Funds
Citi Completes Private Market Tokenization Test Using Avalanche
Citi, in alliance with Wellington Management, Wisdomtree, and ABN AMRO, completed a proof of concept for the tokenization of a private fund on top of the Avalanche blockchain. The test used Spruce, an Avalanche subnet, to tokenize the fund and transact the tokenized assets, which were programmed to “automate operations, settle faster, and enable new […]Inflows into Bitcoin investment products reach $1.5B year-to-date
Inflows into digital asset products rose for a ninth consecutive week, according to CoinShares.
Bitcoin (BTC) exchange-traded products (ETPs) registered $312 million in inflows for the week of Nov. 24, bringing year-to-date inflows to around $1.5 billion, according to CoinShares. The weekly inflows for all cryptocurrencies totaled $346 million, continuing a nine-week trend of positive net flows.
New record of inflows with US$346m this week, the highest total observed in the past 9 weeks of inflows.
— CoinShares (@CoinSharesCo) November 27, 2023
– #Bitcoin –
$BTC: US$312m inflows (year-to-date inflows US$1.5bn)
Short Bitcoin: US$0.9m outflows
ETP volumes as a percentage of total spot Bitcoin volumes… pic.twitter.com/gMUPzTy0q4
Crypto ETPs experience inflows when their shares trade above the prices of their underlying assets, whereas they experience outflows when their shares trade below the value of their underlying assets. For this reason, inflows are often seen as a bullish indicator for the overall crypto market, whereas outflows are often seen as bearish.
Before Sept. 25, crypto ETPs had experienced outflows for several weeks, according to the report. But beginning in the week of Sept. 25–29, the sector began experiencing sustained weekly inflows. The amount of inflows also increased over time. The week ending on Nov. 24 saw the largest inflows of the entire nine-week period.
CoinShares stated that Canadian and German ETPs made up the largest portion of inflows for the week, at 87%. United States inflows were subdued at $30 million.
Crypto funds as a whole now have $45.4 billion in assets under management, the highest in 18 months.
In a previous report, CoinShares speculated that these recent inflows may be influenced by growing optimism that a U.S. spot Bitcoin ETF will be approved. On Nov. 22, BlackRock met with the U.S. Securities and Exchange Commission in an attempt to make progress toward this goal. Grayscale met with the SEC for similar reasons.
Pension funds could use AI to cut costs, increase returns, says report
Artificial intelligence is touted to provide a number of benefits to the management of pension funds, according to research from Mercer.
Artificial intelligence could be used by pension funds to cut costs, increase investment returns and highlight possible risks, but there are still “significant challenges to overcome” with its use, says the Mercer CFA Institute global pension report.
On Oct. 17, the annual joint report from the consulting firm and investment professional association marked AI as useful for helping pension fund managers trawl through mass amounts of data that could highlight opportunities and build custom investment portfolios.
“AI will affect the operations of pension systems around the world,” lead author and Mercer senior partner Dr. David Knox wrote. “It has the potential to greatly improve the member experience as well as members’ retirement outcomes.”
Natural language AI tools could also be used by pension funds to analyze their members — scraping data from emails and calls so the fund can personalize its marketing and outreach efforts based on how each individual communicates.
AI-assisted analysis is touted to identify patterns and discover market sentiment and signals to suggest unconventional future investment opportunities.
“This can lead to improved asset allocation and/or better diversification, resulting in higher long term returns and lower volatility.”
AI could also help investors take stock of environmental, social, and governance (ESG) considerations. The technology is also expected to enable automation of middle and back office environments, lowering costs that can narrow differentials between passive and active investment strategies.
AI is also expected to enable the prediction of member behaviour in response to a variety of possible economic and political circumstances that can impact cash flows of a pension fund.
“For example, a stock market crash can lead to members switching to defensive asset classes, whereas a newly elected government may lead to some retirees withdrawing their accrued benefits.”
However, AI tools can generate fake or misleading information and uncertainty around AI use is likely to remain as models are “unlikely to be able to predict market prices with accuracy.”
The report also highlighted the need for “strong defenses against cyberattacks, scammers and other security breaches”
Related: Dev platform Stack Overflow axes 28% of staff as AI competition grows
The author outlines that AI is already being leveraged in investment markets to make decisions based on the analysis of data, reports, risks and market trends. The advent of programmable trading has been in use since the 1980s, with high-frequency trading changing the way in which investments are managed.
