1. Market update
2. June in a Nutshell
3. Regulators
- SEC Hits Binance with a Multi-Faceted Lawsuit: A Closer Look
4. Institutions
- Revisiting the $100K Bitcoin Thesis
5. Mining
6. Crypto Projects
7. July Preview
- Bitcoin performance calendar
- Macroeconomic events
- Crypto events
1. Market update
Crypto markets took a bumpy ride in June but managed to close the month with a double-digit percentage gain. From the chart’s perspective, Bitcoin managed to break above a multi-week downward trend and reached a year-to-date high. This bullish momentum is strong, and the $31.5–35.5k range appears to be a reasonable target for the upcoming weeks.
“Fear” was the word to summarize the first half of June. The U.S. regulatory crackdown continued with a double strike by the SEC against Binance and Coinbase over two consecutive days. The SEC expanded the list of crypto tokens they define as “securities”, including Solana, Polygon, Cardano, among others that appeared on this list for the first time. As a result, Robinhood announced that they will terminate support for the affected tokens. This dealt a blow across the market with Bitcoin briefly dipping below $25k and altcoins enduring significant pressure.
But sentiment quickly flipped when news arrived that BlackRock has applied for a spot-based exchange traded fund (ETF) to be traded on the Nasdaq. The firm has more than $9 billion assets under management (AUM) and is the world’s largest asset management firm. They also have a close-to-perfect ETF approval record of 575–1 over the years.[1] Several prominent ETF providers including Invesco and WisdomTree followed suit by filing their respective applications to launch their own spot Bitcoin ETFs. The SEC has 240 days to review these applications, so we will know the result by February 2024.
Huf, co-founder of Pear Protocol, highlights several key dates that corresponds to SEC decision points to approve, deny, or keep the decision on hold.[2] Huf goes on to note that Greyscale has an outstanding lawsuit that challenges the SEC for not letting them convert the Greyscale Bitcoin Trust (GBTC) into a spot ETF. The court decision is due anytime in the next few weeks or months, and if successful, could pave the way for the approval of potential spot Bitcoin ETFs.
It does appear that TradFi giants are taking advantage of the ongoing regulatory crackdown to enter crypto. EDX markets, a new crypto exchange backed by the likes of Citadel Securities, Charles Schwab and Fidelity, officially launched in late June. European banking giants Deutsche Bank and CACEIS have also applied for crypto custody licenses in their home countries.
That said, the regulatory action in the U.S. is far from over and will remain the soft underbelly of crypto in the shorter term. Berenberg, an investment bank, predicts that the U.S. watchdogs could be turning to decentralized finance (DeFi) and stablecoins like Tether (USDT) and USD Coin (USDC) as their next targets.
Macroeconomic factors remain mixed in the background. The Fed decided to keep interest rates unchanged at 5.0–5.25% in a move that was widely referred to as a “hawkish pause”. Fed Chair Jerome Powell maintained a hawkish tone and said that no policymakers see rate cuts for the rest of this year. The dot plot was also revised to reflect a projected terminal rate at 5.6%. As a result, market pricing has adjusted to reflect one or two further hikes this year and most likely no rate cuts before January.
Meanwhile, China has shifted into proactive monetary easing as the post-pandemic recovery appears to slow down. For the first time in ten months, the world’s second largest economy announced cuts to its key lending benchmarks, including 10 basis point cuts to the one-year and five-year loan prime rate (LPR) to 3.55% and 4.20% respectively, as well as the medium-term policy loan rate by the same margin to 2.65%. Economists at Barclays predict that China will deliver a rate cut for every quarter until early 2024. The hypothesis is supported by state media China Securities Journal, who commented that the policy measures could stimulate lending and help raise confidence in the housing market, and suggested the possibility of further cuts this year.
Macro and crypto analyst Ted notes that the Chinese monetary stimulus coincided with Bitcoin strength in the second half of June.[3] In fact, this has been a recurring theme this year and such stimulus is expected to provide tailwind for Bitcoin price.
