2023 is about to end, and the blockchain and cryptocurrency market has invariably provided many topics with electrifying headlines. From Bitcoin's notable surge to significant legal shifts impacting industry leaders, this overview delves into key events, regulatory dynamics, and market reactions. Gain insights into essential developments shaping the intersection of crypto and fintech throughout the year, unraveling the forces at play in these dynamic sectors.
Growing interest in cryptocurrencies
A multitude of applications for ETFs on Bitcoin and Ethereum
There's a rush to introduce Exchange-Traded Funds (ETFs) for both Bitcoin and Ethereum. Notably, big financial players like Blackrock, Fidelity, and Invesco eagerly seek approval from the Securities and Exchange Commission (SEC) to launch a Bitcoin ETF in the U.S. Although the SEC hasn't given the green light yet, Grayscale's recent win in court against the SEC signals a positive turn in their two-year battle for a Bitcoin ETF.
Across the pond, Europe has already celebrated the launch of its first Bitcoin ETF by Jacobi Asset Management on August 15, 2023. So, why all the fuss about Bitcoin ETFs? Well, many potential investors find buying Bitcoin directly a bit daunting. The whole process, from dealing with crypto wallets to understanding private keys, can be confusing and intimidating.
Looking back at the history of Bitcoin ETF attempts, it's been a journey with some ups and downs. The potential approval of a Bitcoin ETF in the U.S. is a big deal because it could make Bitcoin more widely trusted and accepted, especially by institutional investors. Imagine Bitcoin being traded on Wall Street alongside familiar assets like Tesla stock, bonds, or gold—it would be a game-changer.
The idea behind a Bitcoin ETF is to offer a simpler and more familiar way for people to invest in Bitcoin, like buying shares in a company. It could open the door for more folks to dip their toes into the cryptocurrency world without the perceived complexities of direct Bitcoin ownership. If the SEC gives the thumbs up, it might just give Bitcoin a significant boost in value and bring it closer to everyday investors.
Mining companies targeted by Blackrock
As one of the world's largest investment companies, BlackRock has become the second-largest shareholder in four out of the five leading Bitcoin miners, with a combined market capitalization of $5.4 billion.
The top Bitcoin miners, including Riot Platforms Inc., Marathon Digital Holdings Inc., Cipher Mining Inc., Hut 8 Mining Corp., and Terawulf Inc., have collectively faced substantial losses in the past 30 days. Recognizing the challenges in the Bitcoin mining sector, BlackRock is taking advantage of the market downturn, positioning itself to benefit from potential future growth.
Amidst rising mining difficulties and increased operational costs, smaller miners are grappling with reduced profits, operating in the red for over a year. This scenario, however, creates an opportunity for industry giants like BlackRock, equipped with ample capital to weather challenging times and capitalize on the struggles of smaller players.
Data from CNN reveals that BlackRock Fund Advisors significantly increased their holdings in these major Bitcoin mining companies on June 30, securing their position as the second-largest shareholders. Notably, BlackRock's investment of around $411.54 million represents a small fraction, 0.35%, of the massive $117.6 billion in assets the company holds as of 2022.
This strategic move positions BlackRock as a significant player in the Bitcoin Mining Council, a prominent lobbying group advocating for the Bitcoin mining industry in the United States. By embracing the dip in the market, BlackRock is actively shaping its role in the evolving landscape of Bitcoin mining.
Top financial institutions work with Chainlink
In an innovative series of trials, Swift, the renowned interbank messaging system, is joining forces with Chainlink to explore the integration of over a dozen major financial institutions into blockchain networks. Notable participants include the Depository Trust and Clearing Corporation (DTCC), Australia and New Zealand Banking Group Limited (ANZ), BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, and Lloyds Banking Group.
The objective of these experiments is to assess how Swift's infrastructure can facilitate the seamless transfer of tokenized assets across diverse blockchains. This collaboration, initially revealed at Chainlink's annual conference SmartCon last year, leverages Chainlink's expertise in providing connectivity across both public and private blockchain networks.
Swift envisions that blockchain technology holds the potential to enhance efficiency, reduce costs, and streamline settlement processes in capital markets. Such advancements could attract more investors to private markets, ultimately boosting liquidity. This initiative not only signifies a crucial development for financial institutions but also marks a significant stride for the cryptocurrency industry.
According to Chainlink co-founder Sergey Nazarov, the involvement of banks, the global holders of substantial capital, is pivotal for the continued growth of the blockchain industry beyond the current trillion-dollar range. Nazarov emphasizes that collaboration with banks and their clients is a key driver that could propel the crypto market capitalization past the $10 trillion mark. Currently, the crypto market stands at $1.08 trillion, as per CoinMarketCap data. This collaborative exploration between Swift, Chainlink, and major financial players signifies a transformative step toward the broader adoption of blockchain in traditional finance.
2023 was a very perverse year for the crypto market. It absorbed the consequences of big collapses from 2022, at the same time, the present enthusiasm leaves high expectations for 2024.
