Bitcoin experienced a significant surge over the past week, surpassing $37,000 per coin, reaching an 18-month high, fueled by optimism about the potential approval of a Bitcoin exchange-traded fund (ETF). This rise marks a significant recovery after the collapse of the Terra project, which had triggered a crypto winter. The price retested the $35,000 level, but this area is now acting as a strong support, with prices bouncing back to $36,200.

Wall Street giant BlackRock has registered an iShares Ethereum fund in Delaware, which could be a precursor to an Ethereum ETF application. This registration doesn’t mean BlackRock has filed an application with the SEC for an Ethereum ETF, but it’s notable that the company took a similar step a week before applying for a Bitcoin ETF. BlackRock, managing $8.5 trillion in assets, declined to comment on the registration. Many companies choose Delaware for its business-friendly environment, including tax benefits and legal protections. The interest in an Ethereum ETF is growing, with companies like Grayscale looking to convert their existing funds into ETFs. In October, the first Ethereum futures funds began trading on the Chicago Board Options Exchange (CBOE), with nine funds listed by various investment firms.

The U.S. SEC could approve the 12 pending Bitcoin ETF applications by November 17, but January 10 still appears to be the most plausible date to many analysts. However, even if approved, the launch of these products could take more than a month due to the two-step process required to launch an ETF.

The optimism for the approval of a Bitcoin ETF has helped reduce the discount of the Grayscale Bitcoin Trust (GBTC) to 10.35% below its net asset value, reaching its lowest level since July 2021. GBTC allows investors to trade shares in trusts holding Bitcoin, but since February 2021, it has been trading at a discount to the actual price of Bitcoin. Grayscale wishes to convert this trust into an ETF, but so far, the SEC has rejected all applications for a spot Bitcoin ETF. However, in October 2023, an appeals court ordered the SEC to review Grayscale’s application. BlackRock’s entry into the market has also fueled optimism for the approval of a spot Bitcoin ETF.

Is the excitement towards such a financial product justified? The approval of the first U.S. spot Bitcoin ETF would be a major event for Bitcoin. This ETF could attract billions of dollars and increase the price of Bitcoin, but predicting the extent of this impact remains uncertain. The example of gold ETFs shows that such an innovation can triple the price of the underlying asset, as the price of gold did following the introduction of gold ETFs. However, Bitcoin differs from gold in several ways. The majority of Bitcoin holders are investors or speculators, likely to sell as the price increases. Unlike gold, which was primarily held in the form of jewelry before ETFs and thus less traded. Therefore, the impact of spot Bitcoin ETFs could be more volatile. Nevertheless, considering the impact of the first gold ETF in November 2004 and the subsequent price action – especially when Bitcoin is termed digital gold – one can be optimistic about the forthcoming price action should it be accepted:

Blockchain.com announced raising $110 million in a new Series E funding round, led by Kingsway Capital with participation from major firms such as Baillie Gifford, Lakestar, LSVP, and Coinbase Ventures. Founded in 2011 as a blockchain exploration tool, Blockchain.com has evolved to become a major player in cryptocurrency wallets, managing over $1 trillion in transactions and serving more than 90 million wallets. Despite a bear market, the company has seen its revenues increase by 1,500% in four years. This fundraising comes in a context of increased regulatory scrutiny of cryptocurrencies. Manny Stotz from Kingsway Capital and Nicolas Brand from Lakestar will join Blockchain.com’s board of directors.

JPMorgan has added a programmable payments feature to its blockchain-based payment system, JPM Coin. This feature allows businesses to automate fund transfers based on preprogrammed conditions, thereby facilitating the payment of financial obligations such as late payments or margin calls. According to Naveen Mallela, Head of Coin Systems at Onyx, JPMorgan’s blockchain division, this capability is considered the ‘Holy Grail’ of digital currencies and tokenized deposits. Siemens AG, a German multinational, has already used this technology to set up its accounts to automatically transfer funds to cover potential shortfalls.

Cboe Digital announced its plan to launch margin futures contracts for Bitcoin and Ethereum in January. This will be the first platform to offer both spot exchanges and leveraged derivatives. Margin futures contracts require an initial deposit and the maintenance of a minimum margin balance. The digital assets branch of the Chicago Board Options Exchange (CBOE) already offers crypto futures contracts, but this new offering will allow traders to use leverage for potentially greater returns. Several trading companies will provide the necessary liquidity for the launch.

The Bitcoin options market has surpassed the futures market, indicating a growing maturity of the market and the arrival of more sophisticated traders. Open interest in BTC options has reached $17.5 billion, surpassing the $15.84 billion of the futures market. This evolution reflects a growing preference for options as strategic positioning and hedging tools. Unlike spot and futures markets, options allow speculating not only on the direction of Bitcoin’s price but also on other factors like volatility and time.
Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of November 15th, 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.