2. June in a Nutshell
3. Regulators
SEC Hits Binance with a Multi-Faceted Lawsuit: A Closer Look
The U.S. Securities and Exchange Commission (SEC) recently launched an exhaustive lawsuit against Binance and its founder Changpeng Zhao. The charges, numbering thirteen in total, implicate Binance in a wide range of securities law violations. This landmark case represents a significant escalation in the regulatory clampdown on the crypto industry.
Binance and its U.S.-based affiliate BAM Trading Services purportedly operated as unregistered national securities exchanges, broker-dealers, and clearing agencies. The charges were also extended to Binance’s founder, Changpeng Zhao, underscoring his liability as the controlling shareholder of these entities.
The SEC claims that despite public assertions from Binance that U.S. individuals were restricted from transacting on the platform, they subverted their own controls to permit high-value U.S. customers to continue trading. Moreover, while Binance.US was presented as a separate and independent trading platform for U.S. investors, it was secretly controlled by Zhao and Binance from behind the scenes.
The U.S. regulator also alleges that Binance and Zhao exercised unchecked control over customer assets on its platforms, permitting themselves to commingle or divert customer assets as they please. This included transferring assets to Sigma Chain, an entity owned and controlled by Zhao, which according to the SEC engaged in manipulative trading that artificially inflated the trading volume on the Binance.US platform. Furthermore, Binance and Zhao concealed that they were commingling billions of dollars of investor assets and sending them to another Zhao-owned third party, Merit Peak Limited.
The lawsuit also includes charges over unregistered offers and sales of crypto assets. Binance is accused of the unregistered offer and sale of Binance Coin (BNB), Binance USD (BUSD), as well as crypto-lending products known as “Simple Earn” and “BNB Vault”. BAM Trading is charged with the unregistered offer and sale of the staking-as-a-service program on Binance.US.
The news of the lawsuit has already had a significant impact on the crypto market, causing the price of Bitcoin to fall below $25,000 for the first time since March.
In response, Binance indicated its intention to comply with the regulators and expressed a willingness to negotiate a settlement with the SEC. On 17 June, it was made known that Binance.US and the SEC has struck a deal that avoided a total asset freeze at the platform. This contributed to recovering crypto prices at the time.
Overall, this lawsuit represents one of the most comprehensive legal actions ever taken against a crypto firm and underscores the SEC’s growing concern with the industry. Implications of this case will likely reverberate throughout the crypto space and set new regulatory standards that will shape the future of crypto trading.
Many countries make reference to the U.S. regulators, meaning that regulatory pressure against Binance is mounting globally. Binance has been forced out of the Netherlands after it failed to register as a Dutch virtual asset service provider. It was subsequently ordered by the Belgian authorities to immediately suspend operations in the country. In the United Kingdom, the Financial Conduct Authority (FCA) cancelled Binance’s permissions on the company’s request and said that it is no longer authorized to provide any regulated services in the country. Finally, in France, Binance is under investigation for the “illegal” provision of digital assets services and acts of “aggravated money laundering”.
Regulators: Read More
1–15.06.2023
- CFTC Mulls Rules Change to Accommodate Crypto and AI Risk (Read More)
- SEC Sues Binance and CEO Zhao for Breaking Securities Rules (Read More)
- Coinbase Shares Slump After SEC Files Suit Against Company (Read More)
- Coinbase Crackdown Widens as US States Push to Halt Staking Product (Read More)
- Stablecoin Issuer Circle Receives Digital Token License in Singapore (Read More)
- UK FCA Proposes Ban on Crypto Incentives in Tough New Marketing Rules (Read More)
- Gensler rejects idea that Coinbase and Robinhood couldn’t comply with SEC: ‘They know how to register’ (Read More)
- HSBC and Standard Chartered pressed by Hong Kong regulator to take on crypto clients (Read More)
16–30.06.2023
- Binance to exit the Netherlands after failing to obtain regulatory approval (Read More)
- BlackRock May Have Found Way to Get SEC Approval for Spot Bitcoin ETF (Read More)
- CFTC to Review Prediction Market Kalshi’s Contracts to Bet on Control of Congress (Read More)
- Binance.US Reaches Agreement With SEC to Avoid Full Asset Freeze (Read More)
- Hong Kong can draw on Japan, Singapore’s lead for its crypto efforts, says government study (Read More)
- Fed Chair Powell Says Bitcoin Has ‘Staying Power’ as an Asset Class (Read More)
- Coinbase Wins Supreme Court Ruling in Arbitration Lawsuit (Read More)
- Bybit Gains Crypto License in Cyprus (Read More)
4. Institutions
Revisiting the $100K Bitcoin Thesis
In April, a report by Standard Chartered made crypto headlines by attaching a $100,000 price target to Bitcoin.
