M6 Labs Bitcoin Weekly

ETF Recap, GBTC Threat, BlackRock Fills Bags

GM Anon! It hasn't even been a week, and the volatility experienced over the last few days has been quite remarkable. The market appears to be finding its footing, but don’t worry the long-term trend is UP! Let’s dive in! 

Bitcoin News & Metrics

  • Robinhood announces all 11 spot bitcoin ETFs available for trading.

  • Gemini says ETF approval is ‘game-changer’ for crypto futures market.

  • UBS will let some customers trade Bitcoin ETFs.

  • Genesis reaches settlement with New York regulator, will forfeit BitLicense and pay $8 million fine.

  • Samsung Securities and Mirae Asset, both based in South Korea, have temporarily halted trading of foreign spot Bitcoin ETFs in response to regulatory warnings.

  • Bitcoin ETFs too small to affect the broader investment landscape according to Moody analysts.

  • CoinShares exercises option to acquire Valkyrie Funds.

  • Curve Finance is set to integrate ZetaChain for native Bitcoin cross-chain swaps.

  • An artificial tweet that caused a drop in Bitcoin's value has been forever memorialized in the form of digital art by Degens, commemorating the SEC chair's reaction to the incident.

  • Vanguard is preventing their clients from buying spot BTC ETFs, due to crypto-related products not aligning with the asset manager's vision for long-term portfolio.

  • Gary Gensler releases statement on $BTC ETF approvals

  • Bitwise announced that it will also donate 10% of the profits of the Bitwise Bitcoin ETF to Bitcoin open-source development.

  • HashKey Group revealed that about ten fund companies are currently preparing to launch virtual asset spot ETFs in Hong Kong.

  • The SEC official website shows that among the five voters, Chairman Gensler, Peirce and Uyeda voted in favor of the Bitcoin spot ETF, while Crenshaw and Lizárraga voted against

  • Bitcoin Miner CleanSpark announced a strategic agreement for 160K Miners.

  • SEC release statement on the hack of Its X account.

ETF Round-Up

What an eventful few days it has been since the launch of the spot Bitcoin ETF. While some may have found the initial experience underwhelming, it's important to view this as part of a longer-term upward trend that will likely propel Bitcoin to unprecedented prices by the end of the year. 

The launch generated significant trading activity, and it was advisable to exercise caution and sit out the volatility unless one possessed substantial experience in managing the associated risks. The misinformation spread by the SEC's false news announcement only added to the turbulence. Let's take a moment to recap where we stand and what the near future holds for the ETF.

The launch of  BTC spot ETFs made a significant impact on the crypto industry, with approximately $4.6B in trading volume recorded on their inaugural day of trading, and surpassed $7.6B after its second day.  

  • This milestone marked the commencement of trading for eleven spot bitcoin ETFs, featuring industry giants like BlackRock's iShares Bitcoin Trust and Grayscale Bitcoin Trust. Leading the charge in trading volumes are Grayscale, BlackRock, and Fidelity, highlighting the substantial appetite for these new investment products.

  • The approval by the SEC represents the culmination of a decade-long struggle between regulators and the crypto industry. Despite concerns expressed by some executives about the inherent risks associated with Bitcoin.

  • Bitwise and Fidelity's spot Bitcoin ETFs attracted higher day-one inflows compared to their competitors, with net inflows of $238M and $227M, respectively. BlackRock's iShares Bitcoin Trust (IBIT) also saw $112M in net flows, while Grayscale Investments' Bitcoin Trust ETF (GBTC) experienced net outflows of around $95M. 

Following the ETF launch, issuers engaged in intense competition by aggressively reducing fees for their products, even before their official market debut. The fee structures for these new bitcoin ETFs range from 0.2% to 1.5%, with many firms offering fee waivers for specific durations or asset thresholds.

  • Notable reductions in fees include BlackRock, Ark Invest/21Shares, Fidelity, Valkyrie, Invesco Galaxy, WisdomTree, Bitwise, and Grayscale.

  • The conversion of Grayscale's existing bitcoin trust into an ETF solidified its position as the world's largest BTC ETF, amassing over $28B in assets under management overnight. 

  • While analysts' estimates regarding the potential inflow of funds into spot bitcoin ETFs vary, projections range from $10B in 2024, as suggested by Bernstein analysts, to a more optimistic outlook of $50B to $100B for this year alone, as posited by Standard Chartered analysts. 

  • When compared to traditional ETFs, Bitcoin spot ETF fees are generally higher, especially when compared to equity and bond ETFs.

  • Bitcoin spot ETF fees are more competitive when compared to fees for some commodity ETFs and are notably lower than fees for existing U.S. Bitcoin futures ETFs.

Bitcoin futures open interest on the Chicago Mercantile Exchange surged to an unprecedented level last week, marking a significant milestone for the crypto market. 

  • Multiple data sources confirmed this development, with Bitcoin futures open interest reaching an impressive $5.4B on CME. 

