Matteo Greco, Research Analyst at digital asset and fintech investment business Fineqia International, has commented on the recent Grayscale ruling and subsequent rise in the price of bitcoin.
“Having closed last week around USD26,100 bitcoin (BTC) has rallied back above USD27,000 even hitting as high as USD28,000 yesterday following a court ruling in favour of Grayscale who’ve been applying to the SEC to convert their Bitcoin Trust into a spot ETF.
“The decision of the court is of course important but doesn’t change anything for now,” Greco writes.
“Grayscale obtained the chance of seeing their filing re-evaluated by the SEC as the causes of rejection did not seem fair to the judge. It doesn’t mean that now Grayscale will be 100 per cent able to list a spot bitcoin ETF, nor that this will happen in the future.
“Undoubtedly this development is a strong positive signal for the market. Indeed, BTC immediately bounced over USD27,500 and the Grayscale Bitcoin Trust (GBTC) discount narrowed from about 25 per cent to 16 per cent. However, final decisions on when and if Grayscale will be able to list its product as an ETF are yet to be made.
“At the current price level, about 2.5 million bitcoin are held at a loss in the short term. Short term refers to those bitcoin that were bought less than 155 days ago. The data shows the difficult moment for the market, with the price dropping back to the level not seen since June.
“On the other hand, more than 40 per cent of the current bitcoin supply did not move for more than three years, reaching a new all-time high. In addition, smaller holders, which represent portfolios with less than 10 BTC, are continuing to accumulate Bitcoin, according to on-chain data.
“This combination of the data confirms how difficult it has been for BTC to gain traction during the past few weeks, but at the same time it does establish a positive long-term outlook. Long term holders keep increasing and small holders keep accumulating, showing on one hand that old investors are still bullish on bitcoin and tend not to sell their assets and on the other hand the smaller investors are increasing their exposure to BTC, forecasting a positive trend in the long run.
“Looking at the bigger picture and analysing the whole digital asset market, trading volume remains extremely low. The cumulated volume on centralised exchanges for the month of August totals to roughly USD400 billion, the lowest number since December 2020. Also inspecting trading volume on a weekly moving average base, similar numbers can be found. Last week represented the lowest weekly trading volume on centralised exchanges since August 2020.”
Greco moves onto decentralised finance (DeFi), commenting that the situation does not look much better. “Excluding liquid staking, a form of staking assets which allows to users to get back a liquid form of the staked asset to be used for additional strategies, the total value locked (TVL) in DeFi dropped to the lowest level since February 2021. TVL represents the amount of money deployed into DeFi protocols and it is the best index to evaluate DeFi activity. Despite the launch of the Coinbase Layer2, Base, which already totals almost USD200 million in TVL, the overall sector number keeps showing a difficult time.
“This data can be seen as the confluence of many factors that hit the world on a macroeconomic basis and the digital asset market specifically. First, it is well known how central banks are strongly trying to fight inflation since the beginning of 2022. This led to a steep increase in interest rates, making investments less convenient and drying up liquidity from the financial markets, especially the digital asset market which being the most volatile is also the first one which gets affected when investors decide to apply a de-risk movement in their portfolio.
“Regulators, especially the SEC, also hit the digital asset market specifically. Exchanges had to settle, stop providing services and lost partners for ramp-on / ramp-off between fiat currencies and digital asset exchanges. All these factors combined strongly contributed to the bad market performance that we have been witnessing in the last two years.
“Now, it is fundamental to see how the SEC will reply concerning the other ETF spot filings presented by several asset managers and service providers to understand how the US will position itself concerning the digital asset market. This is crucial especially considering how strongly the Asian regulators are pushing to create a favourable framework to digital asset businesses, with the Hong Kong president that recently announced the willing to issue a stablecoin based to national currency and other countries like Japan and Taiwan which are favouring the inflow of digital asset market capitals in the continent. A positive response from the SEC regarding any filings could give another strong boost to the market, while further application rejections would continue the trend capital outflow from the US market in favour of Europe and Asia.”