The central idea around the paper is that the U.S. banking crisis has exemplified Bitcoin’s intrinsic value as a decentralized, trustless and scarce digital asset. Bitcoin has been established as the preferred asset in the crypto space. Hence, its share of the total digital assets market capitalization, commonly referred to as Bitcoin dominance, is likely to increase over the coming months.
External factors are also favorable towards Bitcoin price. The crypto winter is likely over by now, and Bitcoin miners are facing less selling pressure as price recovers. Fast approaching is Bitcoin’s next halving event, which will bring a significant reduction of Bitcoin supply. At the same time, the stabilization of risky assets including tech stocks is conducive towards crypto markets. Lastly, crypto regulation could serve as a positive catalyst, as increased regulatory clarity allows increased institutional investors’ access to the crypto asset class.
The series of abovementioned factors are stacked up with an estimated impact of $10,000-$40,000 each, arriving at the $100,000 price target. However, there was no explanation of the underlying methodology. This is why some critics regarded the report as an opportunistic bet given the Bitcoin rally at that time. They point out that the same bank published a report at the turn of year when crypto markets were largely depressed. That report speculated a further drop for Bitcoin towards $5,000.[4]
That said, the latest report did make valid arguments for supply- and demand-side factors that could drive Bitcoin price in the medium term. Among those, the halving mechanism is arguably the main supply-side driver of Bitcoin price. The fourth halving event will occur approximately next April, when the mining block reward will be reduced from 6.25 BTC currently to 3.125 BTC.[5] By the laws of supply and demand, this represents a supply shock that would push price upwards, given constant demand.
Examining the previous three halving cycles, we can see that it has been one of the most reliable patterns in Bitcoin’s history so far. The price of Bitcoin tended to increase from one year leading up to the halving event and continue the bull run for at least one year afterwards. Counting from the day of the halving event to historical all-time highs, Bitcoin had gained 9,594%, 3,012% and 652% respectively in the 2013–2014, 2016–2017 and 2020–2021 bull runs.[6]
In the Standard Chartered report, the estimated impact of the upcoming halving is $10,000. But this appears to be a conservative guess considering the stated track record. Many crypto veterans believe that Bitcoin could still easily achieve triple-digit percentage gains in the next cycle. The halving factor alone could be enough to propel Bitcoin beyond $100,000.
The anonymous crypto analyst PlanB attempted to model Bitcoin prices based on its halving cycles, and to estimate the potential gain for each cycle. He created the Stock-to-Flow (S2F) Model,[7] which had predicted the price trajectory of Bitcoin with great accuracy over the first and second halving cycles and earned himself fame as the prophet of crypto markets. However, the model’s accuracy deteriorated during the current cycle. This led to criticism towards PlanB and serious questioning of the S2F Model’s validity. For the upcoming cycle, the Model’s prediction is around $480,000, but many have already written off this figure as a valid price target. At least, it would not happen so soon.
Let’s look at research from other prominent institutions and explore alternative frameworks to value Bitcoin. Fidelity, one of the world’s top-five largest asset managers, has done extensive work on Bitcoin. Despite the limelight being recently placed on its competitor BlackRock, Fidelity has arguably been more active in the crypto space. Apart from providing crypto trading and custody services to institutions, it is also one of the first major names to offer crypto to retail. In early 2022, it allowed individual investors to buy Bitcoin for their 401(k) retirement accounts. In March this year, it opened access to Bitcoin and Ether trading to all of its retail clients.
