What’s next for crypto?

What’s next for crypto?

Bitcoin has seen six consecutive weeks of gains, its longest win streak since the end of 2020. [Kanchanara via Unsplash]

There’s never a dull moment on the blockchain. Here’s what you need to know this week:

The next chapter for crypto. In the wake of Binance’s settlement, here’s what might be on the horizon for the crypto industry.

How Wall Street is boosting BTC. Institutional investors have led bitcoin gains for six consecutive weeks.

This week in numbers. Solana’s eye-popping Mad Lads NFT sales, how many South Korean citizens will test the country’s CBDC, and more.

MARKET UPDATE

After Binance’s settlement, what’s next for crypto?

Following the news last week of Binance’s settlement with U.S. authorities, crypto markets responded with far more optimism than one might have suspected. Prices spiked in the days following the announcement — with BTC climbing above $38,000 for the first time since 2022.

As Coinbase CEO Brian Armstrong put it in an interview with CNBC on Monday, “The enforcement action against Binance, that’s allowing us to turn the page on that and hopefully close that chapter of crypto’s history.” 

So what’s next for crypto as a new chapter opens? Here’s what analysts and market watchers are predicting.

Odds that a spot crypto ETF will gain approval may have improved.

As Armstrong told CNBC, “I think that regulatory clarity is going to help bring in more investment, especially from institutions.” 

As CoinDesk reports, some industry watchers say that the enforcement action “may have cleared the decks for the U.S. Securities and Exchange Commission (SEC) to finally approve a spot bitcoin ETF … by [easing] the agency's concerns regarding overseas manipulation of bitcoin prices.” (More on the current importance of institutional crypto investment in the second story in today’s newsletter.)

For much of this year, the prospect of Wall Street getting into spot BTC exchange-traded funds (ETFs) has been a major catalyst for crypto prices. At least eight spot BTC ETF proposals — which would buy bitcoin and sell shares via conventional brokerages — are currently in front of the SEC.

The need for regulatory clarity is on everyone’s mind. 

Among the spot crypto ETF applicants are some of the world’s largest financial firms — household names like Fidelity and BlackRock. A Moody’s crypto analyst compared this moment to the transition from the relative wild west of the early internet era to the more clearly regulated current landscape, noting that the Binance settlement “marks the same inflection point that we saw earlier at the intersection of the dot-com and post-dot-com eras.”

Coinbase has long argued that a lack of clear regulations in the U.S. has dampened crypto innovation here. Meanwhile, places such as the United Kingdom and Dubai and regions like the European Union have forged ahead with regulatory regimes that offer more guidance to firms and traders.

Emerging crypto trends are picking up steam as major corporations invest.

Crypto analyst Jamie Coutts recently gathered together many of the trends that could power the next wave of crypto adoption. Among them are stories Bytes has covered this year, including:

  • Tokenization of real-world assets. According to a Bernstein report, tokenization represents a $5 trillion opportunity in the next five years — in which stocks, real estate, artwork, and more can be represented on a blockchain. Dozens of the world’s largest financial institutions have conducted experiments in tokenization. This week, U.K. regulators began exploring a framework to allow asset managers to use tokenization with common asset classes.

  • Top gaming companies incorporating NFTs. On Monday, Final Fantasy publisher Square Enix began to launch “Symbiogenesis” — its first Ethereum-powered game — with an auction of NFT-based characters. Meanwhile, the most anticipated of the new wave of web3 games is probably the first-person shooter “Shrapnel,” which is scheduled for an early preview this year before fully rolling out in 2024. It reportedly looks and plays like a “AAA” game such as Halo — but with an NFT marketplace that allows players to buy, sell, and truly own in-game assets, and a staking system that allows them to “participate in the development and promotion of unique maps.” 

The bottom line…

The periodic down cycles known as “crypto winter” are when strong companies innovate and help build the foundation for the next bull run. “Bear markets wash out many of the bad businesses, business practices, inefficiencies and bad actors,” Jeff Embry, managing partner of crypto hedge fund Globe 3 Capital, told Blockworks. “[They're] an important part of clearing the way for the next bull market cycle.”

WHALE STREET

How institutional traders helped BTC rise for six weeks straight

For the first time since the end of 2020, bitcoin saw six consecutive weeks of gains, with prices hovering close to the $38,000 range. That’s a way bigger number than the 200-week moving average (200WMA) of about $29,000 as of November 23. 

