Market Overview:

Digital assets added to remarkable growth, posting increases in the week that Bitcoin’s white paper celebrated its 15th birthday.

• Bitcoin experienced strong trading before tailing off late on Thursday to post a more modest weekly profit
• Bitcoin’s weekly high of $35,750 early on Thursday was its highest value since May 2022, before the collapse of the Terra LUNA blockchain ecosystem led to widespread cascading liquidations and industry contagion
• Bitcoin exhibited steady growth throughout the week from a Friday low of $33,450 before spiking up on Thursday—the majority of trading occurring in the $34,100 to $34,800 range
• A pause in Federal Reserve rate hikes was cited as one factor behind this positive performance, but Bitcoin ultimately struggled to complete a full day above the $35,000 mark
• Ether mirrored Bitcoin’s movements, rising from a weekly low of $1,757 to a high of $1,873 before pulling back to current levels
• Overall digital asset market capitalisation increased to $1.29n, but broke above $1.31tn on Thursday
• Many altcoins posted double-digit weekly gains, as last week’s performance may have re-awakened market optimism; the crypto industry fear/greed index currently stands at 72/100 (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 $1.2bn to $42.2bn
• This marks a 3-month high for DeFi value, and a significant turnaround from two weeks ago, when it sat at its lowest ebb since February 2021

Digital assets performed positively once again, albeit (understandably) not at the remarkable rate seen last week. New details emerged around BlackRock’s proposed spot Bitcoin ETF, a broad range of Swiss banks entered the digital asset space, HSBC announced plans to tokenise gold, one of Germany’s largest asset managers moved closer to crypto ETF issuance, the UK Treasury published their proposal for a regulatory regime, and Sam Bankman-Fried finally faced the jury—and their verdict.

What happened: BlackRock’s spot Bitcoin ETF reportedly backed by Jane Street, Jump, Virtu

How is this significant?

• According to sources speaking to industry publication Coindesk, BlackRock’s proposed spot Bitcoin ETF could have the support of some of the mightiest market makers in the world, including the likes of Jane Street, Jump, and Virtu
• A BlackRock slide deck allegedly reveals the above three, alongside Hudson River Trading, have approached BlackRock regarding market-making services for the hotly-anticipated ETF (should it be approved by regulators)
• None of the trading firms responded to requests for comment, but if true it could mark an interesting about-turn by Jane Street and Jump, who announced a reduction of crypto trading services earlier this year, before the Bitcoin ETF race was reignited by BlackRock
• CoinShares head of research James Butterfill believes that recent legal setbacks for the SEC may have given risk-averse TradFi firms more confidence in supporting digital assets; “Several market makers were pulling back and being quite cautious because there was some heavy cracking down on exchanges. But since the Grayscale ruling, we’ve seen a very real change in stance from the SEC”
• Meanwhile, CoinShares data revealed that existing digital asset investment products experienced their largest weekly inflows since July 2022, indicating revived interest amongst institutional investors
• Digital asset investment products saw net inflows of $326m, of which 90% went towards Bitcoin products (which also included $15m of short-Bitcoin products, for those who believe that the recent rise must reverse)
• This interest was truly international; “only 12% of the flows were from the US at US$38m, presumably as investors wait for the spot-based ETF. The largest flows were from Canada, Germany and Switzerland”
• Moreover, recent bullish momentum combined with the inflows to bring total AUM of digital asset investment products to $37.8bn—its highest value since May 2022, before the Terra LUNA blockchain collapse set of contagion and crypto winter

What happened: MicroStrategy further bolsters Bitcoin holdings

How is this significant?

• MicroStrategy, the business intelligence software firm better known as the largest corporate holder of Bitcoin, revealed in their latest financial filings that they further increased their Bitcoin exposure recently
• These filings only went up to September 30th, and thus miss out on the late-October surge in Bitcoin’s value; MicroStrategy actually reported a near-$126m impairment on its Bitcoin holdings, but also reported a significant $900m paper gain on said holdings
• The firm disclosed that in Q3 2023, they acquired a further 6,067 Bitcoins for $167m (or $27,531 per Bitcoin)
• In total, this brings their holdings to 158,024 Bitcoins, purchase at “an average cost per Bitcoin of approximately $29,582” ($4.68bn)
• In a conference call accompanying the financial results, MicroStrategy chairman Michael Saylor noted that recent enthusiasm around a potential Bitcoin ETF could bring about additional benefits for the firm’s shares, which acts as a proxy for Bitcoin exposure to many
• Since shifting its strategy towards Bitcoin acquisition in 2020, MicroStrategy shares have more than tripled in value (compared with a 40% rise for the S&P 500), even after a steep decline in the 2022 crypto winter
• Chief financial officer Andrew Kang announced the company will continue this strategy going forward
• Saylor told shareholders that spot ETFs should “grow the market dramatically” and act as “an onramp for capital on Wall Street to come into the Bitcoin ecosystem”
• Additionally, he believes that there should still be sustained interest in MicroStrategy shares from those seeking Bitcoin exposure; “There will be fees to invest in a spot ETF. The ability to get Bitcoin exposure and not get charged a fee is another plus for us”

