Monochrome Digest | March 2024 - April 2024


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Hong Kong Bitcoin ETFs could potentially unlock demand of up to $25B_Monochrome Digest_March 2024.png

Hong Kong Bitcoin ETFs could potentially unlock demand of up to $25B

Unofficial reports indicate that on April 15 the Hong Kong Securities and Futures Commission (SFC) may have approved a number of spot Bitcoin exchange-traded funds (ETFs). At least three offshore Chinese asset managers including ChinaAMC, Harvest Global, and Bosera International are reported to be amongst the first issuers. The approvals were announced by the issuers themselves, as the SFC has not made an official announcement on this as yet. It is expected that if the SFC officially greenlights the spot Bitcoin ETFs, the Hong Kong Stock Exchange will require approximately two weeks to finalise listing procedures and related arrangements.

The imminent approval of spot Bitcoin ETFs in Hong Kong brings about various opportunities for both institutional and individual investors. With retail investors gaining access to Bitcoin investments through ETF purchases, the investment landscape in Asia is poised for a significant transformation. While spot Bitcoin ETFs in the U.S. have seen unprecedented inflows within the first few months of existence, this new development in Hong Kong, if confirmed by the SFC, will certainly be positive for the industry.

Singapore-based digital assets trading house QCP Capital said in a message shared with CoinDesk that it believes the Hong Kong ETFs, when officially approved, will unlock some institutional demand during Asia trading hours.

"Participants who wanted exposure have always been limited to US hours, but this now gives institutional investors an Asia-based alternative," QCP wrote.

Analysts at Bloomberg Intelligence reported that investors in mainland China are unlikely to be allowed to invest in the Hong Kong spot Bitcoin ETFs. "Mainland China investors probably won’t be eligible to buy Hong Kong-listed spot bitcoin and ether ETFs as they are barred from buying virtual assets," commented Bloomberg ETF analyst Eric Balchunas. Balchunas predicts that Hong Kong spot Bitcoin ETFs will only attract "$1 billion within two years," far less than the approximately $50 billion currently managed by U.S. spot Bitcoin ETFs.

Singapore-based analytics company 10x Research said in a note there is a 100% probability that Hong Kong will not be the last jurisdiction to approve bitcoin ETFs, and more will likely follow. “This will be an additional demand driver for Bitcoin from various countries that could approve Spot ETFs, namely Australia, Japan, Korea, and the UK,” said the firm.

Navigating Bitcoin's Volatility & Upcoming Halving_Monochrome Digest_March 2024.png

The crypto-asset market, often akin to a rollercoaster ride, has recently witnessed heightened anticipation surrounding Bitcoin's halving event, coupled with a surge in volatility. The Bitcoin halving, an event programmed into Bitcoin’s underlying protocol, occurs approximately every four years or after every 210,000 blocks mined. This mechanism effectively reduces the rate at which new Bitcoin is created, cutting the rewards miners receive in half. Historically, these halving events have been accompanied by heightened market activity, often leading to increased volatility.

The 30-day historical or realised volatility of Bitcoin surged to almost 60% towards the end of March, exceeding ether's 30-day realised volatility by almost 10 percentage points. This marks the widest gap observed in at least a year, according to data compiled by Paris-based Kaiko. Historical volatility serves as a measure of the extent of price fluctuations observed within a defined timeframe.

Weeks after the U.S. Securities and Exchange Commission (SEC) approved nearly a dozen spot bitcoin exchange-traded funds (ETFs); it enabled traders to gain exposure to bitcoin, turning the volatility spread between bitcoin and ether positive. Since then, market participants are closely monitoring Bitcoin futures, where open interest has exceeded a staggering $36 billion. This influx of interest from institutional investors and traders reflects the anticipation of increased price fluctuations surrounding the halving event.

Following the halving, the reduced influx of new bitcoins contributes to scarcity, typically resulting in price appreciation. However, scarcity isn't the sole factor influencing prices; investor sentiment and broader market dynamics also exert significant influence. In financial markets, scarcity frequently stimulates demand, and Bitcoin's finite supply amplifies this effect with each halving event.

Bitcoin, post-halving, has shown resilience and growth, sometimes outperforming traditional assets. Its decentralised nature, coupled with scarcity, makes it a unique asset class. An article by CoinTelegraph outlines forecasts suggesting that Bitcoin's growth rate between 2023 and 2024 could surpass that of major assets like Microsoft and gold.

In conclusion, Bitcoin's volatility has surged in anticipation of its upcoming halving event. As investors brace themselves for potential market fluctuations, it's crucial to rely on factual data and informed analysis to make any investment decisions - always remembering that past performance is no guarantee of future performance.

Argentinians shift away from US Dollar to Bitcoin Amidst Inflation_Monochrome Digest_March 2024.png

Argentinians shift away from US Dollar to Bitcoin amidst inflation

In the midst of economic uncertainty and soaring inflation, Argentinians are taking matters into their own hands in embracing Bitcoin as a hedge against the devaluation of their local currency, the Argentine Peso.

