Hopes for bitcoin ETFs grow in the U.S.
Wen Ferrari? The luxury Italian automaker recently announced it would begin accepting BTC, ETH, and USDC for its sports cars. [Image via Ferrari]
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Bitcoin touched $30K on renewed ETF optimism. How an erroneous report sent BTC higher — and showcased pent-up demand.
What’s next for Ethereum? ETH is facing some near-term challenges as it awaits its next market catalyst.
This week in numbers. Which cryptocurrencies you can use to buy Taylor Swift movie tickets, how much BTC a new Ferrari will cost you, and more.
SPOT CHECK
‘Spot’ bitcoin ETF hopes drive BTC back above $30,000
Bitcoin briefly surged above $30,000 for the first time since July on Monday, buoyed by traders’ optimism around the potential for the SEC to approve the first “spot” BTC exchange-traded fund (ETF) in the U.S.
If you’ve been reading Bytes this year, you know that spot BTC ETFs — which would offer direct exposure to bitcoin via conventional brokerages — have been a major storyline. In fact, BTC’s summer rally began in June, when news broke around Wall Street firms including BlackRock pursuing SEC approval of spot BTC exchange-traded products, and prices took a dip in August when the agency punted on making a decision.
Here’s what you need to know about the ETF saga’s latest chapter.
Monday’s price spike was triggered by an unconfirmed report saying that BlackRock’s spot BTC ETF had received SEC approval.
Following an unverified report on Monday morning claiming that BlackRock’s “iShares spot bitcoin ETF” application had gained SEC approval, bitcoin briefly surged above $30,000 — but after media outlets were unable to confirm the news, prices slid back near $28,000.
BlackRock CEO Larry Fink later weighed in, telling Fox Business, “It’s just an example of the pent-up interest in crypto. I think the rally today is about a flight to quality.”
There are other promising signs that approval of a spot BTC exchange-traded product could happen in the coming months.
Earlier this summer, a federal court sided with crypto-focused investment firm Grayscale after it sued the SEC for denying an application to convert its Grayscale Bitcoin Trust product into a spot BTC exchange-traded product. Now, the agency has decided not to appeal the decision. As Reuters reports, “The appeals court is expected to issue a mandate specifying how its decision should be executed, which will likely include instructing the SEC to revisit Grayscale's application. Several other asset managers, including BlackRock, Fidelity, and Invesco, have similar filings pending with the SEC for a spot bitcoin ETF. The SEC is due to decide on those applications by next year at the latest.”
Why are spot BTC ETFs such a big deal?
ETFs are a hugely popular asset class, with more than $10 trillion under management worldwide. There are already some crypto ETFs in the U.S., but they aren’t spot ETFs that hold crypto directly — instead they hold BTC or ETH futures contracts (bundles of agreements to buy crypto in the future at a specific price). The first BTC futures ETF had a blockbuster debut in 2021, but this month several ETH futures ETFs launched with less fanfare.
Because they can be bought or sold via familiar brokerages, spot BTC ETFs could be held by everyone from individuals saving for retirement to hedge funds — and they are seen as a potentially powerful way to increase mainstream adoption of crypto.
“Around half of the nation’s financial advisors in the United States personally own bitcoin, but only 12% are recommending bitcoin to their clients,” the founder of the Digital Assets Council of Financial Professionals told Yahoo Finance in September. “And the primary reason that advisors are not recommending bitcoin is because there isn’t an ETF.”
The bottom line…
As BlackRock’s Fink pointed out, BTC is perhaps uniquely suited for addressing investors’ needs in this historical moment. High interest rates around the world combined with geopolitical turbulence have an increasing number of investors turning to BTC as a key store of value; meanwhile, stocks in crypto mining companies were up 5% this week.
And Fink isn’t alone. After hedge-fund legend Paul Tudor Jones gave BTC a bullish endorsement last week, this week a Bernstein report pointed investors seeking a “safe haven” towards bitcoin. The firm commended BTC’s increasing popularity with institutions as “digital gold,” its “enviable return record” compared to physical gold, next year’s halving, and the prospect of a spot ETF approval on the horizon.
OFF THE CHAIN
With staking demand and transaction activity declining, what’s next for Ethereum?
