Crypto Automated Trading

Bullish Unlocks

A day in crypto can be like a week in ‘normal life’. Since we last wrote this column, the SEC all but approved an ETH ETF. A first major bill to regulate Crypto, known as FIT21, went through Congress with bi-partisan support. Republican Presidential Candidate Donald Trump started accepting donations in Cryptocurrency and publicly voiced support for the industry. President Biden’s administration, concerned to be alienating pro-crypto voters for no obvious gain, quickly followed suit in altering its course. Industry insiders report that the hostility that the Crypto industry previously faced in Washington has reduced substantially in a matter of a week. Suddenly policymakers are looking for ‘dialogue’.

This has emerged most visibly with the approval of Exchange Traded Funds (ETFs) for Ethereum Spot. Until as late as last week, odds for an ETH ETF approval by the May deadline seemed exceedingly low. The SEC was instead looking to fight the Ethereum Foundation in court and claim that ETH is an unregistered security. But as political winds shifted, so did the SEC decision. The change of mind was clearly not priced in. Ethereum recorded what is known as a ‘god candle’ by gaining nearly 20% in a day. Before the ETF can actually start trading, another administrative formality will need to pass but providers such as BlackRock and van Eck look on track to launch trading for the product in the next weeks.

In other major news, Mt. Gox, the OG Bitcoin exchange which was famously hacked in 2014 is starting to refund customers. Over the years, its bankruptcy administrators managed to recover large sums of stolen Bitcoin after much legal haggling. Mt. Gox transferred all of its 141 686 Bitcoins, valued at approximately $9.6 Billion, into new wallets to prepare for the repayment. The repayments need to happen by October 2024 at the latest. Unlike in the FTX bankruptcy, users will receive back actual Bitcoin. But with a 300x mark-up as the price grew substantially since 2014.

Another group of users has also reason to celebrate. Gemini Earn was launched in 2021, and its users were able to lend crypto to the now bankrupt lender Genesis. Genesis declared bankruptcy after the collapse in 2022 of hedge fund Three Arrows Capital, and the exchange FTX. Retail lenders at Gemini Earn lost their funds. However, Genesis, which is part of the larger Digital Asset Group (DCG) has agreed in a court case to reimburse Gemini Earn’s customers with $1.1 billion. Similarly to Mt. Gox, the $1.1 billion will be paid in kind in Bitcoin rather than US Dollars.

Both events together could have an impact on the markets in this year. Assuming that at least some of the refunded customers will be looking to sell, billions in new supply could enter the market. This might be bad news. Anticipation of sell pressure has certainly contributed to keep enthusiasm in check.

In reality, there are plenty of reasons to be optimistic. The concept of a ‘Bullish Unlock’ in crypto means that supply coming on the market could actually be a positive thing. Traders have known that the Mt. Gox funds will eventually enter the market. Similarly, the Winklevoss Twins, owners of Gemini Earn, always seemed likely to be able to claw back funds from DCG to refund their customers. If these supplies can be unlocked without driving the price down, it would serve as a very promising sign for the bull market. Meanwhile, the good news on the judicial and political front keep accumulating. And of course the ETH ETF approval could be a major demand driver. Interesting times lie ahead.