Jurrien Timmer, Global Head of Macro at Fidelity, has done some of the most in-depth statistical studies regarding Bitcoin. He points out that PlanB’s original S2F Model is fundamentally flawed by relying solely on Bitcoin’s scarcity as a lasting driver for price and does not consider the demand side.
Timmer revamped the S2F Model by taking into consideration the remaining percentage of Bitcoin yet to have been mined, accounting for the reasoning that future halvings are likely to have less impact on price compared to past occurrences. In addition, Timmer estimates the growth of Bitcoin demand using past technological innovations as comparable analogs. He found that the growth trajectory of Bitcoin is most similar to the historical adoption curves of the mobile phone (faster) and the internet (slower). According to his new supply-side model, Bitcoin’s fair value is $63,778 by 2024, while his demand-side models suggest a range between $47,702 and $144,753 depending on the speed of Bitcoin adoption.[8]
In May this year, Timmer wrote about the latest situation of Bitcoin. He said that the crypto winter has “flattened” Bitcoin’s adoption curve, and that the internet analog could be the more fitting demand-side model. Based on this and a range of real interest rate regimes, he estimates a fair value band for Bitcoin to lie between $43,438 and $93,460 by the end of 2024.[9]
Talking about Bitcoin price targets, one must not forget Cathie Wood’s ARK Invest, who were one of the earliest institutional players to expound upon Bitcoin’s investment potential. In 2017, researchers at ARK Invest said that Bitcoin could emerge as a new asset class. In 2020, they published their Bitcoin White Paper and estimated that the market cap of Bitcoin could increase to $3 trillion by the year 2025, corresponding to a price tag of $142,850. In 2022, they pointed to the possibility of Bitcoin surpassing $1 million per coin by the year 2030. In the update published this year, they expanded their work to include a base-case, bear-case and bull-case for Bitcoin, with $1.48 million per coin as the most optimistic forecast.
As shown by the chart above, a total eight factors contribute to the price estimate by ARK Invest. Realistically speaking, these factors share certain overlaps to each other, and some are quite far away from achieving the visions mentioned in their report. For example, regarding Emerging Market Currency and Economic Settlement Network, stablecoins still appear to be better candidates than Bitcoin. Some factors have relatively small impact on the price target.
Boiling down, Digital Gold and Institutional Investment appear to be the strongest factors that could contribute to Bitcoin price appreciation in the coming years.
Regarding the former, Bitcoin has long been compared to gold because of several attributes that make them similar. Both are portable, divisible, and have a limited supply. Proponents of Bitcoin say that it trumps gold by having a defined supply limit, and by the ease of storing and using Bitcoin.
Both gold and Bitcoin could be seen as stores of value, which could be particularly useful in times of high uncertainty such as war and inflation. As exemplified by the U.S. banking crisis, both became safe havens for people who were worried about the health of their banks. While Bitcoin may not be a perfect hedge against all types of inflation, more evidence is showing that it is a good hedge for inflation caused by currency debasement, sometimes better known as “money printing”.[10] This is again similar to gold, which has been shown to track money supply growth. The largest increases of gold prices historically occurred in the years after 1971, when the gold standard was abolished and money supply was no longer restrained, as well as after 2008 together with Bitcoin, at a time when global central banks introduced Quantitative Easing to pump new money into the economy. At the very least, there is some degree of substitutability between gold and Bitcoin. Given Bitcoin’s small market capitalization, it certainly has the potential to take an increased market share from gold.
