Insights and analysis for the professional investor Was this newsletter forwarded to you? Sign up here. |
|
|
Welcome to Crypto Long & Short! This week, Alex Tapscott, author of “Web3: Charting the Internet's Next Economic and Cultural Frontier,” says freshly approved bitcoin ETFs could slow demand for crypto equities, particularly mining stocks.
Then, Faisal Zaidi, of Crypto Oasis, argues that the crypto industry needs more harmonization in regulation, making it easier for businesses to operate internationally.
As always, get the latest crypto news and data from CoinDeskMarkets.com. – Benjamin Schiller, head of opinion and features at CoinDesk |
|
|
We were surprised too. Coalition Greenwich's research, sponsored by Amberdata, shows that the U.S. regulatory environment remains crucial for digital asset investors, but other locations like Dubai and Switzerland also garner support. Check out the report to learn more. |
Amberdata delivers comprehensive digital asset data and insights into
blockchain networks, crypto markets, and decentralized finance empowering
institutions with the critical data required to participate in digital assets. Trusted by Citi, Coinbase, Nasdaq, Franklin Templeton and more. |
|
|
Do Bitcoin ETFs Kill the Bull Case for Crypto Equities? |
Bitcoin ETFs are finally here. Did the launch live up to the hype? By most measures, the answer is “yes.” In the first six days, the 11 new ETFs gathered nearly $4 billion in assets. As significant, the products collectively traded $10 billion in volume in the first three days. This was tempered somewhat by outflows from Grayscale’s Bitcoin ETF (GBTC) of around $2.8 billion. Before receiving ETF approval, GBTC was a closed end fund with no redemption option trading at a substantial discount to its fair value, or NAV. So, clearly holders who felt trapped in the product are using the ETF as exit liquidity. Though it was not the biggest ETF launch day in history, as some were expecting, most industry analysts agreed that this was a big deal. However, the launch turned out to be a sell-the-news event, with bitcoin and companies tied to the industry trading steadily lower over the ensuing week since the launch. I believe this period of weakness will be short-lived. Investors are closely watching the GBTC outflows for signs the selling is drying up. When it does, I expect many of the mainstream investors who have been sitting out the recent volatility will step into the market in size. What’s less clear is whether they will also start buying back publicly traded companies with exposure to crypto-assets. Recall that in December, investors were gobbling up shares in Bitcoin miners like Riot Blockchain, as well as crypto bellwethers like Coinbase. The Harvest blockchain index, which contains many of these stocks, rose 40% in December, outpacing Bitcoin and Ethereum. However, since the launch, those names have given back nearly all the gains (see chart #1), dramatically underperforming. |
For years, these companies were the only proxies in the public markets that gave investors exposure to growth in the underlying asset class. Their fortunes rose and fell on the price of Bitcoin. However, with ETFs now readily accessible to anyone, investors will start sharpening their pencils on these businesses and evaluate them on their merits. They won’t just go up because Bitcoin goes up. They also need to be well-run businesses! Right now, all are being battered in fairly equal measure. But there is a wide gulf in the quality of many of these companies, which will become clear as the dust settles from the post-ETF selloff. For Coinbase, analysts are concerned that because of the launch of the ETF, the company will see less high-margin fee revenue from retail trading, and that the low-margin revenue from custody and institutional trading for most of these ETFs won’t make up for it. But, if the asset class continues to rise, retail could come back in a big way. Coinbase has more than 110 million users, mostly in the U.S. (Fidelity by contrast has 42 million) and most of them have been sitting on the sidelines. It is unlikely there will be ETFs for most crypto-assets, so Coinbase will still get to dominate the retail end of the market. The same cannot be said for Bitcoin miners, which are facing strong headwinds. First, the Bitcoin hashrate, a measure of network security, is near an all-time high, meaning miners need to marshal ever more computing power to earn new rewards. The Bitcoin halving, likely to occur in April, will cut the block reward in half, meaning there will be less to go around. Bitcoin Ordinals, referred to as “NFTs for Bitcoin,” are causing a rift in the community, so miners can’t rely on added fee revenue from these more novel implementations of the network. Some miners will thrive in this environment, but the days of rising tides in crypto lifting all miner boats are done. This may be a tough pill for some who bought these names hoping an ETF would guarantee them a big gain. But, in the big picture, it’s a positive for the industry. Investors have more choice and companies have more incentive to operate as profitable well run enterprises. Both are signs that crypto is growing up. Alex Tapscott is the author of Web3: Charting the Internet's Next Economic and Cultural Frontier (Harper Collins) and is the Managing Director of The Ninepoint Digital Asset Group at Ninepoint Partners. This article is for information purposes only and should not be relied upon as investment advice. |
