Data & Insights Recap - July 10, 2023

Onwards and upwards

Source: Grayscale

• Shares in Grayscale’s Bitcoin Trust were trading at just 26.7% below their net asset value (or the value of the bitcoin each share represents) on July 6th, the closest they’ve been priced to the NAV in over a year. 
  • GBTC’s discount to the NAV was almost 50% at the end of 2022. Grayscale had been looking to convert their trust product into a spot bitcoin ETF but got rejected, leaving an asset with no rights to the underlying assets and thus no redemption mechanism, which served to deflate the price of GBTC and widen its gap with the NAV. 
  • Grayscale did sue the SEC over their rejection of the conversion, which helped relieve some of the pressure on GBTC after a first hearing in March was largely regarded as a success, allowing the discount to the NAV to recover back 34%. 
  • But a lack of movement after the initial hearing let GBTC sink again, trading 44% below the net asset value in mid-June. 
• Things have now turned around for Grayscale and its Bitcoin Trust, and not really by any of its own doing.
  • It’s rather the more recent infatuation with getting a spot bitcoin ETF registered. It began on June 15th when asset management giant BlackRock filed a registration statement. This move alone caused GBTC’s discount to close by about 5%. Afterward, a flurry of traditional finance institutions started to pile on, including Fidelity, Valkyrie, Invesco, and WisdomTree. 
  • The fact that so many parties were interested in starting a bitcoin spot ETF and were optimistic enough about the outcomes to file a registration was perceived as a bullish signal. After all, a spot bitcoin ETF would help give investors exposure to the asset without them needing to custody any crypto themselves.
  • There was a brief moment of setback when the SEC told CBOE and Nasdaq (the exchanges on which the ETFs, if approved, would trade) that filings were not “clear and comprehensive.” 
  • But both exchanges were quick to update their filings, and named Coinbase as their surveillance sharing partner for the ETFs, meant to help monitor any spot market manipulation. 
  • The commitment of both the exchanges and the asset managers filing for the ETFs has paved optimism that GBTC could one day also achieve its goal of getting converted, pushing the shares’ price closer to the NAV.

Baseless claim

Source: The Block

• The annualized basis rate for bitcoin futures on Binance reached 7.16% on July 4th, the highest it's been since January 2022, and an over 6000% rise from the basis on June 30th, -0.12%. 
  • A futures basis is defined as the difference between the spot price of the asset and the price of the futures contract for the asset; in our case, we are using the price of the current quarter’s bitcoin futures contract on Binance. 
  • The basis rate is then the basis as a percentage of the futures price, and to annualize the rate, you multiply it by 4 since we are dealing with quarterly contracts. 
  • The positive basis rate indicates that the futures contract was trading for cheaper than bitcoin spot on Binance. 
• It is not uncommon that we see a spike in the annualized basis rate at the start of a fresh quarter, as we saw the rate jump from 0.16% to 5.24% from March 31st to April 1st this year. 
  • With expiration being so far out at the start of the quarter, it's more common to see these larger price differentials that then decrease as expiration approaches.
  • But the basis also tends to rise when spot demand is high, and we’ve seen spot volumes rise a bit on the heels of the excitement surrounding the spot bitcoin ETF filings, which could have contributed to the magnitude of the spike we saw at the start of July.

USDone

Source: The Block

• Binance.US offered 337 pairs in June, but so far in July, only 184 pairs have been available for trading. 
  • After Binance.US originally moved to delist around 100 pairs after getting sued by the SEC, the exchange walked back and decided to only remove 10 pairs facing community backlash. But more pairs were forced to be delisted after the exchange's banking partners cut off USD payment support; as a result, many USD pairs are not supported anymore. 
  • Binance.US currently supports 10 USD pairs (BTC, ETH, USDT, USDC, SOL, MATIC, BNB, LTC, ADA, and VET), compared to 153 in June, about half of the trading pairs it offered that month. 
  • It’s the lowest amount of spot trading pairs the U.S. subsidiary of the world’s largest crypto exchange has offered since February 2022. 
  • It is possible that Binance.US lists more pairs during the remainder of the month, but with all the regulatory eyes on the exchange and with limited quote asset offerings, it's unlikely we will see the over 150 pair recovery needed to reach June levels. 
• Binance.US has faced other struggles post-lawsuit, like its dwindling market share and low liquidity causing massive premiums and high slippage on the exchange. 
  • But the exchange did take a win by managing to avoid a full asset freeze which the SEC had requested. It struck a deal that limited access to Binance.US’s assets to employees of Binance.US only, restricting employees of the broader Binance enterprise. 
  • Binance.US also added the former co-director of the Security and Exchange Commission’s enforcement division to its legal team, along with three other lawyers from Milbank LLP, to bolster the exchange’s defense in the lawsuit. 
• And Binance.US isn’t the only exchange with dropping pair numbers. Binance itself has only been offering 1,381 pairs so far this month compared to 1,405 in June. Kraken’s pairs have dropped from 668 in February to 651 this month and Coinbase is down to 524 from 558 in the same period. 

