Blockstone Capital Weekly Digest: Friday 23 June 2023
Updated: Jun 27
The sentiment shift in the crypto market has been radical in recent days. On Wednesday, Bitcoin surpassed $30K for the first time since April with several factors driving the price spike, including Jerome Powell's recent remarks on the staying power of crypto assets. In our own backyard, the UK Parliament passed a bill that could potentially recognise crypto assets as regulated activities in the country, indicating a growing acceptance of digital assets within the UK's legislative framework. And then, there has been the entry of several big Wall Street names into the sector.
Crypto market interest from players such as Deutsche Bank, Fidelity, Citadel Securities, Charles Schwab, and other well-known names, demonstrate that recent SEC enforcement actions against digital asset firms aren't slowing Wall Street's appetite for digital assets.
Bitcoin's price has surged by over 20% in the past week, contributing to an 82% increase year-to-date. Other crypto assets including Ethereum, Cardano, Solana, Litecoin, Polkadot, Polygon, and Avalanche have also experienced significant gains, with seven-day increases exceeding 13%. At the time of writing, the total market value of all crypto assets sits at $1.17T up 13.1% in the past week.
While the increased involvement of TradFi institutions in crypto has played a major role in the improved price action, at Blockstone Capital, we find even more excitement in what this trend says about the long-term opportunity of digital assets. New research from Coinbase finds that more than 80% of Fortune 500 companies have crypto initiatives, reinforcing the notion that digital assets are here to stay and many of the world’s most prominent companies want in.
Carl, Vegard and Yev
Crypto exchange backed by Citadel Securities, Fidelity and Charles Schwab launches
This week saw the launch of EDX Markets, a new non-custodial crypto exchange in the US backed by large TradFi institutions including Charles Schwab, Fidelity Digital Assets and Sequoia Capital.
The announcement of EDX has generated a ton of attention in crypto and mainstream financial media due to several key factors:
1) Its founding investors are huge TradFi names
2) The exchange caters directly to institutional investors
3) The exchange is to only offer trading in four crypto assets: Bitcoin, Ethereum, Litecoin and Bitcoin Cash
4) Its timing in launching operations, amid heightened US regulatory scrutiny of crypto trading platforms
5) The non-custodial model it has adopted to mitigate potential conflicts of interest that can arise at exchanges that hold customer assets.
Among these factors, points three and four have generated considerable discussion on Crypto Twitter. EDX's decision to limit its offerings to just four crypto assets – of which none have been deemed as securities by the SEC –indicate a cautious approach to avoid regulatory issues with the SEC. Whereas the timing of EDX’s launch whilst current exchange market leaders are on shaky ground and falling out of-favour with US regulators, have prompted questions from the likes of CZ and others.
The most intriguing aspect for us at Blockstone Capital is the fifth point, as it indicates rather than simply throwing money at companies, TradFi firms could play a role in overhauling crypto exchange market structure. By utilising third-party banks and crypto custodians for asset custody, EDX minimises conflicts of interest and protects against asset misuse like we saw in FTX, Celsius, etc. It will certainly be intriguing to see if by employing this approach, EDX can meaningfully reshape market structure and provide more secure, and trusted platforms for trading in the US.
In the short to medium-term, we look forward to seeing whether EDX can successfully attract institutional interest and inject fresh liquidity into the crypto market, which remains vital at a time when crypto trading volumes have seen a sharp downturn and the largest market makers have exited the US market.
$1.4T banking giant Deutsche Bank files for crypto custody license as CACEIS Bank receives a crypto custody license in France
In another sign that top TradFi players don’t want to be left in the dust in the digital asset race, on Tuesday we learnt that Deutsche Bank filed an application with BaFin seeking permission to oeprate as a custody service for digital assets.
On that same day, CACEIS Bank, the asset servicing arm of Crédit Agricole and Santander, received a crypto custody license in France, as per the French stock market regulator’s website. CACEIS is now the third firm to receive such approval in France, joining Societe Generale's Forge and AXA Investment Managers.
Custody is the foundation for safe and accessible institutional participation in crypto, yet it continues to present unique challenges for institutional investors. Having well-qualified, trusted custodians and an easy on-ramp to crypto assets is vital for the industry to grow. This is what makes both of these developments both important and exciting.
Though at this stage we don’t know anything about the custody approaches of Deutsche Bank and CACEIS, their interest conveys a clear message about the significance of custody technology in the eyes of major traditional financial institutions.
With MiCA providing a clear framework for the issuance, trading and custody of crypto assets in Europe, over the coming months we expect to see more major European TradFi players roll out crypto asset services – be it custody, exchange, or the issuance of stablecoins.
Invesco, WisdomTree and Fidelity are coming after Bitcoin ETFs.
It seems every big player on Wall Street now wants their own Bitcoin spot ETF to give their clients exposure. Over the past several days, the filings of spot Bitcoin ETF filings from the world’s largest asset management firms, including Blackrock, WisdomTree, Invesco and Valkyrie, are further reigniting institutional interest in digital assets and putting an end to the recent SEC-triggered downturn in the market.
BlackRock stands out with its impressive track record of ETF approvals, boasting a success rate of 99.86%. This suggests that not only BlackRock but other institutions also see a promising opportunity to launch the first spot-based Bitcoin ETF in the US. There are even rumors circulating that Fidelity is considering entering this space, either through acquiring Grayscale or applying for a Bitcoin spot ETF. Putting rumours aside, the recent ETF mania and other top stories this week make a few things clear:
1) Institutions entering the crypto space is a sign that digital assets are here to stay.
2) There is increased pressure on the US to finally approve a Bitcoin spot ETF.
3) Institutions may be getting ready for the next bull market (the highly-anticipated bitcoin halving event is slated to take place around April 2024).
Roundup of other key developments
Credit Agricole's CACEIS registers in France as crypto custody services provider.
Ripple gets in-principle payments license in Singapore.
QCP Capital, SBI Alpha execute first uncleared crypto options trade on regulated platform using Bitcoin as collateral.
BitGo says it's terminating acquisition of Prime Trust.
Binance faces scrutiny in Brazil, exec summoned to testify before Congress.
Tether to launch its USDT stablecoin on the Kava blockchain.
DeFi protocol Maverick raises $9m led by Peter Thiel's Founders Fund.
Gemini expands Singapore hub as it looks beyond the US for crypto adoption.
Binance sets up Bitcoin Lightning nodes to ease deposits and withdrawals.
Binance deregisters in UK amid regulatory woes.
Terra’s Do Kwon sentenced to 4 months in a Balkan prison for document forgery.