Market Overview:

Digital assets continued recent bullish momentum, making major gains as Bitcoin hit another yearly high, rising above levels before last year’s market contagion crash.

• Bitcoin surged this week on the basis of renewed hopes around spot ETF approvals, although its gains were soon eclipsed by Ether, after BlackRock filed for a spot Ether ETF
• Bitcoin hit a weekly high of $37,930 on Thursday afternoon, before widespread profit-taking and liquidations dropped it to $36,000 within an hour and a half, before recovering to current levels
• This high represents a year-to-date return of 129%, and notably was also the first time Bitcoin traded above its value of May 9th 2022, when the Terra Luna blockchain collapse kicked off sector-wide contagion that snowballed into deep crypto winter
• Bitcoin’s weekly chart showcased steady upward momentum from a Friday low of $34,190 before spiking up on Thursday amidst ETF chatter—most trading taking place between $34,600 and $35,740
• For the first time since a brief spell in January 2022, the traditional exchange CME overtook crypto-native Binance for the largest share of Bitcoin futures open interest
• Ether grew from a weekly low of $1,785 on Friday, but experienced a much flatter trajectory until BlackRock’s move towards Ether ETF creation ignited a steep spike in price and trading leading to a high of $2,131 early this morning
• This increase in Ether trading led to increased activity across the Ethereum blockchain, burning vast amounts of Ether from transaction fees and thus turning Ether’s annual issuance rate (measured over the last week) deflationary once more
• Overall digital asset market capitalisation increased to $1.4tn, a growth of over $100bn, as only a handful of non-stablecoin assets failed to register growth over the week
• However, for the sake of counterbalance against these bullish market moves; JP Morgan analysts led by Nikolaos Panigirtzoglou published a new research note on Wednesday (prior to Thursday’s weekly highs) arguing that the crypto rally “looked overdone”, and that ETF approval could just mean money flowing in from existing Bitcoin exposure sources, rather than totally new capital entering the space
• Additionally, the crypto industry fear/greed index currently stands at 77/100 (its highest level since 2021), denoting “greed” in the market
• According to industry monitoring site DeFi Llama, total value locked in DeFi this week jumped by over $3.5bn to $45.9bn, spurred by the appreciation of Ether

Digital assets experienced another week of historically strong performance, this time led by Ether surging to its highest levels since May 2022. The interest in the Ethereum blockchain was sparked by BlackRock positioning themselves for a spot Ether ETF alongside their spot Bitcoin filing. Elsewhere, HSBC moved deeper into digital assets with tokenisation and custody services, DZ Bank (the largest German asset custodian) also announced crypto custody, and nine-figure VC funds returned to the space. Stablecoin issuers Circle reportedly set the groundwork for an IPO whilst the UK provided details on integration of stablecoins into the economy, Standard Chartered and SBI launched a crypto asset investment joint venture, and much else besides in one of the busiest weeks in living memory.

What happened: BlackRock files for spot Ether ETF

How is this significant?