Algorithmic trading is reported to contribute to a significant amount of automated trading, contributing up to 73% of United States equity trading in 2018 alone.
Additional reporting by Jesse Coghlan.
Magazine: AI Eye: Real uses for AI in crypto, Google’s GPT-4 rival, AI edge for bad employees
Voyager Digital was ‘no better than a house of cards’ — CFTC commissioner
CFTC Commissioner Kristin Johnson’s comments came after separate lawsuits from the CFTC and FTC were filed against Voyager and its former CEO Stephen Ehrlich.
A commissioner for the United States Commodity Futures Trading Commission (CFTC) has slammed Voyager Digital for its mistakes that eventually led to the loss of billions of dollars of customer funds.
Statement of @CFTCjohnson regarding @cftc's charges against Voyager's chief executive officer. Learn more: https://t.co/OiBvOoCuV6
— CFTC (@CFTC) October 12, 2023
In an Oct. 12 statement, Commissioner Kristin Johnson took aim at Voyager for misleading practices, ignoring warning signs, and “bare-bones due diligence,” which failed to protect customers.
“Because of Voyager’s failures, the company became no better than a house of cards.”
The commodities said Voyager turned a blind eye to what its subsidiary investment firms were doing with its own customer funds:
“It is astounding that Voyager failed to exert pressure on the firms where it invested its customers' assets."
“Instead of demanding that investment firms that received customer assets offer greater levels of transparency, Voyager shirked the long-established expectations for custodians and simply dispatched customer funds with little effort to preserve the same," she added.
Johnson’s comments came after the regulator, along with the Federal Trade Commission, filed parallel lawsuits against Voyager’s former CEO Stephen Ehrlich on Oct. 12.
The CFTC lawsuit alleges Ehrlich and Voyager conducted fraud and “registration failures” over its platform and its “unregistered commodity pool”.
It has been frustrating watching lots of obvious malfeasance happening in crypto land and enforcement actions only target low-rent relatively tiny scam operations while the industry was building industrial scale predation machines.
— Patrick McKenzie (@patio11) October 12, 2023
This is not that pattern!
The FTC, on the other hand, reached a proposed settlement with Voyager, banning the firm from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets, according to an Oct. 12 statement.
Voyager and its affiliates agreed to a judgment of $1.65 billion, which will go toward repaying customers in the bankruptcy proceedings.
Meanwhile, a separate Oct. 12 statement from CFTC Commissioner Caroline Pham said the regulator will continue to pursue action against cryptocurrency firms that misuse customer funds:
“There is a significant difference between managing investor money for the purpose of trading derivatives, and taking deposits and providing loans to others. Without financing and consumer credit, our economy would grind to a halt.”
Related: CFTC issues $54M default judgment against trader in crypto fraud scheme
However, Pham thinks the CFTC may have stepped outside the bounds of its authority in interpreting what constitutes a commodity pool operator:
“Such an interpretation is an overreach beyond our statutory authority and would disrupt well-established legal and regulatory frameworks for lending to institutions and consumer finance.”
On Sept. 7, Pham called for the CFTC to establish a cryptocurrency regulatory pilot program which would address the risks retail investors face.
Voyager filed for Chapter 11 bankruptcy in July 2022 where it indicated that it may owe anywhere between $1 billion to $10 billion in assets to more than 100,000 creditors.
The cryptocurrency brokerage firm opened withdrawals for customers in June.
Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?
Crypto casino Stake reopens withdrawals just 5 hours after $41M hack
The online crypto casino reported unauthorized transactions from its hot wallets on Sept. 4 with blockchain security firms estimating at least $41 million pilfered from hackers.
Crypto betting platform Stake has reopened deposits and withdrawals and resumed services for users only five hours after the platform was hacked to the tune of $41.3 million, blockchain security firms estimate.
Stake confirmed that all services resumed at 9:28pm UTC time on Sept. 4 — a few hours after the platform confirmed that several unauthorized transactions were made on Stake’s ETH/ BTC hot wallets:
All services have resumed! Deposits & withdrawals are processing instantly for all currencies. We apologise for any inconvenience.
— Stake.com (@Stake) September 4, 2023
The betting site said its Bitcoin (BTC), Litecoin (LTC), and XRP wallets were not impacted but hasn’t yet shared the cause of the exploit or how much was stolen. Stake however confirmed that user funds remain safe.
