Hi: Welcome to an update on the most important steps and news in the field of crypto and what is emerging for digital assets in the near future. I'm Mark DeCambre, Senior Editor for Markets at MarketWatch, and for the next four weeks, October 3rd through October 24th, we're releasing the Need to Know Crypto Edition to kick off a new weekly crypto newsletter, "Distributed Ledger," that starts in November.
Crypto in the blink of an eye
Bitcoin this week
on the Ethereum blockchain staged sharp rallies in the second half of the week, with both posting weekly gains of 11%, according to FactSet data. According to our research team at Dow Jones Market Data, Bitcoin is on track for its best week since August 13, when it rose 11.4%, while Ether had its best weekly run since September 3, when it recorded an increase of 16.8%.
% Weekly Return
Source: CoinMarketCap.com as of October 1st
% Weekly Return
CAPITAL X CELL
Source: CoinMarketCap.com as of October 1st
A myopic gensler?
Grayscale Investments is the manager of the world's largest publicly traded Bitcoin funds, which hold approximately 3.5% of the existing Bitcoins mainly through the Grayscale Bitcoin Trust
We met with his CEO Michael Sonnenshein, who is with the chairman of the U.S. Securities and Exchange Commission, Gary Gensler, had something to do.
"It may be shortsighted by the SEC to really focus on futures-based products and not recognize them," Grayscale CEO told MarketWatch on Friday. He was referring to the SEC's apparent preference to support an exchange-traded bitcoin fund backed by futures, a derivative of bitcoin, rather than the underlying asset itself.
Asset managers have tried to launch a U.S. Bitcoin ETF, but Gensler has hinted that he's more inclined to support an ETF that uses futures contracts that traders can use to bet on whether an underlying asset is present like oil
because he believes that futures could provide better investor protection for average buyers of volatile cryptocurrencies.
Gensler said ETFs can be structured under the Investment Company Act of 1940, which uses guidelines normally applied to mutual funds and which are seen as greater security for individual investors, including the ability to stop borrowing.
However, Sonnenshein argues that the use of futures contracts provides indirect ownership of Bitcoin and creates additional costs for the end user that could be mitigated by using the spot market.
The fact of the matter is that "significant costs are going to be paid to investors" … including the need to "move the contracts from one expiry to the next," said the Grayscale manager.
Funds using futures contracts typically buy contracts for the next month, or front month, and since these contracts all have an expiration date, the fund manager must "roll" contracts into the following front month contract, with the cost such transfers are likely to be passed on to investors.
And according to some calculations, the fees are not insignificant.
Eric Balchunas, ETF analyst at Bloomberg, was quoted by the Wall Street Journal as saying that annual costs could be 10 percentage points of annual return.
Gensler is a former head of the Commodity Futures Trading Commission, which might explain his convenience with futures.
However, Sonnenshein suggested that the SEC chairman appeared to have "leaned so far in one direction" that he raised the question, "More importantly, are you actually going beyond your investor protection mandate by focusing on one type of product?"
Grayscale has a lot to gain from seeing a spot-pegged ETF. The company has filed an application to convert its GBTC trust into an ETF that would allow it to potentially maintain its dominance in crypto circles.
Sonnenshein said he would ask the SEC to endorse a model similar to that used by SPDR Gold Shares
that is part of the SPDR-ETF family and is managed by State Street Global Advisors. GLD is designed to track the price of a 10th ounce of gold and will convert stocks 1: 1 into ounces of gold bars if their value does not match the spot values of gold. GLD manages around $ 55 billion in assets, making it one of the largest ETFs. Grayscale's Bitcoin Trust manages $ 25 billion.
GLD's success "would suggest that the Bitcoin ETF scenario would more closely reflect what happened to gold versus similar commodities like oil because Bitcoin is easy to store," said Grayscale's Sonnenshein.
The SEC did not immediately respond to a request for comment.
What does the meme mean?
El Salvador said it mined its first bitcoin using volcanic energy. El Salvador President Nayib Bukele tweeted: "We're still testing and installing, but this is officially the first #bitcoin mining from volcano #vulcanode". The country introduced Bitcoin as legal tender in September.
So what is volcanic energy? There are nearly two dozen “potentially active” volcanoes in El Salvador, accounting for nearly 22% of the country's energy supply. In fact, the country uses geothermal energy which, as CoinDesk said, "could provide an answer to the quest for a reliable clean source of energy for bitcoin mining".
MarketWatch's Chris Matthews reports that the International Monetary Fund warns that the growing popularity of cryptocurrencies in emerging markets threatens their governments' ability to implement effective economic policies while threatening the financial stability of economies at every stage of development.
The "widespread and rapid adoption" of cryptocurrencies such as Bitcoin and Ether in emerging markets "can present significant challenges" as "residents begin to use crypto assets instead of local currency," wrote IMF researchers Dimitris Drakopoulos, Fabio Natalucci and Evan Papageorgiou in a blog post accompanying a new financial stability report on crypto assets, published on Friday.
Read the full article here.
Quotes from coins
“At least two regulatory clouds hang over the market. One of them was China's renewed crackdown on cryptocurrencies, effectively banning residents from participating in the market. The other is the uncertainty about an infrastructure law in the US Congress that could increase taxes on crypto trading, ”writes David Russell v.p. of Market Intelligence at the brokerage platform TradeStation Group.
“While these issues are dampening sentiment, they haven't been able to push Bitcoin below $ 40,000 – $ 10,000 higher than where prices rose in late July. It is also at the top of the Bitcoin range in late May and mid-June, which could mean that the old resistance has become new support, ”the study wrote on a Thursday blog.