The advent of bitcoin spot exchange-traded funds (ETFs) marked a turning point in the cryptosphere, but not in the sense anticipated. Since their approval, the price of bitcoin has fallen 15%. Grayscale's GBTC stock sale fueled this trend. How ? We come back to this in the Cryptic Analysis after the essential news of the week.

Block 1: Essential news

  • More and more cryptocurrency holders

In 2023, the number of cryptocurrency holders increased by 34%, from 432 million to 580 million, according to a report from Crypto.com. This increase is naturally largely attributed to the surge in the price of bitcoin (BTC) and ether (ETH) in 2023. Bitcoin remains the most widely held cryptocurrency, with a 33% increase in the number of its holders. in 2023, again according to Crypto.com.

Number of cryptocurrency holders in 2023 (in millions)
Crypto.com
  • France: Towards a taxation of stablecoins?

The French Court of Auditors published a report in which it proposes to impose conversions between cryptocurrencies and stablecoins, in order to strengthen the taxation of crypto-assets. This proposal therefore suggests replacing the current taxation on the use of stablecoins for payments with a tax at the time of conversion between cryptocurrencies and stablecoins. Thus, with this proposal, the calculation of the tax will no longer be done at the time of transfer for the purchase of a good or service, but at the time of the conversion between the cryptocurrency and the stablecoin which will allow this operation. To be continued.

  • Switzerland: One more step towards tokenization

FINMA, the Swiss financial regulator, gave its approval to the startup Taurus to extend its TDX platform for trading tokenized assets to individuals, a service previously reserved for professional investors. This development marks an important step towards the democratization of the tokenization of real assets. Taurus, in collaboration with Deutsche Bank, thus promotes easier access to tokenized assets, including fungible and non-fungible tokens (NFTs). This advance strengthens Switzerland's position as a European leader in innovation in the cryptocurrency and tokenization sector.

  • Binance boss forced to stay in the United States?

Changpeng Zhao, the former CEO of Binance, blocked in the United States for a trial, attempted to return to UAE by blocking $4.5 billion of his shares in Binance as a deposit to visit a sick relative. His request was refused despite the bail offered. Currently, he is at large in the United States on $175 million bail, awaiting his February 23 verdict on money laundering charges, facing 18 months in prison and having already paid a $50 million fine.

Block 2: Cryptic Analysis of the week

The price of bitcoin has fallen 15% since bitcoin spot exchange-traded funds (ETFs) were approved.

BTC/USD
Zonebourse

The euphoria that reigned in cryptography, and even beyond its borders, before the approval of ETFs has therefore drastically calmed down. A main reason can explain this collapse in the price of BTC: the sale of shares of GBTC from Grayscale.

More precisely, Bloomberg's Katie Greifeldreports a significant outflow of more than $3.4 billion in just over a week.

Exits on the GBTC
Bloomberg

Before being converted to a spot ETF on January 11, GBTC (Grayscale Bitcoin Trust) was a closed-end trust fund. The float only increased in restricted windows where institutions received shares in exchange for bitcoins.

As a reminder, “float” in the context of GBTC refers to the number of shares available for trading on the open market. More specifically, for funds like GBTC, the free float represents the number of shares that are not held by long-term investors or insiders, and which are therefore freely tradable on the market. This means that the number of shares outstanding (the float) only increased during specific periods. These periods were the windows during which institutions could exchange bitcoins for shares of the fund. Outside of these windows, the float remained fixed, and no new actions were created.

Obviously, a higher float generally means better liquidity, which allows shares to be bought and sold more easily in the market.

For the first six years of its existence, GBTC traded at a premium to net asset value. Small clarification, the “premium” in the context of products like GBTC, designates the difference between the price of the asset on the market and its intrinsic value or net asset value (NAV, Net Asset Value).

Simply put, if a fund like GBTC is trading at a “premium”, this means that its market price is higher than the true value of the underlying assets it holds. For example, if GBTC holds bitcoins whose total value is $100 million, but the market value of GBTC is $110 million, then it is trading at a 10% premium.

Conversely, a fund trades at a “discount” when its market price is lower than its net asset value. This can happen for a variety of reasons, such as concerns about fund management, restrictions on liquidity, or changes in investor demand.

In the case of GBTC, it has historically traded at a premium to the net asset value of its underlying bitcoins, meaning investors were willing to pay more than the true value of the bitcoins held by GBTC for benefit from exposure to bitcoin via a traditional investment instrument. But over the course of 2022, GBTC traded at a 48% discount before starting to rise back to par when it was converted to an ETF on January 11.

GBTC regains its value with bitcoin
Bloomberg

To make matters worse, according to the media CoinDesk, the team in charge of the FTX bankruptcy would have sold a very large number of GBTC: 22 million in total, or around 1 billion dollars. The bankrupt exchange therefore got rid of its positions in the newly converted Grayscale Bitcoin Trust ETF, and these outflows are intended to be used to repay creditors rather than being recycled into competing Bitcoin ETFs whose fees are lower students.

Still, even with the GBTC sell-off, there was a net inflow of over $1 billion into these spot bitcoin ETFs.

The icing on the cake is that when it comes to management fees, GBTC does not have all the assets to attract new crypto-investors. Most of the eleven ETFs have extremely low fees, with the exception of GBTC, which lowered its management fee from 2.0% to 1.5%.

Management fees on Bitcoin Spot ETFs
DRY

Ultimately, many investors are taking advantage of this situation to take profits on GBTC, while some of them transfer their funds to ETFs with lower management fees.

For its part, Coinbase emerges as a big winner from this ETF launch, as the bitcoin custodian of eight of the funds. But Fidelity does its own custody, VanEck uses Gemini, and Hashdex uses BitGo.

Two other factors may explain bitcoin's wobble, including the old stock market adage “buy the rumor, sell the news,” as well as some macroeconomic suspects like the rally in the U.S. dollar in recent days, which is historically negatively correlated with the move. bitcoin.

Thus, previous predictions that the introduction of ETFs would propel bitcoin to unprecedented levels, until reaching $100,000, seem buried for the moment.

To end on a positive note, despite the friction over the bitcoin price, the network still remains intact. THE network hash rate is at an all-time high, Bitcoin's software is working exactly as expected, producing block after block of transactions. And ultimately, thanks to these 11 ETFs, more people have access to buying bitcoins today than two weeks ago.

Block 3: Tops & Flops

Cryptocurrency rankings
(Click to enlarge)

Zonebourse

Block 4: Readings of the week

Bitwise becomes the first Bitcoin ETF to disclose BTC holding addresses (Bitcoin Magazine, in English)

If bitcoin ETFs are so great, why is bitcoin falling? (FT Alphaville, in English)

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