Blockstone Capital Weekly Digest: Friday 16 June 2023
Updated: Jun 20
This week saw Bitcoin’s market cap dominance rise to 46%, the highest level in nearly two years. The growth in Bitcoin’s share of the total crypto market comes as recent regulatory actions by the SEC have placed additional pressure on altcoins, prompting investors to gravitate towards BTC.
Over the past seven days, BTC has experienced a 1.7% decline, while ETH has seen a 10% drop, and SOL has plummeted by a staggering 21%. All eyes this week were also on XRP. Following the release of Ripple's highly-anticipated Hinman documents (key for their defence against the SEC), XRP rallied to $0.5649 on Tuesday. However, this surge was short-lived as the asset tumbled below $0.462 later in the week, erasing its weekly gains.
The newly-revealed Hinman emails have generated a great deal of critique of the SEC, having exposed concerns over Hinman's speech on Ethereum.
Skepticism regarding the SEC's motives further escalated in the wake of its dealings with a little- known crypto broker called Prometheum.
During Tuesday’s House Financial Services Committee meeting focusing on market structure and stablecoin regulations, Prometheum's founder, Aaron Kaplin, echoed SEC Chair Gensler's position that existing regulations are sufficient for regulating crypto. Market participants found it strange that an unknown company with no real track record was called in front of congress to testify. Matt Walsh from Castle Island took to Twitter with a detailed thread pointing out the oddity of the situation. The Blockchain Association has since lodged a Freedom of Information Act request on this subject.
As we write this, news has emerged that Binance is now being targeted by French regulators, and is also departing the Netherlands, having failed to acquire an anti-money-laundering approval from Dutch regulators. Earlier in the week, it applied to de-register its local entity in Cyprus.
Over the coming days, we anticipate a sharp focus on how the exchange cooperates with authorities, if/how its market share shifts, and how market makers respond. Buckle up for a potentially bumpy ride ahead!
Carl, Vegard and Yev
A16z looks to UK for first overseas expansion as FCA’s crypto register gets first additions in six months
In an encouraging development for the UK digital asset ecosystem, Andreessen Horowitz's crypto fund, a16z Crypto, is set to establish its first overseas office in London.
Opening later this year, a16z’s London presence will be led by Sriram Krishnan and among its strategic initiatives, the office intends to collaborate with universities to cultivate blockchain clubs and introduce its renowned Crypto Startup School (CSS) program over to our side of the Atlantic.
At Blockstone Capital, we believe that over time, the arrival of a16z offers a host of advantages for the UK crypto ecosystem, including:
Increased investment: Despite having already invested $7.6bn in crypto startups globally, A16z no doubt still has plenty of capital to deploy; its fourth crypto fund was only announced a year ago and has $4.5bn at its disposal. Some of this capital could flow into UK startups, thus helping to accelerate the growth of the British tech scene and create new jobs.
Global reach: Leveraging its extensive international network, a16z can help UK startups break into new markets.
Bridging academia and industry: a16z’s initiative to establish relationships with universities could go a long way in nurturing the technical talent at institutions such as Imperial College London, Cambridge, Oxford and others. Over the medium to long-term, such collaborations could meaningfully provide students with opportunities to acquire technical skills for crypto-native careers.
Joining UK-based digital asset founders and market participants in applauding the news was PM Rishi Sunak. In a tweet, he labelled a16z's decision to set up shop in the UK as "another huge vote of confidence in the UK as a place to build and grow tech businesses of the future." The PM openly welcoming the arrival of a16z Crypto sends a strong message that the UK sees the opportunity and potential that crypto has, and wants the UK to be a leader in it.
Despite this open-arms approach by the PM, many crypto firms have reported facing challenges in obtaining licenses to operate in the country. Lengthy delays and rejected applications without clear explanations have been common experiences. However, there are indications of a shift.
This week, Bitstamp and Interactive brokers both gained UK crypto register approvals from the FCA – becoming the first crypto approvals in six months since MoonPay and Hidden Road’s registration in December. These approvals, along with Sunak's praise of a16z's UK expansion, signal the UK's eagerness to carve out a larger role in the burgeoning crypto sector.
Blackrock files for a Bitcoin ETF
In a clear signal of the growing acceptance and institutional interest in digital assets, BlackRock, the world’s largest asset manager with $10T in AuM, filed an application on Thursday to launch a spot Bitcoin exchange-traded fund (ETF) on NASDAQ.
BlackRock has chosen to collaborate with Coinbase, who will serve as the fund’s Bitcoin custodian, while the Bank of New York Mellon will oversee the fund’s cash holdings.
With the proposal for the iShares Bitcoin Trust, BlackRock joins an extensive roster of spot Bitcoin ETF applicants. The
SEC, despite greenlighting several Bitcoin Futures ETFs, has not yet approved a spot Bitcoin ETF.
The first spot Bitcoin ETF application in the US was lodged nearly a decade ago in 2013 by Gemini. The application was denied, as has every application since, including Grayscale, which has resorted to suing the SEC over the agency’s denial to convert its flagship Bitcoin Trust into an ETF…
BlackRock has only once had an ETF it proposed rejected by the SEC in 2014.
Six years after labelling Bitcoin an “index of money-laundering”, we have been given clues as to BlackRock CEO Larry Fink’s softening stance on crypto. In August 2022, BlackRock first inked a partnership with Coinbase to connect clients on its Aladdin platform with crypto. Later that month, BlackRock announced it would launch a private trust to provide bitcoin exposure to its US institutional clients. Most recently, in his last annual letter, Fink spoke positively regarding the tokenisation of traditional financial assets such as stocks and bonds.
In closing thoughts, the introduction of a Bitcoin ETF in the US would mark a major step towards increased mainstream adoption. It would certainly provide investors an easier and regulated way to invest in Bitcoin and add some diversity to their portfolios.
However, we maintain that an actively managed strategy through a fund of funds is the optimal approach for sophisticated investors seeking exposure to this emerging asset class – offering higher returns, lower risk and enhanced diversification.
Roundup of other key developments
Bank of China’s BOCI issues tokenised securities on Ethereum in Hong Kong.
New York bans CoinEx exchange, seizes $1.7m in crypto assets.
Hashflow assures users will be made whole following $600K exploit.
House Republicans introduce bill to remove SEC Chair Gary Gensler, restructure agency.
Uniswap Labs releases draft code for 'entirely new' version of Uniswap.
DeFi protocol Sturdy Finance offers $100K bounty to hacker if funds are returned.