Market Overview:

Digital assets grew once more, as Bitcoin reached its highest levels in over a year and a half.

• Bitcoin hit another yearly high this week, reaching $38,810 early on Friday for its highest value since April 2022
• Bitcoin predominantly traded between $37,380 and $37,970 throughout the week, excepting a dip on Monday which brought it to a low of $36,800
• Coinglass data showed that recent Bitcoin price appreciation led to $73m of short liquidations in a 24 hour period
• Analysts cited numerous factors behind Bitcoin’s strong performance this week, including optimism around spot ETFs, and expectation of rate hikes being paused
• Ether’s chart followed Bitcoin’s, with a Friday zenith of $2,127 followed by a Monday nadir of $1,993
• Overall digital asset market capitalisation increased to $1.44tn
• Digital asset investment products experienced a 9th consecutive week of inflows, worth $346m—the largest single week since the 2021 bull market
• This pushed total year-to-date inflows above $1.5bn
• The crypto industry fear/greed index dropped slightly to 70/100; denoting “greed” in the market, albeit at more measured levels than the last month
• According to industry monitoring site DeFi Llama, total value locked in DeFi this week remained stable at $47.2bn

Digital assets built on last week’s growth, as continued optimism around potential spot ETFs drove investor activity. Crypto assets continued to demonstrate their borderless appeal; Japanese financial giant SBI teamed up with US stablecoin issuers Circle, a UK custodian set up shop in the UAE, Standard Chartered joined digital Yuan trials, a Swiss asset manager became the latest to file for a spot Bitcoin ETF, and much more.

What happened: SBI strikes deal to bolster stablecoin adoption in Japan

How is this significant?

• This week Japanese financial conglomerate SBI Holdings entered into a memorandum of understanding with USDC stablecoin issuers Circle to introduce and circulate the USDC token in Japan
• SBI will assist Circle in numerous aspects of entering the insular Japanese market, including establishing banking relationships through SBI Shinsei Bank, and promoting Circle’s Web3 services, according to local newspaper The Japan Times
• Circle co-founder Jeremy Allaire identified the partnership as a “significant milestone in Circle’s expansion plans in Japan and Asia-Pacific”, whilst SBI Holdings CEO Yoshitaka Kitao, said the nation was “steadily preparing the groundwork for the full-scale introduction of stablecoins”
• In June, Japan became one of the first major economies to establish specific legal frameworks for stablecoins, which authorises “banks, trust companies and funds transfer operators… to issue stablecoins”, with existing stablecoin operators required to register with the government
• According to a press release by Circle, “as of 17 November 2023, there has been over $12.7 trillion of on-chain USDC transactions”

What happened: Bitcoin futures ETFs see record volume and AUM

How is this significant?

• Interest in existing Bitcoin futures products surged over the last month, seemingly driven by enthusiasm and anticipation around potential spot ETFs from the likes of BlackRock and Fidelity
• Open interest hit an all-time high at the CME group, eclipsing volume at crypto native exchange (and former market leader) Binance
• However, it should be noted that some speculate increased interest in futures ETFs may include traders going short in anticipation of the current spot ETF filings being rejected by the SEC
• Giovanni Vicioso, global head of cryptocurrency products at CME told Bloomberg “I think it’s uncertain what’s going to happen, market participants need proper tools to hedge against that risk”
• He also revealed that CME futures trading increased 35% from September to October, and a further 13% from October to November, including a new record of large (25 contracts+) open interest holders; “That’s a clear indication that institutions are moving into this space”
• Additionally, assets under management in ProShares BITO—the world’s largest spot Bitcoin ETF—reached record levels this week, eclipsing their 2021 high
• With $1.47bn AUM, the CME-listed ETF now boasts an average $160m of daily trading volume (placing it within the top 5% of ETFs), and has achieved 99% year-to-date returns in both market price and net asset value
• ProShares’ global investment strategist Simeon Hyman commented “Investor demand for BITO remains strong, as shown by the ETF reaching a new high in assets under management. We believe this speaks to the demand for a familiar, accessible and regulated way to target the returns of Bitcoin”
• Futures ETFs, relying on spot price, currently act as the closest (regulated) means of Bitcoin exposure for many investors—although the potential inflows of any spot ETFs (if approved) are of course uncertain, some analysts (such as those at Galaxy Digital) believe they could see inflows of up to $39bn by its third year, whilst analytics firm Glassnode believes in a rather more optimistic $70bn based on historical precedent of gold ETFs

What happened: Coinbase stock triples in 2023

How is this significant?

