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$1 trillion. For only the third time in its history, Bitcoin has surpassed this total market capitalization as North American investors woke up this morning. Achieving this feat overnight is particularly encouraging as the latest US inflation data released yesterday weighed on risk markets. The price of gold also saw a similar percentage decline. In short, Bitcoin is currently in a league of its own!
The circulating supply of Bitcoin has reached 19,627,443 BTC, which represents 93.46% of its total limited supply of 21 million units. This financial milestone reflects the growing optimism of investors, fueled by a sustained bullish market and the approval of Bitcoin ETFs on the US spot market. Bitcoin reached a market capitalization of one trillion dollars in November 2021, during a bullish run that propelled its price to an all-time high of $69,000, while the crypto ecosystem as a whole first recorded a combined market capitalization of $3 trillion. In short, we are now at heights not reached for more than two years.
Bitcoin ETFs have seen remarkable progress, crossing $3 billion in net flows just one month after their introduction, thus overshadowing the launch performance of gold ETFs 20 years ago. This progress includes even the Grayscale fund, despite its net withdrawals, where long-standing investors are pulling out funds, presumably in favor of competitive options. Excluding Grayscale, net inflows are close to $10 billion, with other Bitcoin ETFs accumulating more than $9.6 billion in inflows. This trend reflects a growing enthusiasm for Bitcoin, as highlighted by Eric Balchunas, ETF analyst at Bloomberg, who notes that Bitcoin ETFs captured in 32 days the same capital that took nearly two years for the GLD ETF to accumulate after its launch in 2004. GLD is often credited with triggering a multi-year bull market for gold, and similarly, the price of Bitcoin has climbed to a new two-year peak exceeding $50,000 since the creation of its ETFs, indicating an even larger wave of fund entries, with about half of these net inflows occurring in the last three days at a rate of about $450 million per day.
As Balcunas mentioned on Twitter yesterday:
The open interest in Bitcoin futures has surpassed $21 billion, reaching its highest level since November 2021, indicating a resurgence of interest in these financial products without signaling an excessive accumulation of leverage in the market. Although the notional value of open and perpetual futures contracts in dollars has crossed this threshold, the overall market leverage remains modest, suggesting low risks of price volatility induced by sudden liquidations. According to CoinGlass, the notional open interest, reflecting the dollar value locked in active Bitcoin futures contracts, has reached a 26-month peak, with open interest in perpetual and standard products exceeding $21 billion. This 22% increase since the beginning of the year approaches the record of $24 billion observed in mid-November 2021. This momentum, coupled with a notable increase in the price of Bitcoin over just over three weeks, mainly due to significant flows into the new spot ETFs in the US, indicates an influx of fresh money and confirms the bullish trend. However, the level of leverage in the market remains low, indicating a low risk of massive liquidations that could lead to a sharp price drop, despite a slight increase in the estimated leverage ratio of Bitcoin, signaling caution among investors regarding the accumulation of high-risk positions.
Grayscale anticipates that the Bitcoin halving in 2024 will differ from previous ones due to the influence of Bitcoin ETFs and ordinal inscriptions, redefining the market structure. In their report titled “2024 Halving: This Time It’s Actually Different,” Grayscale analysts highlight the contribution of a “new source of stable demand” through Bitcoin ETFs in the US, likely to offset the selling pressure from mining issuance. Although Bitcoin’s price has historically increased after each halving, the report warns against generalizing this effect to other cryptocurrencies with halving mechanisms, like Litecoin, which have not experienced a similar post-halving price appreciation. It also mentions miners preparing for the financial impact of the halving through fundraising and holdings sales, suggesting their good position before the event. Additionally, activity related to ordinal inscriptions and flows into Bitcoin ETFs are altering the market structure, with the former possibly playing a key role in incentivizing miners to secure the network as block rewards decrease. Bitcoin ETFs, having recorded $1.5 billion in net inflows shortly after their launch, could mitigate the selling pressure related to mining issuance, with sustained net inflows even potentially “mimicking the effects of another halving.” Recall that this new halving of Bitcoin block rewards is scheduled for next April.
