NYDIG

Join NYDIG for our quarterly webinar where we review important items from this past quarter and look ahead to the key events investors should look for in the coming quarter.   Webinar topics will include: • Bitcoin price volatility and ETF flows & analysis • Recent judicial and legislative actions and their potential regulatory impact • A review of the halving and possible impacts on the bitcoin mining industry https://lnkd.in/g7U_QQzz

In this week’s research piece, we review the top events of Q2 2024 and look ahead to the import events that may shape the coming quarters. Bitcoin fell 12.8% during Q2 as the positive ETF inflows that drove Q1 moderated and large holders of bitcoins emerged as sellers late in the quarter. Even with the correction, bitcoin is still ahead of all asset classes on a YTD basis, although frustratingly for bitcoin investors, some indexes continue to set new highs. The biggest event this quarter was bitcoin’s fourth halving on April 19th, which went off without a hitch and took the block subsidy from 6.25 to 3.125 BTCs. Fees jumped temporarily with the launch of Runes but have since subsided. Bitcoin’s difficulty has fallen 8.0.% as uneconomic hash rate was likely taken offline after the halving, plus summer seasonal factors have likely come into play. Spot ETF flows moderated this quarter, $2.5B vs $12.1B in Q1. BlackRock took the AUM crown from Grayscale, leveraged futures ETF traders are likely at a loss, and Hong Kong ETFs had good seed funds, but have experienced outflows since launch. Looking ahead, the price of bitcoin recovered from the 2022 drawdown faster than it had from previous drawdowns, largely driven by the launch of spot ETFs in January. Even with the price malaise experienced in Q2, the current cycle is still well ahead of the prior two in terms of price appreciation. Get the full research and subscribe to our weekly insights here: https://lnkd.in/eBnzVs48

In this midweek update, we examine how large holders of bitcoin balances have emerged as sellers, weighing on price and sentiment, but more so than would be indicated by commonly used transaction cost analysis (TCA) tools. Since the first specter of large sellers appeared, consolidations by the Rehabilitation Trustee for Mt Gox, the price of bitcoin has fallen 17.4%. The US government, German law enforcement (BKA), and the Rehabilitation Trustee for Mt Gox collectively hold an estimated 375k bitcoins (1.9% of all bitcoins in existence). Applying TCA via stock market analogues suggests that even if ALL the potential bitcoins were to come to market the recent price action by bitcoin may be exaggerated. Bloomberg’s transaction cost analysis (TCA) function is a popular feature that allows traders to gauge the price impact of their trades using statistical metrics such as volume and volatility. Using a variety of high flying and high valuation technology companies, as well as bitcoin proxies, we look at what would happen to their stock prices assuming we needed to sell 1.9% of their total shares outstanding in a block trade. As can be seen from the following table, the smallest estimated price impact of selling 1.9% of the shares outstanding in a block trade is 2.8%, while the largest is 11.2%. Bitcoin, however, has already seen a 17.4% drop in its price, far greater than the maximum impact observed from similar stocks. There have been a number of reports published by crypto analytics firms pointing to miners selling as exacerbating the price declines. However, June production and holdings reports by public miners refutes this notion. Additionally, our preferred on-chain metric for miner positions, bitcoins held 1 hop from the coinbase address (not the exchange, the block reward destination), did show a steep decline in May but balances are just back to where they were in March. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gt2qGNEZ

In this week’s research piece, we look at crypto funds that continue to trade at a steep discount to NAV, the timing for ETH ETF trading, the possibility of a SOL ETF, and large sellers weighing on price. Not all crypto funds have transitioned to ETFs and some trade well below NAV. GDLC trades at a discount to just the BTC it holds, BITW trades at a discount to the BTC and ETH it holds, and OBTC continues to trade at a discount to NAV even though it has committed to explore strategic alternatives. ETH ETFs could trade in short order, but the strict “7-day rule” implied by VanEck’s Form 8-A filing omits the variability in the timing between 8-A filings by other bitcoin ETF sponsors and the beginning of trading. While things may change in the future, given the current landscape, we think the chances of a SOL ETF are slim. There are no futures trading on a federally related exchange, as was the case with BTC and ETH. Moreover, the SEC has already asserted that the SOL token is a security in the Binance and Coinbase cases. Finally, significant holders emerged this week to sell. Bitcoins seized by the US and German governments made their way to exchanges, while the Mt Gox estate is gearing up for creditor disbursements starting in early July. Predicting these actions has proven challenging as even disclosed plans haven’t always been followed. Get the full research and subscribe to our weekly insights here: https://lnkd.in/g7zjjxmH