According to recent reports, Argentina’s annual inflation rate ended at 211.4% in 2023, prompting widespread concern among citizens about the stability of the Peso. In response, it appears Argentinians are taking matters into their own hands by looking for alternative stores of value, with Bitcoin emerging as a popular alternative – reaching 34,700 bitcoin transactions in the first week of March, the country’s highest volume of Bitcoin trading in 20 months.

Although the country’s new President, Javier Milei, ran on a policy to make the US dollar the country’s reserve currency, this strategy was tried in the 1990s and failed miserably resulting in a deep recession and violent protests. However, since taking office in December 2023, he has only devalued the official peso-to-dollar rate, and has suggested that dollarization will remain unapproachable in the near future.

But it appears a growing trend of individuals and businesses in Argentina are opting to conduct transactions in Bitcoin rather than in fiat currencies.

It also appears the country’s newly elected government is attempting to get ahead of the curve by implementing a mandatory registry for Bitcoin and crypto-asset platforms highlighting its support of the crypto asset industry but within regulated rails. It also shows the increasing role of crypto assets within Argentina’s financial landscape as a means of exchange and store of value.

UK Court rules Australian Computer Scientist Craig Wright not Satoshi_Monochrome Digest_March 2024.png

UK Court rules Australian computer scientist Craig Wright not Satoshi

After a lengthy two month trial in London, a High Court judge has ruled that Australian computer scientist Craig Wright is not the pseudonymous creator of bitcoin, Satoshi Nakamoto. The ruling comes after years of speculation and legal battles surrounding Wright’s claims to be the mysterious figure behind Bitcoin.

The UK court’s ruling casts doubt on Wright’s claim of being Satoshi Nakamo, a claim he has maintained since 2016. The court's decision is based on evidence presented during the trial in which Wright faced accusations of fraud and misrepresentation regarding his alleged pseudonym as 'Satoshi'.

In 2021, a consortium of crypto businesses known as COPA (Crypto Open Patent Alliance) mounted a case in the British High Court against Wright, which sought to prevent him from continuing to claim he had invented the cryptocurrency and from using this to expand his influence over the sector. Some of the case's high-profile backers included Twitter founder Jack Dorsey, who heads Block (a company that launched a bitcoin cryptocurrency hardware wallet), and the crypto exchange giant Coinbase.

According to ABC News, Paul Grewal, Coinbase's legal counsel, who was formerly vice-president of Facebook, said that COPA's main goal had been to stop Dr Wright from suing individuals and companies in the crypto industry.

"This has not just been a campaign of litigation, it's been a campaign of intimidation, bullying, and threats that have worked to discourage good faith actors who support Bitcoin and all the principles underneath it," Mr Grewal said.

U.S. Bitcoin ETFs hold 4% of total Bitcoin supply as demand continues to surge_Monochrome Digest_March 2024.png

U.S. Bitcoin ETFs hold 4% of total Bitcoin supply as demand continues to surge

In the midst of growing institutional interest for Bitcoin, U.S. based Bitcoin exchange-traded-funds (ETFs) now collectively hold approximately 4% of the total Bitcoin supply and is continuing to increase. The emergence of Bitcoin ETFs in the U.S. has been met with considerable demand from institutional and retail investors for the past months since trading started, with BlackRock’s Bitcoin ETF holding more Bitcoin than major cryptocurrency exchanges OKX and Kraken combined.

U.S. Bitcoin ETFs hold 4% of total Bitcoin supply as demand continues to surge_X_Monochrome Digest_March 2024.png

A considerable portion of Bitcoin has also left cryptocurrency exchanges, with nearly USD$10 billion worth of Bitcoin being withdrawn from major trading platforms since the spot ETFs have launched. Glassnode data reflect that Bitcoin holdings on exchanges are down since January 11 this year and are continuing to decline, with 22,000 BTC (USD$1.46 billion at time of writing) withdrawn on March 27 alone.

In an interview with Fox Business, BlackRock CEO Larry Fink said the firm’s spot Bitcoin ETF has become “the fastest-growing ETF in history” and that he is “very bullish on the long-term viability” of the leading cryptocurrency asset.

“We’re creating a market that has more liquidity, more transparency,” Fink states in the interview. “I’m pleasantly surprised and would have never predicted before we filed it that it would see [this].”

However, JP Morgan has recently stated that Bitcoin is still overbought despite the ongoing correction, and that the asset could see profit-taking continue into the Bitcoin Halving Event.

“There remains considerable optimism in the market over the prospect for prices rising significantly by year-end,” JPMorgan analysts wrote. “with a significant component of that optimism arising from a view that bitcoin demand via spot exchange-traded funds would continue at the same pace even as the supply of bitcoin diminishes after the halving event,”

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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