Monochrome Monthly Recap | June 2023 - July 2023


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U.S. Spot Bitcoin ETF Race Update

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After reporting returns of over 100% for all six of her ETFs in 2020, Cathie Wood’s ARK Invest has become a household name synonymous with ETFs. ARK is reportedly ahead of rival firms including BlackRock, which filed an application for a spot Bitcoin ETF mid June. With an SEC decision date of 13 August 2023, ARK, 21 Shares and Cboe are first in line, while BlackRock is yet to receive a date for its 19b-4 application. ARK’s previous submissions have been denied by the SEC as the regulator claimed ARK did not prove it could prevent market manipulation from traders.

ARK has amended its spot Bitcoin ETF application to include a surveillance sharing agreement with the CME futures market and an undisclosed exchange. A surveillance sharing agreement places the filing inline with BlackRock’s submission, which alongside a submission date two months before BlackRock, could position ARK to receive the first approval.

After BlackRock filed for the iShares Bitcoin Trust, four other issuers also re-filed for spot bitcoin ETFs quickly in response, including Valkyrie, WisdomTree, Invesco and Bitwise. Despite a disapproval by the SEC in June 2022 for concerns involving the potential for fraud and manipulation, Bitwise refiled shortly after BlackRock’s submission. The SEC has reportedly claimed that the submissions by BlackRock and Fidelity are inadequate, as they are neither sufficiently clear nor comprehensive. There is speculation that firms may have insider information surrounding the SEC’s bitcoin ETF policies, considering the timing of these submissions. Regardless of the individual nuances these firms are facing to receive an approval for a spot bitcoin ETF, the race to be the first has never been more competitive.

Charles Schwab, Citadel Securities and Fidelity Digital Assets launch EDX Markets

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Charles Schwab, Citadel Securities, Fidelity Digital Assets, Paradigm, Sequoia Capital and Virtu Financial have formed a consortium and announced the launch of EDX Markets. EDX Markets is an exchange that aims to address the demand for digital asset trading with a focus on safety and compliance. Being backed by global market makers, broker dealers and venture capital, the exchange is set to benefit from traditional financial market practices for tighter spreads and greater liquidity for U.S. investors.

Newly appointed CEO of EDXM, Jamil Nazarali, who previously held a position as Global Head of Business Development at Citadel Securities, highlighted that EDXM’s business model is to utilise existing intermediaries as opposed to custodying customer assets. This follows the trade execution procedure customers are comfortable with and have seen on the New York Stock Exchange (NYSE) and Nasdaq (NASDAQ).

“What we’re seeing is that increasingly, investors want to trade through their trusted intermediaries and that’s especially true post FTX, which was supposed to be the leader in the digital market. If you can’t trust them, who can you trust? So people are falling back on the firms that have been around for a really long time and that have really stood the test of time and that’s a really important tailwind for us.”

Additionally, the exchange has limited the number of tokens on offer, due to the regulatory landscape developing in the U.S., which include bitcoin, ethereum, litecoin and bitcoin cash. The exchange currently operates within the U.S. market with a possibility of expanding internationally if appropriate in the future.

The exchange, which took nine months to develop, reflects changing customer behaviours after the collapses of numerous digital asset exchanges. While in the past investors may have not seen the risks posed by exchanges, it is evident that safety and compliance are becoming increasingly important at the customer level.

HSBC Allows Customers to Buy Crypto ETFs on its Investment Platform

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Hong Kong customers of HSBC have been given access to buy and sell bitcoin and ethereum futures ETFs listed on the Hong Kong Stock Exchange. Customers can now access these ETFs through HSBC’s investment platform, providing users with a more accessible pathway to gain bitcoin exposure.

Alongside this, HSBC has released the Virtual Asset Investor Education Centre to educate customers on the risks associated with digital assets, where customers must confirm to have read the educational materials before being granted access to invest through HSBC HK’s “Easy Invest app”.

In a time when many financial institutions have restricted payments to crypto related, high risk, exchanges, HSBC has chosen a more educational approach to the issue, instead of a blanket ban.

This strategy positions Hong Kong as a major financial centre for crypto assets, where the region is embracing adoption of digital assets. Recently, Hong Kong’s Securities and Futures Commission (SFC) invited the U.S.’s troubled Coinbase to register in Hong Kong and has been accepting applications from cryptocurrency trading platforms.

While customers have been allowed to trade these products since December 2022 when they were initially listed, the availability of these products within HSBC’s app is advantageous for retail growth. Many might see this as an over-reaction, however, the media attention is reflective of eagerness within digital asset communities for large traditional financial institutions to adopt crypto investments.

Robert F. Kennedy Jr. Supports Bitcoin Adoption in Presidential Bid

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Presidential candidate for the U.S. Democratic Party, Robert F. Kennedy Jr., expressed his positive stance towards Bitcoin in the event of his election in 2024. When questioned on his crypto policy, Kennedy claimed his policies will support Bitcoin and allow the freedom to transact using bitcoin. Under his proposed policies, individuals would have the liberty to utilise their own bitcoin wallets, nodes, and passwords, with the implementation of essential anti-money laundering (AML) controls as the only necessary regulation.

Kennedy’s commending remarks to bitcoin are a continuation of his speech from his campaign debut at Bitcoin 2023 in Miami, where he criticised President Biden’s proposed 30% crypto tax and the controlling aspects of central bank digital currencies (CBDCs). This proposed tax would impose a 30% tax on cryptocurrency mining firms to disincentivise the participation of bitcoin miners, addressing claims of environmental and societal damage. Kennedy reinforced the need for a diverse ecosystem of currencies to ensure the economy is resilient, stating,

“Bitcoin mining uses about the same as video games and no one is calling for a ban on those. The environmental argument is a selective pretext to suppress anything that threatens elite power structures.”

Additionally, Kennedy’s views of CBDCs as an instrument for control are shared by U.S. politicians including his potential opponent, Republican presidential candidate Ron DeSantis. Kennedy believes the rollout of CBDCs will allow governments to view all private financial transactions. This increased transparency at a federal level may limit where individuals can send money and even allow the government to freeze assets or restrict spending. Kennedy has expressed additional concerns of money being tied to digital ID and the potential for expiration of money to enforce government policies. Kennedy’s clear stance on bitcoin aims to prevent his concerns surrounding CBDCs from becoming reality.

Regardless of political views, the integration of bitcoin within political frameworks holds significant importance for regulatory advancement and mainstream adoption. Considering the U.S. is a major player within global politics, this may foster positive growth and adoption for the crypto-asset ecosystem.

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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