• After kicking off the scramble for spot Bitcoin ETF filings amongst major institutions earlier this year, BlackRock once again followed the lead of ARK Invest by filing for a spot Ether ETF
• This was done via registration of the “iShares Ethereum Trust” in Delaware, mirroring the company’s actions of 7 days prior to its Bitcoin ETF filing
• iShares Ethereum Trust also appeared in a Nasdaq filing later on Thursday, noting a “proposed rule change to list and trade shares of the iShares Ethereum Trust (the “Trust”) under Nasdaq Rule 5711(d) (“Commodity-Based Trust Shares”)”
• As an interesting note, the language of the filing specifically cited the precedent of Grayscale’s court victory over the SEC (which found the agency “arbitrary and capricious” in approving futures Bitcoin ETFs whilst denying spot products), arguing that approval for Ether futures ETFs in early October should thus predicate approval for spot Ether ETFs as a product relying on the same underlying asset price
• The second-largest digital asset (and largest smart contract blockchain) has somewhat lagged behind Bitcoin’s explosive growth this year, but news of the world’s largest asset manager repeating the process that heralded their spot Bitcoin filing led to widespread market enthusiasm, and double-digit daily gains as Ether crossed $2,100
• BlackRock is already in good company for spot Ether applicants; ARK (in conjunction with 21Shares) were the first to file in September, followed by the likes of VanEck and Invesco
• Whilst BlackRock declined to officially comment, Bloomberg Intelligence ETF analyst James Seyffart stated that this could again bring more attention to such investment products “This was fully expected in my eyes and was just a matter of when, not if. But BlackRock’s name is obviously huge and just seeing this registration in Delaware sent Ether prices skyrocketing”
• In other BlackRock news, FOX Business personae reported that sources at the firm were feeling confident on approval for their spot Bitcoin ETF before the final January deadline
• Bloomberg analysts James Seyffart and Eric Balchunas stated in a Wednesday research note that they remain 90% confident of a spot Bitcoin ETF being approved before the 10th of January
• They noted that there is now a brief (8 day) window for the SEC to “theoretically issue approval orders” in order to follow the expected path of multiple simultaneous approvals, but stated that an early-January approval period looked more likely
• Grayscale CEO Michael Sonnenschein told Bloomberg that the firm was still in conversation with the SEC regarding conversion of their GBTC fund into a spot Bitcoin ETF—but he said that no timelines have been discussed, and refused to rule out more legal action if current optimism and “constructive dialogue” don’t come to pass
• Additionally, it was reported on Tuesday that several former Cantor Fitzgerald executives have started a crypto lending platform “with the expectation that it will serve operators of spot Bitcoin exchange-traded funds once they gain US regulatory approval”

What happened: HSBC announces institutional asset tokenisation services

How is this significant?

• Following last week’s news of their new gold bullion tokenisation services for the London gold market, HSBC moved yet further into digital assets by announcing an institutional custody service for digital assets, including tokenised securities
• This offering—which will go live in 2024—was developed in conjunction with Swiss digital asset firm Metaco (acquired for $250m by Ripple in May)
• John O’Neill, HSBC’s global head of digital assets strategy, markets and securities services, stated that the service “will complement HSBC Orion, our platform for issuing digital assets, as well as our recent launch of tokenized physical gold. These services underscore HSBC’s commitment to the overall development of digital asset markets”
• Zhu Kuang Lee, HSBC’s chief digital, data and innovation officer (securities services) said that this development was spurred by wider market demand; “We’re seeing increasing demand for custody and fund administration of digital assets from asset managers and asset owners, as this market continues to evolve”
• HSBC are far from alone in embracing this market evolution; JP Morgan settled the first trade on its tokenised collateral network (TCN) last month for BlackRock and Barclays, whilst Euroclear (in conjunction with Citi and TD Securities) recently premiered a real world assets (RWA) tokenisation service via issuance of a €100m digital bond for the World Bank.
• Lieve Mostrey, CEO of Euroclear, stated that the tokenised bond was “an important moment for our clients and for the potential of digital assets”, and World Bank MD and CFO Anshula Kant commented that “a transition to digitisation is underway in the capital markets”.

What happened: Germany’s DZ Bank launches institutional digital asset custody

How is this significant?

• DZ Bank, the third-largest custodian in Germany—and the largest German custodian—announced the creation of their own digital asset custody solution
• Holger Meffert, leader of digital custody at the bank, stated that they foresee numerous capital market assets and processes transferring to blockchain within the next ten years, and that in the mid-term they view it as a complementary technology to current established market processes
• Last month, Meffert told industry publication Ledger Insights that client demand (including from $427 AUM client Union Investment) was driving them towards greater digital asset exposure
• Additionally, the press release announcing the news disclosed that the bank is working on an offering allowing private banking customers to directly invest in digital assets
• In order to deploy the solution, the bank hired over a dozen specialists dedicated purely to digital assets, working on the institutional solution since 2022
• DZ currently services crypto securities, but has applied to German regulators BaFin for a crypto licence in order to expand their capabilities to a wider range of crypto assets in the near future
• In other German news, it was reported that software giant SAP has opened an art exhibit dedicated to NFTs, entitled “Die Poesie der Blockchain” (“the poetry of the blockchain”)

What happened: Faction Ventures launches inaugural crypto VC fund worth $285m

How is this significant?