What happened: HSBC launches blockchain platform to tokenise gold

How is this significant?

• Whilst Bitcoin has often been described as “digital gold”, investors will soon be able to own “digital physical gold”, following efforts led by HSBC
• HSBC is building blockchain bullion, tokenising ownership of the physical gold bars held in their London vault
• This follows on from a World Gold Council proposal just over a year ago, suggesting implementation of blockchain technology in gold trading, designed to circumvent the difficulties of physical custody
• Mark Williamson, HSBC’s global head of FX and commodities partnerships and propositions said that the use of blockchain technology makes the whole process of gold ownership “quicker and less cumbersome”, allowing customers to remotely track their holdings down to the serial number on the specific gold bar
• Each HSBC gold token will represent 0.001 troy ounces, meaning 400,000 tokens to every London gold bar (400 troy ounces)
• Williamson added that initial focus for the system will be on institutional investors, and that further precious metals will be added to the platform in future
• This isn’t actually the first attempt at tokenising gold ownership; crypto firm Paxos previously partnered with Euroclear to create a blockchain settlement system, and its own physically-backed Pax Gold token currently has a market capitalisation of around $475m
• However, HSBC’s scale in the gold market makes this development potentially far more influential; it’s one of the largest custodians in the world, and one of four clearers in the London market where $525bn worth of bullion is stored and $30bn traded per day
• Other major banks to have made major moves in asset tokenisation include JP Morgan and Goldman Sachs, whilst TradFi luminaries like BlackRock’s Larry Fink and Franklin Templeton’s Jenny Johnson have praised the technology for its potential to increase efficiencies and improve investment access

What happened: Scaramucci hedge fund achieves record month thanks to crypto exposure

How is this significant?

• SkyBridge Capital, the hedge fund of financier (and short-lived Trump press secretary) Anthony Scaramucci posted a record monthly return in October, attributed largely to its digital asset market exposure
• Scaramucci told Bloomberg TV “We’re on a good roll now. The month of October has probably been the best month in SkyBridge’s history… Bitcoin has had a spectacular month. We own a lot of [smart contract altcoin] Solana. I think Solana is probably up by 70% this month. This is just another explanation to people, stay in things, stay convicted, don’t listen to the chain music throughout the day but have a very long-term focus”
• This final statement echoes previous convictions of Scaramucci that digital assets should be treated as a long game, rather than just short-term speculation
• In January 2022, after Bitcoin’s first post-bull dip below $33,000, he told CNBC “Take a chill pill, stay long Bitcoin, other crypto assets like Ethereum, and I think you’re going to be very well-served long-term in those investments… To me, this is an emerging technology that will eventually evolve into a store value as more and more people join the network”
• SkyBridge gained some notoriety as big investors (and beneficiaries of investment from) FTX before the exchange’s collapse under criminal CEO (spoiler alert!) Sam Bankman-Fried; he told Bloomberg that “SBF” has “absolutely no defence” for his actions
• However, although Bankman-Fried’s fraud FTX’s collapse a year ago doubtless drove the digital asset industry lower for several months, Scaramucci says his fund’s conviction in the underlying technology remains unwavered; “We never sold any Bitcoin, in fact if anything we accumulated Bitcoin this year at lower prices and it has served us and our clients well”

What happened: Leading Indian digital asset exchange expects relaxation of tax regime

How is this significant?

