🔑CryptoKey Newsletter | State of the Industry

CryptoKey Newsletter | State of the Industry - August 2023

After almost two years of a long and grueling bear market, the outlook for the crypto landscape has finally started to look much more encouraging in recent months. With inflation starting to cool and the Fed nearing the end of their rate hiking cycle, the macro backdrop appears to be much less of a headwind for risk assets moving forward as well.

Since the FTX meltdown last November which triggered a massive selloff of crypto across the board, Bitcoin and ETH are up about 2X off their lows with other top altcoins catching some serious bids lately. Crypto related stocks have shown impressive performance as well, w ith Coinbase ($COIN) up 188% YTD & public Bitcoin miner $RIOT up a staggering 446%.

Barring any unexpected events or macro meltdowns (ex. inflation spiking back up, commercial real estate collapse, etc.) it appears likely that we have already seen the lows of this bear market cycle and momentum should continue to build. 

In addition to some spicy price action the last few months, there have been a handful of huge wins and developments across the crypto landscape that are significant to the bull case and investment thesis for digital assets as a whole.

Let’s dive in!

BlackRock and Bitcoin ETF Mania

BlackRock, the largest asset manager in the world recently filed an application for a Bitcoin Spot ETF, followed shortly after were the likes of Fidelity, VanEck, Invesco and a handful of other financial powerhouses. Although there have been many Bitcoin Spot ETF applications from other firms in the past, all have been denied by the SEC for various vague and arbitrary reasons (more on them later). However, this time may be different. 

BlackRock’s past ETF application approval record is a staggering 575-1. CEO Larry Fink is one of the most powerful and influential people in the world and without a doubt has close ties with just about every regulator and agency in the US (and around the world for that matter). 

That said, I like the odds of BlackRock getting the nod from regulators to be the grownup in the room fit to finally launch a public spot Bitcoin ETF in the United States. 

This approval would not only bring more institutional credibility to crypto as an asset class, but also an enormous amount of new capital that will flood into Bitcoin once the smart money and boomers can easily, safely & securely invest in it. If all goes smoothly, I would expect Ethereum and other crypto asset spot ETFs to follow soon after.

SEC vs. Ripple Court Ruling

The SEC has been incredibly hostile towards the entire crypto industry for many years. Crypto has certainly seen its share of bad actors and fraudulent activity, however the SEC has chosen the path of regulating strictly by enforcement, providing little to no guidelines or regulatory clarity to industry participants, while doing absolutely nothing in order to “protect” investors. Leading crypto firms based in the US such as Coinbase, Gemini, Kraken & others have been begging for more clarity and cooperation in order to help develop sound laws and guidelines to operate under, unfortunately to no avail.

The SEC has been basing much of their enforcement actions based off of securities laws that were written IN THE 1930’s. Crypto is in an entirely new realm of technology and finance, the concept of a “decentralized network” (or even the internet) was completely unimaginable when these laws were originally written. A regulatory framework that will enable innovation and competitiveness for the United States is still a work in progress. 

The current SEC regime is led by chairman Gary Gensler, an ex-Goldman Sachs exec and notorious hardass who has solidified himself and his agency as the anti-crypto supervillain. At this point in his tenure it is pretty clear that his hostile actions and crucifixion of the crypto industry has been to propel his own political agenda, regulatory resume and appease those with whom he has notable close ties with (*cough* Senator Elizabeth Warren *cough* Wall St. buddies)

With that said, Ripple Labs, the company who created the XRP token was sued years ago by the SEC for selling unregistered securities to the public without proper disclosures. The focal point in this lawsuit has been the question of whether or not the $XRP token in this case is considered a security (referencing laws made almost 100 years ago). The SEC has also sued Coinbase, Binance and almost every other major crypto exchange for selling “unregistered securities”, essentially claiming that sales of just about any crypto asset except for Bitcoin was deemed illegal and subject to enforcement in the eyes of the SEC. 

After several years battling in court and hundreds of millions of dollars in lawyer fees later (not to mention taxpayers money that funds the SEC) U.S. District Judge Analisa Torres has officially ruled that the XRP token itself is not considered a security, completely obliterating the SEC’s claim in this lawsuit and setting an encouraging precedent in favor of crypto firms for many others. These lawsuits from the SEC have been a huge storm cloud for the entire space for a long time; this ruling was a monumental win for the entire industry and helps set the stage for more to come.

Bitcoin Halving 

“The Halving” is an event that occurs within the Bitcoin network protocol approximately every four years which reduces the rate of newly created Bitcoin rewards paid out to miners by half. This issuance schedule is a significant feature within Bitcoin’s monetary policy which is aimed to increase the scarcity of $BTC over time, ultimately driving the price higher in dollar terms. Inflation is the devaluation of money that occurs when governments print too much of their currency - Bitcoin was designed to do the exact opposite and increase in value over time.

The next halving is set to occur around April 2024 and is a highly anticipated event for Bitcoin investors and the crypto space as a whole. 

Set to take place around April 2024 is the next highly anticipated Bitcoin Halving, a pre-programmed occurrence roughly every four years where the new Bitcoin issuance reward paid out to miners gets cut in half, thus increasing the scarcity of new BTC hitting the market. 

Typically the price of Bitcoin has hit a new all-time high about a year after the halving, once the new price discovery and speculative mania has taken hold. Although macro conditions, global liquidity and correlations to certain equities can have strong effects on price action of Bitcoin, Crypto as a whole has generally performed fairly predictably according to these multi year boom and bust cycles around the Bitcoin halving.

Although predicting future prices is pretty much impossible, especially in crypto - analyst estimates for the next Bitcoin cycle ATH are ranging anywhere from $100K-$1M. These calls are not only coming from the crypto-native degens, but large banks and asset managers such as Standard Chartered and ARK Investment as well. Never blindly follow any one chart (no matter how bullish), but the below are great visuals to help understand the impact that the halving can have on Bitcoin.

Stay bullish!

Best,

Tommy Sullivan