|
|
Crypto Needs Cohesive Regulation – A Look at Europe’s MiCA |
In the ever-evolving world of blockchain and cryptocurrency, a cohesive regulatory and business development ecosystem is crucial to foster collaboration and innovation. A fragmented world, where companies have to comply with different rules in every country they operate in, makes building the decentralized economy harder. Recently, Crypto Oasis, Crypto Valley, the DLT Science Foundation and Inacta Ventures joined forces to unveil the Inaugural Global Protocol Report, designed to help the industry navigate an increasingly complex world of regulation and protocol development. Here is a contributed excerpt, written by Timea Nagy, senior legal counsel at AlpinumLaw, a Zug-based law firm, about Markets in Crypto-Assets Regulation (MiCA), Europe’s sweeping crypto standards that come into force this year, allowing companies to harmonize their offerings across all 27 members countries. Looking at the cryptocurrency landscape, it’s challenging how regulations can vary so greatly depending on where you are in the world, involving different regions, legal jurisdictions, and governing bodies. In an effort to create a more cohesive framework, the European Union (EU) has taken a significant step by introducing the Markets in Crypto-Assets Regulation (MiCA). This initiative could potentially serve as a blueprint for other jurisdictions around the globe. As of now, MiCA stands as a beacon of possibility for harmonizing Crypto regulations on an international scale. MiCA isn’t just a standalone regulation; it’s a crucial piece of the comprehensive digital finance strategy devised by the European Commission. This broader strategy encompasses various aspects, including the forthcoming Regulation on digital operational resilience (DORA), which has provisions extending to crypto-asset service providers. Another noteworthy inclusion is the new Regulation centered around a distributed ledger technology (DLT) pilot regime, focusing on enhancing the functioning of financial market infrastructures built upon DLT principles. The regulation itself casts a wide net, covering a range of subjects. From those issuing crypto-assets without backing to stablecoins, and from the platforms where crypto-assets are traded to the wallets where they’re stored, it seeks to provide a cohesive regulatory framework. This regulation defines crypto-assets as digital representations of value or rights, transferable and storable electronically. It categorizes them into utility tokens, asset referenced tokens, and electronic money tokens – effectively enveloping crypto-assets that aren’t presently regulated by existing financial services laws. The new regulation emphasizes transparency, disclosure, authorisation, and supervision, all of which hold significant sway. Notably, Crypto-asset service providers (CASP) are required to obtain authorisation from a national competent authority, allowing them to offer their services across the entire EU. This authorisation essentially acts as a passport for their operations within the union. But what does this mean for Switzerland or other non-EU countries? Switzerland, as well as any other non-EU country are affected by MiCA as long as they provide Crypto related businesses in EU countries. Meaning, Swiss companies will need to analyze whether they fall under the MiCA provisions; if so – whether they have the necessary license or not. Scope. In general, MiCA applies to three categories of persons, (i) issuers of crypto-assets, (ii) CASPs and (iii) any person, in respect of acts that concern trading in crypto-assets that are admitted to trading on a trading platform for crypto-assets operated by an authorized crypto-asset service provider, or for which a request for admission to trading on such a trading platform has been made. Furthermore, MiCA distinguishes between three types of crypto-assets: Asset references token, means a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies. Electronic money token is a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency. Utility token refers to crypto-assets that are only intended to provide access to a good or a service supplied by its issuer.
NOTE! Outside the scope of MiCA are: DeFI protocols, pure NFTs, CBDCs, security tokens or other crypto-assets that qualify as financial instruments according to MiFID II.