  • This surge in open interest surpasses the previous all-time high of $4.5B, observed in November 2021 during Bitcoin's peak price surge beyond $68K.

  • This increase in outstanding futures contracts on CME reflects heightened participation from institutional traders within the crypto space. 

  • Notably, the open interest volume of Bitcoin futures on CME overtook that of Binance Futures in November 2023, signifying growing demand from institutional investors. 

  • Furthermore, asset managers have seen a substantial increase in Bitcoin long futures' open interest on CME, soaring from $2.45B at the end of December, and is currently at roughly $5.1B. 

BlackRock's spot Bitcoin ETF, the iShares Bitcoin Trust (IBIT), quickly accumulated 11,439 Bitcoin, worth nearly $500M, just within two days of commencing trading on the Nasdaq stock exchange. 

  • This development follows a swift shift, as on January 11, IBIT held roughly 50% Bitcoin and 50% cash. However, the fund has now transitioned back to being 100% invested in Bitcoin.

Grayscale's Bitcoin fund (GBTC), one of the largest Bitcoin investment vehicles, recently saw its discount to net asset value (NAV) close to zero, marking the first time since February 2021

  • This development followed Grayscale's approval from the SEC to convert the fund into a spot BTC ETF. 

  • The GBTC fund had been trading at a discount to its Bitcoin holdings' value for several months, hitting record lows of nearly 50% in December 2022. The discount to NAV began narrowing as expectations of an ETF approval increased.

  • The discount experienced by GBTC was primarily attributed to the fund's closed-end structure, lacking an inherent arbitrage mechanism that allows market makers to create or redeem shares as needed. 

  • This absence of a redemption mechanism contributed to the significant discount compared to the underlying asset value, causing difficulties for both individual investors and potential credit issues in the market.

  • With the SEC's approval and the conversion of GBTC into an ETF, Authorized Participants can now create and redeem ETF shares at their net asset value. 

  • This change aligns the market price of the ETF with its NAV, resulting in a premium/discount that is expected to vary only slightly from par moving forward. 

  • The recent decline in Bitcoin's value after the launch of the spot ETFs can be attributed to several factors, as analyzed by SkyBridge Capital founder Anthony Scaramucci. He noted that sales of Grayscale Bitcoin Trust shares contributed to the decline, along with the bankruptcy estate of FTX selling off crypto assets. 

  • Many worry this development will lead to further intense selling pressure in the coming days, resulting in Bitcoin dramatically dumping. 

Bitcoin Metrics

In the first week of 2024, digital asset investment products received $151M in inflows, bringing the total inflows since the Grayscale vs. SEC lawsuit to $2.3B, accounting for 4.4% of total assets under management. 55% of these inflows came from US exchanges, while Germany and Switzerland accounted for 21% and 17% respectively.

  • Bitcoin received the most substantial share of inflows at $113M, representing 3.2% of AuM over the past nine weeks. In contrast, short-bitcoin products experienced outflows totaling $1M during the first week of the year. 

  • Ethereum witnessed inflows of $29M, with total inflows over the past nine weeks amounting to $215M, signifying a positive shift in sentiment. 

  • Additionally, blockchain equities had a promising start to the year, attracting $24M in inflows over the past week.

After months of continuous decline, the ETH/BTC ratio broke out significantly, signaling potential substantial gains for the Ethereum ecosystem. 

  • These gains have already been witnessed in coins like Arbitrum and Optimism, which serve as high-beta plays on Ethereum. 

  • Many traders have shifted their focus to ETH following this breakout, often signalling the beginning of the ETH season.

  • While others are holding onto their Bitcoin holdings, many believe that the upcoming pump in the next few weeks and months, driven by capital flowing in from the ETFs, will propel Bitcoin to new heights.

CoinShares recently published a report analyzing the effects of the Bitcoin halving event on the crypto mining network, its sustainability, and profitability.  In 2023, the Bitcoin mining network experienced substantial growth, raising concerns regarding its environmental sustainability and profitability, particularly focusing on efficiency and energy costs in mining.

  • The report explored Bitcoin mining dynamics and hashrate trends, highlighting the significance of Bitcoin's "difficulty" adjustment mechanism in maintaining supply inelasticity. It examined the post-halving scenario, where miners with higher costs might encounter difficulties due to reduced immediate income. 

  • The report's findings indicated an estimated average cost of production per Bitcoin post-halving at approximately $37,856.

  • In conclusion, the report conducted a financial analysis of miners post-halving, suggesting potential cost reductions for miners to maintain profitability, especially if Bitcoin prices remain above $40K. 

  • The report highlighted Riot as a well-positioned player in the face of upcoming challenges, given its cost structure and financial stability.

Bitcoin's correlations with major asset classes have returned to their long-term averages, moving away from the elevated levels observed during the post-Covid stimulus period. 

  • This shift towards lower correlations is seen as positive for investors, as it can potentially reduce risks in multi-asset portfolios. 

