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While the US continues to move closer to the dream of a spot ETF being fulfilled, they aren’t the only country where major crypto ETF moves are happening.

This week, reports emerged that HSBC, Hong Kong’s largest bank, will now allow customers to trade three crypto ETFs listed on Hong Kong’s stock exchange:

HSBC is now the first Hong Kong bank to allow trading in crypto ETFs, but judging by Hong Kong’s almost stunning embrace of crypto, they won’t be the last:

It’s no wonder why major crypto executives are making the trek to meet with Hong Kong regulators.

While many of our readers don’t live in Hong Kong and will never touch/trade one of their crypto ETFs, it doesn’t mean this move by HSBC isn’t significant. Specifically, there are three major things to keep track of here:

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Recent events on the regulatory front and the U.S. banking sector have sent Bitcoin and other cryptos soaring, but that’s just the beginning of the story.

Here’s the rest…

Like everything else in crypto last year, miners got absolutely crushed.

The combination of high energy prices, increasing competition for Bitcoin blocks, and the bear market proved to be too much for many miners. No miner was safe, not even the giants like the now-bankrupt Core Scientific.

However, 2023 has proven to be much more fruitful for miners. Perhaps nowhere is that more true than for the mining corporation Hut 8 (HUT). Their stock is up a massive 260% so far this year and they are working on a highly anticipated merger with fellow mining corporation US Bitcoin Corp.

Now, although the stock has been doing well this year, it is still down more than 80% from the all time highs.

Power & equipment cost increases… huge levels of debt… and increasing competition have been a weight on recovery.

But while other miners have had to sell more BTC than they mine in order to cover their costs, Hut 8 has been one of only a few that have attempted to hold the coins they mine through the bear market – all 9,000+ of them.

Enter, the $50 million loan from Coinbase.

Hut 8 believes that by holding so much BTC on its balance sheet, it is better able to attract investors who want exposure to hedged miners. They also just fundamentally believe in BTC as an asset class.

Looking Ahead
With the Bitcoin halving (and corresponding mining difficulty boost) rapidly approaching, mining firms like Hut 8, are scrambling to improve their capabilities.

In order for Hut 8 to successfully continue operations without having to liquidate their crypto treasury, they needed a partner to support them. And who better than Coinbase, who is making a concerted effort to enter the institutional arena.

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🏛️ REGULATORY FRONT

The last year has been full of crypto institutional failures. We’ve had FTX, 3AC, Celsius, BlockFi, Silvergate, Signature, and the list goes on and on.

Now, we have another one in trouble…

Prime Trust, a Nevada-based crypto custodian that has provided bank-like services to major companies like BinanceUS, FTX, Celsius, Swan, and Abra, is being placed into receivership by Nevada.

The Financial Institutions Division (FID) of Nevada has assumed control over the crypto custodian, effectively pausing its operations as the company is at a “critically deficient level”. In other words, Prime Trust no longer has the right to run its own business.

The announcement comes just days after BitGo astutely abandoned their intended acquisition of Prime Trust, leaving the custodian struggling to regain footing.

So, How Did We Get Here?
As we said earlier, Prime Trust was just a crypto custodian. Its entire business is merely storing money on behalf of other crypto companies.

There is no real good reason why they should be going under.

That is, unless there was gross incompetency…

The problems all started in December 2021, when Prime Trust somehow lost access to the wallets where they stored customers’ crypto. Obviously, that is a panic-inducing situation and to quickly solve it, they allegedly used clients' fiat deposits to satisfy the rush of withdrawals.

This is akin to operating as a Ponzi scheme. No bueno.

Making matters worse, regulators found that Prime Trust owes clients more than $85 million, but has only $3 million of fiat on hand. Furthermore, the custodian owes $69.5 million in crypto assets, but only holds $68.6 million in reserves.

With roughly $83 million in liabilities, Prime Trust’s failures are pretty much irreparable.

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