Market Overview:

Digital assets achieved one of their best trading weeks in memory, posting double-digit gains as Bitcoin boomed on renewed ETF optimism.

• Bitcoin saw one of its best trading weeks ever as market expectations around spot ETF approvals continued to build
• At one point in the week, the leading digital asset sat at 22% growth in a seven day period, before pulling back to current levels closer to 16%
• Bitcoin hit a new yearly high of $35,150 on Tuesday; its highest levels since May 2022, before the collapse of the Terra LUNA blockchain ecosystem kicked off last year’s crypto contagion crisis
• When Bitcoin breached the $31,000 mark earlier in the week, it was the first time since June 2022
• Bitcoin grew from a weekly low of $29,290 on Friday to a high of $34,150 on Tuesday, marked by a rapid rise on Tuesday as news emerged around BlackRock’s ETF details appearing on the DTCC website
• Ether followed Bitcoin’s lead, growing from a Saturday low of $1,595 to a weekly high of $1,851 on Thursday
• Overall digital asset market capitalisation surged by $150bn to $1.26n
• At the time of writing, only one non-stablecoin project in the top 100 digital assets by market capitalisation failed to register a weekly increase, with more than 70% achieving double-digit growth
• Some industry observers urged caution around this rapid growth, noting that the crypto industry fear/greed index hit 71/100 (its highest level since 2021), denoting “greed” in the market
• According to industry monitoring site DeFi Llama, total value locked in DeFi this week grew by $4.5bn to $41bn, boosted by price appreciation of Ether

Digital assets built on last week’s growth, but accelerated to post one of the most positive performances in memory, bringing Bitcoin’s year-to-date return above the 100% mark. A lot of this bullishness was driven by further ETF expectations, but there were many significant signs of adoption beyond that—Mastercard increased their exposure to the industry, Walmart launched a Web3 accelerator program, Sumitomo, Standard Chartered, Deutsche, and JP Morgan all featured, America’s top clearinghouse acquired a tokenisation firm, and NFTs found a new utility in aiding law enforcement efforts

What happened: Bitcoin achieves 2023 “doubling” before next year’s “halving”

How is this significant?

