Author: Dale Warburton

Dale is a former attorney turned passionate Bitcoiner with an interest in investments, macro, geopolitics, innovation, tech, nature, wildlife, MMA and Bitcoin (of course).

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Bitcoin Crypto News Cryptocurrency Law ETFs Regulation

US Regulator Sued by Grayscale After Latest Bitcoin ETF Rejection

Historically, the Grayscale Bitcoin Trust (GBTC) was the primary vehicle for US institutional exposure to bitcoin. As jurisdictions including Australia and Canada approved spot bitcoin exchange-traded funds (ETFs), the Securities and Exchange Commission (SEC) resisted. Once again, it has rejected appeals to approve a bitcoin ETF, and this time it is getting sued:

Grayscale Committed to a Spot Bitcoin ETF

As news broke that the SEC had rejected its application to convert GBTC into an ETF, Grayscale moved swiftly to file a petition for review with the US Court of Appeals for the District of Columbia Circuit.

Speaking on CNBC’s Squawk Box, chief executive Michael Sonnenshein commented that Grayscale was “of course very disappointed, but as an organisation [we] were ready”. He added that the firm “almost immediately” filed a petition for review as it “vehemently disagreed with the decision”.

When asked for the basis for Grayscale’s legal challenge, Sonnenshein responded:

The SEC is acting arbitrary and capricious by continuing to approve Bitcoin futures based ETFs while continuing to deny spot Bitcoin ETFs.

Michael Sonnensheim, CEO, Grayscale

Nonetheless, Grayscale has said that it remains “committed” to converting the GBTC into an ETF, adding that:

Through the ETF application review process, we believe American investors overwhelmingly voiced a desire to see GBTC convert to a spot Bitcoin ETF, which would unlock billions of dollars of investor capital while bringing the world’s largest Bitcoin fund further into the US regulatory perimeter. We will continue to leverage the full resources of the firm to advocate for our investors and the equitable regulatory treatment of Bitcoin investment vehicles.

Grayscale press release

‘Poked the Wrong Nest’

In a rare display of unity between Bitcoiners and the crypto community, both sides agreed that pushback was needed against the SEC’s decision, with on-chain analyst Will Clemente saying:

Others commented that the SEC’s decision “lacked substance” or “common sense”:

Tellingly, during Grayscale’s 240-day review, a record-breaking 11,400 submissions were received with over 99 percent demonstrating support for the conversion.

Even though a final decision is only likely to be reached within the next 12 months, it appears as if the SEC may well have poked the wrong nest. Bitcoiners, in particular, have a tendency to make their voices heard.

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Bitcoin Crypto News Regulation

Regulation is Good for BTC Price Action, Report

Bitcoin-focused financial services firm New York Digital Investment Group (NYDIG) has released a report in which it found that increased regulatory clarity was beneficial to the price and adoption of Bitcoin.

Regulatory Clarity, Helpful or Hurtful?

The report notes that regulatory clarity is often cited as a significant hurdle for institutional adoption, however NYDIG has maintained the opposite view, believing that adoption would grow once investors “know the rules of the road”.

To test its thesis, the company looked at historical events related to digital asset regulation across a number of international jurisdictions. These events encompass matters including tax, accounting, payment, mining, the legal status of exchanges and other service providers, or even the legality of crypto assets themselves.

It then tracked the subsequent price returns of bitcoin in the following day, week, month, six months and year, with a focus on the longer-term windows. The returns were then evaluated in both absolute and relative (ie, average) terms.

Investors and Price Welcome Regulatory Clarity (Mostly)

The report noted that, other than China, which has implemented countless bans on mining and digital asset ownership, most other jurisdictions were “supportive but with guardrails”.

Aside from China, where regulations had a deleterious impact on price, across all other jurisdictions the study offered clear evidence that on both an absolute basis and relative basis, increased regulatory clarity was favourable for the price of bitcoin. This was particularly the case across six- and 12-month timeframes.

BTC absolute performance after a regulatory event. Source: NYDIG
BTC relative performance after a regulatory event. Source: NYDIG

The implication then is that regulatory clarity, despite its flaws, is appreciated by investors. Noting that retail only accounts for a quarter of volume, it’s little surprise that regulation brings with it positive price action across longer timeframes.

With bitcoin capitulating below its previous cycle’s all-time high, one wonders what the impact will be of the recently released US “crypto bill”, dubbed the Lummis-Gillibrand Responsible Financial Innovation Act, once passed.