• CoinDCX, India’s largest crypto exchange (and industry unicorn) believes that India may soon be forced to relax its regulatory approach towards digital asset trading, after initial efforts proved to be directly counterproductive
• 16 months ago, India applied a 1% TDS tax on all crypto exchange transactions, intended as a means to track buying and selling, rather than raising revenue—however this shrunk margins for any high frequency traders and crippled competitiveness on both the local and international scene
• CEO Sumit Gupta told Bloomberg that this approach has proved unsustainable for the government, driving 95% of local volume offshore; “The whole purpose of the TDS was to track and trace transactions but that is getting defeated”
• This has led to losses for the Indian economy, as Chainalysis data reveals India received $250bn worth of crypto in the January-June period; second only to the US
• Gupta says that despite these shrinking volumes, CoinCDX currently maintains a 5-year runway for operations
• Whilst Gupta expects the Indian government to reverse their TDS tax policy in the near future, he cautions that it will likely be a while longer before the country has a specific regulatory regime for the asset class, as next year’s political activity will be dominated by India’s general election

What happened: Banking news

How is this significant?

• Alongside HSBC’s foray into the gold tokenisation market, several other international banks announced developments in the digital asset realm this week
• St Galler, the 5th-largest cantonal bank in Switzerland launched digital asset custody services for wealth management clients (expanding to retail) this week, in association with Swiss crypto bank SEBA
• The offering is initially limited to Bitcoin and Ether, with further assets to be added in future based on client demand
• Falk Kohlmann, Head of Market Services at St.Galler Kantonalbank said in a press release “Thanks to our cooperation with SEBA Bank, we’ve implemented a straightforward initial setup, which allows us to learn and grow well aligned to our clients’ needs”
• SEBA’s Christian Bieri noted a widening scope of interest in the bank’s homeland; “It’s the first bank with a clear retail focus that we have onboarded and an example of the development we are seeing in Switzerland”
• Elsewhere in Switzerland, the Swiss National Bank stepped up wholesale CBDC development efforts this week, announcing a pilot alongside SIX Digital Exchange and 6 local banks
• According to a press release, the “Helvetia III” pilot phase will run from December to June, and “will create a tokenized version of the Swiss franc as a settlement instrument between financial institutions for digital securities transactions on the SDX”
• The six banks involved are Banque Cantonale Vaudoise, Basler Kantonalbank, Commerzbank, Hypothekarbank Lenzburg, UBS, and Zürcher Kantonalbank
• Kasikorn (aka K-Bank), one of Thailand’s largest banks, spent $103m this week to acquire a 97% stake in local digital asset exchange Satang, which it plans to rebrand as Orbit Trade
• One month prior, K-Bank announced a $100m investment fund focused on Web3, AI, and tech
• Digital assets appear to be gaining steam in Thailand; the new government plans to “airdrop” 10,000 Baht in digital money as an economic stimulus to every Adult Thai citizen through a new “super-app” by the end of Q1 next year

What happened: $900bn German asset manager DWS prepares crypto ETFs

How is this significant?

• DWS Group, one of the largest asset managers in Germany, is ready to roll out crypto ETFs for clients; despite internal disagreements between finance traditionalists and pragmatists
• Bjoern Jesch, DWS’s global chief investment officer, told Bloomberg “One camp of people in my group is saying forget it, the value of crypto is zero, there’s nothing behind it. And there’s this other group of people saying like, hmm, I mean at least there’s a price of $35,000 for Bitcoin. Someone is paying $35,000”
• In April, DWS partnered with crypto fund firm Galaxy Digital to create a suite of ETFs suitable for the European market—ETFs which are now set to launch within the coming months
• Jesch himself admits this decentralisation means new territory for the group (majority-owned by Deutsche Bank) to explore; “The most complex thing is to make a forecast on digital assets. You do not have that much history. You don’t have collateral, you don’t have an economy, you don’t have a central bank. You could of course argue that tomorrow is zero maybe, or maybe it’s not, maybe it’s $40,000”

What happened: Contagion latest

How is this significant?

