The approval of spot Bitcoin ETFs in the US increased the cryptocurrency's reputation and made it much easier for many people to invest in Bitcoin and put it on the same level as gold. In the SEC's accompanying letter to the approval of the ETFs, Chairman Gary Gensler reiterated that the regulator views Bitcoin exclusively as a commodity.

The importance of the event for the crypto market can hardly be overestimated, as it'll cause a significant inflow of capital. In the statistics for January, it's weakly reflected due to the negative impact of Grayscale, which isn't related to the investment attractiveness of Bitcoin (read more on the reasons here https://stormgain.com/blog/bitcoin-outflows-from-grayscale-fund-exceed-five-billion-dollars). The good news is that this trend is weakening. From a peak of 24,000 BTC (~$1 billion) a day, the outflow has dropped to 3,400 BTC (~$145 million).



As interest in the remaining nine spot ETFs didn't change much, last week marked a return to growth in net inflows, reaching $708 million.



Moreover, funds from BlackRock and Fidelity were among the top 10 fastest-growing ETFs in the US in January. In contrast, the gold ETF from SSGA, which has the largest private gold holdings, showed a significant outflow of $1.8 billion.



The trend of Bitcoin replacing gold as an investor preference has been noted by many analyst companies since 2021, including Bank of America and JPMorgan. This trend started to fully manifest after the launch of spot ETFs.

For the long-term valuation of gold and cryptocurrency, Cathie Wood of Ark Invest suggests relying on the ratio of Bitcoin's value expressed in ounces of gold. The logarithmic chart speaks for itself.



A new boost in crypto growth may provoke a repeat of last March's banking crisis when a full-scale crash could only be prevented by the direct intervention of the government and the Fed (read more in our article https://stormgain.com/blog/history-repeats-us-banking-sector-is-under-attack-again). Bitcoin then gained 50%, rising to $30,000 within a month.



In addition to the banking crisis, the US faces a national debt problem that is costing a lot to service. Even Federal Reserve Chairman Jerome Powell, who usually ignores politics, recently criticised the government:

"The US federal government's on an unsustainable fiscal path... The debt is growing faster than the economy".

For centuries, gold was a safe haven, but Bitcoin will eventually replace it as a more convenient and safer (in certain aspects) instrument.


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In March 2023, the US banking sector faced a series of bankruptcies, primarily caused by the Federal Reserve's increase of the key interest rate. Rate hikes led to a reduction in income and the depreciation of banks' investment portfolios. This primarily affected Treasury bonds. During the "easy money" period of 2020-2021, a number of banks stocked up on treasuries. The rate hikes resulted in their value dropping.



The US Fed's key rate changes

The government and the Fed had to intervene to resolve the situation. Banks were given the opportunity to sell bonds at old prices. In addition, the Fed launched a one-year emergency lending line. Within the scope of the latter, banks have took $165 billion in loans. On 11 March, the lending line will be closed.



This has spared the economy from the open flame, but the coals are still hot. Throughout 2023, a number of economists and businessmen urged the regulator to cut the ineterest rate to prevent a crisis that would start with regional banks. But the Fed still believes the situation is under control and that all measures should be aimed at achieving the target inflation goal of 2.0% to 2.5%.

The new red flag appeared yesterday when NYSB, the bank that bought the assets of the bankrupt Signature Bank, reported an unexpected loss of $252 million in Q4 2023. Investors and customers rushed for the exits, withdrawing their funds in the process. It's worth noting that deposit outflows are one of the most serious stress tests for the banking industry.



Goldman Sachs wrote in a note to investors that market sentiment has turned significantly negative for the first time since late October, and the weakness of regional banks should be offset by a "dose of hedging" in the investment portfolio.



Last March, Bitcoin became one of these "hedging assets" and experienced a significant influx of investments. Unlike bank deposits, cryptocurrency has no insured amount beyond which funds can be irretrievably lost. For example, SVB, which went bankrupt a year ago, had 85% of its $175 billion in deposits that weren't insured by the FDIC. And if it weren't for the direct intervention of the Fed and the Treasury Department, the list of bankrupt companies (which would've been dragged down by collapsed banks) would've been impressive.

Since the underlying problem hasn't been resolved, the banking sector's profitability remains at an uncomfortable level. With the end of the emergency programme and a high key rate, new shocks await banks.