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Bitcoin Crypto News

2022 Has Been a Bear Market of ‘Historic Proportions’, Glassnode Report

 A new report from on-chain analytics firm Glassnode has described current market conditions as a “bear of historic proportions”, adding that “it can reasonably be argued that 2022 is the most significant bear market in digital asset history”:

This Year BTC’s Worst on Record?

Following Glassnode’s recent report arguing we were in “the darkest phase of the bear market“, its latest release, titled “A Bear of Historic Proportions”, outlines reasons for believing that 2022 has been the worst on record for Bitcoin.

Interestingly, according to the blockchain analysis firm, the bear market commenced in April 2021 and not November 2021, since “a large proportion of the marginal buyers and sellers were flushed from the market”. It adds that bear market lows typically have drawdowns between -75 percent and -84 percent from the all-time high (ATH), taking between 260 and 410 days.

With the current drawdown reaching -73.3 percent below the November 2021 ATH, Glassnode concludes that “this bear market is now firmly within historical norms and magnitude”:

BTC drawdown from ATH. Source: Glassnode

Mayer Multiple in Rare Territory

One of the clearest signs of a bear market is when the spot price of bitcoin drops below the 200-day moving average (MA) and, in seldom seen cases, below the 200-week MA.

To illustrate, Glassnode uses the Mayer Multiple (MM), a metric used to identify bear and bull markets. Simply put, when prices are below the 200-day MA it signifies a bear market, and when above the 200-day MA, a bull market. Currently, bitcoin’s price of around US$20,000 is at a very rare level, given that it is below half the 200-day MA:

BTC price falls below 0.5 MM for the first time since 2015. Source: Glassnode

Glassnode comments that falling below 0.5 MM is an extraordinarily rare event which hasn’t happened since 2015:

Only 84 out of 4160 trading days (2 percent) have recorded a closing MM value below 0.5. For the first time in history, the 2021-22 cycle has recorded a lower MM value (0.487) than the previous cycle’s low (0.511).

Glassnode report

Realised Price, Another Bear Signal

In addition to the MM, Glassnode also notes that Bitcoin’s spot price is trading below “Realised Price”, a valuation metric calculated by taking the value of all bitcoins and the price they were bought, divided by the number of bitcoins in circulation.

Glassnode notes that the current discount to Realised Price suggests that sellers are offloading their coins at a loss. This too is an uncommon phenomenon, as spot price has only traded below Realised Price five times since Bitcoin’s launch:

Spot prices are currently trading at an 11.3 percent discount to the realised price, signifying that the average market participant is now underwater on their position.

Glassnode report
BTC realised prices. Source: Glassnode

To highlight the severity of current market conditions, Glassnode concludes by saying that the “deviation from the MA is so large that only 2 percent of trading days have been worse off”. A bear market of historic proportions indeed. Then again, it’s all a matter of context:

BTC fear and greed index December 2020 vs June 2022. Source: Documenting Bitcoin
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Bitcoin Crypto News Ethereum

US Regulator Affirms BTC is a Commodity, Won’t Comment on Other Cryptos

Securities and Exchange Commission (SEC) chair Gary Gensler has confirmed in a recent interview with CNBC that Bitcoin is a virtual commodity. Notably, he declined to comment on the status of any other cryptocurrencies.

Bitcoin: the Only Commodity?

In an interview with CNBC’s Jim Cramer, Gensler was probed as to whether he was collaborating with the Commodities and Futures Trading Commission (CFTC) in relation to the regulation of cryptocurrencies.

The significance? While the SEC focuses on securities regulation, the CFTC (as its name implies) is responsible for regulating commodities such as oil, gold, silver or wheat. According to Gensler, and his predecessors, you can add Bitcoin to that list:

Some, like Bitcoin, and that’s the only one, Jim, I’m going to say because I’m not going to talk about any one of these tokens, my predecessors and others have said, they’re a commodity.

Gary Gensler, chair, SEC

Interestingly, former SEC chair Jay Clayton argued that Ethereum was a commodity, saying it was sufficiently decentralised. However, when pressed, Gensler refused to provide a direct response.

Gensler’s view, expressed during his tenure teaching blockchain at Massachusetts Institute of Technology (MIT), is that Ethereum’s ICO (initial coin offering) passed the “Howey Test”, a legal precedent used to classify securities:

Given the time passed, Ethereans have argued that the network is now sufficiently decentralised to constitute a commodity, although Gensler has thus far refused to provide an official view.

