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30th August 2023 > > ETFs and a graph.


The SEC loses again in a legal case. A graph I find hard to justify.

Market Snap

Market Wrap

Decent move up in the price of BTC, which we discuss below.

From Germany there is evidence that inflationary pressures are stalling, matching the common theme elsewhere. Meanwhile perma-tanned convicted criminal Christine Lagarde, head of the ECB, ignores such signs and continues to insist that interest rates rises have further to run. At the same time, Jermey Hunt, Chancellor of the Exchequer, prosecutes his belief that a recession is the best way to deal with inflation.

The key components of inflation (commodity prices) cannot be influenced by domestic rate rises. It is time that central banks returned to their core policy of being the lender of last resort, and control of short-term interest rates is removed from their remit to be set by markets themselves.

Curious Cryptos’ Commentary – Grayscale vs SEC

Grayscale first introduced its BTC trust (GBTC) some years ago. Though wildly successful during the last bull run, as a closed end trust it suffers from the key disadvantage of all closed end trusts – it can trade at a premium or a discount to NAV (net asset value).

Given this limitation Grayscale applied to the SEC to turn GBTC into a spot ETF. The SEC’s response was along the lines of the computer says no.

Grayscale appealed this decision and yesterday the courts came down in Grayscale’s favour:

The judge “ORDERED and ADJUDGED that Grayscale’s petition for review be granted and the Commission’s order be vacated, in accordance with the opinion of the court filed herein this date.”

Damagingly for the SEC, the judge added that the SEC was “arbitrary and capricious” in its ruling.

Take that Gensler.

This news was met with an immediate pump in the price of BTC, as this is more evidence that the legal tide is turning against the SEC. This news does not mean that GBTC will now become a spot ETF, at least not yet, but the SEC will have to come up with a different cause to deny the application other than its original reasoning that the products were “not designed to prevent fraudulent and manipulative acts and practices.”

Note how similar that justification is to the denials for all other applications for spot ETFs.

The discount on GBTC reached 50% or more last year, during the depths of the crypto winter. This implied that new buyers of GBTC could invest in BTC at half the price of buying spot. That discount has now narrowed to 28% and will go to zero when Grayscale’s application to turn the product into an ETF is finally granted, as one day it surely will be.

For long term investors that’s an extraordinary opportunity to turbocharge your returns.

But hold your horses UK investors, the regulator gets in the way. GBTC has been approved by the US regulator, but the UK regulator does not recognise that approval. Which is odd, given that it is widely recognised that the US has the most robust securities laws in the world.

If only the UK was an independent nation, able to determine its own securities rules, and grant equivalence to the US. Oh well.

One can be sure that the SEC won’t fold at this point. Plenty of bureaucrats at the agency are currently scuttling around looking for other reasons to deny Grayscale’s application. And I am sure they can find them if they want to.

But this event is the latest in a series of setbacks in Gensler’s crusade to deny the American public the benefits of the crypto revolution.

He will be forced to cave in one day.

Curious Cryptos’ Commentary – Well this is interesting

I happened across this graph yesterday:

Correlation is not causation, an assumption too many people make the mistake of making.

The difficulty level for solving the algorithmic problem to produce the next block inexorably edges higher (that’s the purple line in the graph above). As is to be expected the chief component of that cost is the usage of electricity (the red line).

Why would the market price of BTC show such a visually strong correlation to the cost of production?

Answers as always on a postcard to CCC Towers if you have any useful insights to this phenomenon.

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