• Sam Bankman-Fried was found guilty on all charges this Thursday, marking the end of his criminal trial for fraud and money laundering charges
• Earlier in the week, he had testified in his own defence over the course of three days—although some observers argued he didn’t help his cause by being consistently evasive
• He did confess to a larger role within trading firm Alameda than he’d previously claimed, but denied defrauding customers, as the defence argued that he’d been unfairly painted as “a movie villain” throughout proceedings, whilst he was actually just a terrible and inexperienced CEO
• The defence meanwhile made it very clear this was a failure of character, not technology; “This is not about complex issues of crypto assets. It’s about deception. It’s about lies. It’s about stealing. It’s about greed”
• Sentencing for the disgraced former CEO will take place on March 28th next year, with up to 115 years imprisonment on the table
• The judge presiding over failed lender Celsius’ bankruptcy case requested expeditious feedback from the SEC regarding Celsius’ plan to reboot themselves as a Bitcoin mining firm
• Judge Martin Glenn told an SEC lawyer “I just hope the process will move forward, so if there are any bumps in the road we can try and work those out along the way”
• Reuters reported this week that payments giant PayPal has been subpoenaed by the SEC for their new PYUSD stablecoin, less than three months after announcing its launch
• According to the Wall Street Journal, the SEC requested documents from PayPal, and the company is cooperating
• In less shocking news, the SEC and DoJ charged the founders of Safemoon with fraud and market manipulation—the altcoin in question was widely recognised in broader digital asset circles as a blatant scam, but nonetheless attracted a small but dedicated group of followers
• The founders in question splurged on luxury homes and vehicles, whilst blockchain trails made it clear to internet sleuths that they were siphoning funds for their lifestyles

What happened: UK Treasury releases final proposals for crypto asset regulation

How is this significant?

• In April 2022, Britain’s chancellor (and now prime minister) Rishi Sunak set out an ambition to make the UK a “global crypto asset hub”. This week, the UK Treasury released its final set of proposals regarding a regulatory regime for crypto assets
• The proposals were informed by a consultation process involving industry stakeholders, finance experts, and market events such as the FTX collapse
• The UK’s regulatory approach appears set to realise Sunak’s ambition vision, and crucially brings them into the ballpark of established financial activity, rather than some previous suggestions that regulation mirror that of the gambling industry
• Treasury minister Andrew Griffith certainly sounded an optimistic tone, stating “We must make the UK a place where crypto asset firms have the clarity needed to invest and innovate, and where customers have the protections necessary for confidently using these technologies”
• Some key aspects of the UK’s proposed regulatory approach are as follows:
• Clarity of remit: The FCA has been assigned the lion’s share of oversight responsibilities across the industry. Custody requirements are tightened, whilst insider dealing and disclosure restrictions are extended to crypto, creating clarity for stakeholders, politicians, and regulators alike
• This stands in stark contrast to the US, where the SEC and CFTC are so disunified on definitions, requirements, and responsibilities that they have independently sued the same crypto projects for allegedly being both an unregistered security and commodity.
• Regulation will be phased in for sustainable progress: rather than expecting an entire industry to adapt overnight, the UK is taking a more tactful approach of introducing the regulatory regime in stages; phase 1 will concentrate on fiat-backed stablecoins (the crypto assets most akin to existing financial assets) beginning in 2024
• Phase 2 will then regulate the broader digital asset landscape (subject to parliamentary time)
• Britain won’t defy DeFi—The genie is well and truly out of the bottle as far as decentralised finance is concerned. Something which is by its nature decentralised is difficult to restrict, and the UK doesn’t intend to do so; “DeFi may play an important role in financial services as the crypto asset sector becomes larger… in line with innovation-forward approaches, the government does not intend to ban DeFi”.
• The UK’s approach helps underscore that digital assets are an international selling point for nation states; in line with Hong Kong, UAE, and Japan, Britain has now set out its stall to woo the industry; as Griffith claims “The UK is the obvious choice for starting and scaling a crypto asset business”
• However, off-shore based must come into local compliance; “firms dealing directly with UK retail consumers should be required to be authorised irrespective of where they are located

What happened: Demand drives asset tokenisation guidance in Hong Kong

How is this significant?

• Hong Kong’s Securities and Futures Commission (SFC) this week published two circulars containing guidelines for asset tokenisation, spurred into action by rising demand in the city
• According to the guidance, “The existing legal and regulatory requirements governing the traditional securities markets continue to apply to Tokenised Securities” and existing conduct regulations for securities activities apply to tokenised versions as well
• Hong Kong has been opening up to the digital asset industry over the last 6 months, and earlier this year the city’s monetary authority issued the first tokenised green bond
• Locally-licenced exchange HashKey told industry publication TheBlock that they are currently in tokenisation discussions with the SFC “exploring two important RWA [real world asset] cases that may bring huge impact to the market”
• Additionally, the SFC revealed they are currently assessing a variety of applications for tokenised investment products; “The SFC sees the potential benefits of tokenization to the financial markets, particularly in increasing efficiency, enhancing transparency, reducing settlement time and lowering costs for traditional finance, but it is also aware of the new risks arising from the use of this technology”