Written by Michael Milmeister

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Grayscale has played a crucial role in the cryptocurrency market by providing early investment products like the Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE). Whilst these products were an early opportunity for investors to gain exposure, these investors were soon stuck and not able to sell their holdings.

The approval and launch of spot Bitcoin and Ethereum ETFs marked a turning point, allowing Grayscale to convert their trusts into more accessible ETF products. This change enabled investors to finally sell their long-held shares, resulting in significant outflows and impacting the prices of Bitcoin and Ethereum. As the market continues to evolve, Grayscale's influence on cryptocurrency investment remains significant but we are not far from the end of that influence.

Written by Alexandar Artis

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While we hope you enjoyed downtime during the holiday season and a lazy warm January, markets were buzzing with news and excitement. Crypto markets experienced multiple significant waves as massive players entered the market. We bring you another packed Rake Review to fill you in on the important and interesting developments.

Inflation numbers out of Australia showed official inflation (CPI) at a relatively low 4.1% down from over 5% last quarter. The quarterly increase was the smallest in almost 2 years. 

Why is this important? Well, everyone is closely following inflation numbers to see if the RBA will be likely to end its record breaking tightening policy and start lowering interest rates. Home owners (Variable Mortgage holders) are hurting from the quick rise in rates over the last year especially and this is starting to bite in the real economy.

If the loosening begins, we may see very bullish conditions for asset prices. Property could rise for the first time since rates started to bite and equities are already on a bullish path. However, Bitcoin and the wider crypto market could be the biggest winners. There are many reasons for this view. Firstly, Bitcoin's higher volatility pays dividends in a bullish and low interest rate environment (not literally). Secondly, Bitcoin could be a winner because this will coincide with the bullish part of the Bitcoin cycle. Bitcoin is already on a winning path with the halving approaching and the US Spot ETF's approved. Adding in to the mix improved homeowner cashflow and we could see a Bull Run for the ages!

In terms of Market Cycles, we are heading to the juicy part of the cycle where the biggest profits are made. If history is a guide, Bitcoin is heading towards the Hope & Optimism stage this year and possibly complete Thrill and Euphoria in 2025. Now History is just a guide and this time could be different but the exact same conditions exist. A whole new wave of Buying (Demand) is here with ETF's buying in bulk against the backdrop of Bitcoins fixed supply. There will only be 21 Million!

On the first day of trading Bitcoin ETF's saw $4.6 Billion in inflows with Blackrock doing over $1Billion alone.  The below graph shows the ETF inflows by fund. As the ETF's swallow more and more Bitcoin it will become evident that there is not enough to go around and the price will reflect that monumental demand shift.

Everyone has probably heard about the disaster that was FTX in 2022. The exchange went down in metaphorical flames and took with it the whole market leading to sub $17,000 Bitcoin and the absolute panic of November 22. 

It was all caused by FTX's subsidiary trading company Alameda Research losing Billions on the biggest trade of the last Bull market cycle. The GBTC premium trade brought down some huge names that are no longer here. We won't go into it too deeply here but its really the central issue that brought the last bull run to a premature halt. We thought that SBF (Sam Bankman-Fried's) Trial would be the last we heard of that sorry saga however that hope was a tad premature. The great news of the ETF approvals was dampened by the fact that the FTX bankruptcy estate is now finally able to get rid of its GBTC shares and in turn the sale of BTC which pushed the market lower for the biggest DIP we've seen for months.

After a stellar run for Bitcoin and the Alts, Bitcoin dipped in the post ETF approval "Sell the Rumour" phase spurred on by FTX related BTC sales. BTC fell from over $47K to under $39K USD in a fall described by one crypto OG as "What is this a crash for Ants?"

The old heads know that a 15-20% correction on the way up is a healthy consolidation. It was however interesting to see that many were panicking and expecting BTC to fall below $38K USD. It got us thinking about the fear that investors experience being an even more powerful motivator than greed at times.

In the field of behavioural economics there is a concept called "Loss Aversion". This concept states that the emotional and psychological impact of a fall is perceived by investors as more impactful than a gain of the same exact magnitude.

In other words people are irrationally affected by falls more than they should be. It's an interesting concept and we think it played out nicely in January. Here is an asset that is up over 100% even at the very worst of the DIP since November 22. Every investor on this ride should be happy but yet many were fearful. Here is an asset that is heading to a supply shock (The halving) at the exact time of a demand shock (ETF approval) and yet a small fall sees some want to sell.

Well a week on from the worst and BTC has already recovered 10% and Alts are also bouncing. The constant buy pressure from the ETF's is eating up all the cheap BTC from any panicked weak hands.

• Short term pain vs long term gain. FTX/GBTC drawdowns weigh on BTC price in January as ETF demand starts in perpetuity 140,000 BTC was bought in the first 11 days of the ETF's operation.
• In signs that the US economy is over the Banking crisis on 2023 and moving towards a new expansionary cycle of interest rates the Fed Board announced it will be ending the BTFP program propping up the banking system.
  
• Coinbase appeared in court defending itself against the SEC. The SEC has come off significant defeats against its crypto over regulation recently with the largest of those defeats to GBTC. Coinbase is also likely to win with the giant exchange trying to work with regulators without any luck so far.
  
• Dr. Arthur Leffer says “You can have a system that uses #bitcoin as the monetary base”, seemingly endorsing the possibility of major economies being based on BTC. An incredible statement from the "Father of supply-side economics".

In case you wanted to know what the worlds leaders were discussing at Davos January 2024. I guess Covid-19 is no longer an issue.