• For many industry analysts and followers, one of the most significant crypto events in the next twelve months is the quadrennial Bitcoin “halving”—but this week the leading digital asset achieved a “doubling” instead, as its year-to-date growth crossed the 100% mark
• After opening the year at $16,550, Bitcoin hit a weekly high of $35,150 on Tuesday; a 112% year-to-date increase
• Meanwhile, the YTD performance of the S&P500 stands at 9.17% and gold—mentioned alongside crypto as a “flight to quality” asset by BlackRock CEO Larry Fink last week—stands at 9.65%
• The weekly price performance of Bitcoin trumps both the above asset classes, achieving well in excess of 20% during the week, pulling back to 19.5% at the time of writing
• As a corollary, crypto-based stocks have also surged in YTD performance, acting as proxies for digital asset exposure to more traditional investors; Coinbase, MicroStrategy, and Bitcoins miners Marathon Digital and Riot all gained around 10% the day Bitcoin moved to $35,000
• Needham analyst John Todaro wrote “We believe the crypto sector is coming upon an inflection point that will lead, in any of our scenarios, to increasing volatility in crypto-linked stocks”
• A major factor in Bitcoin’s weekly appreciation appears to be sustained and increased enthusiasm for spot Bitcoin ETFs; yet to be approved, but increasingly expected
• Market anticipation was spiked when news emerged that BlackRock’s proposed ETF (ticker: IBTC) was added to clearing house DTCC’s eligibility file, sparking fresh speculation that an approval and launch could be imminent
• Major figures from both US financial regulators spoke out in favour of such investment products; CFTC commissioner Summer Mersinger said that “the market is ready” for such products and that “interest in digital assets… is here to stay”, whilst SEC commissioner Hester Peirce declared herself “mystified” that her agency hasn’t approved any yet, questioning their logic in a CNBC interview
• These statements follow on from previous political pressure by a bipartisan congressional collective urging Gary Gensler to finally approve a spot Bitcoin ETF
• Digital asset derivatives trader Gordon Grant told industry publication TheBlock about why traders are so enthused about a potential spot ETF, likening its possible impact to gold ETFs; “trading volumes across a variety of gold instruments, ranging from the ETFs themselves to underline spot to futures and options, both OTC and listed, along with correlative proxies, increased by orders of magnitude… Traders may not have a view on bitcoin, they may be indifferent to it, but they will have a view on efficient portfolio theory and the implications of the inclusion of a physical bitcoin ETF to their holdings and/or investment strategy”
• Alex Thorn, Galaxy Digital’s firmwide head of research, posited his own predictions on a spot product’s potential; “An ETF could see a minimum of $14.4 billion of inflows in year one, ramping to $38.6 billion inflows in year three. At those levels, BTC/USD could see 75% appreciation the year following approvals”
• On Monday, courts formalised Grayscale’s victory against the SEC in its quest to convert the existing GBTC fund into a spot ETF
• In a report on Wednesday, JP Morgan analysts led by Nikolaos Panigirtzoglou believe that Grayscale’s victory set a precedent which makes it more difficult for the SEC to reject future applications; “Any rejection could trigger lawsuits against SEC creating more legal troubles for the agency…We believe that a new legal battle on the issue of spot Bitcoin ETF approval is not something that the SEC would be willing to face again”
• JP Morgan also believes that the current Bitcoin rally is driven by institutional demand; “It looks like this latest flow impulse had institutional participation… Our futures position proxy based on CME bitcoin futures, which tends to be used mostly by institutional investors, has spiked over the past week rising not only to the highest level for this year but also to levels last seen in August 2022 before the FTX collapse”
• IG Australia market analyst Tony Sycamore foresees even more institutional interest if an ETF gets approved; “The drums seem to be beating louder that a Bitcoin ETF will be approved by year-end, which would be supportive for the token in the medium term as it will likely bring more institutional players into the space”
• Bloomberg Intelligence analysts Elliott Stein and James Seyffart remain optimistic, saying “approval of a spot Bitcoin ETF looks inevitable”
• However, some pushed back against this wave of optimism; former SEC attorney Thomas Gorman told Bloomberg that approval is “not a given”, Bitcoin entered “overbought” RSI territory for the first time since 2021, and Hayden Hughes of social trading platform Alpha Impact cautioned “Markets have priced in a Bitcoin spot ETF approval and I expect a sell-the-news event if it’s approved”
• SEC chair Gary Gensler commented on Thursday that the commission currently has “eight to ten” spot Bitcoin ETF applications under review, but remained tight-lipped; “They’ll come potentially to the five-member commission. I’m not going to prejudge them but I don’t have anything on timing. They all have various different filing dates”
• However, other factors have also been cited for Bitcoin’s rise; last week BlackRock CEO Larry Fink identified digital assets as a “flight to quality” during global uncertainty caused by conflicts, and strategist Matthew J. Maley of Miller Tabak & Co. concurred, saying “I think investors are thinking that the increase in geopolitical hotspots in the world is raising the odds crypto will be an important currency quicker than they thought previously”
• Another of the presumed catalysts for the latest bullish momentum is of course the aforementioned Bitcoin “halving”, less than 6 months out on current countdowns
• This event, which takes place every 210,000 blocks (roughly 4 years in human time), cuts block rewards in half for Bitcoin miners; meaning reduced issuance and thus lower supply of “new” Bitcoins entering the market

What happened: Mastercard deepens involvement in digital asset space

How is this significant?

• Mastercard increased their digital asset adoption on several fronts this week,via a variety of partnerships and proposals
• The payments giant partnered with crypto app MoonPay in a bid to increase its Web3 presence, allowing the latter to integrate Mastercard payment technology whilst also using the former’s Crypto Credential service, “ensuring transactions are trusted and compliant with regulations” helping “to drive even more trust, compliance, and efficiency across the industry”
• This builds on a previous partnership from last year, in which MoonPay helped Mastercard enable NFT purchases by cardholders
• Additionally, a report seen by industry publication Coindesk revealed that Mastercard is collaborating with crypto self-custody solutions, such as browser plugin Metamask and hardware wallet manufacturer Ledger
• Mastercard frames this as a means for the self-custody solutions to attract new users, saying in a workshop deck that they are also exploring “new models for global issuance using stablecoin on chain settlement” and “inexpensive fast chains”
• When contacted for comment by Coindesk, a Mastercard spokesperson stated “Mastercard is bringing its trusted and transparent approach to the digital assets space through a range of innovative products and solutions – including the Mastercard Multi-Token Network, Crypto Credential, CBDC Partner Program, and new card programs that connect Web2 and Web3”

What happened: Vodafone and Sumitomo work with blockchain oracle project Chainlink

How is this significant?