Rafał Nowicki
Fullstack Developer & Blockchain Enthusiast
Chainlink once again. Say “hello” to tokenization!
Chainlink serves as the linchpin for advancing tokenization in capital markets, transitioning from proof-of-concept to production. It plays a pivotal role in three key use cases: enabling secondary markets, facilitating Delivery vs. Payment (DvP) workflows, and synchronizing on-chain to off-chain systems.
In current tokenization efforts, Chainlink addresses challenges by connecting existing systems to public and private blockchains, offering crucial services such as Cross-Chain Interoperability Protocol (CCIP), Proof of Reserve, and Functions.
Real-world use cases exemplify Chainlink's impact:
Secondary Markets: Chainlink enhances liquidity platforms by connecting buyers and sellers across different blockchains, integrating legacy infrastructure with blockchain networks, and providing a blockchain interoperability standard.
Oracles: Chainlink's Proof of Reserve and Functions play a vital role in synchronizing off-chain legacy systems with on-chain blockchain ecosystems, fostering operational efficiency, transparency, and regulatory compliance.
Chainlink emerges as a catalyst, seamlessly bridging traditional finance with blockchain innovation, paving the way for widespread adoption of tokenization in capital markets.
Bitcoin is the new black (again)
Bitcoin has demonstrated a remarkable performance this year, surging by approximately 160% and reaching a 20-month high of $44,000. This resurgence positions Bitcoin as a strong contender for the title of the best-performing asset in 2023. The market sentiment has shifted positively as the gloom over the crypto market dissipates, prompting traders to re-enter the market.
This notable upswing comes shortly after the successful criminal prosecutions of Changpeng Zhao and Sam Bankman-Fried (which I will mention later), former chiefs of Binance and FTX exchanges, respectively. Despite the legal challenges faced by prominent figures in the crypto space, speculators are optimistic that the toughest regulatory measures have passed, paving the way for broader acceptance of Bitcoin by large global fund managers and investment banks.
The positive momentum in Bitcoin's value is part of a broader trend where investors are turning to growth stocks and riskier assets in anticipation of central banks cutting interest rates in the coming year. CK Zheng, Co-founder and Chief Investment Officer at crypto hedge fund ZX Squared Capital emphasizes that the fundamentals of Bitcoin's price are driven by the entry of highly regulated companies into the market, signaling a growing adoption of crypto by Wall Street.
This resurgence is particularly noteworthy after a challenging period of 20 months marked by negative headlines and significant declines in Bitcoin's value. From its peak of over $69,000 in November 2021, Bitcoin experienced a substantial decline, reaching just $16,000 at the beginning of this year. However, the steady recovery gained momentum in November, coinciding with regulatory actions against Binance, which, crucially, did not lead to the closure of the influential crypto exchange.
Some observers view the recent developments as the beginning of a new supercycle. Bernstein, a US investment bank, predicts that Bitcoin could more than triple in value, reaching $150,000 by 2025. A key factor contributing to this optimism is the potential approval of exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC), providing a regulated investment product for US retail investors.
Despite the renewed confidence, doubts linger over the sustainability of Bitcoin's rally. The skepticism is fueled by the cautious approach of major ETF providers like Vanguard and State Street, which still need to file to list a spot Bitcoin ETF. Concerns also persist regarding potential regulatory challenges and the SEC's historical reluctance to approve such ETFs.
In conclusion, while the recent surge in Bitcoin's value has sparked optimism and hopes for sustained growth, the crypto market remains cautious, mindful of potential regulatory hurdles and the need to break free from the cyclic patterns of the past.
Greed is on the rise again
The Crypto Fear & Greed Index has surged to its highest level since November 2021, reaching 70.6, signaling a notable shift in investor sentiment. This index, ranging from 0 to 100, utilizes various metrics such as market momentum, volatility, volume, and social media to assess market sentiment for Bitcoin and other major cryptocurrencies.
When the index registers values between 50 and 74, it indicates "greed," while readings above 75 suggest "extreme greed." The current elevated score implies increased confidence among investors regarding the prospects of Bitcoin. Notably, experienced traders often view extreme fear signals as opportune moments to buy and exercise caution when the index indicates investor greed, aligning with Warren Buffett's famous advice.
The latest reading of 72 on the Crypto Fear & Greed Index, the highest since late 2021, raises cautionary flags for a potential pause in Bitcoin's recent bullish run. Bitcoin has seen an impressive 28% gain in less than two weeks, reaching a 17-month high above $35,000, primarily fueled by speculation around spot exchange-traded Funds (ETFs). Adding to the cautionary signals, the Relative Strength Index (RSI) for bitcoin also shows an overbought reading above 70, a pattern that often precedes temporary pauses in bullish market trends.
This combination of an elevated Crypto Fear & Greed Index and an overbought RSI suggests that the crypto market may experience a breather in the ongoing bullish momentum, urging traders and investors to exercise vigilance in the current market conditions. The total market capitalization of all cryptocurrencies has concurrently surged from $1.01 trillion to $1.26 trillion over the past two weeks.
