Day: March 27, 2024

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Bitcoin (BTC) and the wider cryptocurrency market are witnessing a downturn in early trading on Wednesday following a legal victory for the Securities and Exchange Commission (SEC) over Coinbase and its staking program.

Coinbase attempted to have charges regarding its staking service dismissed, yet the presiding Judge declined their motion. The Judge asserted that the SEC adequately argued that Coinbase functions as an exchange, a broker, and a clearing agency under federal securities laws. Additionally, the Judge noted that through its Staking Program, Coinbase is involved in the unregistered offer and sale of securities.

As a result of this decision, the case will progress to discovery. This marks the second consecutive day that significant developments related to cryptocurrency exchanges have influenced market sentiment, following yesterday’s unsealed indictments against KuCoin and two of its executives.

These developments have led to increased volatility for Bitcoin. On Wednesday, BTC price initially spiked to a high near $71,800 before dropping to $68,385 after the ruling was announced.

Despite the decline, Bitcoin has rebounded above $69,260, registering a 1.5% loss on the 24-hour chart. This rapid recovery underscores a recurring trend in Bitcoin’s price action: shorter downward movements accompanied by more prolonged and faster uptrends.

Analysts from The Kobeissi Letter highlighted this trend as a potential indication of shorts being squeezed, suggesting that Bitcoin may be gearing up for a short squeeze.

They observed that the disparity between institutional long positions and hedge fund short positions is currently at an all-time high. Additionally, they remarked that long positions are persisting, with each new record high in Bitcoin being driven by widespread short covering.

Analysis from CryptoQuant supports this view, indicating that Bitcoin demand has surged while sell-side liquidity continues to decline. The total ‘visible’ amount of Bitcoin at key entities stands at 2.7 million Bitcoin, down from an all-time high of 3.5 million Bitcoin in March 2020.

This dwindling sell-side liquidity, coupled with record Bitcoin demand, suggests that Bitcoin may be approaching a liquidity crisis, potentially supporting higher prices.

Excluding exchanges outside the U.S. from the calculation further reduces liquidity, with the Bitcoin liquid inventory dropping to six months of demand.

According to CryptoQuant founder and CEO Ki Young Ju, sell-side liquidity is now “much lower” relative to demand compared to historical levels.

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Coinbase’s Chief Legal Officer, Paul Grewal, affirmed the exchange’s readiness for the ongoing legal battle with the US Securities and Exchange Commission (SEC) after a court ruling allowed the case to move forward.

In a post on the social media platform X, Grewal stated that Coinbase had anticipated the court’s decision, following Judge Katherine Polk Failla’s ruling that the SEC had “sufficiently pleaded” its case against the leading US-based crypto trading platform.

Following this development, Coinbase shares experienced a decline of over 3% to $260, as reported by Yahoo Finance data.

Grewal emphasized Coinbase’s preparedness for the legal proceedings, noting the court’s decision to allow most of the SEC’s claims to proceed while dismissing claims against Coinbase Wallet. He conveyed the company’s eagerness to gain further insight into the SEC’s internal viewpoints and dialogues concerning cryptocurrency regulation.

Last year, the SEC filed a lawsuit against Coinbase, accusing the company of breaching federal securities laws in connection with the trading of at least 13 cryptocurrency securities tokens.

Despite the ruling, some within the crypto community have downplayed its significance, with one member describing it as a “nothing-burger.” Fox Business journalist Eleanor Terret echoed this sentiment, stating that the SEC had a low bar to secure a favorable ruling and that it was expected for Coinbase to have the opportunity to defend its case in court, similar to the ongoing legal battle involving Ripple.

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Coinbase has announced its intention to enhance the storage of corporate and customer USDC balances on Base, an Ethereum Layer 2 solution incubated by Coinbase and built on the open-source OP Stack. This strategic move aims to capitalize on lower fees and faster settlement times offered by Base, without compromising the user experience on the Coinbase platform. Max Branzburg, Vice President and Head of Consumer Products at Coinbase, expressed enthusiasm about transitioning more of their operations on-chain and encouraged other companies to follow suit.

The decision has been well-received, with Base contributor Jesse Pollak expressing approval and stating that they are excited to support Coinbase’s transition to on-chain operations.

In parallel with this development, Base has experienced a substantial surge in Total Value Locked (TVL), reaching over $1 billion. This significant milestone represents more than double the TVL recorded at the beginning of the month, according to data from Defi Llama. Notably, the decentralized exchange Aerodrome contributes the majority of Base’s TVL, witnessing remarkable growth since early February.

Transaction counts on Base have surged, outpacing other optimistic rollups, with Arbitrum also experiencing notable growth. In contrast, OP Mainnet’s daily transaction count has seen a more moderate increase.

Coinbase’s decision to leverage Base for storing USDC balances aligns with the broader trend of increasing adoption of Layer 2 solutions in the Ethereum ecosystem. As Base continues to gain traction and demonstrate its scalability and efficiency, it is poised to play a significant role in facilitating faster and more cost-effective transactions for Coinbase and its customers.

