Good afternoon. Bitcoin (BTC) is up 20% since our last issue. Bull market?! No, probably not (yet). But there’s a ton of big news to talk about that may shed some light on the recent uptick. Continue reading our commentary below to catch yourself up.
Today’s Big Stories: 📁BlackRock files for a Bitcoin ETF 📈The GBTC arbitrage is back, thanks to Fidelity 🏦Tether (USDT) reserves finally exposed
Today's newsletter is 1,581 words, a 7-minute read.
📌 MUST READS
BlackRock Applies For A Bitcoin ETF
It’s been nearly 10 years since the first spot Bitcoin ETF application was filed by Cameron and Tyler Winklevoss.
At that time, BTC was trading a mere $90 and the twins hoped to launch their ETF under the ticker symbol “COIN” which was eventually claimed by Coinbase. Of course, the SEC summarily rejected the application.
Since that time, the SEC has rejected dozens of further ETF applications including a second rejection of 21Shares application and a third of Vaneck’s.
But for all of the rejection, a spot Bitcoin ETF has been the dream of crypto investors for years now. And for good reason. A spot Bitcoin ETF would allow hordes of retail and institutional investors alike to invest in Bitcoin easier, safer, and cheaper than every option currently available.
Unfortunately, although many have tried to make this dream a reality, all have failed.
But this time might be different.
BlackRock, the world’s largest asset manager, is filing for a spot Bitcoin ETF.
The iShares Bitcoin Trust The ETF would be known as the iShares Bitcoin Trust. It’s a trust because Coinbase (COIN) would be the custodian of the trust’s underlying Bitcoin.
Now, as we said in the introduction, there has been no shortage of ETF hopefuls over the years. Grayscale, VanEck, and WisdomTree have all come up short. Why would BlackRock be any different?
There are a few possible answers to that question:
As the largest asset manager on the planet with more than $10 trillion in AUM, BlackRock is extremely powerful and influential.
CEO Larry Fink is a Democratic party kingmaker, the same party that SEC Chair Gary Gensler belongs to.
They’ve promised a surveillance program to prevent market manipulation, a concern that has killed prior applications.
The point of the story is that BlackRock usually gets what they want, as evidenced by their 575-1 record on ETF applications. It’s not unreasonable to assume the same will happen with their spot Bitcoin ETF.
But, whether the BlackRock ETF would actually be good for crypto depends largely on how you look at it.
The Good While crypto continues to be attacked in every direction, the news of BlackRock’s application has sent the asset surging 15% over the past week.
Simply put, investors aren’t writing off the application as another failed attempt just yet. And if the ETF was approved, it’s possible that BlackRock does for Bitcoin what it did for gold, sending the assets $1 trillion market pre-BlackRock to a $13 trillion market post-BlackRock. Even more so if BlackRock leads to WisdomTree and Invesco launching spot ETFs of their own.
It’s also possible that a BlackRock ETF would help solve the GBTC discount problem, which would be a welcome sight for Grayscale and their investors.
The Bad However, the timing of the move so close to the SEC crackdown on Coinbase and Binance has some wondering whether this is all a ploy to destroy crypto exchanges in favor of more regulated entities like BlackRock. This would transform crypto from what we know today into something that more closely resembles traditional finance. There’s even a chance we end up with a regulated Bitcoin fork.
Ultimately, like most things in crypto, there’s no cookie cutter answer here. The BlackRock ETF could be simultaneously positive and negative.
What is clear is that the institutions are finally here. And, if nothing else, that’s a good thing for prices.
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But all of that is peanuts compared to the “seismic” move they are rumored to be planning.
Word on the street is that Fidelity is either going to make a bid for Grayscale, apply for a spot Bitcoin ETF, or both.
Any and all of the above would be absolutely huge for the industry.
A Bid For Grayscale Grayscale is the digital asset manager best known for trying and failing to operate a spot Bitcoin ETF. They are also known for providing the most popular way to buy BTC without actually buying it. That’s because their Grayscale Bitcoin Trust (GBTC) allows investors to purchase bitcoin (and other crypto asset’s) through their brokerage account.
The main problem though is that GBTC is futures-based and not spot, meaning that there’s no way for holders to redeem their GBTC shares for actual Bitcoin.
This has resulted in an extremely wide discount between the price of GBTC and the price of Bitcoin. This discount has gotten as high as 48% causing Grayscale to have to buy back shares in order to close it.