Hack-ting up

Source: The Block

• The number of blacklisted USDC addresses on Ethereum jumped from 166 to 169 on July 7th after Circle froze three addresses for the first time in over a month.
  • It’s the highest the number of frozen USDC addresses has been, which might be expected, but Circle also has the power to un-blacklist addresses when they deem them okay to be used again. The latest activity from the USDC Blacklister address prior to the recent ban was actually an unblock in June.
  • A blacklist on an address entails that it can no longer receive any USDC and any USDC it controls can’t be transferred on-chain. The move thus froze $63 million USDC that was held across those accounts. 
  • And Circle wasn’t the only ones on the banning train this weekend, with Tether also blacklisting two addresses with $2.5 million in USDT on Saturday. 
• This was not all without cause, as all the addresses frozen had funds connected to a suspicious $126 million outflow from the Multichain bridge. 
  • Funds seemed to be drained from Mutlitchain’s deployments on Fantom, Dogechain, and Moonriver. 
  • Multichain warned users to stop using its services in the wake of the attack. It is still not 100% clear what caused the exploit, but Loki Zheng, on-chain analyst and former researcher at Huobi Ventures, thought the outflows were an indication that the hacker could have access to shards of the private key to Multichain’s multi-party computation wallet.  
  • It’s also not the first time we’ve seen Multichain in the news this year after the multi-chain bridge protocol had to restrict bridge routes after a “force majeure” in May. That same month the protocol announced they could not contact their CEO amidst the technical problems, leading some to speculate he had been arrested in China. 
  • Overall, bridges serve as a lucrative target for exploiters since they tend to hold a lot of locked funds.

BIT(O) of a discrepancy 

Source: Yahoo Finance

• There has been a lot of hype about what a spot bitcoin ETF could mean for the future of crypto investment, but what makes it so different from a bitcoin futures ETF? 
  • There are a multitude of bitcoin futures ETFs out there, from the likes of Valkyrie, VanEck, Bitwise, and ProShares. 
  • ETFs, or exchange traded funds, at their core, just offer people exposure to some underlying asset. An asset manager will hold a pool of the asset in question and offer tradable shares in it. So for a bitcoin futures ETF, the fund will hold a lot of bitcoin futures contracts, whereas, in a spot bitcoin ETF, the asset manager will actually hold a pool of bitcoin.
  • In theory, these should behave in a similar way, as futures contracts are meant to mimic the price of their underlying asset, but as we discussed before, when looking at the basis rate on Binance, a matching spot and futures price is not always the case, although the two tend to move in tandem.
• Take, for example, the ProShares Bitcoin Strategy ETF, which trades under the ticker BITO. The fund's holdings are essentially just CME bitcoin futures contracts, but the ETF was only up 54.34% year-to-date at close on Friday compared to bitcoin’s 83.59% rise since the start of the year.
  • There are no bitcoin perpetuals offered on CME, so this requires ProShares to rotate out its holding when expiration is close. It is sometimes costly to do this turnover, especially if futures prices are higher than those of spot, and is part of the reason we’ve seen this underperformance.
  • So while bitcoin futures ETFs were a step in the right direction for granting investors more bitcoin exposure, they aren’t a perfect method for tracking the price of bitcoin. So while JPMorgan doesn’t think that a bitcoin spot ETF will be a ‘game changer,’ it’s still something new that could give more casually crypto-interested people a way to more properly invest in the asset.