• Vodafone and Japanese financial giant Sumitomo successfully completed a proof of concept powered by digital asset project Chainlink this week, demonstrating blockchain’s use “to address longstanding challenges in the $32 trillion global trade ecosystem”
• In the proof of concept, Vodafone’s Digital Asset Broker (DAB) and Sumitomo “focused on the seamless exchange of crucial trade documents across diverse platforms and blockchains”
• Using Chainlink’s cross-chain interoperability protocol (CCIP), the firms were able to communicate and transact across a mix of private and public blockchains, illustrating increased efficiencies in cargo trading “by seamlessly transferring a digital bill of lading (a legal receipt of cargo) between multiple parties across several different blockchains”
• Jorge Bento, CEO of Vodafone DAB commented “Vodafone DAB and Chainlink are showing how their platforms can be combined to cut through this sea of incompatibility by bridging traditional markets with advanced decentralised platforms”
• He added that “This ensures seamless and secure exchanges of data and services across the global trade ecosystem, estimated to be worth over $30 trillion last year”, and gave an example of a vessel detecting a cargo fire via IoT networks, which automatically triggers an insurance payout via blockchain smart contracts
• As an oracle operator, Chainlink ensures that when blockchain smart contracts are triggered by specific conditions or real-world events, accurate data is entered into the blockchain to ensure no fraudulent activations
• Vodafone DAB also joined Chainlink’s network as a node operator, with Vodafone’s David Palmer noting “The integration of IoT and blockchains has the potential to provide new monetisation opportunities for IoT devices. 3 billion IoT devices are forecast to be transacting in the economy of things by 2030. Securing consensus and validation between DAB and Chainlink will be important to drive this growth”

What happened: Deutsche Bank and Standard Chartered complete UDPN stablecoin transfer

How is this significant?

• Banking giants Standard Chartered and Deutsche Bank this week completed the first Universal Digital Payments Network (UDPN) proof-of-concept transaction, via an exchange between USDC and EURS stablecoins on UDPN infrastructure
• First revealed at Davos in January, UDPN is intended as a competitor to SWIFT, acting as a “messaging backbone that provides interoperability between the fast-growing number of regulated stablecoins and CBDCs to enable seamless connectivity between any business IT system and regulated digital currencies”
• As a transaction involving stablecoins pegged to two different currencies (US Dollar and Euro), this pilot helped to illustrate the cross-border appeal of digital assets
• In a press release, UDPN said this was the first of 12 separate proofs-of-concept with multiple global banks, and was “executed over a period of several weeks to display how UDPN solves the challenge of interoperability in cross-border payments. Learnings around Central Bank Digital Currency (CBDC), digital assets, key custody, compliance, and other related subjects were discussed and documented over the course of the PoC”
• According to UDPN’s Steven Schacher, the company is currently collaborating with 25 separate organisations across USA, Australia, Latin America and Europe
• He explains “The way to envision it is each currency needs a transaction of its own, so to speak. This could be central banks in the future, owning transactions and operating CBDCs, or other financial institutions, or any other organisation that is handling digital currencies, bringing it all into a regulated environment”

What happened: Singapore courts use NFTs to fight crime

How is this significant?

• The Singapore legal system established a novel use for NFTs (non-fungible tokens this week), illustrating that their utility goes far beyond the digital art craze that dominated conversation during their 2021 mania
• In this case, Singapore’s High Court approved financial forensics firm iSanctuary to send soulbound NFTs to specific blockchain addresses suspected of links to criminal activity
• Reports in Singapore’s Straits Times newspaper revealed that wallets suspected of involvement in a $3m hack were sent “soulbound” NFTs of tokenised worldwide freeze orders created by local NFT developers Mintology
• A soulbound NFT is one permanently anchored to a blockchain address; its code prevents it from being transferred
• iSanctuary said the NFTs assist in tracking funds leaving the wallets in question, whilst also serving “as a warning to counterparties and exchanges that the wallets were involved in a hack”
• iSanctuary founder Jonathan Benton commented on the exponential increase in enforcement efficiency this technology could provide; “This is a game changer; it can happen in hours if needed. We can serve on wallets and start to police the blockchain, identify those holding illicit assets, serve civil or criminal orders, even red flags”

What happened: FTSE Russell launches new digital asset indices with Grayscale

How is this significant?