End of market cleaning phase
Sam Bankman-Fraud and collapse of FTX
Former FTX CEO Sam Bankman-Fried, a notable figure in the cryptocurrency industry, was found guilty on November 3, 2023, by a New York jury. The charges included two counts of wire fraud, two counts of wire fraud conspiracy, and three additional conspiracy charges. Despite maintaining his innocence and denying any intentional wrongdoing, this verdict follows his resignation from FTX and the subsequent Chapter 11 bankruptcy filing in November 2022.
Bankman-Fried's legal troubles began after his arrest in the Bahamas and extradition to the U.S. in December 2022. The U.S. Attorney of the Southern District of New York, Damian Williams, accused him of orchestrating one of the largest financial frauds in American history. The collapse of FTX, which occurred earlier in November 2022, raised concerns about leverage and solvency, causing a significant impact on the crypto market.
Initially released on a record $250 million bond in December 2022, Bankman-Fried faced restrictions, including confinement to the Northern California area, electronic monitoring, and compliance with mental health and substance abuse counseling. However, in August 2023, his bail was revoked by Judge Lewis Kaplan after prosecutors alleged that he leaked documents to the New York Times. Consequently, he was remanded to federal jail at the Metropolitan Detention Center (MDC) in Brooklyn, NY.
The recent guilty verdict, encompassing charges of fraud and conspiracy to commit fraud, indicates a challenging legal battle for the 30-year-old former crypto executive. Sentencing is expected in 2024, and until then, Bankman-Fried is anticipated to remain housed at the MDC. The case, marked by its significant impact on the crypto industry, has drawn attention to regulatory scrutiny and legal challenges faced by prominent figures in the digital currency space.
Binance's banishment from the US
Binance, the world's leading cryptocurrency exchange, is confronting a monumental corporate penalty in the United States, agreeing to a settlement of $4.3 billion. As part of this agreement, Changpeng Zhao (CZ), the founder, stepped down and pleaded guilty to felony criminal charges related to money laundering. The U.S. Department of Justice alleges that Binance violated the Bank Secrecy Act by neglecting to implement an effective anti-money laundering program, allowing users to trade without proper Know Your Customer (KYC) systems. In 2021, Binance US was established with KYC measures and a commitment to regulatory compliance. Despite these efforts, some Americans continued to use the Binance platform. The issue arose because there was no verification of users' nationality, causing concerns for the US government.
This oversight facilitated transactions associated with illegal activities, including child sexual abuse, narcotics, and terrorism. Treasury Secretary Janet Yellen emphasized the severity of the charges, pointing out that Binance processed over 100,000 transactions without reporting suspicious activity. Responding to these allegations, U.S. Attorney General Merrick Garland stated, "Using new technology to break the law does not make you a disrupter. It makes you a criminal." This is not the first time Binance has faced regulatory scrutiny, having been investigated for possible money laundering rule violations since 2018.
The settlement requires Binance to report suspicious transactions, subjecting the exchange to heightened scrutiny for five years through a third-party monitor. Amid these developments, Binance's native token (BNB) experienced a 4% decline, while bitcoin and ether fell by 1.4% and 1.2%, respectively. The repercussions of this enforcement action could potentially benefit competitor Coinbase, known for its regulatory compliance, as the crypto market navigates through this significant regulatory shakeup.
SEC's Influence on Cryptocurrency Landscape
The Securities and Exchange Commission (SEC) has significantly expanded its scope in categorizing cryptocurrencies as securities, marked by recent legal actions against major exchanges like Binance and Coinbase, pushing the total to an estimated 68.
This heightened regulatory scrutiny now encompasses over $100 billion in market capitalization, representing around 10% of the total cryptocurrency market. SEC Chair Gary Gensler's assertion that "everything other than Bitcoin" falls under the agency's oversight underscores the increasing regulatory attention on a substantial portion of the cryptocurrency space. As the regulatory landscape continues to evolve, staying well-informed and adapting strategies in response to these changes becomes increasingly crucial for participants in the dynamic crypto market.
What Lies Beyond
As we stand on the precipice of 2024, the dynamic forces shaping the cryptocurrency industry beckon our attention. From the regulatory maneuvers impacting major players like Binance and Coinbase to the intricate dance between traditional finance and digital assets exemplified by BlackRock, the events of 2023 have set the stage for an intriguing narrative.
The SEC's scrutiny, reflected in its categorization of numerous cryptocurrencies as securities, adds a layer of complexity to the crypto. The market, marked by ebbs and flows, has witnessed the Crypto Fear & Greed Index reaching its highest since November 2021, signaling shifts in investor sentiment and potential pauses in bullish trends.
Yet, as we take stock of the present, our focus extends beyond the current intricacies. The uncertainties and potentials of 2024 loom on the horizon, promising a fresh chapter in the crypto saga. Join us as we embark on this journey into the unknown, exploring the evolving dynamics that will shape the future of blockchain and crypto. The narrative continues, and we eagerly await the unfolding of new chapters, embracing the challenges and opportunities that lie ahead.
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