Published: December 6th, 2023
Investors from traditional finance kept moving money into Bitcoin funds last week, lifting the figure for 10-week inflows to its highest point since the peak of the 2021 bull run.
A new report from crypto asset manager CoinShares says that inflows to crypto investment products reached USD 175 million Between Monday 27th November and Friday 1st December, bringing the 10-week total inflow to USD 1.76 billion. Total assets under management total USD 46.1 billion. That puts it up 106 per cent for the year to date, though 47 per cent under the USD 86.5 billion all-time-high reached in 2021.
The last time inflows experienced such a surge was in October 2021, when the first-ever exchange-traded fund (ETF) for Bitcoin futures launched in the US market. It broke records for an ETF product by reaching USD one billion in trading volume on a single day.
That was the apex of the BTC bull run when Bitcoin was trading above USD 64,000. At time of writing, it was changing hands at USD 41,665 or roughly 34 per cent lower, though still well above its January 2023 low of USD 17,000, says CoinGecko.
The weeks-long rise in inflows has led some market watchers to declare that a new bull run is in the offing. Buzz around the possible and long-awaited approval of a spot Bitcoin ETF has encouraged TradFi investors to move more cash into the space.
Analysts at Bloomberg wrote this week that approval of a spot Bitcoin ETF could happen as soon as January. In its report, CoinShares wrote that Bitcoin ‘was the main beneficiary’ of spiking interest in crypto investment products like those offered by 21Shares and Grayscale.
Regulators have been signaling readiness to accept crypto into the global financial fold since at least July. The G20’s finance watchdog, The Financial Stability Board (FSB), announced nine recommendations for global financial regulators as they attempt to control how crypto companies and markets operate. The agency also revised its guidance on regulatory rules for stablecoins.
The recommendations, which incorporated industry and investor feedback gathered during a public consultation on the topic, said there must be greater cross-border collaboration between national and international agencies, mandatory disclosures for traders and investment firms, and more stringent governance for crypto issuers.
The FSB said its suggestions had become ‘more robust’ in the aftermath of recent crypto events, and now incorporate a push for stronger safeguarding of client assets, as well as measures to mitigate conflicts of interest.
‘The large-scale failures we’ve seen over the last 18 months spotlight how volatile crypto assets can be and point to structural vulnerabilities that could damage investors large and small,’ the Zurich-based agency said in a statement. ‘They also demonstrate how quickly failure in one part of the crypto-asset ecosystem can turn into contagion and contaminate other parts.’
The agency added that it expected more spillover to occur between crises as the crypto and traditional finance worlds become more intertwined.
There were other signs this year that well-regulated markets for digital assets could open the door to greater crypto adoption.
Also in July 2023, Britain’s new Financial Services and Markets Act 2023 officially became the law of the land and recognized crypto trading as a regulated and legitimate financial services activity. The UK reform bill, which was given Royal Assent by King Charles on 8th July, was described in a Westminster press release as having the potential to give Britain's economy ‘a rocket boost.’
Under the law, cryptocurrency trading is now subject to rules and regulations designed to protect investors, levelling the playing field by adding transparency, standard definitions, and risk mitigation to crypto trades. The amended Act defines digital assets as ‘cryptographically secured digital representations of contractual rights or underlying value,’ and labels them as regulated financial products, investments, or instruments.
The Treasury press release noted that the goal of the law is to regulate how crypto assets are traded and held in custody and ensure their safe adoption in the country. The new law is being touted by the government of Prime Minister Rishi Sunak as a much-needed modernisation of Britain’s financial-services dependent economy.
‘This new law enables us to take back control of the UK's financial services regulatory regime,' said Economic Secretary to the Treasury Andrew Griffith. ‘By replacing old EU laws set by bureaucrats in Brussels it has the potential to free up billions of Pounds in investment, money that could spur innovation and drive economic growth’.
In Britain's parliamentary procedure for enacting new laws, Royal Assent is the end of the legal process that makes a proposed bill the law of the land, turning it into an Act of Parliament. The bill passed a vote in the House of Commons and was approved by the House of Lords in late June.
It was the first upbeat news on crypto’s regulatory front since the FTX meltdown spurred a wave of enforcement actions by American financial watchdogs, in particular the Securities and Exchange Commission (SEC).
In early June, the price of Bitcoin fell sharply and triggered an overall plunge in crypto markets after the SEC began enforcement action against Binance, the world’s biggest crypto exchange.
In the view of regulators, the company ‘demonstrated utter disregard for American securities law.’ The SEC’s filing said Binance had 'illegally tried to convince US crypto traders to buy, sell, and trade digital assets’ which the SEC says are ‘securities’ under US law.
The agency’s lawsuit alleges that in December 2018, Binance’s Chief Commerical Officer (CCO) admitted the company was running afoul of US securities law.
In a separate filing also made on 5th June, the SEC added several leading cryptocurrencies, including Solana, Cardano, and Binance’s own Binance Coin (BNB) to the list of securities that fall under its jurisdiction.