Bitcoiners remain convinced that Bitcoin is the only commodity, a view that MicroStrategy CEO Michael Saylor has repeatedly stated:

A quick scan of Twitter reveals that the general sentiment among Bitcoiners is that if you raised money, and/or you have a foundation, leader or CEO, it is a security and cannot be regarded as decentralised:

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Australia Crypto News Cryptocurrencies Cryptocurrency Law Regulation

Crypto Ads Crackdown Expected Soon to Protect Australian Consumers

Caroline Malcolm, the Australian-born head of international policy at crypto security firm Chainalysis, believes the federal government will soon introduce regulatory reforms to offer everyday Australians a higher level of consumer protection.

Regulations Likely Within Next Year

The former head of the OECD’s global blockchain policy centre told attendees at the Chainalysis LINKS conference in Sydney that she believes regulations will be implemented in the next six to 12 months.

Specifically, the focus is likely to relate to advertising standards and prohibited practices, and bringing those in alignment with traditional investment regulations:

Thinking about some of those traditional concepts around market manipulation, for example, and bringing those into crypto space and starting to have some obligations there in terms of whether it be wash trading, front-running, or insider trading.

Caroline Malcolm, head of international public policy and research, Chainalysis. Source: Australian Financial Review

Malcolm noted that the new regulations would require clarity, particularly in the areas of advertising and promotion:

It’s not about banning advertising or banning the sale of particular assets to particular parts of the community. But [it is] really about making sure that there’s no misleading advertising, that there are disclosures about what you’re actually buying when you’re getting into this sector, and making sure that those risks are as clear to you as the opportunities are.

Caroline Malcolm, head of international public policy and research, Chainalysis. Source: Australian Financial Review

‘Australia Can’t Tackle This Alone’

Malcolm suggested that Australia is likely to take a similar approach to the UK, which has brought crypto assets into a similar regime as for other financial products.

Speaking in relation to Australian regulators and the local industry, she added that both have “misconceptions” about risk levels in crypto, and “both need to work together to understand each other’s obligations”. Malcolm argued further that Australian regulators ought to be working with global counterparts to ensure one country’s approach is as consistent as possible with others’.

Australia can’t tackle these issues by itself. We really need to work together to almost have a sandbox for trialling new approaches which cannot just put us in the same position in terms of policy outcomes, but perhaps even put us in a better position to allow us to be more effective in some of these policy objectives that we have.

Caroline Malcolm, head of international public policy and research, Chainalysis. Source: Innovation Australia

While Australians made US$2.1 billion in crypto gains during 2021, it isn’t clear how they have fared thus far in 2022, particularly after the most recent downturn. Arguably, this may be the appropriate time to introduce sensible consumer regulations in alignment with other financial products.

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Australia Bitcoin Crypto News

Australia Confirms Crypto is Not a Foreign Currency

Even though El Salvador and the Central African Republic have made bitcoin legal tender, newly-elected Australian Treasurer Jim Chalmers has said that crypto will continue to be excluded from foreign currency tax arrangements under the Albanese Labor Government.

In a prepared statement, Chalmers noted that the decision by the Government of El Salvador to allow bitcoin as legal tender “has the potential to create uncertainty about the status of crypto assets such as Bitcoin for tax purposes in Australia”.

Crypto Remains Subject to Capital Gains Tax

Therefore, in an effort to ensure absolute clarity in the current legislative arrangements, Chalmers added:

Crypto assets will not be regarded as a foreign currency for tax purposes. Capital gains tax will continue to apply to crypto assets that are held as investments.

Jim Chalmers, Australian Treasurer

Finally, he clarified that this latest proclamation was backdated to July 1, 2021, and that the government would “continue to take a pragmatic and timely approach to its role in the rapidly-evolving digital currency landscape”.

Pragmatism Needed in Australia

No further details were offered as to what was meant in that regard, however, pragmatism presumably would entail a reconsideration of the position should further evidence come to light.

As an example of pragmatism at work, consider the US Lummis Gillibrand crypto bill currently under consideration, which proposes that crypto transactions less than US$200 do not create a taxable event.

