Hello and welcome to the latest edition of the FT’s Cryptofinance newsletter. This week we’re taking a look at whether bitcoin’s latest rally signals real change for the market.
It is said that a sudden change in circumstance — a financial windfall, fame — can change people. Will the same apply to bitcoin?
Earlier this week the token hit $60,000 and its record high of $69,000, set in November 2021, has rapidly come into range. The milestone seemed improbable only in October, when bitcoin languished at about $25,000.
But the arrival of bitcoin exchange traded funds at the start of January has been equivalent of pouring kerosene on to a naked flame. Year to date, bitcoin’s dollar value has nearly doubled. Even by bitcoin’s rollercoaster standards, it’s a breathtaking move.
The change from the last time bitcoin was at these levels, when ads for crypto were about to be plastered over the Super Bowl, is the level of institutional involvement on the back of ETFs sponsored by BlackRock and Fidelity, among others.
“The ETFs are a game-changer,” CK Zheng, co-founder and chief investment officer at crypto hedge fund ZK Squared Capital, told me.
“A lot of people who thought bitcoin was a scam now see it’s being supported by reputable financial institutions like BlackRock. If you can’t trust them, you can’t trust anyone in the US financial system,” he added.
The big Wall Street names have helped crypto demolish records on inflows to ETFs on new asset classes, collectively pulling in $7.4bn since the first day of trading, according to crypto investment group CoinShares. By contrast the first gold ETF, the BlackRock iShares Gold Trust, in 2005 pulled in just $288mn in the first two months after launch.
This sudden influx of new money raises the question of whether it will change the dynamics of the bitcoin price. This is a market that has historically gone through massive booms, dizzying busts, only to zoom at higher levels and with more money tied into it next time round.
That performance was driven by the psychology of retail investors. Many are still gripped by fear of missing out. As bitcoin broke $60,000 on Wednesday, Coinbase could not handle the surge in traffic and temporarily crashed, resulting in many customer balances reading $0.
As my colleague Nikou Asgari remarked on X: “The biggest day for bitcoin in years and Coinbase breaks, good job.”
But that flub may be an outlier. This time round, retail investors are either quieter, or have gone with the ETFs rather than trade directly. Offshore exchanges Binance, OKX and ByBit haven’t seen nearly as much of an uptick in trading volume compared with more regulated onshore rivals.
London-based LMAX and Chicago’s Cboe Global Markets recorded trading volume increases of 180 per cent and 130 per cent respectively last month, according to CCData.
And oddly, the influx of ETF money hasn’t improved liquidity on the market. It’s a key sign of its health — the deeper a market, the easier it is to do big deals without disturbing the underlying price. Yet liquidity on the top 21 centralised exchanges is dormant. CCData numbers show that the aggregate bitcoin liquidity on these platforms has not seen any notable uptick since the start of the year, and still remains far below the levels registered at the start of 2023.
“This isn’t fast money anymore. These investors aren’t coming in for a quick buck only to leave when things get complicated,” Zheng said, adding: “You don’t see the retail investors going crazy this time”
That may be the case but a market in which investors buy and hold assets, rather than trade regularly, is at risk of becoming an illiquid one, prone to huge swings in price.
Even experienced crypto market watchers are cautioning that the market may have moved too far, too fast. Yesterday Michael Novogratz, the billionaire founder of crypto investment group Galaxy Digital, told Bloomberg that the bitcoin price may see a correction down to the mid $50,000s before rising.
But upcoming bitcoin “halving” in April may offer the biggest insight into whether the dynamics behind the bitcoin price have changed.
The scheduled plan will halve the incentives made available to miners that verify new blocks of bitcoin transactions, from the current level of 6.25 bitcoin per block to 3.125 bitcoin. It happens once every four years and is built into the bitcoin system.
As a study from Norwegian group K33 Research this week pointed out, bitcoin tends to rally in the run-up to the halving, then consolidate. The token has an average 30 per cent return in the 50 days before the event and a 3 per cent return in the 50 days afterwards.
The date for the bitcoin halving is not yet finalised. Even so, it is difficult (but not impossible) to envisage bitcoin rising another 30 per cent from $60,000. Yet Nikolaos Panigirtzoglou, an analyst at JPMorgan, forecast that bitcoin could drop to as low as $42,000 after the halving, as the miners on which the system relies adjust to a new economic reality.
If the price action of bitcoin follows previous trends, it promises to be a wild ride for bitcoin in the coming three months. If not, then perhaps bitcoin has been fundamentally changed by the ETF money.
What’s your take on the future ahead for bitcoin? As always, send me your thoughts at scott.chipolina@ft.com.
Weekly Highlights
-
Nigerian authorities this week detained two Binance senior executives and seized their passports after they had arrived to discuss why Nigeria had banned access to crypto trading websites. The country is cracking down on currency speculation as the naira falls. The exchange decided to delist the naira from its site. The governor of Nigeria’s central bank, Olayemi Cardoso, said $26bn of funds from unidentified sources passed through Binance Nigeria in one year.
-
About $100mn in crypto payments have been traced to “pig butchering” scammers in Myanmar.
-
The New York Department of Financial Services said exchange Gemini has committed to return more than $1bn to customers. It said the settlement was a “win for Earn customers, who have a right to the assets they entrusted to Gemini”.
Soundbite of the week: Barely out of cargo shorts
Lawyers for FTX founder Sam Bankman-Fried laid out why their client should serve a lenient prison sentence after being found guilty of fraud and money laundering.
They called a 100-year sentence recommended by probation officers “grotesque” and “barbaric”. Instead they painted him as misunderstood.
“He was making thousands of business decisions a day, for the first time, in an immature and undisciplined cryptocurrency market, surrounded only by a group of similarly inexperienced (albeit very bright) twenty-somethings . . . He was, in essence, flying by the seat of his cargo shorts.”
Data mining: Tether nears $100bn
While the crypto market’s attention is placed firmly on bitcoin’s charge to a record all-time high, it is not the only major token set to make history soon.
Tether’s USDT stablecoin — by far the largest on the market — has quietly made its way to a market cap of $98bn, and is fast approaching the landmark $100bn figure.
In contrast, its once potent rival USDC, issued by US company Circle, has slumped from a $42bn market cap this time last year to $27bn, a decline of 35 per cent.
FT Cryptofinance is edited by Philip Stafford. Please send any thoughts and feedback to cryptofinance@ft.com.