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BlackRock’s inaugural tokenized investment fund, the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), has seen a surge of approximately $160 million in inflows within its first week of operation. The fund’s growth trajectory continues with recent injections from Ondo Finance, a tokenized real-world asset (RWA) platform.

The world’s largest asset manager, BlackRock, introduced BUIDL last week, marking a significant entry into the realm of tokenized investment vehicles. According to a Bloomberg report, the fund amassed $160 million in deposits during its initial week. Additionally, Ondo Finance announced plans to allocate a significant portion of its tokenized short-term U.S. Treasury bills ETF, OUSG, into BUIDL. Ondo Finance disclosed to CoinDesk that it intends to transfer $95 million onto the BUIDL platform, although it remains unclear whether this amount is included in BlackRock’s reported $160 million total.

The BlackRock USD Institutional Digital Liquidity Fund (BUIDL) functions as a tokenized money market fund primarily investing in U.S. Treasury bills, repurchase agreements, and cash. Leveraging the Ethereum blockchain infrastructure facilitated by Miami-based Securitize, BUIDL tokens are issued to investors. These tokens are designed to maintain a stable value of $1 per token and distribute dividends in the form of tokens representing U.S. dollar yield to eligible investors.

BlackRock’s foray into digital assets is gaining momentum, following its recent achievements in the cryptocurrency space. Earlier in January, BlackRock, along with nearly a dozen other funds, secured SEC approval for a spot bitcoin exchange-traded fund (ETF). The iShares Bitcoin Trust (IBIT), BlackRock’s ETF offering, has attracted over $15 billion in investments, positioning it as the second-largest spot bitcoin ETF, trailing only Grayscale’s GBTC, according to data from The Block’s spot bitcoin ETF tracker.

BlackRock’s successful debut of BUIDL underscores its commitment to embracing digital assets and underscores its growing influence in the evolving landscape of tokenized investment products.

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Deribit, a leading cryptocurrency derivatives exchange, is poised to witness historically high levels of bitcoin options open interest expiring this Friday. The surge in open interest, totaling over $9.5 billion, reflects increased liquidity and participation in the market.

According to analysts at Deribit, this end-of-month expiry represents one of the largest in the exchange’s history, accounting for approximately 40% of the total open interest. Comparatively, previous end-of-month expiries in January and February stood at significantly lower levels, around $3.74 billion and $3.72 billion, respectively.

A notable aspect of this expiry is the considerable portion of options set to expire in the money, amounting to $3.9 billion based on a current spot price of around $70,000. This suggests that a substantial number of options contracts hold value at current market prices, potentially leading to increased buying activity as traders seek to hedge or capitalize on further price movements.

Deribit analysts anticipate heightened volatility or upward pressure on bitcoin prices as option holders exercise their profitable contracts. The recent price rally in Bitcoin has contributed to this situation, resulting in higher levels of in-the-money expiries compared to typical scenarios.

Luuk Strijers, Chief Commercial Officer at Deribit, emphasized the bullish sentiment prevailing in the cryptocurrency market, particularly evident in derivatives data. Strijers highlighted the basis yield achievable by buying spot and selling longer-dated futures, indicating strong demand in the market.

Moreover, Strijers noted a significant increase in Bitcoin notional open interest in contracts valued at $100,000 and higher on Deribit. He also pointed out a shift in the put-call ratio for ether options, indicating evolving market sentiment towards short-term and long-term expiries.

Overall, the heightened levels of bitcoin options open interest on Deribit reflect the growing maturity and sophistication of the cryptocurrency derivatives market, underpinned by bullish market sentiment and evolving trader strategies.

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GSR, a crypto market maker, has revised its estimate of the likelihood of a spot Ether ETF approval in May to 20%. This represents a significant decrease from its earlier estimate in January, where it had placed the chances at 75%.

According to Brian Rudick, an analyst at GSR, the change in estimation is influenced by several factors. Rudick highlighted the lack of engagement from the SEC, potential political pressure against approving digital asset ETFs, and an ongoing investigation into whether Ether qualifies as a security. These factors collectively diminish the odds of approval.

Rudick also speculated that the approval process for spot Ether ETFs might extend well into 2025 or 2026, potentially involving litigation due to the complexities surrounding the regulatory environment.

In a notable shift, Rudick mentioned that some ETF applications have been amended to include Ether staking. While this could enhance the attractiveness of such ETFs, it also introduces additional complexities to the approval process. Rudick suggested that this move might either provoke a response from the SEC or indicate a concession to a delayed approval, potentially lowering the odds for May.

Similarly, Bloomberg ETF analysts have also adjusted their estimates, now placing the likelihood of a spot Ether ETF approval in May at 30%. This contrasts with their earlier projections, which were more optimistic, indicating a challenging regulatory landscape for Ether ETFs.

James Seyffart, a Bloomberg analyst, expressed growing pessimism, noting a lack of progress in the approval process as the deadline approaches. With little movement observed, optimism surrounding the approval of Ether ETFs seems to be waning.

Overall, both GSR and Bloomberg analysts paint a cautious picture regarding the prospects of a spot Ether ETF approval in May, highlighting regulatory uncertainties and the potential for prolonged approval processes.

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