• COIN—the stock of Coinbase, which can be viewed as a proxy for digital asset exposure—managed to cross the 200% year-to-date return threshold this week
• This month alone, the shares have rallied by 62%, following broadly in line with Bitcoin hitting several new yearly (and post-industry contagion) highs
• These figures left COIN outperforming strongly even in a broadly buoyant stock market, adding around $12bn to company market value
• Some analysts have said this indicates the firm has been strengthened by enduring 2022’s brutal crypto winter; Needham & Co’s John Totaro wrote “Coinbase is in a better position today than really any other point as a public company… Those who survived [2022 and 2023] are going to come out of that stronger. And Coinbase is one that survived”
• Coinbase may well be a beneficiary of the recent tribulations facing its rival exchanges like Kraken and Binance; when the latter agreed to a $4.3bn settlement with the DoJ last week, Coinbase CEO Brian Armstrong commented that it provided an opportunity for the industry to “turn the page” and move towards more heavily regulated exchanges like Coinbase
• Oppenheimer & Co. analyst Owen Lau however noted that Binance paying a fine and continuing operations—rather than being shut down by the DoJ—was likely a net positive for Coinbase; “A healthy development for the industry is positive for Coinbase, and an abrupt exit of large players is not. This settlement will likely uphold a high compliance standard for crypto exchanges, and force major players to invest in internal controls and make better disclosures”

What happened: Blockchain messaging startup valued at $2.5bn

How is this significant?

• Wormhole, a blockchain messaging startup, achieved one of the most significant raises (and valuations) of a rather quiet 2023 in the venture space this week
• The developer platform contributes towards blockchain interoperability efforts by allowing different blockchain networks to communicate with each other, a key aspect in efficient flows of funds across different protocols
• In total, Wormhole raised $225m, with a company valuation of $2.5bn
• Wormhole previously operated under the auspices of Jump Crypto, but despite the separation, Jump Trading featured as one of the key contributors in the round, alongside Brevan Howard, Coinbase Ventures and Multicoin Capital
• Rather than directly surrendering equity in the company, Wormhole Labs CEO Saeed Badreg told Forbes that the raise was entirely in exchange for future tokens to be issued by the project

What happened: Crypto custodians Copper create digital securities exchange in Abu Dhabi

How is this significant?

• On Wednesday, leading digital asset custodian firm Copper announced an expansion into the rising UAE market, via brokerage services for tokenised securities
• According to industry publication Coindesk, this expansion is underpinned by the recent acquisition of Securrency Capital—the Abu Dhabi arm of tokenisation firm Securrency Inc, which was excluded from its parent company’s acquisition by clearinghouse DTCC in October
• Copper CEO Dmitry Tokarev called Abu Dhabi the “capital of capital” and praised it as the perfect headquarters for increasing institutional digital asset exposure; “Abu Dhabi is more institutional and more focused around asset management, and that’s exactly what Copper is; we only have institutional clients… While there isn’t a huge retail market here, you will find all the big institutions, hedge funds and sovereign wealth funds”
• According to Coindesk “Copper Securities will offer things like automated processing of corporate actions, settlements, top-ups and rebalances, and there are plans to introduce securities financing, lending and payments applications over the coming year”
• He added “This strategic move builds on our vision of transforming capital markets infrastructure by leveraging the power of blockchain technology and tokenization. We believe that this will create a more transparent, efficient, and accessible financial system for institutional investors”

What happened: Standard Chartered China offers digital yuan exchange services

How is this significant?

• Standard Chartered became the first foreign bank to offer exchange services in China’s ongoing digital Yuan trials this week, via its local subsidiary
• The bank’s Chinese division will now offer customers access to the “digital Yuan’s interconnection platform, offering recharge and redemption”, working alongside City Bank Clearing Services
• Standard Chartered also revealed participation in the e-CNY’s business pilot, again making them one of the first international participants in the program
• Perhaps the most significant other multinational bank to deal with the e-CNY thus far is BNP Paribas, whom the South China Morning Post reported in May provided corporate clients with digital Yuan facilities
• In other banking news, Santander allegedly struck a deal with crypto custody firm Taurus for the deployment of a digital asset self-custody service, but neither party responded to requests for comment on the reports

What happened: MicroStrategy adds to record Bitcoin holdings

How is this significant?

• Venture software firm MicroStrategy, the world’s largest corporate holder of Bitcoin, increased their investment in the digital asset even further recently, making their largest purchase in nearly 3 years
• In a filing on Thursday, the firm disclosed that it purchased 16,130 Bitcoins in November, at an overall cost of $593.3m
• This was the largest purchase since its acquisition of 19,452 Bitcoin for just over $1 billion in February 2021
• The latest purchase brings the total value of MicroStrategy’s Bitcoin balance sheet to $6.5bn
• MicroStrategy shares—which some view as a proxy for Bitcoin exposure—are up 250% year-to-date, buoyed by Bitcoin’s rise amidst enthusiasm around possible spot ETFs

What happened: Further Binance/Changpeng Zhao developments

How is this significant?