Fidelity buying Grayscale would immediately fix this for two reasons:
It’s an extremely bullish move that would drive demand for GBTC, therefore increasing the price of GBTC and lowering the discount to BTC.
Fidelity would most likely also apply for a spot Bitcoin ETF, which if granted, would instantaneously wipe out the discount.
In other words, there’s a reason why share prices of GBTC have spiked ~40% since the news broke.
Not only would this be good for GBTC holders, but it’d be good for the industry as a whole, especially if they turn GBTC into a spot Bitcoin ETF.
That’s why in December of last year we wrote:
“Think about it… What this discount means is that you are able to buy BTC at a 47% discount! Sure, you have to pay Grayscale’s management fee, but you can’t beat buying an asset for 47% off. If the discount ever closes due to market forces or GBTC converting to an ETF (which it promises to do), then there is a huge arbitrage opportunity here.”
A Spot ETF Thankfully, that spot Bitcoin ETF might be coming regardless of whether Fidelity bids for Grayscale or not.
Perhaps they are emboldened by BlackRock filing for their own spot Bitcoin ETF. Maybe they are just true allies of crypto and, by extension, our retirement funds. Whatever the case, a Fidelity spot ETF would be great news for crypto prices, especially if it’s paired with a BlackRock ETF.
However, just like with the BlackRock ETF, we do have to consider the consequences of a crypto ETF owned by BlackRock and Fidelity. Although that’s likely great for prices, it might not be as great for those among us who are in crypto to build an alternative and decentralized financial system.
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Tether’s Financials Get Released
At an $83 billion market cap, Tether (USDT) is the largest stablecoin in the world. It takes up a massive 65% of the entire stablecoin market and growing in the wake of uncertainty surrounding competitors USDC and BUSD.
In simplest terms, USDT is the most important stablecoin in existence. If it fails, the effects on crypto would be cataclysmic.
Given Tether's immense scale and influence throughout the cryptocurrency economy, there have been numerous attempts to decipher the assets that back it. However, Tether has largely maintained a shroud of secrecy around its operations.
Tether may either represent a secure entity, substantiated by evidence that each USDT token in circulation is backed by at least a dollar's worth of assets. Alternatively, Tether could be inadequately backed, or worse, a fraudulent operation potentially exceeding the scale of FTX.
Over the years, the reality has remained uncertain.
But now, thanks to obtained 2021 documents by the New York Attorney General’s Office, we finally gain some insight into Tether's activities.
As you’d expect, it’s complex:
It had $35.5 billion in various banks and financial institutions and $5.1 billion lent out for a total of $40.6 billion, which matches up well with USDT’s $40.8 billion market cap at the time
Of the $35.5 billion in banks and institutions, more than $26 billion was in the Bahamas-based Deltec Bank and Trust, a small bank in Nassau
And of that $35.5 billion, 85% was in commercial paper, including Chinese commercial paper
The $5.1 billion in loans were made using USDT and secured with collateral in the form of digital assets, such as Bitcoin and Ethereum
Basically, Tether was fully-backed, but its assets were in weird Bahaman banks, Chinese commercial paper, or sketchy loans.
What heightens the concern is that some of the banks from which Tether purchased commercial paper have a dubious history. Reportedly, one such bank is a subsidiary of a Qatari institution known for violating anti-money laundering protocols and providing services to extremist and terrorist groups.
Tether says the whole thing is a big nothing burger since the documents are two years old and they’ve never failed, but to us, something doesn’t feel right here.
If everything’s truly well and good, why do they go to such lengths to keep everything secret? Sure, Tether hasn’t failed yet, but neither did FTX, or Celsius, or Luna until they did.
So, we are going to leave you with the same advice we give pertaining to Binance: proceed with caution, and don’t trust, verify.
And again, there’s no reason to be holding USDT (or any stablecoins for that matter) long-term. To dodge the potential risk, especially at a time when the SEC is aggressively going after anything and anyone, only use stablecoins to quickly move in and out of positions if and when needed.
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Noelle Acheson @NoelleInMadrid
Signs of life in the crypto market? Earlier today, bitcoin’s market dominance broke through 50%. The last time it breached this on the way up was in 2018! Normally, this signals either a weak market, with BTC falling less than smaller-cap tokens … (chart via @tradingview)🧵 https://t.co/b8KKf3NuGA
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