Market Overview:

Digital assets mounted a strong recovery after last week’s drop, with Bitcoin briefly touching the $30,000 mark.

• Bitcoin experienced steady growth throughout the week, trading above $27,000 from Sunday onwards (and above $28,000 from Monday onwards), after a weekly low of $26,700 on Friday
• On Monday, Bitcoin experienced a short-lived surge up to $30,000 following misreporting that a spot Bitcoin ETF had been approved, although those gains were rapidly pared back once it became clear that it was a case of fake news
• This brief stop at $30,000 was its first time hitting that mark since July, and included $81m of short liquidations on the way up, followed by $31m in long liquidations as Bitcoin retracted following news corrections
• Ether experienced more oscillations in price, rather than strictly following Bitcoin’s steady upward trajectory; it did however peak alongside Bitcoin during the ETF misreporting, hitting a weekly high of $1,624, following a Friday low of $1,540
• The majority of ETH trading took place in the $1,546 to $1,590 range
• Overall digital asset market capitalisation increased significantly to 1.11tn, as three-quarters of the top 100 assets by market capitalisation posted growth (or flat performance in the case of stablecoins) over the course of the week
• According to industry monitoring site DeFi Llama, total value locked in DeFi this week remained flat at $36.6bn

Digital assets returned to bullish behaviour, buoyed by positive developments in the spot Bitcoin ETF race, a ringing endorsement from the CEO of the world’s largest asset manager, another legal victory for Ripple, Ferrari accepting crypto as payment, increased adoption of scaling solutions, and much more besides.

What happened: BlackRock CEO Larry Fink dubs digital assets “a flight to quality”

How is this significant?

• In a FOX Business interview this week, the CEO of BlackRock—the world’s largest asset manager—declared that the recent rally in digital assets represented “a flight to quality”
• This statement by Larry Fink represents a complete reversal of his opinions several years ago; in 2017, he called Bitcoin an “index of money laundering”
• Since that time, the Federal Reserve has of course had a large impact on the US economy, through dramatic periods of both quantitative easing and quantitative tightening resulting in heightened inflation and macroeconomic uncertainty
• One particularly striking illustration of policy consequences was news this week that Bank of America has nearly $132bn in unrealised losses “on government-guaranteed securities”; showing that even the supposedly-safest investments can cause issues if government policy goes through drastic changes
• These policies—and the consequences thereof—have led many to reassess their opinions on digital assets, recognising fundamental benefits such as predictable supply issuance guaranteed in code (leading to Bitcoin’s “digital gold” moniker)
• Last week, Jefferies’ global head of equity strategy Christopher Wood suggested that the economic design of digital assets made them favourable in the face of the Fed; “G7 central banks, including most importantly the Fed, will not be able to exit from unconventional monetary policy in a benign manner… such failure is likely to culminate in the collapse of the #USD paper standard to the benefit of #gold bullion owners and owners of #Bitcoin”
• Wood outlined Bitcoin as a potentially “critical hedge against inflation”, and now Fink believes that geopolitical factors could further strengthen some of the fundamental value propositions of digital assets, such as borderless movement, leading to a further re-evaluation of their function in a portfolio
• In the interview, Fink was asked whether this week’s rally was due to rumours of a spot Bitcoin ETF approval, but declared that “Some of this rally is way beyond the rumour—I think the rally is about a flight to quality, with all the issues around the Israeli war now, global terrorism, and I think there are more people running into a flight to quality”
• Fink also revealed that BlackRock is experiencing rising global demand from institutional clients, saying “[the rally is] an example of the pent-up interest in crypto… We are hearing from clients around the world about the need for crypto”

What happened: ETF News

How is this significant?

• On Friday, the SEC confirmed they would not appeal against the recent court ruling in favour of Grayscale
• In said case, a federal judge ruled that the SEC had been “arbitrary and capricious” in their denial of Grayscale’s request to convert their GBTC fund into a spot Bitcoin ETF, opening the door for Grayscale to refile for conversion
• Grayscale confirmed on X (formerly Twitter) that they submitted the relevant forms for ETF conversion, and are “working collaboratively and expeditiously with the SEC on behalf of GBTC’s investors”
• Anticipation of a Grayscale ETF has resulted in the NAV discount on their GBTC fund narrowing to its lowest levels since mid-2021, but Bloomberg ETF analyst Eric Balchunas cautioned against expecting any approval for them ahead of other institutions waiting in line
• Balchunas (and Gary Gensler) also pointed out that the SEC is actively engaging with and providing feedback to applicants, the first time in 11 years of Bitcoin ETF filings it has done so
• Companies such as ARK, Fidelity, and BlackRock are updating and amending their filings based on the SEC’s comments, leading Bloomberg analysts to posit a 90% chance of ETF approval within the next 3 months—their current theory being that January 10th (the final decision deadline for ARK, first company to file) could result in multiple approvals if ARK’s proposed ETF is approved
• Potential demand for a spot Bitcoin product was demonstrated on Monday, when an erroneous tweet by an industry publication claimed BlackRock’s ETF had been approved; leading to a 10% rise within 15 minutes before the tweet in question was discredited
• Some analysts believe ETF approvals could open the floodgates for Bitcoin buyers; Matrixport released a report on Wednesday in they hypothesised that a BlackRock ETF could send Bitcoin into a price between $42,000 and $56,000
• This estimate is based on the assumption that “10-20% of those precious metals ETF investors seek to diversify their investments into Bitcoin”, which would translate into “potential inflows of $12-24 billion into the Bitcoin ETF”