Three hours ago, unauthorised tx’s were made from Stake’s ETH/BSC hot wallets.
— Stake.com (@Stake) September 4, 2023
We are investigating and will get the wallets up as soon as they’re completely re-secured.
User funds are safe.
BTC, LTC, XRP, EOS, TRX + all other wallets remain fully operational.
Recent analysis by blockchain security firm Beosin calculated the total loss to be $41.35 million, which included $15.7 million on Ethereum (ETH), $7.8 million on Polygon (MATIC) and another $17.8 million from the Binance Smart Chain.
@Stake has experienced multiple suspicious outflows on #Ethereum, #BSC and #Polygon.
— Beosin Alert (@BeosinAlert) September 4, 2023
ETH: ~$15.7M
Polygon: ~$7.8M
BSC: ~$17.8M
The total funds were ~$41.35M.
Stay alert! pic.twitter.com/cKBK3kMeUz
An earlier estimate of $15.7 million by fellow blockchain security firm PeckShield didn’t account for the $25.6 million allegedly lost on BSC and Polygon, according to on-chain analyst ZachXBT.
Related: Atomic Wallet faces lawsuit over $100M crypto hack losses: Report
The first transaction occurred at 12:48 pm UTC, transferring approximately $3.9 million worth of stablecoin Tether (USDT) from Stake to the attacker’s account. The next two transactions removed over 6,000 Ether, worth approximately $9.8 million at the current prices.
The attacker continued to remove tokens over the next few minutes, including about $1 million in USD Coin (USDC), $900,000 worth of Dai (DAI) and 333 Stake Classic (STAKE) ($75) which is understood to have made up the first $15.7 million on Ethereum.
Magazine: How smart people invest in dumb memecoins — 3-point plan for success
BlockFi argues FTX, Three Arrows Capital isn’t entitled to repayments
BlockFi argues its creditors, not FTX’s, are the “ultimate victims” of FTX’s alleged fraud.
Bankrupt cryptocurrency lender BlockFi is trying to block attempts by the similarly bankrupt FTX and Three Arrows Capital (3AC) that aim to retrieve hundreds of millions of dollars to pay back their creditors.
BlockFi claimed in an Aug. 21 filing to a New Jersey bankruptcy court that its own creditors shouldn’t be pushed to the back of the line because FTX’s creditors were harmed by the exchange allegedly misappropriating $5 billion BlockFi lent it.
“FTX seeks to recover on over $5 billion of claims filed against the BlockFi estates at the direct expense of the ultimate victims of FTX’s fraud: BlockFi’s clients and other legitimate creditors.”
“To prevent further injustice to the creditors of BlockFi’s estates, the Court should disallow the FTX Claims under the doctrine of unclean hands,” BlockFi added.
FTX also provided $400 million to BlockFi in June 2022 in addition to buying BlockFi equity pursuant to a loan agreement, the filing stated.
However, BlockFi claimed it wasn’t a standard loan agreement — it was an unsecured, 5-year term that was well below market interest rates and repayments weren’t due until the firm would supposedly mature.
BlockFi referred to FTX’s investment as a “gamble” that BlockFi creditors shouldn’t be liable for.
“Just because FTX’s fraudulent actions caused FTX’s bet to fail does not mean BlockFi’s creditors are now somehow liable to refund the purchase price,” it argued.
Estimates show BlockFi owes up to $10 billion to over 100,000 creditors including $1 billion to its three largest creditors and $220 million to bankrupt crypto hedge fund 3AC.
BlockFi claimed 3AC committed fraud with the money it borrowed and argued it also shouldn’t be entitled to a potential repayment.
BlockFi claims its litigation with FTX, 3AC and other firms could cost it up to $1 billion — impacting the amount its creditors are owed.
Related: BlockFi opens crypto withdrawals for eligible US users following court order
Several BlockFi creditors previously accused the firm of overlooking several red flags before transacting with FTX and its trading firm Alameda Research in the months prior to FTX’s collapse in November 2022.
Despite this, creditors settled with BlockFi last month to move forward with a repayment plan.
BlockFi filed for Chapter 11 bankruptcy on Nov. 28, about two weeks after FTX similarly filed for bankruptcy.
Magazine: Deposit risk: What do crypto exchanges really do with your money?