• Digital asset investment firm Grayscale and FTSE Russell (the index division of London Stock Exchange Group) announced a partnership this week, working together to create a new Crypto Index business
• According to a press release, the FTSE Grayscale Crypto Sector Index Series will create “a comprehensive set of five distinct, rules-based indices capturing the investable crypto market of Grayscale Crypto Sectors”
• Grayscale CEO Michael Sonnenschein commented “Investors have increasingly expressed interest in diversifying beyond crypto’s largest assets, Bitcoin and Ethereum, and many look to Grayscale to better understand this robust, evolving asset class… Together, our brands will bring the rigour of traditional finance to crypto”
• FTSE Russell CEO Fiona Bassett added “Trust in financial markets is earned through transparency and governance. With our shared expertise, we have created a sector defining approach to capture innovation that will enable improved decision-making in this growing asset class. This fundamental construct offers critical insight to help investors make decisions with clarity and conviction”
• The five new indices cover over 150 protocols across a broad variety of usecases, ranging from currency/medium of exchange to smart contract platforms, utility tokens, and consumer/culture
• This adds a greater footprint for digital assets within FTSE Russell’s $20tn of asset benchmarking

What happened: Walmart launches Web3 accelerator program

How is this significant?

• American retail titan Walmart (together with partners Outlier Ventures) announced a new Web3 accelerator program, launching with an inaugural class of five startups
• Called Store Nº8 Base Camp, the 12-week virtual incubator features digital asset firms across a variety of industries (ranging from marketing/advertising to cross-border payments technology) and countries (US, Italy, Poland, and UK)
• Thomas Kang, VP and GM at Walmart, commented that “At Walmart, we see the growth and expansion of increasingly immersive virtual worlds as not only a chance to develop new ways to meet and engage with our customers, but also an opportunity to experiment with a new type of commerce”
• The incubator program focuses on “decentralising commerce”, i.e. improving e-commerce experiences via the implementation of Web3 solutions
• Outlier Ventures CPO Benjamin Meyer told TechCrunch “We believe that decentralised commerce offers a significant opportunity to break down commerce into its fundamental elements… This shift aims to enhance efficiency, trust, equity and overall user experience for both retailers and consumers globally”
• The program includes $200,000 stipends for every selected team, alongside consultation services from KPMG and access to Walmart’s existing accelerator networks

What happened: Contagion latest

How is this significant?

• Sam Bankman-Fried and FTX again dominated reporting this week, with particular attention afforded to the ex-CEO’s decision to testify in court
• However, Bankman-Fried’s initial testimony on Thursday took place without jurors, as judge Lewis Kaplan sought to determine whether it could be shared with a jury, commenting “I haven’t had a hearing of this nature in a long time, if ever”
• Bankman-Fried’s decision to testify was classified as a “Hail Mary” by some observers, and the crux of his arguments appeared to rest on the assertion that he was following lawyers’ advice and sign-offs in the actions and loans he undertook, thus believing them legal
• Earlier in the week, further details around Bankman-Fried’s lavish spending and attempts to court influence emerged, including private dinners alongside the likes of Jeff Bezos, Michael Kives, Hilary Clinton, and Leonardo DiCaprio
• Meanwhile, the current custodians of FTX revealed they are in talks with three different bidders to restart the exchange
• Lawyer Kevin M. Cofsky stated in a bankruptcy court hearing that “We are engaging with multiple parties every day”; and that options include a wholesale takeover, a partnership, or even a self-reboot
• Digital asset lender BlockFi announced it had emerged from bankruptcy, less than a year after initially filing
• In a statement on the matter, the company wrote that it can now seek assets owed by other contagion-afflicted entities like FTX and 3AC, and will “continue the claims reconciliation process to ensure that client claims are accurately reflected in both asset class and amount and that clients receive fair and equitable distributions of remaining and recovered assets”
• Blockchain interoperability developers Parity announced it’s cutting its workforce by 30%, claiming an increased focus on technology development, and less activity around go-to-market activities for its Polkadot protocol
• According to data compiled by analytics firm Kaiko, this year has seen record levels of token delistings on exchanges; at least 3,445 tokens or trading pairs have been or will be delisted; a 15% increase on 2022, and double the amount as in 2021’s bull market
• Coinbase and Binance delisted 100 trading pairs between them this month, with a combination of regulatory and liquidity issues cited
• Analyst Jacob Joseph of CCdata points out that consolidation of trading pairs could be motivated by quality control; “Eliminating fragmented liquidity offers a better trading experience to users by reducing the spread and slippage costs”
• Digital Currency Group—parent company of Grayscale, Coindesk, and beleaguered lender Genesis, amongst others—announced a big boost to their Q3 revenues in an investor letter this week, buoyed by Bitcoin’s boom this year
• EBITDA came in at $69m, marking a 23% increase versus Q3 2022, allowing the company to repay $225m of debt to its Genesis unit, whilst group CEO Barry Silbert said he was “confident” of their ability to fully repay said loan

