Kvants Insight Newsletter: November 2024

This week, Bitcoin’s 16th anniversary marked a price surge close to its peak, reflecting heightened institutional participation and new regulatory inroads like spot Bitcoin ETFs. Tether’s $2.5 billion Q3 profit demonstrated growing stablecoin demand as liquidity alternatives amid inflationary pressures, while earnings from Coinbase and Robinhood revealed fluctuating trading volumes, highlighting retail enthusiasm but also a market deceleration. The SEC's review of Grayscale’s ETF application signals a potential shift toward multi-asset crypto ETFs, while Russia’s partnership with BitRiver to expand Bitcoin mining across BRICS nations suggests a recalibration of crypto mining power toward emerging markets. Additionally, Florida’s $800 million crypto allocation and proposal to include Bitcoin in state pension funds reflect the increasing adoption of digital assets within institutional portfolios.

Bitcoin Edges Close To All-Time High As It Marks Its 16th Birthday

Bitcoin, the largest cryptocurrency by market cap, turned 16 recently. On October 31, 2008, Satoshi Nakamoto released the Bitcoin white paper, launching the cryptocurrency revolution. Bitcoin's price rose above $70,000, nearing an all-time high of $73,000, and its market capitalisation rose to $1.429 trillion, up 110.8% from a year earlier. Increased institutional investment, supportive political developments, and regulatory advancements like spot Bitcoin ETFs make Bitcoin more accessible to more investors. Bitcoin continues to influence and gain acceptance in global finance. Link

Importance

Bitcoin, the largest cryptocurrency by market cap, turned 16 recently. On October 31, 2008, Satoshi Nakamoto released the Bitcoin white paper, launching the cryptocurrency revolution. Bitcoin's price rose above $70,000, nearing an all-time high of $73,000, and its market capitalisation rose to $1.429 trillion, up 110.8% from a year earlier. Increased institutional investment, supportive political developments, and regulatory advancements like spot Bitcoin ETFs make Bitcoin more accessible to more investors. Bitcoin continues to influence and gain acceptance in global finance.

Tether Reports $2.5 Billion Q3 Profit, Raising Year-to-Date Earnings to $7.7 Billion

Tether, a leading stablecoin provider, reported Thursday that it earned $2.5 billion in the third quarter, bringing its total earnings for the first nine months of 2024 to $7.7 billion, up from $5.2 billion in the first half. USDT issuance reached an all-time high of nearly $120 billion, a 30% increase in circulation or $27.8 billion added this year, close to its closest competitor. Following COVID-19, inflationary pressures and higher interest rates to cool the economy have boosted stablecoin demand. Stablecoins have growth potential, but the U.S. Treasury warns of regulatory issues. Link

Importance

Tether's strong third-quarter profit of $2.5 billion, bringing its year-to-date total to $7.7 billion, highlights a stablecoin market demand shift. In the face of inflation and rising interest rates, institutional investors are seeking liquid, low-volatility assets, and USDT circulation has reached an all-time high of nearly $120 billion, a 30% increase year-to-date. This surge shows stablecoins' growing role as a global liquidity bridge, allowing capital flow flexibility and reducing currency volatility in advanced financial markets. Tether's ability to drive volume and maintain strong profit margins makes it a key player in the digital assets ecosystem, affecting institutional portfolio diversification, cross-border settlement efficiency, and market liquidity stability despite U.S. Treasury regulatory concerns.

Coinbase Shares Fall 15% Following Disappointing Earnings Report

Coinbase shares faced significant pressure on Thursday, dropping 15.3% after the company reported earnings that fell short of expectations and offered a cautious revenue forecast for the current quarter. This is Coinbase's biggest single-day drop since May 2022's 19.5%. Broader market challenges also weighed on the stock. Other crypto-related stocks saw declines as well, with Robinhood falling 16% following its own weak earnings report, and crypto miners Mara Holdings and Riot Platforms slipping 8% and 11%, respectively. Bitcoin, a key influence on Coinbase’s stock price, dipped 2.78% to $69,918.66 after briefly approaching its all-time high of $73,000 earlier this week. Link

Importance

Coinbase's 15.3% share price drop after a weaker-than-expected earnings report and tempered revenue outlook highlights its critical challenges in changing crypto market conditions. Institutional investors are vulnerable to company-specific financial performance and sector volatility, as Coinbase's largest decline since May 2022 shows. Other crypto-adjacent stocks, such as Robinhood (-16%) and mining companies Mara Holdings and Riot Platforms (down 8% and 11%, respectively), also fell after disappointing earnings, raising concerns about the crypto ecosystem's profitability. Since Coinbase's revenue depends on trading volumes and crypto prices, Bitcoin's 2.78% drop, just below its recent highs, adds another layer. This environment highlights the need to carefully evaluate crypto-related equity positions, especially given regulatory uncertainties and macroeconomic headwinds that could continue to affect trading volumes and asset valuation.

