In the Gray: Weekly News & Insights
Gray Market News
Aug 03, 2023
Arbitrage Opportunities in Crypto This article will be a multi-part series to discuss Crypto Arbitrage, what it is and where to find opportunities. The first article of the series: What is Arbitrage? Cryptocurrency arbitrage trading is a popular strategy within the crypto market due to the fragmented nature of the exchanges. Unlike traditional financial markets, where there are a limited number of regulated exchanges offering similar prices for assets, the cryptocurrency market has numerous exchanges scattered worldwide. This decentralized nature often leads to significant price discrepancies for the same cryptocurrency across different platforms. The arbitrage process involves carefully monitoring multiple exchanges and identifying opportunities where the same cryptocurrency is trading at different prices. Traders can exploit these price differences by buying the cryptocurrency at the lower price on one exchange and selling it at the higher price on another. The profit is generated from the price gap, minus any transaction fees and associated costs. One of the significant advantages of cryptocurrency arbitrage is its relatively low risk compared to other trading strategies. Unlike long-term investments, where the value of an asset may fluctuate significantly over time, arbitrage traders aim to profit from immediate price differences. As a result, they are not exposed to prolonged market fluctuations that could lead to substantial losses. Moreover, arbitrage opportunities can be found almost continuously within the cryptocurrency market. The high volatility of cryptocurrencies often creates rapid price movements, leading to frequent discrepancies between exchanges. This constant price fluctuation provides arbitrageurs with nearly unlimited opportunities to profit. Furthermore, successful arbitrage trading demands precise timing and swift execution. The fast-paced nature of the crypto market means that prices can change rapidly, leaving little room for hesitation. Traders must also be cautious about market manipulation and scams that can affect prices and create false arbitrage opportunities. In conclusion, cryptocurrency arbitrage is a trading strategy that can yield substantial profits if executed correctly. However, it requires meticulous research, risk management, and a deep understanding of the involved exchanges and cryptocurrencies. Novice traders should approach arbitrage with caution and consider gaining experience and knowledge before attempting this strategy.
Misbehaving U.S. Banks
The U.S. Federal Deposit Insurance Corporation (FDIC) has warned U.S. banks against manipulating their deposit numbers following FDIC being deployed during the Silicon Valley Bank's (SVB) financial collapse. After the collapse of SVB, 47 banks restated their December 31 uninsured-deposit figures downward by a total of $198 billion. A July 6th report (released July 24th) by S&P Global noted 55 banks restated their fourth-quarter uninsured deposits in FDIC reports, more than twice the norm. For example, Bank of America and Huntington National Bank made the most significant revisions, reducing their uninsured deposits by $125 billion (14%) and $34 billion (40%), respectively. The FDIC emphasized that only deposits insured by them should be classified as insured, regardless of the presence of collateral. Such adjustments in deposit figures could lead to substantial savings on the special assessment imposed by the FDIC on larger banks to cover the costs of guaranteeing uninsured deposits at failed banks. It would seem that certain politicians, mainstream media and other traditional finance maximalists would strive to convince everyday retail investors that the cryptocurrency industry is rife with scams, money laundering, scandals and tax evasion. When in reality, banks have been guilty of these accusations for decades. Most larger banks report inflated holdings to gain attention and confidence from larger institutions due to fractionalized reserve banking. In this example, banks lied on their fourth-quarter uninsured deposit numbers to look smaller in order to save on insurance costs. Worlds Biggest Hedge Funds Are Buying Crypto
A recent report by auditing firm PWC revealed that hedge funds are accumulating crypto and expect the crypto market to rise significantly in the next year. However, some hedge funds are hesitant to invest in crypto due to regulatory concerns and the reputation damage caused by events like the collapse of Terra and FTX. The report also highlights that crypto hedge funds want regulations and guidance around customer and company disclosures, crypto segregation, auditing, asset reserves, and increased platform security and liquidity. According to a variety of sources, approximately 30% of hedge funds are investing in cryptocurrencies and nearly two thirds of institutions are expressing interest in crypto. Almost 75% of institutional investors described themselves as extremely or very interested in crypto ETFs as a method of crypto exposure. A few examples of these massive hedge funds and institutional investors: Digital Currency Group, Pantera Capital (first US crypto hedge fund), MicroStrategy INC, ARK Investment, Morgan Creek Capital, Brevan Howard, Andreessen Horowitz, Sequoia. The most common cryptocurrencies being purchased are Bitcoin (BTC) and Ethereum (ETH). Bitcoin Experiences Record Low Volatility Bitcoin (BTC) prices have been mostly boring the past few weeks. From June 21 to July 28 the price of BTC has ranged near $30,000 with a high of approximately ~$31,744 and a low of ~$29,147. This price action has set up some very interesting statistics that could be setting up a massive boom or bust scenario for BTC. Currently, BTC volatility is near an all time low. Weekly BTC Bollinger Bands have become the tightest they have ever been. BTC and other cryptocurrencies are known best for their notorious volatility and wild price fluctuations. But when we experience this type of inactivity, historically, it is a sign of the calm before the storm or a tightening spring. In 2016, BTC volatility dropped and the Bollinger Bands tightened only to explode into the next bull market. Nobody knows what is going to happen next with BTC, but if history has anything to say about it, things are looking incredibly bullish for the digital asset as we move closer to the next halving cycle and closer to a BTC ETF approval. Bitcoin Performance
