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The last two weeks have been marked by a new bullish surge for Bitcoin. After approaching $45,000 per piece seven days ago, subsequent profit-taking still allows for a position well north of the $40,000 mark and above all significant moving averages on the daily chart. This all comes less than a month before an eagerly awaited decision on the acceptance of a Bitcoin ETF and less than five months before the next halving. In the short term, it’s the Federal Reserve’s decision on interest rates, and especially Jerome Powell’s comments today that will attract attention.
The United States Securities and Exchange Commission (SEC) is engaged in constructive discussions with Bitcoin spot ETF candidates, including Grayscale and BlackRock. Recent modifications to their S-1 filings indicate a more nuanced evaluation of these applications by the SEC, rather than outright rejection as in the past. BlackRock updated its filing to detail risks associated with the Fedwire and SWIFT payment systems, and clarified the circumstances under which share redemptions might be suspended. It’s also noted that, in the event of the ETF’s dissolution, investors would receive cash rather than Bitcoins.
Moreover, BlackRock and Bitwise have provided clarifications regarding the monitoring of intra-day prices via the CME CF Bitcoin Real Time Index, thus addressing SEC concerns about shareholders’ access to reliable price information. BlackRock also highlighted the role of Coinbase Custody as a custodian, with insurance of up to $320 million, while specifying that shareholder losses would not necessarily be covered by this policy. Bitwise, for its part, has simplified its approach by renaming its potential fund to “Bitwise Bitcoin ETF”. These developments suggest positive progress towards the potential approval of these Bitcoin ETFs.
Google is preparing to change its online advertising policy to allow the promotion of ‘cryptocurrency coin trust funds’, in response to the anticipated approval of Bitcoin ETFs by regulators. This change follows the anticipation of imminent approval of a Bitcoin spot ETF, a development that could open the world’s first cryptocurrency to billions of dollars of investment from the traditional financial sector. Google’s new policy, effective January 29, will allow verified advertisers to promote financial products related to cryptocurrency. Google’s decision suggests preparation to integrate crypto-based financial products as common elements of the global economy.
Currently, Google ads prohibit the promotion of cryptocurrency-related products, including DeFi protocols and initial coin offerings, but this update represents a significant relaxation of its stance. Spot Bitcoin ETFs, in particular, would offer traditional financial institutions exposure to Bitcoin without owning cryptocurrency. With BlackRock’s recent application for a Bitcoin ETF, and the rise in cryptocurrency prices fueled by ETF approval rumors, the crypto market could see a massive injection of capital, estimated at about 1 trillion dollars.
BlackRock aims to simplify the participation of Wall Street banks in its Bitcoin exchange-traded fund by transferring risks to cryptocurrency market makers. In a meeting at the end of November with the SEC, Nasdaq, and BlackRock discussed this proposal. A Bitcoin ETF would allow investors to be exposed to Bitcoin without buying or storing it directly. However, the SEC is hesitant to approve such a product, fearing market manipulations in Bitcoin.
BlackRock’s new method for ETF share redemption would involve cryptocurrency market makers sending money to the broker to initiate settlement before authorized participants, like major banks, get involved. This approach would offer ‘superior resistance to market manipulation’ and simplify the process for financial institutions, which often rely on third parties for digital asset custody. The SEC has not yet made a decision on BlackRock’s application but might do so between January 8 and 10.
Still on the theme of a spot ETF, BlackRock proposed a modification to its project, allowing authorized participants (APs) to create new shares in the fund using cash rather than cryptocurrency. This development paves the way for Wall Street banks, which cannot directly hold cryptocurrencies, to play a key role in this ETF. BlackRock’s recent decision allows APs, crucial elements of the ETF ecosystem, to create shares with cash, and not exclusively with cryptocurrencies. Thus, highly regulated banks like JPMorgan or Goldman Sachs, which cannot hold Bitcoin, could act as APs for BlackRock’s ETF. The money used by the APs in this process could be converted into Bitcoin by an intermediary and stored by the ETF’s custody provider, according to a memo related to a November 28 meeting with the SEC, BlackRock, and Nasdaq.
