Monochrome Digest | January 2024 - February 2024


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US$10 Billion Volume Following Spot Bitcoin ETF Launch in the U.S.

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On 10 January 2024, the U.S. Securities and Exchange Commission (SEC) granted approval for 11 spot Bitcoin Exchange Traded Funds (ETFs) in the U.S.. This regulatory milestone marks a pivotal moment in the journey of crypto-assets towards mainstream adoption.

Crypto-asset investments have been accessible primarily through unregulated platforms, cryptocurrency exchanges or through unlisted managed funds. However, spot Bitcoin ETFs offer investors a more regulated and easier pathway to a passive investment in bitcoin as they can now (at least in the U.S.) invest in these spot Bitcoin ETFs through their broking accounts. Trading for the U.S. ETFs began on 11 January 2024, with the first day volume hitting above US$5 billion and almost reaching US$10 billion in the first 3 days.

Senior Bloomberg ETF analyst Eric Balchunas said on a post on X,

“Let me put into context how insane $10b in volume is in the first 3 days. There were 500 ETFs launched in 2023. Today, they did a COMBINED $450m in volume. The best one did $45m. And many have had months to get going. $IBIT alone is seeing more activity than the entire ’23 Freshman Class’.”

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This unprecedented surge in activity has garnered attention from investors, highlighting the increasing demand for crypto-asset investment options among both institutional and retail investors. Standard Chartered drew parallels on its analysis of bitcoin with the introduction of the first gold ETF in the U.S. in November 2004. The bank estimated that spot Bitcoin ETFs, once approved, could absorb an impressive US$50 billion to US$100 billion worth of flows within a year with the price of BTC potentially soaring to US$200,000 by the end of 2025.

In contrast, Vanguard, a prominent player in the investment industry, has chosen not to offer spot Bitcoin ETFs. Vanguard's decision reflects a cautious approach amid the rapidly evolving crypto-asset landscape towards mainstream adoption in traditional finance, with the firm’s stance underscoring the ongoing debate within the financial sector regarding the risks and opportunities associated with crypto-assets.

Institutional Involvement in Bitcoin ETFs

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As institutions are recognising the growing demand for crypto-asset investment products, investment banking giant Goldman Sachs was reportedly in discussions with industry heavyweights, including BlackRock and Grayscale, to delve into the Bitcoin ETF market. Jane Street has also emerged as a key market maker and authorised participant for a number of these spot Bitcoin ETF issuers, with Fidelity, WisdomTree, BlackRock and Valkyrie using the firm for their U.S. spot Bitcoin ETF issues.

The entry of traditional financial institutions into the spot Bitcoin ETF market signals growing institutional acceptance and adoption of at least the main cryptocurrencies as viable underlying assets for traditional investment vehicles. This could potentially lead to increased liquidity and stability in the cryptocurrency market, making it more attractive to a wider range of investors.

Genesis Settles US$21 Million SEC Lawsuit

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The Genesis Trading settlement with the SEC was finalised on 1 February 2024, marking the conclusion of a prosecution by the SEC against Genesis Trading and Gemini revolving around their roles in the Gemini Earn program. The SEC alleged they offered and sold unregistered securities to investors through the program. The settlement against Genesis provides the SEC with an allowed general unsecured claim against Genesis (now in bankruptcy) for US$21 million subordinated to all other allowed administrative expenses, secured and general unsecured claims, meaning the SEC will not receive a distribution unless all other creditors are first made whole. Gemini, however, continues to defend the SEC’s ‘ill-conceived lawsuit’.

The Gemini Earn program offered investors an opportunity to earn interest on their cryptocurrency holdings. The SEC argued that the program constituted the sale of securities and that Gemini and Genesis failed to register them as required by federal securities laws. The lawsuit highlights the ongoing regulatory scrutiny surrounding cryptocurrency lending and interest-bearing products.

The SEC prosecution against Gemini and Genesis has broader implications for the cryptocurrency industry, serving as a reminder that crypto-related businesses must navigate a complex regulatory landscape that continues to evolve. As crypto-assets gain wider acceptance and adoption, regulatory agencies are committed to ensure that crypto companies comply with existing regulations.

Founder of ACE Exchange Arrested Amidst Fraud Allegations

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The founder of ACE Exchange, a prominent cryptocurrency exchange based in Taiwan, was taken into custody following allegations of fraudulent activities. The arrest comes as a result of an ongoing investigation into the exchange's operations and practices.

David Pan, the founder of ACE, and 14 other individuals were arrested by Taiwanese authorities earlier this month according to a report from the Liberty Times. Pan and an accomplice are accused of collaborating for 3 years to lure investors into purchasing valueless cryptocurrencies, including MOCT, through deceptive social media advertisements.

Raids were conducted at multiple locations in Taiwan, including the ACE Exchange office, and assets worth over US$6.4 million were seized, including cash and cryptocurrencies. In a statement on X on 4 January 2024, ACE said any alleged illegal actions were on the “token project side” and did not affect the exchange’s operations. ACE president Wang Chenhuan said the exchange planned to delist the MOCT/TWD trading pair on 8 January 2024 — MOCT was one of the tokens at issue in the alleged fraud — and would “fully cooperate” with any investigation.

Of the funds seized, Taiwanese police confiscated an estimated US$3.5 million in crypto-assets. Pan and the other individuals reportedly refused to cooperate and are being held on suspicion of fraud.

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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