Oct 5, 2023

Ether ETFs, Coinbase Litigation and FTX Creditor Hopes

Bitcoin Macro

The launch of the first #ether futures exchange-traded funds (#ETFs) this week saw lackluster demand, registering just a fraction of the volumes generated by bitcoin futures ETFs when they debuted last year. The ETFs from VanEck, ProShares and others attracted only $8.5 million in assets under management on the first day of trading - just 0.2% of the $576.5 million seen for bitcoin futures ETFs in 2021.

The tepid response came despite traders trying to front-run the launch in the derivatives market. Ether futures premiums had jumped ahead of the debut on platforms like #CME but quickly erased those gains as volumes fell short of expectations. This scenario is reminiscent of the launch of the first bitcoin futures on CME back in 2017, which took years to gain traction with institutional investors.

The volumes suggest institutional demand for ether exposure via an ETF remains limited for now. However, the launch of these products opens the door for greater adoption over time as market sentiment improves. Given the recent approval of ether futures ETFs, a spot ETH ETF could be on the horizon as well.

#Grayscale Investments notably filed this week to convert its Grayscale #Ethereum Trust into a spot ether ETF in collaboration with NYSE Arca. Grayscale won a major victory against the SEC regarding its Bitcoin Trust product, indicating the regulator may soon approve spot crypto ETFs. Having a futures-based ether ETF already trading seems to increase the chances of a spot ETH ETF being greenlit.

On the regulatory front, #Ripple Labs notched an incremental win in its long-running lawsuit with the Securities and Exchange Commission (SEC) this week. The judge rejected the SEC's request for an interlocutory appeal, pushing the case towards a tentative trial date in April 2024.

Ripple also obtained a major payments license from the Monetary Authority of Singapore. The approval will allow the firm to offer regulated digital asset services in Singapore, where it has grown its presence over the last few years. Ripple also announced it will no longer fully acquire crypto custody provider Fortress after previously signing a letter of intent to do so. Ripple will remain an investor in Fortress though the outright acquisition is off the table for now. The decision reflects the challenges of closing mergers and acquisitions in the current crypto market environment.

Meanwhile, the SEC pushed back against crypto exchange Coinbase's bid to dismiss a lawsuit alleging securities law violations. The regulator claims Coinbase knew certain assets traded on its platform met the definition of securities but ignored guidance from the SEC. Coinbase contends the assets it lists are commodities not subject to securities laws.

The bankrupt crypto exchange #FTX may see improved recovery prospects due to a major funding round for an AI startup it previously invested in. Google and Amazon have poured billions into Anthropic, and its valuation now stands around $30B. This means that the $500M that SBF invested could now be worth $3-4B. This is making it possible for FTX to repay all creditors anywhere between $0.6 and $1, depending on how much the estate can recover from crypto and other assets it sells, as well as clawbacks and a potential restart of FTX 2.0. However, the ultimate recovery values still face uncertainty due to issues around timing of any sale by FTX and competing claims.

The #Anthropic investment could help recovery prospects, but many factors influence the potential creditor payouts. The final outcomes remain highly uncertain given the early stage and open questions around total assets and liabilities, regulator involvement in a FTX restart, timing of asset sales, and how competing claims get prioritized. While speculation on specific repayment ranges is premature, if assets like the Anthropic stake realize their potential value, it could improve the outlook for FTX creditors. But the situation needs to develop further before reasonable estimates can be made.

The launch of ether futures ETFs and Grayscale's Ethereum Trust conversion bid signal that regulatory approval of spot crypto ETFs is nearing. Both bitcoin and ether seem poised to benefit from increased institutional investment when ETFs arrive. Ripple's wins against the SEC and new licensing in Singapore continue its global expansion, regardless of halting an acquisition. The massive valuation of FTX's Anthropic investment provides a psychological boost, offering hope for creditor repayments despite uncertainties.

Sentiment seems to be improving across crypto with these regulatory and adoption milestones. Additional clarity from Ripple's case could further dispel regulatory uncertainty weighing on Coinbase and others. While risks remain, the groundwork is being laid for the next stage of institutional involvement with bitcoin, ether, and broader crypto assets. Continued progress on the regulatory front and in mainstream financial integration will likely lift the markets over the longer term.

Bitcoin Macro

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