Crypto Implosion Juices Senators Lummis, Gillibrand to Push for Law to Clamp Dow - Bloomberg
Senators Kirsten Gillibrand (left) and Cynthia Lummis advanced the US Crypto Bill. Source: Bloomberg

Even though Australia’s Bitcoin Industry Body specifically campaigns for bitcoin to be treated as a foreign currency, this latest government announcement has put a stop on that, at least for the time being.

While cryptocurrencies remain highly volatile with potential for exponential gains, it’s unlikely that the Australian government will forego the opportunity to extract revenue in the form of capital gains.

On the bright side, shrewd investors are likely to use this latest downturn as an opportunity to harvest losses to maximise tax efficiency.

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Bitcoin Crypto News

‘Bitcoin is Dead’ Hits All-Time High on Google Searches

As bitcoin cratered below its 2017 high, retail investors – arguably most prone to speculative trading – turned to Google ask whether this time, in fact, bitcoin was well and truly dead.

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Google searches “bitcoin dead”. Source: Google Trends

Bitcoin Sentiment Bottoming?

At present, market sentiment is shaky, and with “Bitcoin is Dead” searches hitting an all-time high, investors are demonstrating a distinct lack of confidence in the asset class’s short- to medium-term prospects.

Bitcoin Fear & Greed Index
BTC fear and greed index. Source: Alternative.me

As bear markets come around, Bitcoin’s critics tend to become increasingly vocal. And one of the more prominent detractors is gold bug and perennial Bitcoin adversary Peter Schiff, who recently called for a US$3,000 price target:

Bitcoiners responded in turn, arguing that he “has a poor track record” when it comes to bitcoin predictions:

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Peter Schiff meme. Source: Dan Held

Bitcoin Obituaries – 455 and Climbing

Information site 99 Bitcoins keeps track of so-called “Bitcoin Obituaries”, a rough approximation for “Bitcoin is Dead”.

A Bitcoin obituary is categorised as such if “the content itself (not just the headline) is explicit about the fact that Bitcoin is or will be worthless (not ‘maybe’ or ‘could’)”. Furthermore, it additionally requires that the “content was produced by a person with a notable following or a site with substantial traffic”.

Thus far in this year, Bitcoin has died 18 times, all the way down from around US$50,000:

Bitcoin obituaries since January 22. Source: 99 Bitcoins

For patient investors, with a long-term horizon, calls that “Bitcoin is Dead” may be a sign to start entering the market. As the world’s most famous investor has repeatedly said:

Be fearful when others are greedy and greedy when others are fearful.

Warren Buffett
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Bitcoin Crypto News ETFs

ProShares Launches First Short Bitcoin ETF

ProShares, a global exchange-traded fund (ETF) provider, has launched an ETF enabling investors to bet against bitcoin, otherwise known as “going short”:

Profiting Off Bitcoin’s Decline

The ProShares Short Bitcoin Strategy ETF, scheduled to commence trading under ticker symbol BITI on June 22 on the New York Stock Exchange, enables investors to “short sell” bitcoin.

Unlike most investments which speculate on the price appreciating, short selling involves the opposite – betting that the asset in question will decline. In a statement, ProShares CEO Michael Sapir commented that conditions were ripe for the product:

As recent times have shown, Bitcoin can drop in value. BITI affords investors who believe that the price of Bitcoin will drop with an opportunity to potentially profit or to hedge their cryptocurrency holdings.

Michael Sapir, ProShares CEO

BITI purports to deliver the inverse of the performance of the S&P CME Bitcoin Futures Index, and it will obtain exposure through Bitcoin futures contracts.

The launch is rather timely, given bitcoin’s recent unprecedented decline below 2017’s previous all-time high. Since November last year, the overall cryptocurrency market has shed US$2 trillion from its market capitalisation, peaking at US$2.9 trillion and currently hovering around US$900 million.

Bitcoin 1 month performance (USD). Source: Coinbase

SEC Drags its Heels on Spot Bitcoin ETF

Despite other jurisdictions such as Canada and Australia having multiple spot bitcoin ETFs, as the world’s largest financial market the US is yet to get one of its own. The US regulator, the Security and Exchange Commission (SEC), has repeatedly denied spot bitcoin ETFs, citing “market manipulation” as one of several reasons for failing to approve one.