Regarding the latter, it is no longer a myth that traditional institutions are interested to get into Bitcoin. BlackRock and Invesco have applied for spot Bitcoin ETFs, and Fidelity followed suit on 29 June in accordance with rumors. Together, these firms have more than $14 trillion under management, and they will have to accumulate spot Bitcoin if they are to launch their ETF product. A small percentage allocation of these assets into Bitcoin could easily double its current market cap. Willy Woo, a renowned crypto analyst, goes a step further by compiling eight major institutional names that could allocate into Bitcoin. He notes that if 5% of their AUM is used to buy Bitcoin, this could bring the coin to trade at around $310,000.[11]
So why are many institutions still not buying Bitcoin? A recent survey by Laser Digital could shed some light. The survey found out that while 96% of professional investors acknowledged the potential of crypto as an “investment diversification opportunity”, two major risk factors are keeping them on the sidelines. 90% of respondents said that it was important to have the backing of a “large traditional financial institution” for a crypto asset fund or vehicle before they could decide to invest. 75% of respondents said that the current lack of regulatory clarity is restricting them from buying crypto. While this resonates with Standard Chartered’s view that regulation could be a positive factor given time, this also highlights the enormous significance of the spot ETF applications by some of the most trusted names of traditional finance.
Overall, given the slowdown of Bitcoin adoption rates, the $100,000 target could be slightly far-fetched for the next bull cycle. Nonetheless, traditional finance is eager to get into the space and their participation could be the next propellant of price. The spot ETF applications, if approved, could be a watershed moment that introduce big inflows into Bitcoin and accelerate the asset’s appreciation.
Institutions: Read More
1–15.06.2023
- TradFi Giant TP ICAP Brings Crypto Spot Trading to Institutional Investors (Read More)
- Tether Market Cap Climbs to All-Time High of $83.2B, Even as Stablecoin Market Sinks (Read More)
- Hands on with Apple’s Vision Pro: bringing the metaverse to life (Read More)
- Swift and Chainlink exploring how to connect financial institutions to blockchains (Read More)
- Soros Fund Management CEO says crypto is ripe for TradFi takeover (Read More)
- Crypto.com to Close US Institutional Service Amid SEC’s Crypto Crackdown (Read More)
- Robinhood Ends Support for All Tokens Named in SEC Lawsuit as Securities (Read More)
- Korean crypto lender Delio halts withdrawals amid contagion fears (Read More)
16–30.06.2023
- BlackRock Tries for Spot-Bitcoin ETF With Fresh Filing (Read More)
- Trading teams at Crypto.com exchange raise conflict questions (Read More)
- Animoca Brands snags strategic investment from Japan’s Mitsui (Read More)
- Crypto Exchange Backed by Citadel Securities, Fidelity Goes Live (Read More)
- WisdomTree Files to Start a US Spot Bitcoin ETF on the Heels of BlackRock’s Application (Read More)
- Deutsche Bank Applies for Digital Asset License in Germany as TradFi Pushes Further Into Crypto (Read More)
- Invesco Reapplies for Bitcoin ETF, Advocates for More Crypto Investment Products (Read More)
- ProShares’ Bitcoin Futures ETF Racks Up Biggest Weekly Inflow in a Year (Read More)
5. Mining
1–15.06.2023
- Bitcoin Miner CleanSpark Buys 12,500 Bitmain Machines for $40.5M (Read More)
- Bitcoin Miners Are Churning Out More Computing Power Than Ever (Read More)
- El Salvador’s Volcano Energy Secures $1B in Commitments for 241 MW Bitcoin Mine (Read More)
- Bitcoin Halving Is Coming and Only the Most Efficient Miners Will Survive (Read More)
- The SEC Has Not Labeled Any Proof-of-Work Asset as a Security — Why Is That? (Read More)
- Hut 8 Says Repairs to Damaged Crypto Mining Equipment Are Taking Longer Than Expected (Read More)
