View from the Arch #11

BTC ETF gets approved, Europe’s struggle, and Carta’s debacle

January 12, 2024

A historic week indeed - the Bitcoin ETF has been approved, finally! And it wasn't without spectacular controversy.

If you own Bitcoin - congratulations, you front-ran Wall Street.

(Excuse the somewhat lengthy prose this week - a lot to cover!)

This Week in Crypto

Obviously, the big news is the ETF finally passed - if you're a regular reader of the newsletter you would have been well informed of the January 10th date. We’re not going to claim any major standing here though, because it was kind of obvious. In case you missed the botched announcement here’s a quick summary of what happened:

  • On Tuesday the SEC tweeted the ETF had been approved

  • Gary Gensler tweets saying it has not been approved and that the SEC account was compromised

  • A further 16 minutes after Gensler tweets, the SEC deletes its original tweet

  • X confirms that the SEC account was compromised and failed to secure their account with 2FA - despite regularly tweeting about cyber security measures (including 2FA)

  • On Wednesday, news breaks sporadically throughout the day with Fidelity’s trading app showing ETF listings and the CBOE officially confirming trading of 6 ETFs would commence the following day - despite the SEC not having announced the approval of such products.

  • CBOE update their announcement to clarify this is actually “pending approval”

  • Less than an hour later, a PDF appears on (an incorrect part of) the SEC website - indicating all 11 spot ETFs had been approved.

  • The document is swiftly removed. The SEC stayed silent across socials and spokespersons - likely because they were meant to announce at market close and not beforehand.

  • Less than an hour later the documents are re-uploaded to the correct part of the website. And alas, the ETF was officially approved.

Villain or Hero? While many are quick to criticize Gensler, fate loves irony and we have Mr. Gensler to thank. He cast the deciding vote in the approval, which passed 3-2. Even so, he was quick to make it clear in the aftermath that he was not endorsing Bitcoin and considered it a speculative asset.

A pithy, and somewhat fitting ending to a 10+ year wait for a Bitcoin ETF.

So, how did it trade on its first day? If you don’t have a spare 40k lying around to spend on a Bloomberg terminal - here’s a free dashboard we made that shows the volume of the 11 spot ETFs and the two previously available vehicles (BITO and GBTC). In terms of net new inflows, day 1 didn't bring in much - but the ETFs promise was never to be a one-time smash and grab, its success for the Bitcoin market will be firstly as a stamp of legitimacy and secondly as a conduit for structural buy pressure that will remain a constant in the years to come.

This section has already been quite long, so I’ll wrap up with just a couple more points to keep an eye on.

ETHBTC has shown signs of a local bottom - if this trend reverses expect to see Bitcoin dominance decrease and large moves to the upside from altcoins, likely those that exhibit ETH beta (think ARB, OP, LDO). Top movers this week include ENS (+76%) SUI (+50.4%) and BLUR (+30%)

On the other hand, crypto equities have had sharp corrections. This well-argued piece from Hal Press of North Rock Digital, argues there will be a reversal in flows from these “proxy” assets to the spot Bitcoin market. The absence of a spot ETF has led investors to use these proxy assets for exposure, but with the ETF's approval, there is an expectation of a one-time reversal as investors move towards spot Bitcoin exposure.

While we have no bias toward MSTR, we do expect COIN and a handful of miners to perform exceptionally well in 2024 (assuming Bitcoin also performs well) and that any dips are for buying.

News from Crypto Markets

This Week in TradFi

Few saw it coming. That is, an extremely choppy start to the new year and that spurious declaration on 'X', formerly Twitter, by the SEC. Equities, inflation and Bitcoin were the focus for the week. And almost a couple of weeks in, and at the time of writing, the main markets leave us with the S&P index once again deep in the red, despite having edged to its record high. Bond prices have been weaker generally (yields higher) and not helped by the CPI print on Thursday (US core CPI 0.3% MoM, 3.9% YoY in December). Oil has moved lower and might stay that way given the outlook for global macro as well as that surprising Saudi price cut.

On the macro front, the data across the Eurozone remains mixed but generally a little worse-than-expected, especially in Germany where manufacturing production continues to feel the wrath of higher energy costs and a weaker global market, especially in China. In the US, the Q4 earnings season is nigh and might be a marker as to how risk markets will play out through Q1 2024. We'll get more color through next week.

As mentioned, the inflation trajectory will play a major part and given the higher than expected CPI print on Thursday, some will be thinking that the tightening seen in the Treasury market over Q4 2023 might force the Fed to cut less in 2024. Across Europe though, inflation levels have some more to go and will continue to decline.

We suspect that the current uncertainty - almost nervous market dynamic, should be short-lived. While investors are not yet gung-ho out of the block in these opening skirmishes of 2024, we anticipate a steady push higher for risk market prices. For instance, equities to be firmer (an S&P record high) and bond yields perhaps eventually edging lower, although this latter call is a little more difficult and dependent on technicals, given the onerous funding requirements, as much as future rate cuts. It's the earnings season next.

This Week in Tech

This week, we saw a continuation of many of the trends from last year. Investors continue to pour into AI (see the fundraising section below). Growth stage companies continue to raise downrounds / get marked down to adjust to the current multiples, with Blockrock cutting Byju’s valuation by 95% as well as numerous cybersecurity growth startups experiencing the same. And tech continues to experience layoffs to cut costs, with Google announcing engineering job layoffs, Amazon announcing layoffs at its Twitch studios division, and Pitch, a German startup, announcing layoffs for two-thirds of its workforce.

However, the tech news was dominated by a startup for completely different reasons this week. Carta, yet again, decided it wanted to be the belle of the ball as news broke that Carta sales employees were using confidential information from their cap table software product to pitch investors on their secondary stock trading product, breaching their own data privacy policy and eroding customer trust. If one of your New Years goals is to run a marathon, consider working in PR at Carta instead - just as exhausting and never-ending, and you don’t even have to buy new shoes!

Carta has had many a reps in crisis-handling, given its string of PR issues, but this one has been incredibly tough to overcome. A company’s cap table information is incredibly sensitive and founders are, rightfully so, very concerned about this situation. Carta’s competitors, AngelList and Pulley, have been fully on the offensive trying to win over customers.

It’s unclear what the impact of this will be to Carta, which makes almost all of it’s revenue from the cap table management software product. We’ll stayed tuned to see what percentage of customers decide to stay!

As usual, below are some fundraising announcements, M&A and tech personnel changes that caught our eye:

Disclaimer: None of the above is financial advice, seriously.