So far in 2023, Bitcoin has outperformed 97% of all S&P 500 companies. Bitcoin has rallied approximately 83% from its lows in January. Bitcoin’s returns have outperformed traditional finance returns by 170% during this period as well. Blackrock Bitcoin (BTC) ETF BlackRock, which manages approximately $9.5 trillion in assets, applied to the SEC last month for a spot Bitcoin ETF (exchange-traded fund), leading institutional investors to pour money into the space and in turn causing the asset to jump to a 12-month high. Larry Fink continues to champion Bitcoin as they forge forward with their ETF. On July 6, 2023 Larry Fink appeared on Fox Business to discuss their recently filed Bitcoin ETF. During the interview, Fink appeared to have a new-found respect for Bitcoin and made some very strong statements about the digital asset. "We do believe that if we can create more tokenization of assets and securities – that's what bitcoin is – it could revolutionize finance," Fink said. Tokenization is the process of converting an asset into a digital token. This could allow for more efficient and transparent trading of assets. -Larry Fink
“I do believe the role of crypto is… it’s digitizing gold in many ways. Instead of investing in gold as a hedge against inflation, a hedge against the onerous problems of any one country, or the devaluation of your currency, whatever country you’re in… -Larry Fink According to Blackrock, their goal is to make BTC more accessible for businesses and individuals to invest into the digital asset. On July 14, 2023 Fink continued the optimistic and bullish sentiment as he discussed Bitcoin on CNBC following his company's second quarter earnings report. According to Fink, “We believe we have a responsibility to democratize investing,” he said regarding ETFs. “Over the last five years, more and more global investors are asking us about the role of crypto—and like I said, I do think a lot of crypto is an international asset.” -Larry Fink
“More importantly, because it’s so international, it’s going to transcend any one currency in currency valuation,” he continued, adding that an “international crypto product” can “transcend” the problem of dollar devaluation. -Larry Fink It is important to point out that although Larry Fink is known for being one of the worlds largest asset managers, and has a massive influence on finance, he is only repeating what others have been saying before him. A majority of his statements have been argued by Michael Saylor and Cathy Woods among many others who have done their research on BTC and who participate and have influence in the world of traditional finance. Back in 2017, Fink said that “Bitcoin just shows you how much demand for money laundering there is in the world.” Seems like the sentiment has changed. The majority of this institutional interest is developing after an amazing first and second quarter of 2023 where Bitcoin has rallied approximately 85% from its lows in January. It seems that institutional investors and wealth management companies are seeking exposure to BTC. More and more institutional investment companies and asset managers are applying for ETF approval for Bitcoin so the companies and the customers can add BTC to their investment portfolios. Here is a brief summary of notable companies who have applied for the BTC ETF: 1. Blackrock 2. ARK Invest 3. WisdomTree 4. Invesco 5. Valkyrie 6. Fidelity It should also be noted that the majority of these companies applying for the BTC ETF list Coinbase as their Crypto Custodian for BTC.
Landmark Advancements in US Crypto Regulation: A Comprehensive Overview Introduction: The United States has recently seen significant progress in shaping the regulatory landscape for digital assets and cryptocurrencies. With a series of bills and provisions being passed, lawmakers have been focusing their efforts on providing a clear legal framework for the crypto industry while addressing concerns related to illicit financing and money laundering. This article provides a comprehensive overview of the recent developments in US crypto regulation. Section 1: "Keep Your Coins Act of 2023" Clears House Financial Services Committee A notable milestone was reached as the "Keep Your Coins Act of 2023," proposed by Republican representative Warren Davidson, successfully passed the House Financial Services Committee. The bill seeks to empower crypto investors by allowing them to maintain self-custody of their cryptocurrencies in personal wallets, thereby challenging the risks associated with centralization. This move is seen as a significant step forward for the crypto market and represents a potential shift in regulatory norms. Section 2: Victories for the Crypto Industry in House Financial Services Committee The House Financial Services Committee marked a groundbreaking moment by advancing two crypto-specific bills, "Financial Innovation and Technology for the 21st Century Act" and "Blockchain Regulatory Certainty Act." For the first time, crypto-specific legislation was promoted based on its own merits rather than as part of broader bills. These advancements were seen as victories for the nascent crypto industry, demonstrating progress in establishing a unified regulatory framework and addressing blockchain-related issues. Section 3: Senate's Inclusion of Anti-Money Laundering Provisions in Defense Bill In parallel with the House developments, the Senate included provisions related to anti-money laundering measures in the must-pass defense bill, the National Defense Authorization Act. This amendment, backed by Senators Cynthia Lummis, Kirsten Gillibrand, Elizabeth Warren, and Roger Marshall, requires regulators to create a risk-focused examination process for financial institutions, assessing specific crypto-related risks and compliance with anti-money laundering laws. The Treasury Department will also be tasked with analyzing the role of mixers and privacy-enhancing technologies connected to crypto assets. Section 4: Ongoing Challenges and the Road Ahead While the recent progress in crypto regulation is significant, the path forward remains challenging. Lawmakers have expressed concerns about certain provisions, particularly the allocation of more power to the Commodity Futures Trading Commission (CFTC), which some argue may weaken consumer protections. Additionally, there is a call for regulatory clarity on which projects and tokens fall under the oversight of different agencies. Conclusion: The recent advancements in US crypto regulation reflect a growing awareness of the importance of providing a clear legal framework for the rapidly evolving digital asset industry. While there have been victories for the crypto community, challenges persist in striking the right balance between fostering innovation and ensuring consumer protection. As the bills make their way through both houses of Congress, the future of digital asset regulation in the US remains uncertain, and stakeholders must continue to engage in dialogue to achieve a harmonious and effective regulatory environment.