- Bitcoin Infrastructure Firm Blockstream to Unveil Its Long-Awaited Mining Rig in 3Q of 2024 (Read More)
- Marathon Digital CEO Sees More Bitcoin Miners Forced Out as Challenges Mount (Read More)
16–30.06.2023
- Mining Pools Are the New Mixers For Cybercriminals: Chainalysis (Read More)
- Binance launches Bitcoin mining cloud services amid SEC crackdown in the US (Read More)
- Russian Bitcoin Miners Rake in $4 Billion Yearly: Taxation to Bring $240 Million (Read More)
- Bitcoin Miner Iris Energy Shares Pop 21% After Major Hash Rate Expansion Plans (Read More)
- CleanSpark to house 6,000 miners at new $9.3 million Bitcoin mining facility (Read More)
- Bitcoin Miners Went Dark as Texas Power Grid Teetered on Brink (Read More)
- Only Bitcoin Miners With Low Power Costs and High Sustainable Energy Mix Will Survive: JPMorgan (Read More)
- APLD Signs Artificial Intelligence Hosting Deal Worth Up to $460M (Read More)
6. Crypto Projects
1–15.06.2023
- Bitcoin Coders Feud Over Whether to Crush $1 Billion Frenzy for Memecoins (Read More)
- Optimism Completes ‘Bedrock’ Hard Fork, in Pursuit of Superchain (Read More)
- Centrifuge Looks To Help DAOs Invest In Real-World Assets (Read More)
- Arbitrum Temporarily Stopped Processing Due to Software Bug (Read More)
- Aave-Developed Lens Protocol Raises $15M to Expand ‘Social Layer’ of Web3 (Read More)
- Curve Finance CEO Egorov Sued by 3 DeFi-Focused Venture Capital Firms (Read More)
- Ethereum’s Buterin Releases Roadmap Addressing Scaling, Privacy, Wallet Security (Read More)
- Gensyn AI Secures $43M for Decentralized Machine Learning Led by a16z (Read More)
16–30.06.2023
- DeFi Credit Protocol Concordia Raises $4M in Round Led by Tribe, Kraken Ventures (Read More)
- Meme Coin BOB Tanks 45% After Elon Musk Calls its Twitter Bot Account a ‘Scam’ (Read More)
- Frax founder supports proposal for ‘aggressive’ FXS token buybacks (Read More)
- Ethereum Layer 2 Network zkSync Era’s Locked Value Surpasses $500M (Read More)
- BNB Chain Releases Layer 2 Testnet Based on Optimism’s OP Stack (Read More)
- Ethereum Scanner Etherscan Adds OpenAI-Based Tool to Analyze Smart Contract Source Code (Read More)
- Maverick Protocol raises $9 million to challenge decentralized exchanges like Uniswap (Read More)
- NEAR Foundation Partners With Alibaba Cloud to Accelerate Web3 Growth in Asia (Read More)
7. July Preview
Considering that recent PMI and jobs data remained robust, inflation indicators will remain the main focus and gauge for U.S. monetary policy. The next Fed meeting is scheduled for 26 July.
In parallel, traders will monitor the evolving liquidity conditions in the U.S. and China. These include on the one hand, new debt issuance from the U.S. Treasury that could have a negative influence on U.S. dollar liquidity, and on the other hand, ongoing liquidity injections by the People’s Bank of China.
Bitcoin performance calendar
July is historically bullish for crypto markets. Over the past ten years, Bitcoin closed seven times in green and five times with double-digit percentage gains. The median return is 13.0%, which is the second-highest for all months.
Macroeconomic events
Crypto events
DISCLAIMER
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References
[1] https://twitter.com/EricBalchunas/status/1669691447996456963
[2] https://twitter.com/hufhaus9/status/1673447437271453698
[3] https://twitter.com/tedtalksmacro/status/1673210740365295617
[4] https://www.cnbc.com/2022/12/05/btc-bitcoin-could-fall-to-5000-standard-chartered-predicts.html
[5] https://buybitcoinworldwide.com/halving/
[6] https://beincrypto.com/btc-halving-65-completed-signal-of-btc-cycle-bottom/
[7] https://www.lookintobitcoin.com/charts/stock-to-flow-model/
[8] https://twitter.com/TimmerFidelity/status/1532468836339003394
[9] https://twitter.com/TimmerFidelity/status/1663873646954270720
[10] https://blockforcecapital.com/is-bitcoin-still-an-inflation-hedge/
[11] https://twitter.com/woonomic/status/1674010721225691136
