Administration, Key Objectives Come into View
Inauguration Day is 10 short days away, ushering with it the renewed hope for the new administration to execute many of its campaign promises. Many can happen quickly, but some may take some time. The execution of these initiatives may be a matter of priority, with items like geopolitical conflict, the budget and debt ceiling, global trade and tariffs, and immigration perhaps more pressing matters.
The US strategic bitcoin reserve could come quickly via an Executive Order, one of which has already been written by a Bitcoin advocacy group and circulated on social media. However, that avenue would be much less permanent, one that could be revoked by the next president. Legislation, like the BITCOIN Act introduced by Senator Lummis, would be a more permanent solution but must be approved by Congress, and thus likely to take more time.
Regarding cabinet members and agency heads, Gensler is already out at the SEC but his likely replacement, Paul Atkins, still needs to be confirmed and sworn into office. Gensler wasn’t sworn into office until April 17th, 2021, to give readers a sense of timing. Heads of the CFTC, OCC, and FDIC have yet to be named. It will be at least several months before these nominees have hearings, get confirmed, and start working and assembling their top staff.
With the US strategic bitcoin reserve, form (EO vs bill) and function (methodology) matter greatly for the market. If the bitcoins come from confiscated funds the government already controls (198.1K BTCs worth $18.3B), that alleviates an overhang that the US would be a seller of bitcoins, but it doesn’t create incremental demand. Complicating matters, 119,754 of the bitcoins in the US government’s possession came from Bitfinex, sister company of Tether, which has strong ties to the current administration. We don’t know how that conflict would be resolved, but it’s hard to imagine Bitfinex willingly parting with $11.0B.
Other important crypto legislation, like FIT 21 and the stablecoin legislation, may take some time to pass. A reinvigorated conservative and free market legislature may be less willing to compromise on points than when liberals controlled the Senate. Other Trump promises, such as “made in the USA bitcoin,” while a nice overture to the mining industry, gives us little to analyze, leaving much up to speculation.
Final and Best Year of the Four-Year Cycle
If patterns repeat, 2025 will be the fourth year in bitcoin's repeating price cycle. There’s a lot of reason to believe that this year will be good for bitcoin, too (see this section). While the market prognosticators disagree as to how high bitcoin might eventually go or if the cycles ultimately are broken for sustained long-term secular growth, predictions are all without exception higher than current prices (including ours). This says something about investor attitudes towards the market and while we aren’t ones to be contrarian without good reason, positioning is an important aspect of active management.
FTX Creditors to Receive $16B in Cash
Creditors in the FTX bankruptcy plan are set to receive $16B in cash by early March. The bankruptcy plan became effective January 3rd, and the organization has agreed to repay creditors within 60 days, by March 4th. This is an important catalyst as the claims largely stem from FTX trading clients who may be eager to convert their cash disbursements (creditor payments are being made in cash, not in-kind or crypto) back into crypto. Some portion of claims may have traded hands to investment firms specializing in bankruptcy claims, which would be less likely to be used to repurchase crypto.
Putting Idle Capital to Work
Much technological development in the Bitcoin ecosystem over the past 6 - 12 months has been around making the bitcoin asset more productive, typically by bridging, wrapping, or locking up bitcoin, and issuing another asset on a 1-for-1 basis on another network or sidechain. While some in the community like to call these “layer 2s,” that’s a generous description in our eyes. A full critique of the myriad of “L2” options is out of the scope of this piece, but we have noticed a strong desire on behalf of investors to put bitcoin’s idle capital to work – as the stake helping to secure Proof of Stake (PoS) networks or as an asset in DeFi providing liquidity, being lent out, or as the collateral for on-chain collateralized stablecoins. We think this could be a big and continuing trend in the coming quarters. Of course, caveat emptor with the specific implementations that enable this as they can entail legal, regulatory, or technical risks, or likely all three.
ETFs Season as Wealth Platforms are the Big Opportunity
Most investors tend to think about bitcoin’s supply when thinking about its investment case; we tend to think about the flip side, demand (yes, its fixed supply is an important feature). With each cycle, there’s been a new investor class or geography driving demand. With the spot bitcoin ETFs being the new feature this cycle, there’s still a big opportunity to unlock, the wealth and advisory at the major banks, which control trillions in assets.
Typically, new products like these ETFs need a period of operational and return history before being greenlit for advisors. The spot bitcoin ETFs are on the threshold of having their first year under their belt, which may qualify as the minimum amount of time needed for these platforms to seriously consider these products. We know of no concrete imminent plans for banks to proactively offer bitcoin ETFs to their clients, but it’s something we’re on the lookout for.
Banks Custody Crypto
BNY’s exemption from SAB 121 reporting requirements was highly topical in Q4 and we would expect other bank custodians to seek similar exemptions or have SAB 121 dropped entirely. While some of these custodians may go after the bitcoin and ether ETF opportunity, we think a more likely use case is the custody of real-world assets (RWAs), like money market and government bond funds as well as other types of traditional financial products, but on the blockchain.
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