• Following on from last week’s news that Binance agreed a settlement with the US Department of Justice, several further developments were reported this week
• Although he pleaded guilty and his sentencing isn’t scheduled until February, a federal judge ruled this week that former CEO Changpeng “CZ” Zhao must remain in the US until his trial, denying him permission to return home to the UAE
• Zhao has already agreed to pay a personal $50m fine and faces a potential 18 months in prison, but prosecutors argued that the lack of extradition treaty with the UAE presents a flight risk
• CZ’s lawyers meanwhile stressed that “Mr. Zhao chose of his own free will to travel from his home in the UAE to voluntarily appear before this Court and accept responsibility for his actions. There would be no criminal or civil resolution in this matter but for Mr. Zhao’s decision to so resolve and his voluntary choice to travel to Seattle to plead guilty”
• Zhao also stepped down as chairman of the exchange’s American subsidiary Binance.US this week, retaining a financial interest but removing himself from all governance procedures
• Some Binance investors brought a class action lawsuit against footballer Cristiano Ronaldo, claiming that his celebrity endorsement led them to lose money speculating on crypto assets
• The Philippines SEC blocked user access to Binance, claiming the exchange was operating without a valid licence in the country
• Meanwhile, new CEO Richard Teng signalled a shift to more traditional business structures, using his first blog post to announce Binance has “systematically worked to address its past compliance issues”, and revealing in a Forbes interview that “Binance will adopt a conventional corporate structure, including a headquarters and a board of directors”
• However, some industry observers cautioned that more storm clouds may lie ahead, noting that the SEC excluded itself from last week’s intra-agency settlement deal, speculating that it did so in order to try and maintain its desired jurisdiction of regulator over crypto assets, and attempting to establish precedent of digital assets as securities

What happened: DEX giants Uniswap increase institutional accessibility

How is this significant?

• Industry publication Blockworks reported this week that Uniswap, the largest decentralised exchange on the market, will provide institutional traders with access to decentralised liquidity
• By sharing its APIs with Talos clients, and supported by blockchain custody firm Fireblocks, institutional traders will be able to view and utilise DEX liquidity pools (where any holder is able to provide liquidity by pairing two digital assets of equal value) in a more familiar order book format
• Roland Jarquio, VP of Talos, told Blockworks that some strategies or returns are only possible by tapping into DEX liquidity; “Some institutional investors are looking for exposure to certain protocols and projects that can only be traded on DEXs like Uniswap”

What happened: FTX approved to begin selling Grayscale assets

How is this significant?

• A federal bankruptcy court this week granted FTX approval to begin selling off its positions in various Grayscale digital trusts in order to raise money to pay back creditors
• According to court papers last month, the company’s shares in the trusts are valued at around $744m, representing a significant addition to the $7bn of assets already recovered
• FTX will seek to sell their positions in tranches, so as to maximise return and minimise market disruptions
• In other contagion-linked news, a Montenegro court approved the extradition of Do Kwon, architect of the collapsed Terra LUNA blockchain ecosystem
• As Kwon is currently sought by both the US and South Korea, it remains unclear which will be his first destination
• Digital Currency Group agreed a repayment deal with bankrupt subsidiary Genesis Global, in exchange for the latter dropping a lawsuit regarding the $325m debt

What happened: Swiss asset manager Pando enters spot Bitcoin ETF race

How is this significant?

• Swiss firm Pando Asset became the latest institution to file for a spot Bitcoin ETF this week, becoming the 13th entrant in the race
• Pando’s proposed ETF would list on the CBOE X exchange, and like other entrants, lists Coinbase as the custodian
• In other ETF news, CNBC reported late on Thursday that the SEC was meeting with representatives from several applicants regarding their filings
• In particular, memos concerning meetings with both Grayscale and BlackRock were published on the SEC’s website
• Grayscale recently hired former Invesco executive John Hoffmann as managing director, which some industry observers believe indicates a positioning for ETF launch
• Speaking of Grayscale, the NAV discount on their GBTC Trust—which they’re proposing for ETF conversion—narrowed to its lowest levels in over a year and a half, as investors flooded in hoping to exploit said discount if the fund indeed converts to a spot ETF
• Nate Geraci, president of The ETF Store advisory firm, commented that “It’s reasonable to view GBTC’s discount as essentially a live betting line on spot Bitcoin ETF approval. The remaining discount indicates this isn’t a done deal yet, but there’s clearly optimism in the air”
• GBTC traded at a record 50% discount versus its underlying Bitcoin holdings heading into 2023, but that imbalance has since narrowed to just 8%