In this week’s research piece, we look at the impact of MicroStrategy’s (MSTR) bitcoin treasury, disclosures across the crypto landscape, and some popular misconceptions in the market. Since adopting bitcoin as a primary treasury reserve asset nearly 4 years ago, MicroStrategy’s stock has been one of the best performing stocks in US markets. Its 1,089% cumulative return since August 10, 2020, the day before announcing its first bitcoin purchase, is bested by only 19 other securities in the FT Wilshire 5000 Index and only slightly behind AI favorite NVDA. Even since the introduction of spot ETFs in the US, which eliminated the necessity for a public company primarily valued for its bitcoin holdings, MicroStrategy has continued to outperform. The secret behind MSTR’s stock performance has undoubtedly been its bitcoin acquisition. Digital assets are commonly promoted as open databases available for anyone to inspect. However, disclosures provided to traditional market investors are often missing across the crypto landscape as evidenced by the launch of Tether’s Alloy stablecoin. Important items, such as the custodian for Tether Gold, Alloy’s backing asset, is not readily available. As bitcoin continues its soggy trading, we dispel some false narratives in the market. US government-controlled coins have not moved, miner balances are not declining (pool balances are), Mt Gox have not moved, but the rehabilitation trustee is planning to make repayments beginning in July. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gnvknQKZ

In this week’s research piece, we look at some of the factors at play as bitcoin continues its sideways trading action, even as risk on assets roar to new highs. It is important to note that while some similar macro factors may influence both bitcoin and equities, their correlation remains low, 0.26 on a 90-day rolling basis. With such minimal correlation, it is understandable why equities may be soaring while bitcoin may not follow suit. As bitcoin has evolved and attracted a more sophisticated investor base, its relationship with macroeconomic factors has also changed. The takeaway from factors like 12m Fed Funds futures (the market’s expectations of the Fed Funds rate 12 months from now) is that when rate expectations are declining or stable, that’s a supportive environment for bitcoin price action. While macroeconomic factors may play a growing role in influencing bitcoin's price movements, its idiosyncratic factors, the unique characteristics specific to bitcoin, that are still most important in driving price. Factors like adoption, usage, and ownership remain crucially important for bitcoin's growth, underscoring the significance of emerging sources of demand like spot bitcoin ETFs. Concerns have been raised regarding the increasing short futures positions being taken by leveraged traders on the CME. This increase in short positions, which has seen growth over the past few years, is predominantly linked to the basis trade - shorting futures and hedging by buying spot. While we didn't align with this perspective, there was indeed a persistent group of investors who believed the halving would spark a price surge. However, as history has shown, the halving failed to serve as a price catalyst once again. Despite this, however, we think the halving remains a significant indicator in bitcoin's price cycles, serving as a guidepost along a longer time frame. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gKNZ8Qan

In this week’s research piece, we look at how the fear over distributions of bitcoins from the Mt Gox bankruptcy may be overblown after the Rehabilitation Trustee made their first on-chain movement in many years. After seemingly unending setbacks and false starts, the Rehabilitation Trustee is finally gearing up the initial phase of reimbursing a horde of nearly 142k bitcoins and an equivalent amount of bitcoin cash coins to creditors. Attempting to measure the impact of coins entering the market is a task fraught with uncertainty, mainly stemming from assumptions about retail creditor preferences to hold or sell. Our assumptions and analysis set forth are based on surveys conducted among creditors throughout the bankruptcy proceedings. Using this information, there is a potential for $1.5B worth of bitcoins to enter the market when distributions take place. While this is a significant sum, it's important to consider the daily trading volume of bitcoin, which ranges from $1.0 - 1.5B for USD quoted bitcoin and $4.0B for USDT quoted bitcoin. We also peek at what miners have done since the halving. There has been concerns that miners may begin selling post halving; however, our analysis not only contradicts this notion but shows the opposite - miners have been increasing their balances. Get the full research and subscribe to our weekly insights here: https://lnkd.in/de4Z5tYJ