The judgment of Changpeng Zhao, alias “CZ,” founder of the cryptocurrency exchange Binance, accused of money laundering, has been postponed to April 30 without an official explanation from the US federal court. Following a multi-year investigation, the US Department of Justice indicted Zhao in November, resulting in a $4.3 billion fine for Binance and the order to completely withdraw from the United States. After these charges, CZ stepped down as CEO to Richard Teng, former head of global regional markets at Binance, who is supposed to lead the company into a new phase of security, transparency, compliance, and growth. Despite his $175 million bail in Seattle, travel restrictions have been imposed on him, with federal judge Richard Jones considering CZ a flight risk. Although Zhao has already settled $50 million in fines, he faces up to 18 months in federal prison.
The Court of Appeals of Montenegro has annulled the decision that would have allowed the extradition to the United States of Do Kwon, former CEO of TerraForm Labs. This revocation follows a critical assessment of the initial decision made by the High Court of Podgorica in early December, deemed to have significant violations. Kwon’s lawyers had appealed this decision, allowing Kwon to stay in Montenegro while the Court of Appeals reviewed the case. The Court of Appeals criticized the original decision for its unintelligible wording and the lack of justification regarding the decisive facts, as well as for ignoring the order of arrival of extradition requests, with South Korea being the first to request Kwon’s extradition. Kwon, who has been staying in Montenegro since last year and was recently sentenced to four months in prison for using a fake passport, is at the center of a legal dilemma regarding his extradition to the United States or South Korea, due to fraud charges related to Terraform Labs.
The investment firm Franklin Templeton has taken a significant first step toward launching an Ethereum ETF (Exchange-Traded Fund) by submitting an S-1 registration statement for the Franklin Ethereum ETF on Monday, aiming for this fund to generally reflect the price of ether. This filing specifies that Coinbase Custody Trust Company and the Bank of New York Mellon will serve as custodians for the fund’s ether and cash holdings, respectively. Shares of this ETF would be listed and traded on the Cboe BZX Exchange, Inc. The goal of this fund is to provide a convenient way to invest in ether, equivalent to direct holding and trading of ether, but without the operational difficulties and burdens associated with
direct investment. Franklin Templeton also considers staking a key element of the fund’s investment strategy, offering the possibility for the fund to receive staking rewards in ether tokens, which could be considered income for the fund. This move follows those of other asset managers such as Ark Invest, 21Shares, Grayscale Investments, and BlackRock, who have all submitted applications for an Ethereum ETF in recent months. However, approval of such a product by the SEC remains uncertain, with decisions on other Ethereum ETF applications having been postponed.
For the first time, more than a quarter of the total supply of ether is now staked on the Ethereum network, marking a significant milestone almost a year after Ethereum’s Shapella upgrade. This increase brings the amount of ether in staking to over 30.1 million ETH, equivalent to about $73 billion. Including ether awaiting staking in the network’s queue, represented by 942,023 individual validator stakes, the quantity of ETH in staking now exceeds 25% of the total supply. This growth in ether staking accelerated following the Shapella upgrade in April 2023, which offered users and validators the ability to withdraw their staked ether from the network. Since this upgrade, a net flow of 10.25 million ETH has been staked. The availability of liquid staking solutions, such as Lido and Rocket Pool, has also facilitated this process, allowing the staking of amounts less than 32 ETH while unlocking the value of staked assets for use as collateral in decentralized finance (DeFi). However, staking rewards have significantly decreased, dropping from a peak of 8.6% post-Shapella to less than 4% currently, with increased participation in staking generally resulting in lower rewards per staker. This low return on investment in a high-interest rate overall market may partly explain the relative weakness of ETH in the cryptocurrency market currently.
Analysts at Alliance Bernstein predict a strong rise in Bitcoin’s price, potentially reaching new highs this year. This anticipation is based on speculation that the market has not yet fully integrated the expected inflows into these ETFs nor the impact of the upcoming Bitcoin halving, an event that halves miners’ rewards and is designed to control Bitcoin inflation. This combination of increased demand and supply reduction could trigger a rush of investors, motivated by the fear of missing out on potential gains. The analysts note that inflows into the new ETFs are mainly from individual investors, the “believers” in Bitcoin, who seek to incorporate this cryptocurrency into their brokerage portfolios. Although the interest of this group is still far from the levels of the 2017 and 2021 rallies, they suggest that an additional influx of funds from these investors is possible. At the same time, a group of “curious” investors is beginning to take a greater interest in Bitcoin. Given that inflows into the ETFs already far exceed the number of bitcoins created daily by miners, if this trend is creating the current bullish push, it’s hard not to be optimistic about a sudden halving of fresh token supply, especially with demand continuing to climb.
The presented information is as of February 14th, 2024, 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.