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This morning, The U.S Security and Exchanges Commission (SEC) approved the rule changes that allows a spot Bitcoin ETF to be listed and traded. 11 individual funds have received approval. This landmark decision marks a pivotal moment in the cryptocurrency space, opening up access for old money to flow into Bitcoin. The spot bitcoin ETFs are expected to begin trading on Thursday.

This ETF approval signifies a giant leap towards mainstream recognition, providing investors with a regulated and accessible avenue to engage with the world's leading cryptocurrency.

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October (Uptober as its come to be known) was an incredible, action-packed month and Bitcoin led the crypto markets to prices not seen for well over a year hitting $35,000 USD. Interest in Bitcoin and crypto more broadly is up and greed is starting to beat fear. So much is happening and we will break it down for you here.

Spreads are the difference between the buy price an the sell price you get when you convert one currency to another. For years remittance providers and banks have been getting away with huge spreads while telling customers there are "zero fees". How that can be legal is actually mind blowing. Clients have been getting fleeced sending money to their relatives abroad. But is this system going to last and is there a competitor that will force remittance providers down the same path as Radio stars and DVD rentals?

Our cover image shows a shuttered Western Union in a healthy shopping strip in Melbourne. Another closed outpost where people used to waste money and no longer do. But at least Western Union is legitimate you say? Not so, in 2017 Western Union admitted anti-money laundering and consumer fraud violations and forfeited almost $600 Million USD. Last month the US Justice Department sent $40 Million to 25,000 clients of Western Union across the globe. In fact, if you used Western Union to send money to a scammer between January 1, 2004, and January 19, 2017, and you did not already file a claim, its not too late.

WU's full 2022 revenue declined 12% on a reported basis. Results that should worry long term investors. Operating margin was also down by over 10% but still high at 19.8%. That seems high for a business converting one currency to another. There just has to be a better way.

In the last few years the amount of value moved by the Bitcoin network has increased significantly. The graph below shows that the amount of BTC transactions is currently at 5 year highs (Thanks to YCharts). Each one can move significant value to anywhere in the world without the need for a remitter at all. What's more you can send 0.1 BTC just as easily as you can send 100 BTC. 

Many Bitcoin naysayers ask about Bitcoin's intrinsic value. The intrinsic value is bitcoins network value. A network that safely and securely moves Billions each day without the need for begging your Bank to release your transaction. If you have BTC - you are truly in control of your funds.

Last month we wrote about SBF's trial finally starting. This month the results are already in. Sam Bankman-Fried (now known as Scam Bankrupt Fraud) has been found guilty on all 7 counts. Sentencing is scheduled for late March 2024 with the once high flying FTX boss facing a maximum sentence of over 100 years.

It's been reported that 78 year old judge Lewis Kaplan was brilliant in cutting through SBF's often convoluted and at times short answers. SBF seemingly tried to confuse the jury of 12 but in the end it did not matter as they found him guilty.

Bankman-Fried was convicted of wire fraud and conspiracy to commit wire fraud against FTX customers and against Alameda Research lenders, conspiracy to commit securities fraud and conspiracy to commit commodities fraud against FTX investors, and conspiracy to commit money laundering.

Unfortunately for SBF's victims this will not help the healing as much as the return of crypto that was sunk into FTX which at current prices is already worth significantly more than it was at the time that FTX declared Bankruptcy. However, this is a positive development in healing and moving on from the darkest chapter of the crypto winter to a new time of growth and building.

We have flagged over several months that Spot ETF approval in the US as the biggest price catalyst in the market. As it were, this turned out to be accurate as rumours of imminent spot ETF approval gave rise to significant market movement in October. 

It all started with a news that BlackRock's spot Bitcoin ETF had been added to the Depository Trust & Clearing Corp's website but later it turned out that this was the case since April and is not uncommon for funds yet to be approved. The price soared and then fall sharply. A pump that made things awkward for Blackrock and the other ETF applicants in front of the SEC. 

However it led to Larry Fink of Blackrock coming out to publicly to say that a rally in the price of bitcoin triggered by a false news report about the approval of a spot ETF served as an example of the "pent up interest in crypto." His comments served to pump the price of Bitcoin on a more sustained level and the price rallied around 30% as shown on the chart below.

It was 15 years ago when Satoshi Nakamoto released the white paper that would give rise to a new monetary system that was not dependent on any authority or issuer - just Maths. Since then Bitcoin has gone from strength to strength spawning a network worth over $600 Million USD and freeing the flow of money. A new industry was born and now the future is bright.

The world economy appears to be balanced on a knife edge. Will inflation keep pushing interest rates up or will the economy collapse forcing an about turn in rates? Australia has changed governors but rates have remained on hold despite printing high inflation suggesting that the RBA is afraid of pushing the economy over a cliff. 

In the US equities are already down significantly. The S&P fell 5% in a fortnight at the end of October as economic fears intensified. There are also fears over the conflict in the Middle-East intensifying. There has been a flight to safety with equities down and Bitcoin up.

All eyes will be on the Fed's next interest rate decision on December 13th.

• The Federal Reserve threatened to sue Bitcoin Magazine over apparel that parodies the Fed's "FedNow" system. Bitcoin Magazine issued a brilliant reply. It can (and should) be read in full here
  
• BlackRock fully behind Bitcoin. Larry Finks comments suggest Bitcoin is undervalued and people are just starting to realise it. 
• Sam Bankman-Fried Guilty on all 7 counts. He will likely spend the rest of his adult life in prison ending a dark chapter for the crypto market and giving hope for the future.
  
• "I don't own any #Bitcoin... but I should." - Stanley Druckenmiller. Legendary investor Stan Druckenmillar appears to support Bitcoin and admits it is being used as a store of value.

If you enjoyed this Rake Review, feel free to open an account and gain access to more proprietary research and work with your very own dedicated crypto broker.