Why approving a Bitcoin ETF might unleash $18 billion in sell-pressure
Grayscale GBTC Trust conversion to an ETF will unlock a potential sale of up to $18 billion in Bitcoin.
The introduction of a spot-based Bitcoin (BTC) exchange-traded fund (ETF) would make the asset more accessible to individual investors and mutual funds. What's more, unlike a futures-based Bitcoin ETF, a spot-based ETF involves actually buying BTC.
So will the approval of the first Bitcoin ETF be a bullish event? Not necessarily.
GBTC 'discount' remains in the double digits
Over the years, the U.S. Securities and Exchange Commission (SEC) has rejected every Bitcoin ETF applicant, and the latest denial was issued to VanEck Bitcoin Trust on March 10, 2023.
The SEC concluded that the offer did not have a "comprehensive surveillance-sharing agreement with a regulated market of significant size related to spot Bitcoin." Regulators are hesitant to release what many believe would be a more equitable and transparent Bitcoin product.
Investors now question whether the latest bids from ARK Investment and BlackRock to launch their spot Bitcoin ETFs might be the solution to Grayscale’s Bitcoin Trust (GBTC), an investment vehicle with shares traded on the stock exchange.
Interestingly, the GBTC "premium" jumped to its best levels in months after BlackRock announced its ETF filing.
But while the potential approval of a spot Bitcoin ETF might seem bullish at first, its consequences for BTC price can be negative, at least in the short term.
What's an ETF?
First, an ETF is a form of security that holds diverse underlying investments, such as commodities, stocks and bonds. The ETF may resemble a mutual fund because its issuer pools and manages the given assets.
The most well-known example of this instrument is SPY, the ETF that tracks the S&P 500 index. State Street is in charge of managing the mutual fund's $436 billion worth of assets.
Related: Bitcoin ETF race gets hotter as ARK Invest adds surveillance agreement to application
Buying an ETF grants the investor direct ownership of the fund's contents, resulting in different tax consequences than holding futures contracts or leveraged positions. While Bitcoin spot ETFs continue to be rejected, identical products have been available for decades for bonds, global currencies, gold, Chinese equities, real estate, and oil.
30% GBTC discount is likely justified
The Grayscale Bitcoin Trust (GBTC), an investment fund with $18.4 billion of assets under management, is currently trading at a -30% discount versus its Bitcoin holdings. This gap between their 626,778 Bitcoins at market value and the GBTC shares trading on regular stock exchanges reached as low as -49% in December 2022.
Consequently, this discount is likely justified as the instrument lacks the tools to allow arbitrage. Grayscale's GBTC is the undisputed leader in the cryptocurrency market, despite being classified as a closed-end fund, which means that the number of available shares is limited.
Shares of GBTC are not freely created, nor do they have a redemption plan. Due to this inefficiency, there are large price differences when compared to the fund's actual Bitcoin holdings. In contrast, an ETF gives the market maker the ability to issue and redeem shares, ensuring that the premium or discount is typically small.
GBTC charges a set 2% annual administrative fee; therefore, the discount may be acceptable given that the SEC continues to reject appeals and requests from all fund managers.
On the other hand, ETFs typically trade at par with net assets, as opposed to GBTC. For example, the Purpose Bitcoin ETF (BTCC.U) held a $5.63 net asset value per share on June 27, and the shares closed at $5.65 on the Toronto Stock Exchange.
Similarly, the U.S. derivatives ProShares Bitcoin Strategy ETF (BITO)'s underlying price was $16.89 on June 28, while its shares traded at $16.89.
Spot Bitcoin ETF approval might initially pressure BTC
Essentially, an investment trust product is considerably less desirable than an ETF, and Grayscale has done little to mitigate the impact on GBTC investors thus far. However, market sentiment improved modestly after the world’s largest asset manager, BlackRock, filed to launch a Bitcoin spot price ETF.
The share price discount versus its contents will eventually trend to zero as redemptions and arbitrage opportunities arise if the SEC grants the asset manager Grayscale permission to convert its GBTC Trust to a bonafideBitcoin ETF.
In this scenario, odds are that a considerable amount of BTC could enter the market as investors will finally be able to exit their position at par.
The only question is: how much of that $18 billion will flow into other Bitcoin-related instruments or get sold on exchanges?
In any case, there's a good chance that a spot Bitcoin ETF approval will produce significant sell-pressure from Grayscale's GBTC conversion as BTC that's been locked for 3-8 years reenters the market.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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