considering the institutional nature of the typical BitGo customer, we believe these coins are even less likely to be liquidated. Our hope is that these final distributions can be made relatively quickly, and we can alleviate this overhang from the market that has been around for so long. Not all the remaining bankruptcy trustee’s remaining 80K coins are likely to move, as some creditors have elected to receive a payout when the bankruptcy case is completely resolved.
Spot ether ETFs launched this week in what could only be described as underwhelming. While it is still early in their lifecycle, since spot ETFs began trading on Tuesday, they have yielded a cumulative outflow of $177.6M. By comparison, three days into the life of the bitcoin ETFs, fund flows collectively were a positive $805.7M. While we understand there are certainly nuances between the different funds, which we will get into, no one was anticipating net selling of ether. The public analysis purporting these funds to be collectively successful seems to be lacking objectivity or analytical rigor. We will caveat this critique with the fact that it is still early and the bitcoin ETFs went through several twists and turns since launching in January.
Comparing the launch of ETH ETFs to BTC ETFs offers valuable insights. With ETH's market cap roughly one third the size of BTC, one might anticipate trading, fund flows, and AUM statistics to be proportional. We have highlighted in the past why that might not be the case and investors should think of that one third ratio as a ceiling, which indeed proved to be the case comparing launch days.
Despite robust trading volume (turnover) for ETH ETFs, they still fell short of BTC ETFs on a proportional basis. In addition, total ETH ETF fund flows on the first day underperformed proportionally compared to the launch of BTC ETFs as well, generating $106.8M in net inflows. However, excluding the high-cost Grayscale funds, GBTC and ETHE, challenger funds showed a significant improvement proportionally in comparison to the launch of BTC ETFs. This was evident as the first-day outflow from ETHE surpassed GBTC on an absolute basis, $484.1M vs $95.1M. Day 2 outflows for GBTC normalized at $484.1M, matching the initial outflow from ETHE.
Before the launch of the ETH ETFs, the BTC ETFs were on something of winning streak, with 12 consecutive days of net inflows totaling $2.9B. However, this streak was broken on July 23rd, launch day for the ETH ETFs, potentially indicative of some rotation out of the BTC ETFs and into ETH ETFs. That trend seems to be short-lived though as the BTC ETFs have flipped back to inflows while the ETH ETFs have flipped to outflows.
In an effort to avoid a repeat of the BTC ETF race, Grayscale took a different approach with the launch of its ETH ETF. This time, it maintained the fee (2.5%) for their high-cost fund (ETHE) and introduced the "accumulation" fund, ticker ETH, with a strategy-low fee of 0.15%. Also, by kickstarting ETH with a spin-off of shares from ETHE, it quickly secured a strong second position in the AUM rankings. However, on the fund flows side, the story has not been so rosy. ETH has amassed $119.2M in daily fund flows, placing it 4th in the accumulation race despite its low fee. There has also been a rapid withdrawal of funds from ETHE, totaling $1.2B in cumulative daily outflows. This absolute level is comparable to where GBTC stood by day three, but considering ETHE was one third the size of GBTC at the onset of trading, proportionally, investors have been withdrawing significantly more from ETHE compared to GBTC.
Bitwise emerged as a crypto-native standout player in the BTC ETF competition, outperforming traditional fund managers such as VanEck, Invesco, and Franklin Templeton. The momentum started strong for Bitwise's BTC ETF, likely driven by a significant investment from crypto fund Pantera, which indicated an interest in acquiring up to $200M worth of the Bitwise Bitcoin ETF (BITB). As the launch of Bitwise's ETH ETF approached, Pantera signaled its intent to accumulate up to $100M of the Bitwise Ethereum ETF (ETHW). Analyzing the daily fund flows of the two funds, one might conclude that Pantera redeemed BITB shares and acquired shares of ETHW with the proceeds. While this does not explain all of the day-1 inflows for ETHW ($204.0M), Pantera's support likely played a significant role.
The other big crypto-native winner in the bitcoin ETF game had been 21Shares, which along with ARK bested all managers in accumulating funds, aside from BlackRock and Fidelity. Unfortunately, fortunes turned significantly for 21Shares with the launch of its ETH ETF, the 21Shares Core Ethereum ETF (CETH). ARK Investment Management LLC was removed as a subadvisor, as was its name from the ETF, in a May 31st filing. It’s not clear from the outside what occurred behind the scenes, but the loss of ARK has affected CETH’s fortunes greatly, especially in comparison to the success of ARKB. CETH is currently in last place in the cumulative daily fund flows amongst the challenger ETFs (ex-ETHE).