After last year’s highly anticipated Merge, which saw Ethereum transition from a proof-of-work network to a 99% more energy-efficient proof-of-stake network, many expected activity on the blockchain to consistently rise. More than a year later, though, as “crypto winter” has rolled on and once-turbocharged markets for NFTs and DeFi have cooled, demand for ETH staking has declined and daily transactions on the network have plateaued.
On the plus side, the percentage of circulating ETH that has been staked is on the rise — and traders and analysts are looking toward the future in anticipation of where ETH’s next major catalyst might come from.
Here’s what you should know.
Demand for ETH staking has been dropping since June.
Since June, Ethereum’s “validator queue” (or the line of accounts waiting to become an Ethereum validator) has fallen from around 96,000 to just 600. Validators do the work of approving new transactions in exchange for a cut of newly issued ETH and fees — and after ETH staking withdrawals fully rolled out in April, there was at one point a 45-day line to become a validator, which generally requires staking 32 ETH (worth around $50,500). Today it takes a few hours.
The drop in demand, according to a recent Coinbase report, indicates that investor demand in ETH staking overall is plateauing. Since June, the yield for staking ETH has fallen from around 5% to 3.5%. At the same time, rising interest rates have meant that similar yields can be earned by holding cash in certain savings accounts.
How does ETH staking compare to other chains?
Even though staking demand has dropped, ETH’s staking ratio, which is the percentage of total circulating ETH that has been staked, has grown from 15% in April to more than 22% today. However, that figure lags behind other major proof-of-stake networks like Solana (69%), Cardano (63%), and Avalanche (57%), each of which currently offer higher yields than ETH.
Important to note: You don’t have to become a full validator to participate in staking. If you’re interested in putting any of the ETH (or many other cryptocurrencies) you’re HODLing to work and earn rewards, it’s easy to do via the Coinbase app or website.
Despite technical attempts to insulate Ethereum from inflation, it is currently inflationary.
One technical goal of Ethereum’s Merge was for ETH’s supply to decline over time, which would insulate it from inflation. As a result of a system that “burns” some ETH with every transaction — permanently removing it from circulation — supply issuance is down about 90% from pre-Merge levels. But because blockchain activity has dropped recently, with less network activity around things like NFTs and DeFi, ETH’s supply is currently rising. The last 30 days alone have seen 36,000 in new ETH ($58 million) issued.
While some investors expressed concern, ETH’s core developers aren’t worried. “[ETH supply] is still below the all-time high,” Ethereum developer Danno Ferrin told Decrypt. “And [Ethereum’s] short-term inflation is well below other chains and the economy as a whole.”
What could turn things around for Ethereum?
Even though ETH has underperformed BTC all year, lagging behind the leading crypto’s performance by 22% so far, there are some solid reasons to be optimistic about Ethereum’s future. For one, a major forthcoming Ethereum upgrade, called Dencun, is due in the first half of next year. Dencun’s key improvements include reducing fees for storing data on-chain and improving the design of blockchain bridges and staking.
Another related reason that ETH’s prospects could improve is the booming trend of “tokenizing” real-world assets such as real-estate, blue-chip art, stocks, and more. Many of the world’s largest financial institutions are making major investments in tokenization, and much of that activity is built on top of the Ethereum network. According to a new report from banking giant Standard Chartered, ETH could rally in the next two years as the trend picks up steam.
NUMBERS TO KNOW
$600 million
Amount of funds raised for blockchain games in Q3 2023, putting the total venture capital investment in the space near $2.3 billion for the year, per a new report from DappRadar. Though current funding has only reached 30% of last year’s levels, the report notes “substantial potential in the space” despite adverse market conditions.
15
Number of bitcoins it costs (roughly $430,000) to buy a 2023 Ferrari 812 GTS. Ferrari recently announced that it will allow Americans to buy its cars with bitcoin, ether, or USDC in an effort to reach new crypto-holding clients (and presumably compete with Lamborghini as the crypto millionaire’s luxury car/status symbol of choice).
12
Approximate number of cryptocurrencies AMC is accepting for tickets to Taylor Swift: The Eras Tour. Via BitPay, crypto-holding Swifties can buy tickets to the new, but already-historically-popular concert film with BTC, ETH, DOGE, SHIB, XRP, and more.
TOKEN TRIVIA
What was the ticker symbol for the U.S.’s first Bitcoin futures ETF, launched in 2021?
A
BTFD
B
HODL
C
BITO
D
BTCX
Find the answer below.
Trivia Answer
C
BITO