It has been an eventful two weeks in the US regulatory backdrop for crypto, perhaps the most momentous period in its history. Several events transpired in rapid succession, all seemingly positive for the broader crypto ecosystem, marking an abrupt shift in policy ahead of the 2024 Presidential election. We unpack each event and its impact on the industry. The Senate voted to repeal SAB 121, which makes the reporting of crypto holding onerous for public companies that safeguard crypto. The House also passed the FIT 21 Act, which paves the way for a federal regulatory crypto framework. In an abrupt change in posture, the SEC approved for trading 8 spot ether (Ethereum) ETFs, cementing the SEC’s viewpoint that ether is a commodity, not a security. All the spot bitcoin ETF players are back for ether ETFs, except for WisdomTree and Valkyrie. If the ETH ETFs are proportionally as popular as the BTC ETFs, one could expect $4.5B of inflows into the complex, however, the unpopularity of ETH futures ETFs offers a cautionary tale. While many have speculated as to what might be the next digital asset to get an ETF, the reality is that no other cryptocurrencies have regulated derivatives trading on the CME the way BTC and ETH do. Also, the SEC has already asserted that many digital assets are securities, making them unlikely to get approved in ETFs. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gsjTiGZe

In this week’s research piece, we break down the ownership of spot bitcoin ETFs and answer the most often asked question the past few months – who owns bitcoin ETFs? Wednesday was the first quarter deadline for Form 13F share ownership reports. With the completion of Form 13F filings, submitted by institutional investment managers overseeing assets exceeding $100M, we now have a clearer picture of the investors behind these ETFs. Interestingly, the majority of shares are owned by non-filers, investors exempt from filing requirements. The shareholders are likely mostly retail investors. Hedge fund managers emerged as the dominant ownership group, albeit with certain nuances regarding timing and direction. Investment advisors showcased the highest level of diversity among holders. SWIB's ownership as the sole pension fund stood out. Banks and brokerages had minimal involvement, particularly outside of market making, with wirehouses showing limited engagement, presenting a substantial opportunity for the industry. By analyzing the ownership structure of different spot ETFs, we can uncover the markets each ETF has successfully (or unsuccessfully) penetrated. Hedge funds showed a preference for FBTC, IBIT, and BITB while showing less interest in GBTC and ARKB. On the other hand, investment advisors leaned towards ARKB and GBTC. The investment advisor allocation for certain funds is skewed a bit because of internal support by the fund’s sponsor – HODL’s investment advisor allocation is almost entirely Van Eck Associates' and EZBC’s influenced heavily by Franklin Resources' stake. Brokerages favor ARKB, but with the caveat that the allocation is almost entirely Jane Street, along with BITB and BTCO. Drawing concrete conclusions from BTCW's breakdown is challenging due to its smaller size and reported holder base. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gi4t5Qui

In this week’s research piece, we look what CME futures reveal about trader positioning, a change in the flow dynamics for bitcoin ETFs, and what the down difficulty adjustment reveals about the economics of mining. Looking at dealer positions for CME futures, we see a decline in longs likely driven by declining hedging activity associated with inflows into spot ETFs. Asset manager positions for CME futures, which are almost entirely long positions, are driven by the futures-based ETFs and have a high degree of correlation with spot prices. Leverage funds show a tale of two investors. CTAs have likely taken off long positions as price momentum has stalled, while arbitrage hedge funds are likely reducing their short positions as the basis (difference between futures and spot prices) has come in. GBTC broke its streak of daily outflows after 78 trading days, marking its first daily inflow since transitioning to an ETF on January 11th. During this steak, investors redeemed $17.5B from the fund, converting to cash and possibly re-investing in a lower cost competitor fund. While we don’t know the reason for the sudden $63.0M daily inflow, looking at holder reports coming via 13F filings, demand for the ETFs largely seem driven by investment advisory firms, brokerages, and retail investors. Difficulty was recently downwardly revised 5.6%, amounting to about 35 EH/s or 1MW of power, that was taken offline in the first full difficulty adjustment post halving. Our guess is that miners took off uneconomical hash rate now that hash price has settled into a more of a steady state. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gGjbiXdN