• Bucking the long-running trend of reduced crypto funding, Faction Ventures (launched last year as a joint venture with VC giants Lightspeed) debuted its inaugural fund this week, with $285m of capital to deploy
• The fund will primarily concentrate on early-stage investment, providing seed funding or participating in Series A rounds
• Managing partner Samuel Harrison told TechCrunch that the firm deployed about 20% of their capital before launching publicly, and aims to invest the rest over the course of the next three years
• General partner Banafsheh Fathieh outlined their investment strategy, saying “On the maturity arc, most of what you see at the growth stage speaks to crypto as an asset class. It’s a lot of trading use cases or capturing the ethos of ‘this could be an emerging asset class.’ But crypto, as a technology trend, is relatively young. The early stage is where we see the greatest amount of opportunity”
• Despite harsh fundraising conditions in crypto winter, Faction actually found its fund oversubscribed, accruing $285m versus an initial target of $250m
• Fathieh also added that the VC will invest in both tokens and company equity, with a “sweet spot” investment size between $5m to $10m
• Harrison said they plan to take advantage of the VC funding exodus over the last year; “It’s clearly a time where a lot of generalist capital has left the space. We’ve been investing through a few cycles, so it’s a good time to invest. It’s better than when the market is extremely hot…This is the time we want to be most active while others are questioning it”
• In other crypto VC news, Amsterdam-based Maven 11 Group are targeting a $100m raise for their third fund, with around 30% secured already, in a process ongoing until Q3 next year
• Reflective of general trends in industry VC, this amount is down from their second fund’s $120m raise in late 2021, but nonetheless represents a significant target

What happened: Stablecoin issuers Circle mull 2024 IPO

How is this significant?

• According to multiple reports this week, Circle—issuers of the market’s second-largest stablecoin, USDC—are considering an IPO early next year
• The Boston-based firm is allegedly in the midst of meetings with advisors concerning the process of going public; sources say the decision is by no means a done deal, but floating publicly was previously attempted via a SPAC deal last year
• At the time, the firm was valued at $9bn, up from a $7.7bn valuation in an earlier 2022 funding round; at the time of writing, its fully-backed USDC stablecoin has a market capitalisation of over $24bn, and experienced almost $8bn of trading volume over 24 hours
• Responding to Bloomberg, a Circle representative stated “Becoming a U.S.-listed public company has long been part of Circle’s strategic aspirations. We don’t comment on rumours”
• If the “rumours” are realised, this could make Circle the second major crypto-native US firm to go public, following Coinbase

What happened: UK sets out stablecoin integration plans

How is this significant?

• Following last week’s outline of their planned regulatory regime, the Bank of England (BoE) proceeded this week to provide more details regarding their stablecoin strategy
• The proposals acknowledge the possibility of “bringing stablecoins into the real economy”, guided by the Financial Policy Committee’s “expectations for stablecoins as money-like instruments”
• The BoE recognised numerous advantages of stablecoins, stating “Payment systems using stablecoins might be able to offer significant benefits to users… they could contribute to faster, cheaper and more efficient payments, both domestically and for cross-border use… they may offer greater functionality and programmability to automate the transfer of value more extensively and more efficiently via smart contracts”
• Governed by the principle of “same risk, same regulatory outcome”, the BoE holds that “to the extent that systemic payment systems using stablecoins pose similar risks as other systemic payment systems, they should be subject to equivalent regulatory standards… as a new form of privately issued money, issuers of stablecoins used in systemic payment systems should meet standards that are at least equivalent to those that apply to commercial banks”
• The BoE supports the creation of corporately-controlled stablecoins, provided the backing assets are deposited at the Bank of England, where they will earn no interest
• However, they appear more taciturn about accepting any decentralised stablecoins into the economy, arguing that DeFi lacks central personae to bear the burden of responsibility
• In a press release, the bank said “We recognise the benefits that new forms of ledgers can bring for payments. However, some existing stablecoin payment chains using public permissionless ledgers do not have centralised governance arrangements. In order to be used at systemic scale, any such payment system would have to assure us that a legal entity or natural person could be held accountable and responsible for end-to-end risk management in the payment system and compliance with regulation”
• As yet, no stablecoins are deemed “systemic” in size; however it should be noted that this is partially down to the historic use of the US dollar as the numeraire for crypto asset trading; with the UK adopting a potentially friendlier regulatory approach than their cousins across the pond, we could see a rise of pound sterling-denominated stables

What happened: ARK Invest’s Cathie Wood promotes Bitcoin as inflation hedge

How is this significant?

