Court to SEC: Go Back to La Skool
GM friends.
Has anyone checked in on Uncle Gary? Because he just took another fat L from the U.S. Federal Courts, and I’m concerned.
Pour a double-shot for this one. You’ll need it. This is your mid-week crypto update. ☕️☕️📰
Here’s what’s in today’s issue:
- David shares his thoughts on Grayscale’s big win against the SEC, Vanguard investing heavily in BTC miners & Genesis closing a debt repayment deal.
- Rekt Capital has the latest technical analysis for you on the market.
- Erik has an article on Friend.tech.
- In case you missed it by Rebecca.
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U.S. Court Orders SEC to Re-Review Grayscale’s ETF Application
It’s the court decision we’ve all been waiting for.
On Tuesday morning, the D.C. Court of Appeals ordered the SEC to re-review Grayscale’s previously rejected Bitcoin ETF application.
Bitcoin shot up 7% on the news, as the ruling increases the chances of a spot Bitcoin ETF arriving to U.S. shores.
Grayscale manages the world’s largest Bitcoin investment fund, known as the Grayscale Bitcoin Trust (GBTC), which is valued at approximately $16 billion.
Besides Satoshi Nakamoto, Grayscale controls more Bitcoin than any other person or entity, with approximately 643K BTC (3% of 21M) held in trust.
Grayscale’s GBTC operates as a special type of investment trust. Grayscale sells GBTC shares to accredited investors for cash, and then buys and holds Bitcoin with that cash.
So, each issued GBTC represents a portion of Bitcoin held by Grayscale. From there, GBTC eventually filters into the open secondary market for trading.
The problem however is that no investor can redeem their GBTC back to Grayscale for either Bitcoin or cash. Under GBTC’s current structure, there’s no redemption mechanism.
In fact, it appears that Grayscale’s entire business model has hinged on their bet that the SEC would eventually approve a GBTC to ETF conversion! And because GBTC’s value is ultimately determined by the free market, plus the fact that there’s currently no redemption mechanism, GBTC often trades at a significant premium or discount to Bitcoin’s market price.
This isn’t good for Grayscale’s business.
So in October 2021, the company filed an SEC application for a GBTC to spot ETF conversion.
Spot ETF shares are much more likely to trade one-to-one with the underlying asset because there’s a built-in redemption mechanism.
So problem solved, right? Nope.
The SEC denied Grayscale in June 2022, citing concerns of possible market manipulation. So Grayscale sued.
And that brings us to Tuesday.
The Court called BS on the SEC, saying their rejection appeared “arbitrary and capricious” given the agency is approving Bitcoin futures ETFs, while not offering a good reason for rejecting GBTC.
Essentially, the judge said spot and futures Bitcoin ETFs are like apples to apples, but the SEC is treating them like apples to oranges.
To be clear, the Court did not rule that the SEC must approve Grayscale’s application. Rather, it ordered the SEC to re-review the application, and if the SEC is to deny it again, then they better have a good reason for doing so.
At this point, there’s one of two ways this will likely play out. The SEC will re-review Grayscale’s application and either:
- Aapprove it or
- Deny it citing a different reason which they believe will pass the court’s scrutiny.
Currently, I’m thinking it’s more likely than not that the SEC approves the application, due to mounting pressure from the courts, the public, and some big companies via the eight other pending spot Bitcoin ETF applications on file at the agency.
And what about you? Reply to this email, and tell me what you believe is the most likely outcome, given this new court order.
Do Vanguard’s Recent Mining Investments Mean BTC Price Go Brrr?
News circulated the last few weeks about BlackRock’s investments into Bitcoin mining stocks. But there’s a new player in town, and unlike BlackRock, they’re buying a lot of their stocks in 2023, when prices are at record lows.
And who is on the 2023 mining stock shopping spree, you ask? It’s the investment management company Vanguard, with their $7 billion in assets under management.
And this got me thinking, are Vanguard’s recent purchases effectively a bet that Bitcoin’s price will be going up in the future? And if yes, then how? Here’s that case.
First, there’s a positive correlation between Bitcoin’s price and the prices of mining stocks.
Here’s Bitcoin’s price (in red) since 2018, compared to the top five largest mining stocks. Notice any similarities?
Second, Bitcoin’s price directs mining stock prices because the former is a key factor in miner profitability.
Miners’ main business expenses are computers and electricity, and freshly minted Bitcoin is their reward. So obviously, Bitcoin’s price is a huge factor in determining their profitability.