Robinhood’s Q3 Earnings Reveal Strong Crypto Interest as Trading Volume Hits $14.4 Billion

Robinhood released its third-quarter earnings on Wednesday, reporting a 112% year-over-year increase in cryptocurrency trading volumes, surpassing $14 billion in Q3 2024. However, this reflects a slowdown compared to earlier in the year, indicating a cooling trend in trading activity. While crypto trading remains a strong area of interest among retail investors on the platform, volumes have decreased from $21.5 billion in Q2 and a peak of $36 billion in Q1. This decline in momentum may be due to diminishing excitement around certain cryptocurrencies that saw significant surges earlier in the year. Link

Importance

Robinhood's Q3 earnings report showed cryptocurrency trading volumes rising 112% to $14.4 billion, demonstrating retail interest in digital assets. The sequential decline in trading volume from $36 billion in Q1 to $21.5 billion in Q2 and now $14.4 billion indicates waning momentum throughout the year. This trend may reflect retail sentiment cooling after the early 2024 excitement around certain cryptocurrencies. Institutional investors may see this deceleration as a stabilisation phase in retail-driven crypto markets, which may improve liquidity and price discovery. This pattern reveals the cyclicality of retail crypto market engagement, which is crucial for predicting market liquidity and volatility risks.

Spot Bitcoin ETFs See $870 Million in Net Inflows, Led by BlackRock’s IBIT at $642 Million

According to SoSoValue, BlackRock’s IBIT ETF played a pivotal role in Tuesday’s record inflows for U.S.-based Bitcoin ETFs, with $642.87 million entering the fund—its largest single-day inflow in over seven months. This sharp rise shows investor interest in Bitcoin despite market volatility. IBIT trading volume reached $3.36 billion on Tuesday, the highest since March 14. Typically, such volume surges occur during market downturns, but with Bitcoin’s price climbing 4% over the same period, some analysts suggest a “FOMO” effect may be driving this spike. ETF analyst Eric Balchunas commented on the atypical surge in IBIT’s volume, noting in a post on X, “Volume spikes for ETFs are usually seen in crises, not during an uptrend. Link

Importance

BlackRock's IBIT ETF's $642.87 million inflow indicates institutional confidence in Bitcoin's maturation, especially given the current market. This inflow, the largest in over seven months, reflects a strategic shift towards risk-managed asset allocation and digital asset exposure via regulated ETFs rather than direct crypto holdings. According to ETF analyst Eric Balchunas, IBIT's $3.36 billion trading volume amid a 4% Bitcoin price increase suggests a “FOMO” phenomenon—an unusual volume spike during a market uptrend. This behaviour suggests that investors are rapidly accumulating positions to avoid missing out, a departure from traditional volume patterns that peak during market declines. Institutional stakeholders see Bitcoin ETFs like IBIT as crucial to portfolio diversification and a wider adoption curve for Bitcoin as a long-term asset with liquidity and regulatory credibility.

SEC Acknowledges Grayscale's ETF Application, Setting Stage for Potential XRP Spot ETF

XRP is inching closer to inclusion in a U.S.-based multi-asset spot ETF, following the SEC’s acknowledgment of Grayscale’s application to convert its Digital Large Cap Fund (GDLC) into an ETF. The SEC recently confirmed receipt of a proposed rule change from NYSE Arca, which seeks approval to list and trade shares of Grayscale’s diversified crypto fund. Nate Geraci, President of the ETF Store, noted that this notice officially starts the timeline for the SEC’s decision. If approved, Grayscale’s GDLC would become the first U.S. spot crypto ETF to feature a basket of cryptocurrencies, providing investors with a new, diversified option. Launched on February 1, 2018, the Digital Large Cap Fund holds a mix of prominent assets, including Bitcoin (BTC), Ethereum (ETH), Solana (SOL), XRP, and Avalanche (AVAX). Link

Importance

The SEC’s acknowledgment of Grayscale’s application to convert its Digital Large Cap Fund (GDLC) into a multi-asset spot ETF marks a key milestone for integrating digital assets into traditional markets. If approved, GDLC would be the first U.S.-based ETF offering exposure to a diverse basket of cryptocurrencies, including Bitcoin, Ethereum, Solana, XRP, and Avalanche. This structure provides institutional investors a regulated, diversified crypto exposure without direct holdings, enhancing liquidity and hedging options. With the approval timeline now active, investors anticipate that GDLC could pave the way for more multi-asset crypto ETFs, further solidifying crypto’s role in institutional strategies.