  • This suggests that liquidity changes driven by monetary and fiscal policies in response to Covid and inflation have played a significant role in influencing asset class correlations, with even traditionally uncorrelated assets like stocks and bonds exhibiting higher correlations during certain periods in 2022 and 2023.

Bitcoin Ecosystem Update

Checking in on the Bitcoin ecosystem, it seems that solid blue chip collections have started emerging for both NFTS and BRC-20 inscriptions.

Top Bitcoin NFT collections by volume over the last 30 days. Source: OKX NFT Market Place.

Top BRC-20 collections by volume over the last 30 days. Source: OKX NFT Market Place.

A new report by 4Pillars details everything about Inscriptions, a trend originating in the Bitcoin network, have spread to various other blockchain networks since November, significantly impacting them. Over approximately six weeks, starting from mid-November, inscription transactions constituted 50% of total transactions on major EVM networks.

  • Different methods of token inscription have come about are used across various networks, including Ethereum, Arbitrum One, Avalanche C-Chain, zkSync Era, Polygon PoS, Solana, Cosmos, and Celestia, highlighting the diversity in their approaches to on-chain recording.

  • Inscription activities caused significant disruptions on various networks, leading to transaction processing issues, congestion, and high gas fees. Networks like Ethereum, Avalanche C-Chain, and Arbitrum One experienced notable challenges due to Inscriptions.

  • The Bitcoin Ordinals and BRC-20 standards played a pivotal role in the proliferation of Inscriptions, allowing arbitrary data to be recorded on the Bitcoin network and enabling the creation of fungible tokens (FTs) through Ordinals.

  • Inscription tokens gained popularity due to their fairness in distribution, where anyone could participate in mining tokens by creating Mint transactions with gas fees, similar to Bitcoin's early mining. This fairness, combined with the speculative success of BRC-20, contributed to the Inscription craze.

  • While Inscription tokens have seen significant activity, they face challenges related to utility and reliance on centralized off-chain indexers. The trend has inadvertently served as a stress test for blockchains, highlighting the need for improved scalability and consensus mechanisms.

  • The future of Inscription activities on networks other than Bitcoin remains uncertain, with questions about whether they will continue to gain prominence or fade away.

Magic Eden’s pivot into the Bitcoin ecosystem has started to yield positive results with some of its most important collections being from the Bitcoin ecosystem. 

  • Take note that NodeMonkes currently holds the top spot for most volume, overtaking native Solana collections on the platform.

Trading volume over the last 30 days on Magic Eden. Source: Magic Eden.

Sotheby's has initiated the bidding process for its curated collection of Bitcoin Ordinals, featuring 19 unique pieces, including rare Satoshis and artwork by early Bitcoin Ordinals pioneer Shroomtoshi. 

  • This auction, titled "Natively Digital: An Ordinals Curated Sale," highlights the diverse creative expressions within the Bitcoin ecosystem, showcasing explosive growth in the Ordinals sector over the past year. 

  • Sotheby's first Bitcoin Ordinals auction, held in December, achieved remarkable success, with three pieces from the BitcoinShrooms collection selling for five times their combined estimate, signaling the growing interest in digital art and collectibles within the crypto culture. The current auction closes on January 22 at 2:00 p.m. ET.

Bitcoin developers have introduced a Super Nintendo Entertainment System (SNES) emulator into the Bitcoin blockchain through a project called Pizza Ninja, which utilizes Ordinals for its implementation. 

  • The Pizza Ninja project's motivation stems from the concern of preserving classic video games, as an estimated 87% of classic games are no longer in active, licensed circulation. The SNES emulator is integrated into each Ninja Profile Picture, enabling users to play games using an Ordinals explorer or marketplace within their browsers. Check out the gameplay here.

Taproot Wizards, an Ordinals developer, is launching a new collection of NFTs on the Bitcoin blockchain as a tribute to code developed by Satoshi Nakamoto. 

  • These NFTs are named "Quantum Cats" and are inspired by the "OP_CAT" Bitcoin Improvement Proposal (BIP), which was initially introduced by Satoshi but later disabled. However, it enabled "covenants" that allow for smart contracts and bridges on Bitcoin.

  • The Quantum Cats collection consists of 3,333 cat images minted using Ordinals Inscriptions, and it cost $66K to create. 

  • These images will evolve over time, paralleling the development of the OP_CAT proposal process. The collection used 10MB of encrypted on-chain data, despite Bitcoin's 1MB block capacity. 

  • A special edition of the Ordinal called "Genesis Cat" by digital artist FAR is being auctioned at Sotheby's.

Ordiswap has achieved several milestones, including expanding its team, receiving positive audit findings from Three Sigma, and hosting a successful AMA with Alex.

  • They've also onboarded Ordjingle as a Strategic Partner and grown their community significantly. 

  • Looking forward, Ordiswap plans to launch V2 upgrades, introduce strong incentives for liquidity providers, and enable $ORDS staking for value accrual. 

  • They are also working on cross-chain swaps using THORChain, a 2-way bridge, and their own stablecoin, $BTSD, as well as developing OrdiLayer, a Layer 2 solution. 

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