A federal judge in Seattle has ruled that Changpeng Zhao, the founder of Binance, must remain in the United States until his sentencing for criminal charges related to anti-money laundering legislation violations. Judge Richard Jones agreed to the federal prosecutors’ request to impose travel restrictions on Zhao, who possesses significant wealth abroad and has no ties to the United States. This decision reverses a previous authorization allowing Zhao to return to the United Arab Emirates before his February sentencing.
Zhao, a Chinese-Canadian entrepreneur, pleaded guilty last month for failing to maintain an effective anti-money laundering program. He faces a prison sentence of 10 to 18 months according to federal sentencing guidelines. Prosecutors argued that 45-year-old Zhao could easily flee and withstand the financial losses from his $175 million bail and an additional $5 million in collateral. The main argument is that the United Arab Emirates could protect Zhao from U.S. extradition attempts. Judge Jones’ decision extends an earlier order that would have allowed Zhao to return to the UAE. Zhao resigned as CEO last month following a $4.3 billion settlement agreement related to sanctions violations and money transmission. Personally, he faces up to 10 years in prison and $50 million in fines as per his own plea agreement with the Justice Department.
Meanwhile, Binance is striving to have a complaint filed against it by the U.S. Securities and Exchange Commission (SEC) dismissed, despite a previous $4.3 billion settlement with U.S. regulators. In a series of court filings, Binance and its founder Changpeng ‘CZ’ Zhao challenge the SEC’s interpretation of securities laws, which they describe as “novel and twisted,” and accuse the regulatory body of seeking to unduly extend its jurisdiction. Their main argument is that the SEC constructs its complaint on the notion that an “investment contract” need not involve either an investment or a contract. Binance maintains that no contract existed with a promoter to “invest money in a common venture” and adds that each transaction should be evaluated individually to determine the existence of an “investment contract.” Moreover, Binance’s U.S. subsidiary, BAM Trading Services, criticizes the SEC for seeking to regulate virtual commodities that fall outside its jurisdiction under current legislation. In a third filing, Binance and Zhao refute the SEC’s efforts to include their guilty plea in the Justice Department settlement in their own case. They argue that their admission of violating the Bank Secrecy Act does not prove that the crypto assets in question were securities under securities laws or the Exchange Act.
The Salvadoran government has launched a new visa program, named the “Freedom Visa,” aimed at wealthy individuals looking to settle in El Salvador, a Central American country. This program offers a passport and residency to foreigners in exchange for a $1 million investment in Bitcoin or Tether. This initiative is part of a project to build the “country of the future,” as highlighted on the government’s website. Salvadoran President Nayib Bukele announced this program in partnership with Tether, the issuer of the stablecoin USDT, on X, formerly known as Twitter. Tether expressed that this program would contribute to positioning El Salvador as a dynamic global center for cutting-edge technology and financial innovation. The visa plan aims to attract 1,000 applicants each year willing to donate $1 million in cryptocurrencies, which will be used for the country’s economic, cultural, and social development. In return, these investors will receive a passport and residency rights. It is important to note that since 2021, Bitcoin is a legal currency in El Salvador, with businesses required to accept it if they have the necessary technological means.
The recent correction in the cryptocurrency market could actually be a bear trap, indicating a healthy correction in a well-established bullish trend over recent months. According to data from Santiment, a cryptocurrency market intelligence company, Bitcoin outflows from exchanges are increasing. The BTC exchange flow balance is currently at -347, indicating that Bitcoin outflows exceed inflows, suggesting that investors are more inclined to hold their Bitcoin than sell it, a bullish sign.
This trend suggests that the recent drop to $40,000 could be a short-term correction, offering traders an opportunity to buy low before a resurgence in the upward trend. Technically, Bitcoin is trading above all major moving averages, which continue their upward trajectory. These chart indicators show strong support zones.
The Federal Reserve is expected to keep federal funds rates at 5.25%-5.5% following the Federal Open Market Committee (FOMC) meeting held on Wednesday, as inflation as measured by the Consumer Price Index (CPI) continued to decline in November. The slowdown in inflation is expected to prompt the Fed to pause its rate hikes on Wednesday for the third consecutive time. Meanwhile, investors will be watching Fed Chairman Jerome Powell’s press conference for signs of potential rate cuts next year. Hawkish remarks could weigh on markets, while hints of upcoming rate cuts could significantly fuel the rise of both stock and cryptocurrency markets.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of December 13th, 2023, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered.
