Monochrome Digest | December 2023 - January 2024


MicroStrategy Buys US$615 Million Worth of Bitcoin

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In an announcement on 26th December 2023, co-founder of MicroStrategy stated that the data integration business had acquired another 14,620 BTC at an average price of US$42,110. This equates to purchases of bitcoin worth US$615 million, which brings the total bitcoin balance held by the company up to 189,150 BTC.

The average price of the total bitcoin purchased was US$31,168, which is a total cost of US$5.9 billion. At the time of writing, the US dollar price per bitcoin is approximately US$45,420, which values MicroStrategy’s position at US$8.59bn.

MicroStrategy has historically purchased bitcoin in every quarter since Q3 2020, which was the company’s largest bitcoin purchase to date and marked the first publicly traded company to hold bitcoin. The purchases this month marked the largest amount of bitcoin acquired by the company in a quarter since Q1 2021.

While the investments from 2020 through to 2023 have resulted in unrealised gains of approximately US$2.7 billion, many people have been sceptical of the strategy and criticised Saylor for building MicroStrategy’s future on a highly volatile asset.

The bitcoin price showed strength in the final days of 2023, with a growing consensus that U.S. regulators may approve a spot bitcoin ETF application in Q1 2024. This milestone is expected to introduce new capital flows into bitcoin.

Coinbase Obtains VASP Registration in France

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One of the largest digital asset exchanges, Coinbase, has received registration as a Virtual Asset Services Provider (VASP) in France, amidst its battles with U.S. regulators. This registration will allow Coinbase to provide a “full suite of retail, institutional, and ecosystem products and services” within France.

Coinbase has stated that this allows the exchange to offer custody of digital assets, buying and selling of digital assets for fiat currency and trading of digital assets, which form the full suite of products and services.

Daniel Seifert, Vice President and Regional Managing Director, EMEA at Coinbase outlined the impact the registration will have on the accessibility of digital assets for investors across the world.

“We’re focused on bringing the benefits of crypto to the world. Achieving VASP status in France allows us to continue to grow globally in the best possible way, onboarding the next 1 billion people into crypto while ensuring consumers’ assets are secure and that compliance is prioritised. France has a thriving web3 ecosystem and we are excited at the prospect of contributing to it.”

This registration was granted on the same day as stablecoin issuer, Circle, received conditional registration from France’s financial market regulator, Autorité des marchés financiers (AMF), which signifies France’s push to become a hub for digital assets. While the regulatory environment in the U.S. remains unclear, France has joined other nations looking to attract digital asset companies to operate within the region.

Digital Assets' Growing Influence Globally

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As the 2024 United States presidential election approaches, the willingness for parties and candidates to favour crypto-asset legislation has been discussed. Three political action committees (PACs) have been formed by key figures within the digital asset landscape. PACs pool contributions from members and donate the contributions to campaigns for or against candidates or legislation.

Sam Bankman-Fried, the founder of FTX who was arrested and convicted of criminal charges this year, was one of the largest donors in the industry. He donated more than US$36 million to various campaigns and PACs in 2022, with prosecutors claiming that he used customer funds for these purposes.

The three groups, Fairshake, Protect Progress and Defend American Jobs have collectively accumulated US$78 million to donate in an attempt to influence crypto legislation. Specifically, Fairshake has received donations from over 20 influential members within the digital asset industry, which include Coinbase; Ripple; venture capitalists, Ron Conway, and Fred Wilson; and tech executives, Tyler and Cameron Winklevoss.

Another Fairshake donor, Ben Horowitz, co-founder of the crypto friendly venture capital firm Andreseen Horowitz, stated his plans to “support like-minded candidates and oppose candidates who aim to kill America’s advanced technological future”.

It is currently unclear which campaigns the donations will be provided to, however, the growing involvement of bitcoin within political structures, particularly from a funding perspective, is representative of the changing regulatory environment. Where bitcoin was previously a hot topic for campaigns, the large sums of capital to be deployed for upcoming campaigns show the increasingly influential role digital assets have within politics.

In South America, bitcoin was an influential part of Argentina’s President Javier Milei campaign, where Milei was elected in November. During his campaign, Milei praised bitcoin, which was favourably viewed by crypto markets. On 21 December, Argentina’s foreign minister confirmed that contracts denominated in bitcoin can be legally recognised by Argentinian courts.

This news reinforces Milei’s stance on digital assets to combat economic and political issues in Argentina, including corruption, hyperinflation and financial inefficiencies. Many people see this move as the first stage of future plans for digital asset adoption in Argentina. As the second largest economy in South America, Argentina’s adoption of digital assets might be even more influential as it is viewed on a global stage.

Alongside Argentina’s economic reform, Japan has considered submissions on how to encourage the digital asset industry. A proposal presented by the Liberal Democratic Party was to end taxation on unrealised gains on cryptocurrencies. This proposal was approved by the Japanese cabinet and it is likely to boost digital asset development in Japan.

The proposal which will be debated in Japan’s parliament will end taxation on the difference between market and book values of digital assets, which has prevented the growth of the Web3 industry. The initiative to encourage reform in Japan’s digital asset industry was driven by Japan’s Prime Minister, Fumio Kishida and has contrasted to traditional practice, where efforts have been encouraged by the bureaucracy.

U.S. ETF Race Update and 2023 Recap

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As Q1 2024 begins, the anticipation of a spot bitcoin ETF approval is growing within financial markets. In preparation, financial giants, including BlackRock and Fidelity have met with the Securities and Exchange Commission (SEC) to discuss the redemption models.

In a meeting on 28th November, BlackRock met with the SEC to discuss its plan for a revised in-kind redemption model that would provide optionality if investors seek to redeem their shares for the underlying asset of the ETF.

An in-kind redemption model is a commonly used model in stock-based ETFs, where the fund pays investors redeeming with assets other than cash. Regarding the spot bitcoin ETF, if a retail investor wants to redeem units, they will receive their share of bitcoin for those units in the fund. Alternatively, a cash redemption model requires the asset manager to sell the underlying bitcoin and deliver the cash equivalent to the investor.

An in-specie redemption model reduces risk on the asset manager, as the investor receives the asset regardless of the price. In the November meeting with the SEC, BlackRock revised its redemption process to be a cash model.

Alongside the SEC’s meeting with BlackRock, the regulator has also met with Grayscale for a discussion which “concerned NYSE Arca, Inc.’s proposed rule change to list and trade shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca Rule 8.201-E.”

Coinciding with Grayscale’s efforts to convert its Grayscale Bitcoin Trust (GBT) to a spot bitcoin ETF, Barry Silbert and Mark Murphy of Digital Currency Group, which is the parent company of Grayscale, have resigned from the board of directors at Grayscale Investments. The resignations are effective from the 1st January and the filing the resignations were announced in did not outline the reasons for this.

Some speculate these meetings indicate the SEC is at an inflection process and is hashing out the final technical details in the processes before an approval.

The content, presentations and discussion topics covered in this material are intended for licensed financial advisers and institutional clients only and are not intended for use by retail clients. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented. Except for any liability which cannot be excluded, Monochrome, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in this material or any loss or damage suffered by any person as a consequence of relying upon it. Monochrome advises that the views expressed in this material are not necessarily those of Monochrome or of any organisation Monochrome is associated with. Monochrome does not purport to provide legal or other expert advice in this material and if any such advice is required, you should obtain the services of a suitably qualified professional.

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