What happened: Digital Euro development moves forward

How is this significant?

• The European Central Bank’s plans for a Digital Euro moved forward this week, announcing a two-year “preparation phase” to complete a rulebook and select technology providers to build the required infrastructure and platform
• ECB president Christine Lagarde stated “We envisage a digital euro as a digital form of cash that can be used for all digital payments, free of charge, and that meets the highest privacy standards”
• According to Atlantic Council data, 33 CBDCs globally are currently in the “development” phase, of which the digital Euro will cover by far the most different countries
• The ECB did state that the preparation phase itself “is not a decision on whether to issue a Digital Euro”, but noted benefits “including universal acceptance for payments across the 20-nation bloc and an absence of the volatility” as supporting factors in its favour
• If the ECB does decide to issue a Digital Euro, the continent probably shouldn’t hold its breath to see it any time soon; Bundesbank Joachim Nagel believes it will be “about five years” until Europeans would see it in use

What happened: Hong Kong-registered exchange considers sale at HK$1bn valuation

How is this significant?

• BC Technology Group, parent company of Hong Kong digital asset exchange OSL, revealed this week that it’s considering a sale of the exchange, based on a HK$1bn ($128m) valuation
• According to the sources revealing this info, the company may choose to just sell portions of the OSL business, rather than divesting itself of the exchange wholesale
• Currently, OSL operates across a variety of crypto services in Hong Kong, including brokerage, exchange, and custody
• OSL is currently one of two publicly-licenced crypto exchanges in Hong Kong, following revisions to the city’s regulatory regime in June this year
• However, BC Technology themselves released a statement saying that whilst they “don’t comment on market rumours and speculation”, reports of an impending sale were “factually inaccurate and highly misleading”
• Hong Kong’s move towards embracing crypto (and anticipation of the company’s role in the market has significantly narrowed BC Technology’s losses (from HK$300m in H1 2022 to HK$60m in H1 2023)
• BC Technology’s market value has more than doubled since lows in August last year, but the Hong Kong crypto market appears to have cooled off since an unlicenced exchange, JPEX, hit the headlines for defrauding investors

What happened: Ferrari accepts crypto as payment

How is this significant?

• Reuters reported over the weekend that luxury car manufacturer Ferrari is now accepting digital assets as payment for customers in the USA
• This is just the first market to accept crypto for cars, as a company spokesperson told Reuters that the company “will extend the scheme to Europe following requests from its wealthy customers”
• Ferrari CMO Enrico Galliera said the company’s decision to accept crypto now came as a result of widespread decarbonisation within the industry, removing a concern previously lobbied against the asset class
• “Our target to reach for carbon neutrality by 2030 along our whole value chain is absolutely confirmed” he said, reflecting the fact that Ethereum’s move to proof-of-stake consensus reduced network power consumption by 99.98%, leading the entire Ethereum blockchain to consume 1/8th the power of a single corporation like Airbnb
• Galliera said that the company would expand the crypto offering to Europe from Q1 next year, and was excited at the prospect of increasing their customer base; “This will help us connect to people who are not necessarily our clients but might afford a Ferrari”
• He added that the move was driven (if you’ll excuse the pun) by consumer demand; “Some are young investors who have built their fortunes around cryptocurrencies. Some others are more traditional investors, who want to diversify their portfolios… Prices will not change, no fees, no surcharges if you pay through cryptocurrencies”
• The crypto collected will however not be held on Ferrari’s balance sheet; in partnership with payment processor Bitpay, customers can pay with digital assets, but they will be instantly converted to fiat currency en route to arrival on Ferrari’s end

What happened: Fidelity tapped for crypto custody services by Bitcoin miners

How is this significant?