What happened: Coinbase releases new report on US crypto attitudes

How is this significant?

• Leading US digital asset exchange Coinbase released a new “State of Crypto” report on Thursday, revealing a wide range of facts, attitudes, and insights around the industry
• In the report, Coinbase revealed that only 9% of Americans are satisfied with the country’s financial system, and only 22% believe it superior to that of other countries
• Digital assets hold particular appeal for Millennials and younger generations; they believe the current financial system to be outdated (29%), confusing (28%), and exclusionary (29%), reflecting the frustrations of a generation who entered a workforce of stagnating wages and rising property prices, compounded by inflation
• Of respondents aged below 40, nearly a third said they currently own digital assets, and over half said they would support crypto-friendly candidates in future election cycles, clashing with the hostile regulatory approach thus far in the US
• Additionally, the report revealed the growing scale of corporate blockchain adoption; 80% of the Fortune 100 top 20 have adopted blockchain, including both enterprise blockchain solutions, and Web3/crypto asset projects and integrations
• In other Coinbase news, lawyers urged New York courts to throw out the case against them, arguing that the SEC overstepped their bounds in bringing the case as their interpretation of investment contracts is too broad

What happened: DTCC clearinghouse acquires tokenisation firm

How is this significant?

• US clearinghouse Depository Trust and Clearing Corp. (DTCC) became the latest major institution to enter the tokenisation space this week, acquiring real-world assets (RWA) tokenisation firm Securrency for a reported $50m
• In a press release, Securrency announced they would rebrand as DTCC Digital Assets, acting as a fully-owned subsidiary
• Securrency CEO Nadine Chakar commented that “We are excited to bring together DTCC’s infrastructure capabilities with Securrency’s technology to embrace a future where the digitization of capital markets is at the forefront of innovation. These capabilities will allow DTCC to partner with the industry to build a resilient and scalable infrastructure critical to the mass adoption of digital assets”
• The acquisition will enable DTCC to tokenise a variety of securities such as ETFs, according to CEO Frank La Salla
• He outlined numerous benefits of tokenisation, stating “We believe this next generation of financial market infrastructure will further reduce settlement times, facilitate market transparency and risk management, enhance regulatory oversight and controls, and unlock efficiency and innovation to create an improved investor experience”
• As the clearing house of US stock markets, DTCC processed a massive $2,500tn of securities transactions last year; tokenised assets as a market have been forecast to hit a potential $10tn in value by 2030

What happened: JP Morgan handles $1bn in daily transactions via in-house digital coin

How is this significant?

• On Thursday, JP Morgan revealed that its in-house digital asset, JPM Coin, is currently transacting over $1bn in value a day by wholesale clients
• The bank’s Global Head of Payments Takis Georgakopoulos told Bloomberg that they plan to increase the currency denomination options beyond the current dollar and Euro offerings; “JPM Coin gets transacted on a daily basis mostly in US dollars, but we again intend to continue to expand that”
• He identified three major inefficiencies in current systems which JPM Coin helps to address; speed, separate movement of money and information, and fungibility of money vs non-fungibility of activities
• Georgakopoulos said “what we do with JPM Coin is the institutional side of that solution… working in a permissioned environment with companies that are trusted and trust each other, so that they can move money within their ecosystem 24/7”
• These payments are conducted across JP Morgan’s proprietary, permissioned (and private) blockchain infrastructure, rather than on a public blockchain like Ethereum
• In the interview, Georgakopoulos also outlined digital deposit tokens as a means of increasing cross-border transactional efficiencies
• Though currently limited to wholesale clients he said the “next step in that journey is to think about how you can create a more retail version of that, so that you can bring that same efficiency to consumers”