It’s not clear what happened with this one either, because ProShares seemed to put forth a great effort to get into the spot ETH ETF race at the last minute, but its ETF did not launch. We pointed out in previous notes that major details were lacking in their filing, so perhaps getting everything together at the last minute proved to be too big of a hurdle for ProShares. Whatever the reason, we now have 9 spot ETH ETFs and would expect ProShares to continue creating and innovating on futures-based ETFs.
Bitcoin rallied 1.8% in what could be characterized as up-and-down trading on the week. All eyes are focused on the current events surrounding the Bitcoin 2024 conference in Nashville, with investors focusing on the comments from Donald Trump’s keynote at 3 PM ET on Saturday. Rumors continue to swirl about his announcement of a bitcoin reserve for the US, although the calculus around his re-election bid changes now that he faces Kamala Harris and not Joe Biden.
Interestingly, it is state and local governments that are taking the lead on bitcoin ownership, not the federal government, with the State of Michigan Department of Treasury recently disclosing a $6.7M investment in the ARKB ETF. The State of Wisconsin Investment Board (SWIB) had already taken a position in the bitcoin ETF in Q1. Similarly, the municipal pension plan of Jersey City, New Jersey, has expressed intentions to purchase bitcoin ETFs. Bitcoin miner Marathon Digital also announced a $100M purchase of bitcoin, certainly a strong rebuke for those that have been calling for “miner capitulation” with their holdings.
Investing:
Stablecoin Market Cap Jumps to $164B After Months of Stagnation as Capital Flows into Crypto - CoinDesk
Regulation and Taxation:
FCA Takes First Enforcement Action Against firm Enabling Cryptoasset Trading - FCA
Companies & Industry:
Taproot Assets on Lightning: The Global Financial Interoperability Layer - Lightning Labs
Bitcoin Layer 2 Bitlayer Reaches $300 Million Valuation with New Funding From Franklin Templeton And Others - The Block
Fold to Go Public as the First Pureplay Financial Services Company Powered by Bitcoin - Fold
Firm Behind Proton Mail Unveils Self-Custodial Bitcoin Wallet - The Block
MARA Purchases $100 Million of Bitcoin - Marathon Digital
Crypto-Friendly Fintech Revolut Secures Banking License from UK Financial Regulator - The Block
Bitfarms Adopts New 'Poison Pill' Shareholder Rights Plan After Riot's Initial Tribunal Win - The Block
July 27 - Trump's Bitcoin 2024 conference appearance
July 26 - CME expiry
July 31 - FOMC interest rate decision
This report has been prepared solely for informational purposes and does not represent investment advice or provide an opinion regarding the fairness of any transaction to any and all parties nor does it constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy. Charts and graphs provided herein are for illustrative purposes only. This report does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of New York Digital Investment Group or its affiliates (collectively NYDIG).It should not be assumed that NYDIG will make investment recommendations in the future that are consistent with the views expressed herein, or use any or all of the techniques or methods of analysis described herein. NYDIG may have positions (long or short) or engage in securities transactions that are not consistent with the information and views expressed in this report. The information provided herein is valid only for the purpose stated herein and as of the date hereof (or such other date as may be indicated herein) and no undertaking has been made to update the information, which may be superseded by subsequent market events or for other reasons. The information in this report may contain forward-looking statements regarding future events, targets or expectations. NYDIG neither assumes any duty to nor undertakes to update any forward-looking statements. There is no assurance that any forward-looking events or targets will be achieved, and actual outcomes may be significantly different from those shown herein. The information in this report, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Information furnished by others, upon which all or portions of this report are based, are from sources believed to be reliable. However, NYDIG makes no representation as to the accuracy, adequacy or completeness of such information and has accepted the information without further verification. No warranty is given as to the accuracy, adequacy or completeness of such information. No responsibility is taken for changes in market conditions or laws or regulations and no obligation is assumed to revise this report to reflect changes, events or conditions that occur subsequent to the date hereof. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. Legal advice can only be provided by legal counsel. NYDIG shall have no liability to any third party in respect of this report or any actions taken or decisions made as a consequence of the information set forth herein. By accessing this report, the recipient acknowledges its understanding and acceptance of the foregoing terms.