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In 2023, miners doubled their production capacity. The total hashrate of the Bitcoin network increased 2.1 times to 515 EH/s.



Among publicly traded miners, Marathon Digital took the first place by growth rate, increasing its capacity by 3.5 times to 24.7 EH/s. Iris Energy, which saw 3.3-fold growth, and HUT 8 (2.9-fold growth) also showed excellent results. Marathon Digital ranked first in relative and absolute terms, overtaking 2022 leader Core Scientific.



The former is also distinguished by its retention strategy: its reserves amount to an industry record of 15,200 BTC (~$654 million). Having learned the lesson of 2022, most miners are accumulating with caution. Core has undergone reorganisation after filing bankruptcy under Chapter 11 and is now dumping coins on the market without delay.



The ongoing arms race has resulted in little to no growth in yields per terahash of capacity over the past 12 months despite Bitcoin's solid surge.



Meanwhile, the halving event is less than three months away. If the coin's value doesn't show significant growth, most miners will face a severe lack of liquidity, which will force them to sell off their reserves more actively.



This month, they have already seized on an excuse in the form of spot ETF approvals in the US to send a six-year record 624,000 BTC (~$26 billion) to crypto exchanges from 10 January.



At the moment, miners collectively hold an impressive reserve of 1.8 million BTC, worth $77 billion. If Bitcoin doesn't show growth before the halving, the decline in yields will cause another wave of sell-offs.


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Transactions with stablecoins are key activity areas for networks supporting smart contracts. In December, stablecoin volume totalled $1.2 trillion, and the number of active addresses is growing year over year despite market turbulence.



For the past two years, the Tron network has been competing with Ethereum, allowing USDT and other stablecoins to be transferred at lower fees. But at the end of 2023, Solana displaced Tron from the second position, challenging Ethereum. In the last week, Ethereum accounted for 39% of turnover, Solana contributed another 29%, and Tron made up 25%.



Solana outperforms its competitors in key parameters. For instance, a transaction is completed within half a second, and commission is under one cent.



Last year, Visa chose Solana as its partner for an interbank exchange pilot project since transfers on the blockchain proved more efficient than traditional methods. The payment giant's opinion can be found on its official website (https://usa.visa.com/solutions/crypto/deep-dive-on-solana.html).

This news, coupled with VanEck's investment report that the network was undervalued, led to an explosive rise in the coin's value last year.



Solana's only major problem has always been frequent failures, often leading to a complete shutdown. But since February, the network has been operating stably and even successfully overcame a surge of transactions in connection with the mass minting of ordinals at the end of 2023. Not all networks coped well with this challenge.



The developers hope that the issue with network failures will finally be resolved by deploying the new Firedancer validator. Its rollout is scheduled for the first half of 2024.


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K33 Research, which predicted Bitcoin's fall after ETF approval, is now urging investors to sell off all ADA (Cardano) holdings. According to analysts, the former leading network is about to be gone for good. Currently, it's ranked 9th in terms of market capitalisation with $17 billion.



Cardano's main problem is the absence of useful activity. The network doesn't support USDT or USDC, and the Djed stablecoin launched last year on the blockchain shows no signs of outer interest. In fact, capitalisation is even declining. Many transactions on the network are due to exchanges and "fabricated activity".



According to K33, activity in the stablecoin market is one of the key purposes for smart contract-enabled networks. On this metric, Cardano's performance equals zero.



Without the support of popular stablecoins in the DeFi sector, the network is unable to show any meaningful results. In terms of total value locked (TVL), Cardano ranks 13th with $329 million. Comparatively, Avalanche has $777 million, and Solana has $1.3 billion. The latter two networks were officially launched later than Cardano but were ahead of the curve due to better solutions.



The high capitalisation is due to previous hopes that the network would grow with the emergence of smart contracts. In 2021, it was ranked third in the overall ranking when talk of an "Ethereum killer" peaked.

But the reality was far harsher. As smart contracts were introduced, the network faced a monstrous overload due to a failed architecture. Since then, the coin has lost 85% of its value, and the chances of returning to the heights it once reached are close to zero.



Cardano is now doing well with smart contract processing, but the time to consolidate its position has long passed. Analysts at K33 believe that this blockchain is a bust and will soon join IOTA, NEO, EOS and Concordium on the list of outsiders.