• Fidelity Digital Assets—the crypto arm of finance titans Fidelity—was recruited by leading Bitcoin miners Marathon Digital this week as a custodian for their Bitcoin holdings
• In a press release, Marathon stated that the decision was part of a “broader treasury management strategy”, adding a second enterprise-grade custodian, and acknowledging further plans to potentially “diversify its bitcoin custody across additional custodians in the future”
• Marathon and other publicly-traded mining firms have been key beneficiaries of Bitcoin’s strong year-to-date performance; Marathon shares have more than doubled since the turn of the year, acting as a stock market proxy of sorts for Bitcoin (whilst spot Bitcoin ETFs remain theoretical rather than practical)
• Speaking on the partnership with Fidelity, Marathon CFO Salman Khan stated “with 13,726 bitcoin on our balance sheet as of September 30, 2023 and our growing operations producing over 1,000 bitcoin per month, we believe it is an opportune time to diversify our Bitcoin custody… Our second custodian provides enterprise-grade digital asset solutions and is one of the most experienced institutions in the space”
• In other custody news, Nomura-backed crypto custodians Komainu joined Copper’s ClearLoop network this week, allowing for off-exchange settlement with custodied assets
• Since FTX’s collapse last year, many investors have become wary of the counterparty risk posed by leaving funds on exchanges, leading to growth for DEXes and off-exchange settlement
• Komainu CEO Nicolas Bertrand commented “Together with Copper, we are bringing tried and tested best practices and infrastructure from traditional markets to meet the growing demand of digital asset participants to diversify counterparty risk”

What happened: Tesla confirms continued holding of Bitcoin investment

How is this significant?

• Tesla maintained their Bitcoin holdings in Q3, according to their latest earnings report on Wednesday, maintaining the company’s position as one of the most prominent corporate holders of digital assets
• The electric car giant’s holdings of 9,720 Bitcoins place them third in corporate balance sheet exposure, following MicroStrategy (158,245 Bitcoins) and miners Marathon Digital (11,466 Bitcoins) according to tracking site Bitcointreasuries
• Interestingly, this places them just ahead of Coinbase, one of the most crypto-native publicly-listed companies in the world (9,480 Bitcoins on corporate balance sheet)
• Tesla’s digital asset holdings were valued at $184m at the end of September, and represent the 5th consecutive quarter of unchanged holdings
• Tesla initially bought Bitcoin for its balance sheet in February 2021, but liquidated around 75% at a loss during the deepest depths of crypto winter in 2022

What happened: Contagion latest

How is this significant?

• The fraud trial of Sam Bankman-Fried continued this week, featuring testimony from more former FTX executives from his inner circle, as well as forensic accountants
• The latter revealed that “Customer funds were used in various ways, including investments, political contributions, charity foundations and real estate purchases”
• Meanwhile, former FTX chief of engineering Nishad Singh echoed the general sentiments of former Alameda Research CEO Caroline Ellison insofar as they proclaimed discomfort with Bankman-Fried’s business morals, but nonetheless went along with them and took advantage of the perks of “ostentatious spending”
• Unlike “SBF” though, Singh and Ellison have already pled guilty to charges as part of deals with federal prosecutors; Bankman-Fried is currently awaiting the judge’s response to a request for more (ADHD medication) Adderall in order to potentially allow him to testify in court
• Singh helped to reveal the scope of Bankman-Fried’s attempts to secure influence; calendar invites included former presidents, present governors, mayors, and even the head of Saudi Arabia’s Public Investment Fund
• New York attorney general Letitia James announced legal action against crypto exchange Gemini, lenders Genesis, and Genesis parent company Digital Currency Group, claiming Gemini misled customers about the risks of its Gemini Earn program
• James claims that Gemini were overexposed to Alameda through a series of loans, and stated “My office will continue our efforts to stop deceptive cryptocurrency companies, and to push for stronger regulations to protect all investors”
• Gemini themselves are involved in action against Genesis, as Genesis illiquidity led to the suspension of the Earn program in a statement on X (formerly Twitter), Gemini supported James’ actions against Genesis, but said “we wholly disagree with the NY AG’s decision to also sue Gemini. Blaming a victim for being defrauded and lied to makes no sense and we look forward to defending ourselves against this inconsistent position”
• Resolutely anti-crypto US senator Elizabeth Warren took advantage of the war in the Middle East to try and argue for more restrictions on digital assets in the US, claiming it’s a risk for funding terrorism
• The Biden administration also moved to classify crypto asset “mixers” as a potential threat to national security
• However, Blockchain analytics firm Chainalysis responded to such claims stating that “terrorism financing is a very small portion of the already very small portion of cryptocurrency transaction volume that is illicit… Terrorist organisations have historically used and will likely continue to use traditional, fiat-based methods such as financial institutions, hawalas, and shell companies as their primary financing vehicles”
• Chainalysis added that “The unique transparency inherent in blockchain technology makes cryptocurrency particularly traceable and thus less suitable for illicit activities, including financing terrorism. Indeed, government agencies and private sector organisations armed with the right blockchain analysis solutions can collaborate to identify and disrupt the flow of funds—a feat not easily achievable with traditional forms of value transfer”

What happened: Bitcoin Lightning Network adoption increases

How is this significant?