In the industry, this is all condensed into the metric known as the “hash price”; or, how much money is earned per hash unit (computer power plus electricity) used for mining. A high hash price means miners make more money. A low hash price means they make less.
Third, hash price is currently in the dumps. Why?
Because Bitcoin prices are at relative lows, electricity is expensive, and more miners than ever are competing for the good stuff.
And fourth, despite all of this, Vanguard is loading up on the two largest publicly traded mining stocks, Riot and Marathon. Specifically, Vanguard increased its exposure to RIOT and MARA 57% and 80% respectively from June of 2022 through today, with significant purchases coming in this last quarter.
Remember, Bitcoin has been below $30K since May 2022.
Maybe Vanguard is just reflexively buying the dip. Or maybe they’re betting Bitcoin’s price – and therefore these mining stocks – will be mooning again.
DCG & Genesis Close to Debt Repayment Deal with Creditors
Our final story concerns a possible debt repayment deal forming between the Digital Currency Group (DCG), their subsidiary Genesis, and Genesis’ unsecured creditors.
Court filings on Tuesday revealed an “in-principle” agreement between these parties that would see Genesis’ creditors recovering 70% to 90% of their funds over a seven year period.
And why does any of this matter? Well, an amicable resolution is likely what’s best for the crypto industry and maybe even for Bitcoin’s price.
That’s because DCG is a crypto heavy-weight. Their five subsidiaries are CoinDesk, Foundry, Genesis, Luno, and . . . drumroll please . . . Grayscale. That’s right, and DCG owns approximately 10% of all issued GBTC.
But the problem is that DCG and Genesis are like Bunny Lebowski. They owe money ($3.5B) all over town (to 50 creditors including Gemini and VanEck) including to known degens! DCG’s troubles started during the FTX, Three Arrows Capital, and Terra Luna collapses last year.
Long story short, what we want to see is an orderly, reasonable repayment deal where these companies can stay afloat. Because if Grayscale does get their spot Bitcoin ETF, the less Bitcoin DCG needs to liquidate from their 10% stack (64K Bitcoin), the better.
In today’s edition of the Rekt Capital Newsletter, the following cryptocurrencies will be analysed and discussed:
- Woo Network (WOO)
- Chainlink (LINK)
- Dogecoin (DOGE)
- Fetch ai (FET)
- Ocean Protocol (OCEAN)
Let’s dive in.
Woo Network — WOO/USDT
Over the past few weeks, we’ve been talking about how WOO needs to maintain the bottom of its market structure as support for a bullish bias:
For context, here is the mid-August chart:
This led to the August 23rd update:
And here is today’s update:
WOO printed a phenomenal downside wick that enabled price to return back above the base of the wedging structure (blue).
Most importantly, WOO was able to Weekly Close above the base of the structure, protecting its integrity.
And once again this week, WOO has produced a downside wick below the market structure support but price is still managing to hold the blue base as support.
Continued stability here and WOO will be able to flick up from here.
It’s key that WOO doesn’t print a Weekly Close below the structure as that would likely kickstart the breakdown process.
Chainlink — LINK/USDT
Earlier this August we spoke about a LINK pullback to the Range Low support:
And here is an update:
LINK has rebounded from the Range Low, hammering out a base there, but still no reversal — perhaps it is too soon for that.
LINK needs to Monthly Close above the Range Low and from there it is possible that LINK will enjoy upside to the top of the Range.
Of course, throughout September I wouldn’t be surprised to see downside wicking, especially since it tends to be a turbulent month for Bitcoin historically.
But once LINK weathers the storm of September, going into later that month and October, I think LINK will have confirmed its stability at the Range Low sufficiently to start slowly reversing as part of its intra-range price behaviour, to the top of the range.
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The app Friend.tech has only been on the scene for about three weeks and has been a breakout application that attracts people from outside crypto.
More than 100 thousand users have been trading shares in each other. The fact that the app is another way of ‘financializing’ traditional stuff – in this case social relations – has met criticism.
Other points of critique are that the app is not user-friendly and infested with trading bots.
Still, there are things to be said about the underlying business model. Is Friend.tech a new crypto primitive, a new proof-of-concept?