• Russia’s Sovereign Wealth Fund Supports Bitcoin Mining Growth in BRICS Nations

Russia is actively enhancing its Bitcoin mining infrastructure through a new partnership between BitRiver, the country’s largest data center operator, and the Russian Direct Investment Fund (RDIF). Together, they plan to build mining and AI computing facilities across BRICS nations, an initiative announced at the BRICS Business Forum in Moscow on October 18, 2024. Matthew Sigel, Head of Digital Assets Research at VanEck, shared on CNBC’s “Squawk Box” that Bitcoin adoption by BRICS countries could significantly reshape global trade dynamics, especially as emerging economies seek alternatives to traditional financial systems amid U.S. fiscal policy concerns. Link

Importance

The global crypto and financial landscape changed when BitRiver and the Russian Direct Investment Fund (RDIF) partnered to expand Bitcoin mining. Russia is positioning itself as a digital asset infrastructure leader by building mining and AI computing facilities across BRICS nations, potentially undermining Western financial systems. This shows institutional investors how BRICS nations value decentralised assets as they navigate fiscal policy constraints and reduce dollar dependence. Matthew Sigel of VanEck noted that BRICS countries may use Bitcoin as a trade tool, which could change currency flows, inflation hedging, and liquidity strategies in emerging markets. Investors monitoring global asset allocation risks must consider this shift because it could increase Bitcoin demand and affect cross-border financial practices, affecting global market stability and diversification strategies.

• Florida Holds $800 Million in Crypto Investments, Reports State CFO

In an appearance on CNBC's Squawk Box, Florida CFO Jimmy Patronis highlighted the state’s commitment to expanding crypto investments, revealing that Florida currently holds $800 million in crypto-related assets. Patronis noted he "would not be surprised" to see this investment grow under a Trump administration. Earlier this week, he sent a letter to the Florida State Board of Administration, suggesting Bitcoin as a potential investment option for state pension funds. This proposal follows the lead of states like Wisconsin and Michigan, which have already allocated parts of their pension funds to crypto assets. Link

Importance

Florida’s $800 million in crypto assets and the proposal to incorporate Bitcoin into state pension options highlight an institutional shift toward digital asset integration in public investment. CFO Jimmy Patronis' initiative, bolstered by favourable federal policy, may encourage state adoption, with Wisconsin and Michigan already allocating pension funds to crypto. Institutional markets may see crypto's growing role in diversified portfolio strategies, which could affect demand, liquidity, and regulation in the digital asset space.

Election Watch

Polymarket Data Shows Trump Leading Harris, with Shift in Sentiment

Over the past week, Polymarket's data indicates a notable shift in the hypothetical presidential race between Donald Trump and Kamala Harris. Trump's projected support has decreased from 64.7% to 63.1%, a decline of 1.6 percentage points. Conversely, Harris's support has increased by the same margin, rising from 35.4% to 37.0%. This change suggests a slight but discernible shift in market sentiment toward Harris. State-level analyses reveal that while Trump maintains a strong lead in central and southern states, Harris has gained traction in key battleground areas, narrowing the gap in regions previously leaning toward Trump. These developments highlight a dynamic US electoral landscape. Link

Importance

Polymarket's data on a Trump-Harris presidential race can help institutional investors assess macroeconomic risks by revealing market sentiment and political betting market predictive power. Trump's significant lead at 63.1%, with recent support shifts (down 1.6% for Trump and up 1.6% for Harris), suggests a slight but notable sentiment shift, possibly reflecting changing public and economic perceptions. The map's lean towards Trump in traditionally competitive states like Florida and Ohio suggests conservative voter sentiment, which could affect tax, regulation, and monetary policy expectations. Investors can use this data to predict market positioning after elections, improving strategic planning. Institutional players can anticipate policy-driven market adjustments by monitoring these shifts, especially since swing states like Wisconsin and New Hampshire are too close to call, highlighting predictive market signal volatility and uncertainty.

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