• The Lightning Network—a Layer 2 (L2) scaling solution devised for Bitcoin—has enjoyed a resurgence in 2023, alongside the recovery of its underlying asset
• Lightning was first proposed way back in 2023, but due to its decentralised nature (and the ideological positions of some Bitcoin advocates), Bitcoin scaling has not attracted as much VC funding as scaling solutions and L2s on other blockchain networks
• Castle Island Ventures partner Nic Carter comments on the matter thus; “Historically, Bitcoin has not been the place where venture capitalists tend to be focused. The Bitcoin space is very ideological, and a lot of Bitcoiners have a negative view of venture capital”
• Bloomberg accounts for around $83.5m of funding raised by Lightning, compared with $450m in the latest funding round by Ethereum scaling project Polygon
• Despite these relative resource restrictions, Lightning usage has increased steadily over the last year, especially since integration by leading exchanges like Coinbase and Binance lowered the barrier to entry for Lightning transactions
• According to data from a new report by Bitcoin investment firm River, usage of the Lightning Network has “increased by more than 1200% in 2 years”, which they argue indicates a “shift away from Bitcoin being just a digital store of value to one that also acts as a medium of exchange”
• This equates to around 6.6 million transactions being routed through Lightning during August 2023, up from half a million two years prior

What happened: Coinbase picks Ireland as EU headquarters ahead of MiCA regulations

How is this significant?

• Leading digital asset exchange Coinbase revealed to CNBC this week that it has selected the Republic of Ireland as its European headquarters ahead of the region’s Markets in Crypto Assets (MiCA) regulations going live in December next year
• Having a universal MiCA licence in one EU member state will allow a business to “passport” its services to other EU nations
• Nana Murugesan, Coinbase’s vice president of international told CNBC “As soon as MiCA was passed into law, and even before that, we’ve been considering a number of member states. It was really important for us to choose a member state that is not only a sophisticated regulator with significant experience… but also recognises… the potential of this innovative new technology”
• Coinbase chief legal officer Paul Grewal praised the European Union’s approach, saying “MiCA, I think offers … a more substantial and serious approach to crypto regulation in that it isn’t caught up with the jurisdictional fights the turf battles that we have the United States over whether particular transactions or securities transactions or commodities transactions. Instead, the focus is on keeping consumers and investors safe”
• In other regional regulation news, Standard Chartered decided to settle on Dubai for their digital asset headquarters, citing greater regulatory clarity than the US
• Waqar Chaudry, executive director of innovation told industry publication Coindesk “it’s not regulation which is in transit, or can suddenly change, which we have seen in some significantly large jurisdictions… now we see the difference in maturity in markets where countries like the UAE, Japan, Singapore and Hong Kong are beginning to move faster”
• TechCrunch echoed these sentiments, noting industry growth across Asia
• In an interview conducted at Singapore’s recent Token 2049 conference (which featured 20,000 paid attendees), HashKey senior advisor Kevin Goldstein told TechCrunch “A large number of US-based crypto projects have opened offices, hired local talent and moved people to Asia over the past several years… many have accelerated their growth initiatives in APAC in the past year as a result of developments in the US”
• Korean crypto exchange Upbit received in-principle approval from Singapore’s monetary authority this week to provide digital payment token services in

What happened: Ripple scores further legal victory against SEC

How is this significant?

• Late on Thursday, news emerged that digital asset developers Ripple had scored their third peace of good news in legal battles against the SEC; following the initial judgement ruling programmatic sales didn’t constitute securities, and the subsequent judgement to deny the SEC’s proposed appeal on the matter
• The latest victory came in the form of the SEC asking a judge to dismiss their charges against individual Ripple executives Chris Larsen and Brad Garlinghouse, claiming it would meet with the crypto firm to discuss “what remedies are proper against Ripple”
• Some analysts theorise this move “allows the agency to appeal the parts of the case it lost sooner than if it went to trial against the individuals”
• Bloomberg Intelligence analyst Elliott Stein said the SEC likely “wanted to avoid bad facts coming out at trial of the individuals that could jeopardise the win the SEC got on direct institutional sales”
• Ripple meanwhile framed the news as a “stunning capitulation by the government”, and chief legal officer Stuart Alderoty tweeted “This is not a settlement. This is a surrender by the SEC”
• Brad Garlinghouse commented “Chris and I (in a case involving no claims of fraud or misrepresentations) were targeted by the SEC in a ruthless attempt to personally ruin us and the company so many have worked hard to build for over a decade. The SEC repeatedly kept its eye off the ball while secretly meeting with the likes of SBF—failing again and again to protect US consumers & businesses. How many millions of taxpayer $ were wasted?!”