This week was marked by an important event in both the world of finance and that of crypto. Bitcoin-linked ETF was launched on the NYSE under the $BITO ticker, with the highest natural trading volume recorded on the first day – almost $1Bn.
$BITO is not physically backed by bitcoins, it only tracks the price of Bitcoin futures, making it a derivative of a derivative – something that traditional finance is used to do. Bitcoin is ideologically very far from such constructs, but as it gains importance as an independent asset uncorrelated with any other, traditional finance is taking great interest in it.
Asset managers like Grayscale (USA), who understood the crypto potential early, couldn’t be happier now. Even if their funds are not traded on an exchange, which limits the exposure they can get, Grayscale is now managing a whopping $40Bn in its Bitcoin Trust (GBTC), and over $12Bn in Ethereum Trust (ETHE).
Crypto funds dreaming of Grayscale’s glory are popping all around the world, offering their (accredited) clients crypto exposure without the need to take care of private keys and other attributes of crypto owning. To assure that these funds’ assets are well protected, others specialize in crypto custody services - an activity that becomes more and more institutionalized, as already existing financial companies enter the custody business. Most recently we saw the U.S. Bank (5th largest bank in the US) and the Swiss SEBA Bank announcing their cryptocurrency custody services.
Banks are considered natural enemies of crypto, but in some countries they are willing to surf on this wave instead of (unsuccessfully) trying to fight it, and usually the regulators come along. Thus, German Comdirect bank offers crypto ETPs (exchange-traded product) on 11 cryptocurrencies, and the Swiss SEBA bank allows its customers to earn yields on PoS protocols (Polkadot, Tezos and Cardano already available, more will be added later).
Would Satoshi approve of this?
While a number of financial institutions embraces cryptocurrencies, crypto community becomes increasingly sceptical of this: Bitcoin is an independent money circulating on an open decentralized blockchain, and now it is being sucked into the very system it was created to disrupt.
The distrust of the financial system is well-founded. For centuries banks and other financial institutions have been serving as a vehicle for fraud, money laundering, tax evasion and other things people are tempted to do when they manipulate other people’s money. Libor scandal, Panama/Paradise/Pandora Papers, CumEx files… these are just those that were discovered. How many frauds are still running, waiting for a perceptive and tenacious journalist to bring them to the light? How many were disclosed only partially?
This week a group of journalists who worked on CumEx files released an update to their initial investigation published in 2018. This pan-European scam involved such notorious bank groups as Santander, Deutsche Bank, Commerzbank, BNP Paribas, Société Générale and Crédit Agricole, and consisted in using complicated transactions to get tax offices to refund a tax paid once several times. The damage was initially estimated at €55Bn, and now revised to €140Bn. It is a huge amount of taxpayers’ money that could have otherwise be allocated to hospitals or education, or ecology…
The interesting thing about CumEx files is that the initial report appeared 6 years after Germany announced that CumEx type of fraud was “made impossible”. The journalists are concerned that, due to its complex nature, CumEx and its close cousins – CumCum and CumFakes (the newest type of fraud) – can be still going on. And of course they can: financial and banking systems are centralized and therefore opaque, so people will always find a way to fraud.
Changing the paradigm
We believe that no amount of reporting obligations that AML agencies impose on centralized systems can ever prevent financial fraud, especially when fraud comes from high places so intrinsically intertwined with the government. So we will continue to be amazed by the ingenuity of the scammers in suits, exposed in the next journalist investigation, all while our politicians will continue persuading us that the real criminals are the “shadowy super coders” that work on blockchain protocols.
Isn’t this ironic? The blockchain is open and decentralized and makes it virtually impossible to fraud. One would say an excellent base for developing a healthy financial system. Of course, they would have to be intelligent enough to understand it and honest enough to not be influenced by the existing financial establishment… Who knows, maybe we’ll live to see a new generation of politicians capable of disrupting the existing vicious circle of influence and making the right choices.
In this idyllic future we won’t need a Grayscale or a Bitcoin ETF, because people will manipulate crypto directly, using the DeFi to speculate on the markets or earn dividends. Until then, however, the mix of traditional finance and crypto is mostly useful, as it boosts crypto awareness and crypto adoption, even if it is an indirect one.
Art and NFT
Did you think NFTs are exclusive to the blockchains that enable complex smart contracts, like Ethereum or Solana? It appears that using leyar 2 solutions, NFTs on Bitcoin are gaining pupolarity.
Lightning-powered play-to-earn game Lightnite uses Liquid Network-powered NFTs for their in-game assets, an NFT auction platform Scarce City allows selling artworks for BTC (via Lightning Network), and Stacks develops a decentralized open-source network for DApps and smart contracts on Bitcoin, aiming at making it programmable and NFT-friendly. Stacks is gaining traction, and already has a number of popular NFT marketplaces, wallets, data protection tools and even a blog platform.
This Wednesday Bitcoin marked its all-time high of $67k, 6 months after its previous record of $64’900. Triggered most likely by the success of first Bitcoin ETF in the US, it has since corrected to $62k. The overall market sentiment is pretty optimistic, with some experts expecting to see new highs by the end of the year.
Ethereum price didn’t sign a new ATH, but has fallen short of the previous one of $4’380 by a couple of dollars. The price corrected since its rise, but not much, and the ETH graph is looking rather optimistic too.
Quote of the week
“I don’t know that you should put all your money into Bitcoin at $60,000 a bitcoin right now. But surely the fact that it is at $60,000 is an extremely hopeful sign. It’s the canary in the coal mine. It’s the most honest market we have in the country, and it’s telling us that this decrepit … regime is just about to blow up.”
Peter Thiel, co-founder of PayPal, Palantir and Founders Fund, as well as the first outside investor in Facebook