• ARK Investment’s CEO Cathie Wood reiterated her support for digital assets this week, when asked her opinion following widespread market recovery
• Asked whether she advised cash, gold, or Bitcoin at this time, she responded “Bitcoin, hands down! Bitcoin is a hedge against inflation and deflation…. Gold’s demand has already happened. Bitcoin is new and institutions are barely involved and young people would much prefer to hold Bitcoin than to hold gold”
• Speaking on Bloomberg’s “Merryn Talks Money” podcast, she added that cracks showing in traditional financial systems were just as much of a selling point as inflation or deflation “There’s no counterparty risk in Bitcoin, it’s a completely transparent decentralised network [where] you can see everything that’s going on. You cannot see what’s going on inside regional banks, you can only surmise because they’re losing deposits and they have to fund those by selling securities”
• She pointed out that the US banking crisis in March boosted Bitcoin’s price by 50%, and that the issues behind Q1 collapses haven’t been solved, as Citizens’ Bank in Iowa became the latest to fail this week
• Fellow Bitcoin bull Michael Saylor appeared on CNBC this week to support an additional rationale for Bitcoin investment; next year’s “halving” event
• With fewer new Bitcoins being mined from Q2 next year, Saylor anticipates that “You’re going to see $12 billion of natural selling per year converted into $6 billion of natural selling per year”
• Some financial planners and advisors appear to endorse Woods’ rationale; Vaughn Kellerman of HCM Wealth Advisors in Cincinnati is upping his portfolio exposure recommendation from around 2% to 5%, and told Bloomberg “Bitcoin should have a place in any balanced portfolio, from someone in their retirement years to a young person just getting started”, and Ryan Firth of Mercer street praised it for its uncorrelated returns vs stocks

What happened: Former NYSE president seeks to “reboot” FTX

How is this significant?

• The Wall Street Journal reported this week that former New York Stock Exchange President Tom Farley is one of three key parties seeking to buy up the remnants of FTX and reboot it, following the fraud conviction of former CEO Sam Bankman-Fried
• After leaving NYSE, he helped found Bullish exchange, who are now in the running alongside Figure Technologies, and crypto VC firm Proof Group
• Speaking to CNBC, SEC chair (and industry bogeyman) Gary Gensler appeared to tacitly endorse the efforts of the former NYSE president
• Said Gensler on Wednesday; “If Tom or anybody else wanted to be in this field, I would say, ‘Do it within the law’. Build the trust of investors in what you’re doing and ensure that you’re doing the proper disclosures—and also that you’re not commingling all these functions, trading against your customers. Or using their crypto assets for your own purposes”
• This news about a potential revival (and Gensler’s stamp of approval) actually led FTT—the FTX exchange’s proprietary token—to surge in value, gaining over 90%
• Farley’s Bullish exchange is backed by “prominent investors including Peter Thiel’s Founders Fund and hedge-fund manager Louis Bacon”, whilst Figure was co-founded by former SoFi CEO Mike Cagney, and Proof Group were part of the consortium that successfully bid for Celsius
• According to the reports, a potential winner could be named as early as December, although any possible relaunch would take place far later, and possibly involve a rebrand to minimise associations with FTX’s culture of corruption

What happened: Standard Chartered and SBI team up on $100m UAE digital asset VC fund

How is this significant?

• British bank Standard Chartered and Japanese financial giant SBI Holdings announced a joint venture this week, establishing a $100m crypto investment firm based in the UAE
• According to an email received by industry publication Coindesk, the joint venture investment company will “focus on firms in market infrastructure, risk and compliance, decentralised finance (DeFi) and tokenisation”
• The partnership between SC Ventures (Standard Chartered’s venture arm) and SBI aims to leverage “the collective capabilities of both our organisations in the digital asset space” according to SBI chairman, president & CEO Yoshitaka Kitao
• SC Ventures CEO Alex Manson commented on the advantages of operating in the UAE, although the fund’s investments won’t be restricted by geography; “The region is fast becoming a hub for fintechs in the digital asset space due to its strengthening infrastructure and talent. The Digital Asset Joint Venture will be an important vehicle to explore the emerging digital asset ecosystem opportunities globally”
• Salmaan Jaffery of the Dubai International Financial Centre (DIFC) also commented on the partnership, stating “In a world where the conversation around digital assets has rapidly evolved from ‘why’ to an eagerly anticipated ‘when,’ DIFC stands at the forefront of regulation, having meticulously tailored its ecosystem to foster an environment that nurtures investment, fuels exponential growth, and drives innovation”
• This isn’t the first collaboration between the two finance giants; in February, Standard Chartered subsidiary Zodia Custody and SBI joined forces to establish a Japan-based institutional digital asset custodian

What happened: Hong Kong considers spot crypto ETFs to strengthen regional position

How is this significant?