Remarkably, investors in the US now have the option to invest in bitcoin futures, as well as bet against bitcoin, but they still cannot invest in an ETF tracking its price:

Commentators on Twitter appeared baffled by the decision, describing it as “intentional”, with others saying it was unequivocally clear that the SEC had an agenda:

The news comes in as Grayscale remains committed to converting its Grayscale Bitcoin Trust into an ETF, and just yesterday, Bloomberg reported that Anthony Scaramucci’s SkyBridge was scheduled to file for a spot bitcoin ETF this week.

Pressure is mounting on the SEC. How much longer can it continue to deny a spot bitcoin ETF? The longer the situation persists, the more difficult it is to argue that its decision-making isn’t political.

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Crypto News DeFi Hackers

‘Inverse Finance’ Exploited Again in $1.2 Million Flash Loan Attack

Inverse Finance, a decentralised lending protocol built on Ethereum, has lost over US$1.2 million in the industry’s latest DeFi hack:

To make matters worse, this is the second such incident for Inverse Finance after US$15.6 million was stolen in an exploit just three months ago.

Flash Loan Attack

Flash loans are DeFi-specific crypto loans in which large amounts of capital can be borrowed with little collateral, provided the loan is paid back within the same transaction.

While typically used by traders, hackers have demonstrated success in being able to trick a protocol’s smart contract into manipulating prices and then taking over the liquidity pool’s assets.

This is a so-called “flash loan attack”, a technique utilised by the exploiter in this latest incident, confirmed by security firm PeckShield:

On-chain data reveals that the culprit flash-borrowed 27,000 wrapped bitcoin from lending protocol Aave to conduct the attack. The funds were subsequently routed through swap service Curve for various stablecoins before being used to remove DOLA, a stablecoin, from Inverse Finance pools.

CoinDesk - Unknown
Evidence of the flash loans. Source: Etherscan

In total, the exploiters managed to steal more than 53 bitcoin, worth US$1.1 million, and 10,000 tether (USDT). As a result, Inverse implemented a temporary pause on its lending:

Since the exploit, an address tagged “Inverse Finance Exploiter” has apparently been sent 900 ETH, worth around US$1 million, to Tornado Cash, a privacy mixer often used when attackers wish to conceal their funds.

‘Generous Bounty’ Offered

In a post-mortem, Inverse Finance encouraged the person(s) behind the incident to return the funds for a “generous bounty”. And to mitigate the risk of further incidents, it added that it had retained the services of security experts to not only further understand the breach, but also to prevent further such instances in the future.

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Bitcoin Crypto News Ethereum Markets

BTC Crashes Below 2017’s Previous All-Time High, Hitting $17,500

For the first time since December 2020, bitcoin dropped below US$20,000 as crypto markets tumbled this past weekend amid US$600 million being liquidated within 24 hours.

Despite some panicking, others took a more sanguine approach:

Macro-Led Meltdown

Unlike prior cycles, bitcoin is well and truly integrated within the broader global macroeconomy. Against a backdrop of US inflation hitting a 40-year high, coupled with an aggressive rates rise by the Fed, all risk assets were inevitably going to feel the pain.

With the market in full fear mode, dialled up in part thanks to Celsius halting withdrawals, the broader crypto market was already well-poised for a breakdown. Fear, coupled with the sector’s affinity for leverage, and suddenly you had a situation where bitcoin and crypto fell off a cliff.

ETH dropped below US$950 and BTC broke the previous cycle’s all-time high, collapsing to US$17,500. All over Twitter, commentators spoke how it was now official that “all models are broken”:

Some even took to ridiculing Bitcoin’s laser-eyed chief protagonist, Michael Saylor:

Slight Recovery

As bitcoin slid below US$19,000, commentators were left wondering when the carnage would end. Glassnode’s on-chain analyst Checkmate highlighted bitcoin’s difficulty regression model being priced at US$17,600, that being the cost to mine BTC, as a possible bottom.

Not long after, BTC bounced off the difficulty regression model, providing some temporary relief:

BTC has since regained some of the losses, clawing its way back up above US$20,000, however it remains almost 25 percent down over the past week.

BTC weekly performance. Source: Coinbase

ETH has similarly recovered somewhat, following in BTC’s steps, and at the time of writing was trading at just over US$1,100, close to 24 percent down on the week:

Ethereum weekly performance. Source: Coinbase

For long-term holders with high levels of conviction, now may be as good a time as ever to gain exposure. However, the market remains riddled with fear, suggesting that few are likely to dive in. Market psychology is indeed a strange thing …

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Crypto market fear and greed index. Source: @BitcoinFear