Weekly Market Update - Friday, October 20, 2023 - Bitcoin Jumps Following Fake ETF News, GBTC Discount Narrows, and ECB Moves Closer to a Digital Euro

Takeaways

• False ETF news gives bitcoin a boost: Crypto markets were frenzied on Monday after Cointelegraph posted an unconfirmed tweet that the SEC had approved a spot bitcoin ETF. Bitcoin prices jumped over $2,000 USD in minutes before the news was deemed false.
• GBTC discount to NAV continues to tighten: The discount between shares of Grayscale’s Bitcoin Trust (GBTC) and the fund's net asset value is at its lowest level in almost two years. After starting the year at a nearly 50% discount, GBTC’s discount has moved to ~13%, reflecting increased expectations that a bitcoin spot ETF will be approved in the near future.
• Uniswap introduces 0.15% swap fee: The move was described as an effort to “sustainably fund operations.” UNI is trading about even over the past seven days following the news.
• The European Central Bank moves closer to a digital euro: The EU's central bank announced that it had moved from the investigation phase to the preparation phase of its digital euro project. ECB president Christine Lagarde tweeted that they “envisage a digital euro as a digital form of cash that can be used for all digital payments.”
• Treasury yields continue upward trajectory, and Powell sees strength in the US economy: US treasury yields have continued to put pressure on equities, with the 10-year treasury touching 4.98% for the first time since 2007. Fed Chair Jerome Powell suggested that the continued strength of the US economy may warrant further tightening, but didn’t foreshadow an immediate policy shift.

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False Spot Bitcoin ETF News Sends BTC Sharply Higher Before Paring Gains

Crypto markets went into a frenzy on Monday morning after Cointelegraph posted a tweet stating that the SEC had approved the Blackrock iShares Spot Bitcoin ETF. Despite no source being included in the tweet, a number of news outlets and prominent names in the crypto space tweeted the same headline shortly thereafter. Following the tweet, crypto prices moved sharply higher, particularly bitcoin (BTC).

In a matter of minutes, BTC jumped from below $28k USD to touch $30k USD, while $100 million USD worth of shorts were quickly liquidated on the move. The rumor was quashed shortly after, with BlackRock confirming to various outlets that their application was still under review, and BTC retraced most of the move, briefly trading back below $28k USD.

Despite the rumor being false, the swift move higher displayed the market’s eagerness for a spot bitcoin ETF approval and offered a potential glimpse of what might occur when an official approval is announced.

As the week progressed, BTC continued its upward trend crossing $30k USD for the second time this week on Thursday evening. BTC is trading around $29.5k USD as of Friday morning.

The crypto market narrative is now firmly focused on a spot bitcoin ETF with BTC continuing to outperform, adding another 10% this week as of Friday. BTC dominance is above 52%, its highest level since April 2021, while the ETHBTC pair slid lower to 0.0542.

GBTC Discount Continues to Narrow as Odds of ETF Approval by Early 2024 Hit 90%

The Grayscale Bitcoin Trust’s (GBTC) discount to net asset value (NAV) reached its lowest level in 22 months this week, following the news that the SEC did not appeal its loss in court over Grayscale's application to convert its GBTC fund into a spot bitcoin ETF. GBTC currently has over $17 billion USD in assets under management.

After trading near a 50% discount at the start of the year, the discount has closed around -13% as of Friday, reflecting increased expectations that a bitcoin spot ETF will be approved in the coming months. Bloomberg analysts have also increased the odds of approval by January 10, 2024, to 90%.

Uniswap Introduces 0.15% Swap Fee to Fund Operations

Uniswap, the largest decentralized exchange by trading volume, announced the introduction of a 0.15% swap fee for a select number of tokens starting this week, in an attempt to “sustainably fund operations.” UNI is trading about even over the past seven days.

European Central Bank a Step Closer to Launching a Digital Euro

The European Central Bank (ECB) announced on Wednesday that they are moving to the preparation phase of its digital euro project, after completing the investigation phase which began in October 2021. This next phase is slated to last about two years.

ECB President Christine Lagarde tweeted that “While we haven’t yet decided whether to issue a digital euro, we’re getting ready. We envisage a digital euro as a digital form of cash that can be used for all digital payments, coexisting with physical cash, leaving no one behind.”

US Treasury Yields Continue to Increase and Powell Sees Potential for Further Tightening

US treasury yields have continued to put pressure on equities, with the 10-year treasury touching its highest level since 2007. The deepening bond market sell-off has added negative pressure on equities which are further weighed down by the ongoing conflict in Israel and Gaza. The S&P 500 and Nasdaq are down ~1.5% and ~3%, respectively, since Monday.

Speaking in New York on Thursday, Fed Chair Jerome Powell suggested that he was content to leave interest rates where they are for longer, but that the continued strength of the US economy may warrant further tightening. He added that rising market interest rates, including the increase in bond yields, may be doing the Fed’s job for it by helping tighten market conditions.

Powell said he is happy with the inflation path since the summer. The odds of future interest rate hikes at upcoming Fed meetings decreased as a result, with the probability of a hike in November sitting under 2%, and the probability of a hike in mid-December around 20%. Despite this, US treasury yields rose with the 10 year yield increasing to 4.9%.

-From the Gemini Trading Desk