• Julia Leung, CEO of Hong Kong’s Securities and Futures Commission (SFC) this week revealed that the city is “currently assessing” approval for retail access to spot crypto ETFs, in a bid to further establish themselves as a kay Asian digital asset hub
• She told international news media “We welcome proposals using innovative technology that boosts efficiency and customer experience. We’re happy to give it a try as long as new risks are addressed. Our approach is consistent regardless of the asset”
• Hong Kong already offers a variety of futures-based digital asset ETFs, but as yet, like the US, lacks any physically-backed products
• Swiss bank UBS announced private wealth clients in Hong Kong will be able to trade the three available futures ETFs (two Bitcoin-based and one Ether) from Friday onwards
• Another Swiss bank, SEBA, also entered the Hong Kong market, after securing a licence granting them approval “to deal in and distribute all securities, including virtual assets-related products”
• Additionally, the SFC released two new circulars outlining guidance on tokenised fund and bond issuance, and policy changes that broadened access to security tokens, removing previous restrictions that limited them to “professional investors”
• Leung commented “As the crypto ecosystem evolves step-by-step to the point where we’re comfortable, then we’re happy to open up more access to the wider investing public”

What happened: City minister speaks to growing importance of digital assets to London

How is this significant?

• In a Bloomberg interview, City minister Andrew Griffith discussed the rising profile of digital assets within the capital’s financial centre; the City of London
• Digital assets align the City’s existing expertise according to Griffith, who says “I think it builds naturally on our strengths in terms of things like tech and payments, technologies and clearance”
• Griffith believes that crypto assets are an “increasingly important part of London’s portfolio”, and that catering to the digital asset industry (alongside AI) could prove a key differentiator for London, playing the role of “an honest broker”
• He posits that the City’s long track record of financial activity may give it an edge over other potential destinations; “there will be other regimes that are more dynamic but don’t have some of the quality and trust attributes of London£
• He also urged the Financial Conduct Authority (FCA), the main regulator of digital asset activity in the UK, to show “forbearance” over new, tougher advertising requirements governing any communications from the industry

What happened: Celsius cleared to exit bankruptcy, start repaying customers

How is this significant?

• Following a judge’s order approving their restructuring plan, beleaguered lender Celsius is officially cleared to exit bankruptcy
• The plan (approved by creditors in September), involves repayment of debt via a combination of crypto assets and shares in a new, publicly-listed, Bitcoin mining business
• According to lawyers, distribution of assets could begin early next year, potentially bringing closure and restoring value
• The major remaining hurdle now is the SEC, who must approve the aforementioned mining business—judge Martin Glenn urged the agency to contemplate the matter as quickly as possible, with liquidation being the consequence if the SEC blocks Celsius
• Former Celsius CEO Alex Mashinsky has been accused of fraud by US federal prosecutors, but has pled “not guilty” to the charges

What happened: Bitcoin miners sold more than they mined during October rally

How is this significant?

• According to data from trade publication TheMinerMag, Bitcoin miners took advantage of last month’s rallies by liquidating some of their holdings, alongside newly-mined Bitcoins
• Analysing the 13 largest public crypto mining companies, analysts found a total liquidation-to-production ratio of 105%; meaning that they sold more than they mined, thus necessitating movement of treasury Bitcoin onto the open market
• The trend looks to have been solid business practice; in October Bitcoin hit an 18-month high, and some miners may be securing capital in anticipation of next April’s Bitcoin halving event cutting block rewards (as the name suggests) in half
• The previous three months clocked in at liquidation-to-production ratios of 64%, 77% and 77%, but the 105% still remains a long way short of the record ratio; last June it hit 390% as miners were squeezed by a combination of contagion-based price crashes, and surging energy prices from the global energy crisis