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This week, JPMorgan CEO Jamie Dimon cited money laundering, fraud, tax evasion and sex trafficking as key uses of Bitcoin. This assessment is typical for all fierce opponents of digital assets who consider the latter to be a tool used by criminals.



However, a chain analysis of transactions of addresses flagged as suspicious by law enforcement suggests otherwise. Yesterday, the Chainalysis analytics agency released a report in which criminal activity accounted for just 0.34% of total transaction volume.



In absolute numbers, $24.2 billion worth of illegal transactions were made using cryptocurrencies in 2023.



Of these, 61.5% of transfers worth $14.9 billion were made to evade sanctions. These are mostly addresses flagged by the US Treasury Department's Office of Foreign Assets Control (OFAC). This category grew significantly in 2022, when Russia rose to first place in terms of the number of international sanctions applied.

In terms of 'traditional' illegal activities, such as the use of malware or fraud, there has been a decline in transaction volumes since 2021. In 2023, the volume of the above-mentioned category decreased by 29.2%, while the volume of hacking attacks dropped by 54.3%.

Some pretty interesting changes also occurred in terms of cryptocurrency preferences. Up to and including 2021, Bitcoin accounted for most illegal transactions. Since 2022, however, it has ceded that title to stablecoins. The latter were mostly used to evade sanctions.



The recent claims by the UN Office on Drugs and Crime against Tether can be summed up as follows:

"Law enforcement and financial intelligence authorities in East and Southeast Asia have also reported USDT [or Tether] among the most popular cryptocurrencies used by organised crime groups..."



Tether criticised the UN agency, hinting at its insufficient competence:

"The UN's analysis ignores the traceability of Tether tokens and the proven record Tether has of collaborating with law enforcement".



The company has repeatedly noted that it promptly blocks suspicious addresses upon receiving the first official request from law enforcement agencies. Currently, 1254 addresses that hold a total of $878 million are included on the stop list.


StormGain Analytical Group (https://stormgain.com/)
(platform for trading, exchanging and storing cryptocurrency)

The approval of spot Bitcoin ETFs in the US was a major step towards institutionalisation, but it caused Bitcoin to fall 14% from its local high. We warned (https://stormgain.com/blog/etf-approval-will-trigger-bitcoin-fall) about such an outcome back at the end of the year. There are several objective reasons for this, which are worth outlining.

High expectations

Bitcoin's price rose 2.5 times in 2023, and much of the growth came in the autumn when the emergence of ETFs became inevitable.



This has led to a significant increase in unrealised gains among short-term holders (STH), who are characterised by a rapid mood change and a desire to take profits at the first signs of a correction.



Derivatives traders can also be considered STH as they actively increased their purchases as 10 January approached. The funding rate clearly demonstrates this. Its growth indicates the prevalence of bulls over bears in open futures contracts. As hopes for Bitcoin to skyrocket with the emergence of ETFs failed to come true, the bulls rushed to the exits at the first signs of a correction. The rate is now close to neutral.



Sluggish start

The emergence of spot Bitcoin ETFs didn't stir markets. In the first two days, they attracted only $1.2 billion in investments. Compare that to one futures ETF that recorded a $1.5 billion gain in 2021. The weak performance is also evidenced by relatively low trading volumes in both the spot and derivatives markets.



Capital shifts

The emergence of ETFs caused a capital shift among funds. Grayscale was converted from a trust fund, so it started with 618,000 BTC. What's more, the company has the highest commission for managing assets. Its 1.5% fee led capital to flee. In recent days, around 10,000 BTC (~$430 million) has been transferred to Coinbase to be subsequently sold. With the start of the sell-off, added pressure hit the market.



A similar pattern is seen with outflows from futures ETFs, as switching from contract to contract imposes additional costs on investors.



Miners' sell-off

Miners followed the classic "buy rumours, sell facts" technique and sold off 111,000 BTC worth $5 billion in the first three days after the ETF launch. Whales joined in, too. The number of addresses with over 1,000 BTC dropped from 2,024 at the end of last year to the current level of 2,015.



As we can see, some market participants used the ETF hype to sell part of their assets, while others fell victim to high expectations. However, the above factors in no way diminish the significance of long-term trends and the emergence of exchange-traded funds.


StormGain Analytical Group (https://stormgain.com/)
(platform for trading, exchanging and storing cryptocurrency)