Crypto Market News
- Grayscale has won its lawsuit against the US Securities and Exchange Commission (SEC) after appealing the rejection to convert its Bitcoin Trust (GBTC) to a spot Bitcoin ETF. Source
- Bitcoin could hit $100K by capturing just 2-5% of gold’s market cap according to Hut8’s Vice President. Source
- X (Twitter) has had a license approved to store, transfer, and trade crypto. Source
- The SEC has charged Impact Theory, the podcast studio, for selling unregistered securities in its first action against an NFT project. Source
- The US Treasury Department has finally decided on its definition of a crypto broker in a new proposed rule in which miners are exempt, but some DeFi platforms will not be. Source
- Bitcoin adoption in Argentina is outpacing El Salvador according to Ark Invest. Source
- JP Morgan sees “limited downside” for the crypto market over the near term as its challenging phase has passed. Source
- Bitstamp has announced it’s ending its staking services in the US from September 25. Source
- The US Drug Enforcement Agency (DEA) mistakenly sent over $50K in USDT to a crypto scammer. Source
- Crypto asset management company Hashdex has filed an application for a spot Bitcoin ETF in the US. Source
- Hong Kong-based exchange Hashkey has started accepting retail crypto investors. Source
Coins and Projects
- Bitcoin’s difficulty has jumped 6%, hitting new all-time highs with hash rate not far behind. Source
- Bitcoin’s velocity has hit lows last seen in 2020 before its breakout to new all-time highs. Source
- Bitcoin’s halving could take the price to $148K by July 2025 according to Pantera Capital. Source
- Arthur Hayes has said Bitcoin is the antidote for the “broken, corrupt and parasitic fiat banking system” in his latest blog post. Source
- CoinCorner and Lolly have partnered to bring Bitcoin payments to the LollyPoS system allowing customers to pay in Bitcoin at Lolly tills and kiosks. Source
- USDC is launching on 6 new blockchains including Polygon PoS, Base, Polkadot, NEAR, Optimism and Cosmos via the Noble network. Source
- Ark Invest and 21 Shares have teamed up to apply for two Ethereum Futures ETFs. Source
- OnlyFans’ parent company Fenix International purchased $19.88M in ETH in 2022. Source
- Base and Optimism have announced a revenue-sharing and governance-sharing agreement to prevent Base from becoming centralized. Source
- USDC will launch natively on Coinbase’s Base network at the beginning of September. Source
- Circle has partnered with Mercado Pago, part of Mercado Libre, to bring USDC to 2M users in Chile. Source
- Binance is set to change its zero-fee Bitcoin trading terms from September 7 by implementing a regular taker fee based on the user’s VIP level. Source
- Binance and Mastercard are ending their crypto card payment program in Argentina, Brazil, Columbia, and Bahrain from September 22. Source
- Binance is pushing low-liquidity crypto projects on its platform to take steps to boost liquidity. Source
- PancakeSwap V3 has launched on Ethereum’s Linea mainnet, a blockchain built by ConsenSys. Source
- Num Finance, based in Argentina, has launched a stablecoin pegged to the Colombian Peso on the Polygon network. Source
- Polygon has launched a new software toolkit for developers to build ZK-powered networks on Ethereum. Source
- Solana Pay has been added to Shopify’s range of payment options, allowing merchants to accept crypto transactions, starting with USDC. Source
- Pendle Finance will launch its first real-world assets (RWA) based product in collaboration with MakerDAO’s boosted Savings (sDAI) and Flux Finance’s fUSDC. Source
- DAI’s market cap has jumped by almost $1B to $5B after raising its Enhanced Dai Savings Rate to 8%. Source
- Velodrome Finance is set to launch a new DEX, Aerodrome, on Coinbase’s Layer 2 Base network. Source
- A 1inch wallet linked to the 1inch Investment Fund has bought $10M in ETH. Source
- PEPE has confirmed $16M was withdrawn from its multisig wallet by 3 ex-team members. Source
- Shibarium has reopened withdrawals on its bridge to Ethereum on the mainnet after its failed launch on August 16. Source
- Friendtech is already being declared dead by critics after suffering drops of over 90% in activity, inflows, and volume. Source
Macro News
- US Federal Reserve Chair Jerome Powell made a keynote speech at Jackson Hole and said rates will go higher if needed, though will proceed carefully. Source
- Australia has wrapped its CBDC pilot and has outlined 4 key areas where CBDCs could be useful. Source
- Mayor of Miami, Francis Suarez, has said he would accept Bitcoin as part of his salary if elected president. Source
- The Central African Republic is exploring tokenizing its natural resources through its Sango Coin. Source
- The Hong Kong Monetary Authority has released its findings on its Project Evergreen analyzing the impact of bond tokenization. Source
- In a recent Russian study, only 17% of Russian citizens would store more than $200 in a CBDC. Source
Thank you so much for your support, and I truly hope that today’s issue will give you insights needed to help you master your wealth.
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