What’s important about that? The 200WMA, which tracks bitcoin’s price over the last 200 weeks, is a key indicator for many investors — especially following a bear market. Historically, BTC bottoms in price near its 200WMA, which it did last fall after the FTX collapse. But once BTC starts settling at levels well above its 200WMA, prices typically continue to rise in the following months. (Remember: Past performance is just one clue among many and is not indicative of future results.) 

Crypto fund inflows just had their biggest week in two years. 

As anticipation for the approval of the first U.S.-based spot bitcoin ETF ramps up — and with BlackRock and Fidelity planning similar products for ETH — nearly $350 million poured into crypto investment products last week, doubling inflows from the week before, according to CoinShares. In total crypto investment products now have around $45 billion in assets under management — the highest figure in 18 months.

Notably, the amount of capital flowing into products focused on shorting BTC (or betting that prices will fall) has declined by more than 60% since April, indicating that many traders are betting that prices have more room to grow. 

Products focused on ETH, SOL, DOT, and LINK also saw inflows of capital. Less than 10% of the week’s new money came from U.S. traders, potentially a sign that they’re waiting for one of the new crypto ETFs to gain approval. 

Investors are betting that the Grayscale Bitcoin Trust will soon become an exchange-traded product. 

One of the first firms that could receive approval for a spot BTC ETF is Grayscale, which won a lawsuit against the SEC earlier this year over its denial of the firm’s years-long quest to convert its Grayscale Bitcoin Trust (GBTC) product into a spot BTC exchange-traded product. 

What’s the difference between a trust and an ETF? Instead of buying BTC and selling shares via a conventional brokerage like an ETF would, GBTC tracks the price of BTC — giving investors indirect exposure to bitcoin. 

Another key difference: ETFs can issue new shares to keep the share price in balance with the value of the assets held by the ETF. GBTC, on the other hand, fluctuates — trading at a premium to the price of bitcoin during periods of high demand and a discount at periods of lower demand.

This year, GBTC’s discount has narrowed from as much as 50% to around 8% as $2.5 billion has flowed into the trust — with some analysts predicting that GBTC will become an ETF in the near future, at which point their currently discounted shares would rise to the market value of BTC.  

The bottom line… 

Markets are showing many signs that they’re optimistic about prices continuing to go up — including the growing conviction that a spot BTC ETF will gain SEC approval in the near future. (Bloomberg Intelligence predicts it will happen in January.) But that’s not the only major potential bull market spark on the horizon. Many analysts point to spring of 2024’s halving event — in which the amount of new BTC generated by mining is reduced by 50% — as the next big potential boost.

NUMBERS TO KNOW

$650 million

Value of altcoins set to be “unlocked” this week across projects including DYDX, Optimism, SUI, Hedera, 1inch, and Immutable X. Token unlocks are a crypto version of vesting that involve scheduled releases of crypto to early buyers or contributors to a project. Bigger unlocks may temporarily result in supply outstripping demand, driving prices down.

$1.39 million

Dollar value of the Solana-based Mad Lads NFTs that sold on secondary markets in a 24-hour period ending on Tuesday — making the “profile-pic collection” the biggest NFT seller in that period, easily topping Bored Ape Yacht Club's $881,000 in sales. 

100,000

Approximate number of South Korean citizens who will participate in a central bank digital currency (CBDC) pilot next year. The pilot aims to test digital fiat money’s ability to streamline government grants programs by lowering transaction fees, preventing fraud, and speeding settlement times.  

1,277

Percent increase in transactions logged on Celo, the mobile-first, DeFi-oriented blockchain, between Nov. 22 and Nov. 26. Outside of Celo, which saw an increase from 277,500 transactions to 3.82 million, Avalanche (857%) and Polygon (155%) also saw notable increases in the same span.

TOKEN TRIVIA

What is a stablecoin?

A

A horse-themed cryptocurrency

B

A digital currency that’s pegged to a “stable” reserve asset like the U.S. dollar

C

A highly volatile cryptocurrency

D

A cryptocurrency that’s in a good place emotionally

Find the answer below.

Trivia Answer

B

A digital currency that’s pegged to a “stable” reserve asset like the U.S. dollar