Licensing. MiCA introduces licensing requirements for crypto-asset service providers, issuers of asset-referenced tokens and issuers of electronic money tokens. In general, CASP will trigger the licensing requirements, unless they are already a licensed credit institution under MiFID. As mentioned before, even with an existing license, the company would still need to notify the competent authorities about its intention to offer crypto-asset services.
Supervision. At the member state level, competent authorities will hold the responsibility for overseeing CASPs and ensuring adherence to the stipulations outlined in MiCA.
CASPs with an active user base exceeding 10 million will fall under the category of “Significant CASPs.” While these Significant CASPs will continue to be monitored by the relevant competent authorities, the European Securities and Markets Authority (ESMA) will be vested with an “intervention power.” This authority empowers ESMA to enact measures that either prohibit or restrict the provision of crypto-asset services by CASPs, particularly when there are perceived threats to market integrity, investor protection, or financial stability. For stablecoins, the oversight landscape involves the European Banking Authority (EBA) stepping in. Specifically, stablecoins with user counts surpassing 10 million or possessing an asset reserve exceeding €5Bn will fall under EBA’s supervision. Additionally, the European Central Bank will possess the authority to exercise veto rights concerning any stablecoin it deems concerning, thereby influencing its operations. Market abuse restrictions. Crypto-assets that do not qualify as financial instruments under MiFID II will fall outside the scope of the EU Market Abuse Regulation. However, MiCA sets out its own market abuse rules for crypto-asset markets in an attempt to guarantee market integrity. These rules will be applicable to crypto-assets that are admitted to trading on a trading platform for crypto-assets operated by an authorized cryptoasset service provider. Conclusion. It is without any doubt that the influence of MiCA on CASPs is bound to be substantial. This means that we might be looking at extended and potentially demanding phases for implementing the necessary changes. Despite the potential hurdles that lie ahead, we’re maintaining an optimistic outlook as we’re prepared to tackle the challenges not only from a practical perspective but also from a legal standpoint. For more from the Inaugural Global Protocol Report, including analysis of 50 leading crypto projects, click here. |
– Faisal Zaidi, Chief Marketing Officer and co-founder, Crypto Oasis |
|
|
From CoinDesk Deputy Editor-in-Chief Nick Baker, here is some news worth reading: |
- MYSTERY SOLVED?: Bitcoin ETFs were heralded, before approval, as the next big thing in crypto and maybe even all of finance. After all, big shots like BlackRock are putting their weight behind them. How could they fail? Indeed, they are, as a group, accumulating assets – but the incumbent, Grayscale, has seen billions of dollars flee its 10-year-old Grayscale Bitcoin Trust (GBTC). CoinDesk's Ian Allison found one reason for the GBTC outflow: bankrupt crypto exchange FTX sold 22 million GBTC shares. Since this is an arguably one-off thing that won't repeat, bitcoin bulls feel like this is good news – the bleeding might stop soon. Meanwhile, CoinDesk's Helene Braun showed why Grayscale might be a takeover candidate amid the fierce fight for bitcoin ETF supremacy.
- PRESIDENTIAL PAUSE: For the first time, U.S. presidential candidates have talked about cryptocurrencies during this election cycle. But is that over now that two of the loudest voices, Republicans Ron DeSantis and Vivek Ramaswamy, have dropped out? CoinDesk's Jesse Hamilton just examined that issue. The Republican frontrunner, Donald Trump, did just wade into adjacent territory, vowing to "never allow" a central bank digital currency if he's elected president again. DeSantis and Ramaswamy have also said they're against CBDCs. Will Trump go a step further and become a bitcoin maxi? Stranger things have happened.
|
|
|
Consensus is the biggest and most established hub for everything crypto, blockchain and Web3. Join us at the 10th annual Consensus May 29-31 in Austin, Texas for dialogue, discovery and dealmaking alongside developers, investors, startups, executives and more. Register before prices increase on Jan. 25 to save $1,600 on registration! Plus, use code CLS15 for an additional 15% off. Get your pass. |
|
|
|
