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June 19, 2023

BlackRock Bitcoin ETF Application Boosts Crypto Markets

June 19, 2023

Despite hawkish sentiment from the Fed, crypto markets were buoyed towards the end of last week as BlackRock, the world’s largest asset manager, surprised the financial world by applying for a Bitcoin exchange-traded fund (ETF) with the SEC. 

This move has generated excitement within the crypto community, as BlackRock’s impressive track record with the SEC suggests a high likelihood of approval. 

Additionally, Ethereum staking is on track to surpass the amount of ETH held on exchanges, indicating a growing preference for decentralized participation and yield generation. 

  • BlackRock makes a bold move with Bitcoin ETF
  • Stocks rally as Fed implements hawkish interest rate pause 
  • Staked Ethereum on track to outpace Ethereum on exchanges 

BlackRock makes a bold move with Bitcoin ETF

In a surprising turn of events, BlackRock, the world’s largest asset manager with $9.5 trillion in assets under management, has submitted an application to the U.S. Securities and Exchange Commission (SEC) for a Bitcoin exchange-traded fund (ETF). 

While technically labeled as a trust, industry experts argue that it functions similarly to a traditional ETF, which has caught the attention of the crypto community, especially considering the SEC’s intensified regulatory crackdown on the digital asset industry.

BlackRock’s reputation as a heavyweight in the financial world adds weight to its application. According to Eric Balchunas, Senior ETF Analyst at Bloomberg, BlackRock has an impressive track record in dealing with the SEC. Out of 575 ETF applications, only one has ever failed, which provides hope that the latest Bitcoin ETF may be secured.

The Bitcoin ETF would provide anyone with a brokerage account the ability to gain exposure to the price of BTC without the need to store and secure the digital asset personally. 

It is believed by those within the crypto community that an investment vehicle such as this could open up an entirely new wave of crypto interest and is, therefore, an extremely important development.

Over the years, various investment firms, including VanEck, Ark Invest, and Bitwise, have sought SEC approval for a Bitcoin ETF, only to be turned down due to concerns about market manipulation. Applications for Bitcoin ETFs have even led to legal battles, such as Grayscale Investments’ lawsuit against the SEC after the rejection of its application to convert the Grayscale Bitcoin Trust (GBTC).

While there is no evidence of a change in the SEC’s stance, the involvement of BlackRock has sparked renewed hope. Being a reputable and influential company, BlackRock’s application carries significant weight and, as a result, helped to boost Bitcoin’s price during the week.

After retesting the $25,000 level earlier in the week, the price of  BTC increased by over 3% when news of BlackRock’s Bitcoin ETF was confirmed. Altcoins then followed with Ethereum and Litecoin securing 3% and 2% price increases respectively on the day of the announcement.

Cryptos transition sideways as Fed implements hawkish interest rate pause

Before the boost in prices from BlackRock’s ETF submission, the price of Bitcoin fell on Wednesday to a 2-month low of $24,900. Uncharacteristically, the downshift in prices coincided with confirmation that the US Federal Reserve would be pausing interest rate hikes for the first time since March 2022. 

The market reaction to the Fed’s announcement was immediate, with other digital assets also witnessing a drop in value. 

Ether, the second-largest cryptocurrency, declined by 5.1% to $1,650, hitting a three-month low. Altcoins such as ADA, SOL, and MATIC also faced significant losses, with ADA plunging more than 5% and SOL and MATIC dropping over 3%.

The Federal Reserve’s monetary policy decisions have created macroeconomic uncertainties for investors over the past two years, contributing to cautious sentiment in the market. The sharp rise in interest rates, from 0.5% to 5%, has resulted in a gradual reduction in liquidity from risk-on assets, including stocks and cryptocurrencies.

Interestingly, while stock indexes such as the S&P 500 and NASDAQ rallied in response to the interest rate pause, cryptocurrencies continued their downward trajectory. 

Many attribute this cautious approach to the subsequent press conference held by the Federal Open Market Committee (FOMC) after the interest rate announcement.

During the press conference, Federal Reserve Chair Jerome Powell emphasized that Wednesday’s decision should not be interpreted as the end of interest rate hikes. Powell and other members of the Fed explained that if inflation persists, further interest rate increases may still be necessary.

As the prospect of two more interest rate hikes now looms for 2023, all eyes will be on inflation data going forward. Investors and market participants remain keenly focused on any indicators that could shed light on the future direction of interest rates and the potential impact on the cryptocurrency market.

United States Fed Funds Rate chart
United States Fed Funds Rate

Staked Ethereum on track to outpace Ethereum on exchanges

According to recent data analyzed by Blockworks, the amount of ETH staked within the Ethereum blockchain is set to surpass the amount held on exchanges for the first time in the coming weeks.

As of now, there are 22.8 million ETH ($39.75 billion) staked, while nearly 24.3 million ETH ($42.38 billion) sits on exchanges. 

The trend reflects a growing sentiment among Ethereum users who prefer staking their Ether coins to participate in consensus and earn yield, rather than keeping them on centralized exchanges. 

The ongoing crackdown by the Securities and Exchange Commission (SEC) has likely played a role in this shift, as investors seek to avoid the potential associated regulatory risks.

In total, there has been a 17% reduction in the amount of ETH on exchanges since the beginning of the year, while the Ethereum blockchain has seen a one-third increase of 5.7 million ETH ($9.4 billion) being staked over the same period. 

This signifies a clear preference for staking as a means of maximizing returns and engaging with the Ethereum network.

This shift in sentiment has been further reinforced by recent events, such as the activation of withdrawals after the Shapella upgrade and the unwinding of staking-as-a-service programs by Kraken due to SEC threats. Notably, Coinbase has also expressed its commitment to maintaining its Ethereum staking products despite regulatory challenges.

The increasing gap between ETH staked and ETH on exchanges suggests that crypto users are valuing the benefits of decentralized technology, emphasizing the importance of holding their own keys and generating yield. 

If the current trend continues, the staking-exchange flippening is expected to occur by the end of this month.

chart Staked ETH vs Exchange-based ETH
Staked ETH vs Exchange-based ETH

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