Bulls bet on Wall Street adoption

Bitcoin is booming again, just weeks after two of the industry’s biggest names fell. Bulls hope the lawsuits will put the industry’s troubled past behind them and allow it to tap billions of dollars from Wall Street.

The price of the most actively traded cryptocurrency has soared about 160% this year to a 20-month high of $44,000, leading the charge among digital tokens as gloomy market sentiment fades and traders return in force.

This comes just weeks after the United States successfully secured criminal charges against Changpeng Zhao and Sam Bankman-Fried, the former executives of exchanges Binance and FTX respectively and two of the biggest names associated with the 2020-21 bubble market.

Speculators are now betting that the toughest regulatory sanctions have passed and Bitcoin will be adopted by major global fund managers and investment banks.

“You see the two biggest players in cryptocurrency potentially both going to jail and yet cryptocurrency continues… the old guard is being replaced by new money,” said Ed Hindi, chief investment officer at investment management firm Tyr Capital.

“Everything has been put into bitcoin and it has held up. Like it or not, it’s going to occupy a place in wallets.”

The surge in bitcoin, along with other cryptocurrencies, comes as investors bet on growth stocks and riskier assets in anticipation of central banks cutting interest rates next year.

CK Zheng, co-founder and chief investment officer of crypto hedge fund ZX Squared Capital, said the Fed’s rate cuts were just “icing on the cake.” “Bitcoin’s price fundamentals are driven by the introduction of highly regulated companies into the market. Wall Street is embracing crypto,” he added.

The cryptocurrency market, known for its ups and downs, has regained a particular momentum after 20 months of bad news and painful declines. After peaking at just over $69,000 in November 2021, the value of bitcoin fell by three-quarters to just $16,000 at the start of this year.

This year’s steady recovery accelerated in November, especially after U.S. authorities fined Binance $4.3 billion for violating financial sanctions and money laundering. Crucially, they did not shut down the world’s most influential cryptocurrency exchange.

The move has helped attract cryptocurrency supporters. This week, El Salvador’s authoritarian president, Nayib Bukele, under whom bitcoin became legal tender in 2021, triumphantly posted on the social media site X that the country’s holdings of the digital currency were profitable again. Meanwhile, Brian Armstrong, chief executive of the U.S. exchange Coinbase, said he has been thinking about how bitcoin “could be the key to the expansion of Western civilization.”

Some even see it as the start of a new supercycle. US investment bank Bernstein predicted last month that bitcoin’s value could more than triple to $150,000 by 2025.

Key to the optimism is the Securities and Exchange Commission’s approval of exchange-traded funds that invest directly in cryptocurrency.

The market has long viewed spot Bitcoin ETFs as a way to attract U.S. retail investors with a cheap but safe and regulated investment product. For a decade, the SEC has resisted all requests, arguing that Bitcoin prices are set on unregulated exchanges and therefore cannot provide adequate investor protection.

But pressure on the SEC has been mounting since it lost a ruling last summer over its reasons for blocking an ETF application from asset manager Grayscale. BlackRock and Franklin Templeton are among the big names that have filed applications, raising hopes they can attract a large number of U.S. retail investors to cryptocurrencies. An SEC decision could be made as early as next month.

“Just improving market access shouldn’t really drive prices up, but I think it does because it’s an explicit signal from the SEC that they approve of bitcoin, at least in some respects,” said James Butterfill, head of research at investment group CoinShares.

Many investors have already bought cryptocurrencies in anticipation of continued demand growth. According to CoinShares data, there have been 10 consecutive weeks of inflows into digital asset products, an investment surge that came shortly after Grayscale’s legal victory against the SEC.

Speculators are hoping that the acceptance of Bitcoin ETFs by U.S. regulators will provide more lasting support for prices, unlike previous bitcoin rallies, such as 2013, 2017 and 2021, when prices soared quickly only to crash just as violently.

“This will be the first time that there might be real recognition of bitcoin… I think that means that this time the rally will be more sustained,” Butterfill added.

Optimists also point to a technical shift in bitcoin production that they believe will support demand. Next April, the number of bitcoins miners receive for verifying cryptocurrency transactions will be halved, in an effort to reduce the supply of new bitcoins on the market.

“This will be a very powerful technical driver for the price of bitcoin as mining becomes more difficult and less profitable, and scarcity continues to increase,” said Tim Frost, CEO of Yield App, a crypto platform that offers its clients yields on digital assets.

Despite the renewed confidence, some doubts remain about the sustainability of bitcoin’s rally. Two of the largest U.S. ETF providers, Vanguard and State Street, have not filed to list a spot bitcoin ETF. State Street told Financial News in summer that there was “no investment case for crypto.”

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U.S. authorities said monitoring of illicit behavior in subsectors such as the stablecoin market would continue next year.

The SEC has pending cases against Binance and U.S.-listed Coinbase, alleging that both exchanges were unregistered and sold unregistered securities. The SEC’s victories could force many of them to register with the regulator and impose stricter oversight and transparency on their markets.

Some industry insiders also doubt that the SEC will end this long-standing habit and approve a Bitcoin spot ETF.

David Mercer, chief executive of LMAX Group, a currency trading platform, said the SEC’s approval of an ETF was already priced into the market, but added that the primary goal was to transform traditional assets such as securities into digital tokens.

“The ultimate goal is for most of traditional finance to be enabled by blockchain in the coming decades. From that perspective, we are only at the beginning,” he added.

But after months of negative headlines and a barrage of enforcement actions, some are hoping the rally will only mark a break with the past, rather than spark a new bull run.

“We’re focused on getting out of this orbit that we’ve been in for the last 18 months rather than driving prices up astronomically,” said Michael Safai, co-founder of trading firm Dexterity Capital. “Those days are over, or should be,” Safai added.

Video: Bitcoin mines could be used for energy storage | FT Tech


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