NYDIG

In this week’s research piece, we look at the growing movement to tokenize assets and put transactions on a blockchain, including the benefits and limitations. A growing movement within the new administration to audit the US Gold Reserves as well as track governmental spending have some suggesting blockchain technology could help with both. To understand how blockchains interact with the real-world assets (RWAs), like gold, we need to understand a key concept from accounting 101 – assets and liabilities. For RWAs, a central issuer holds assets and issues a similar amount of digital assets as a liability. Blockchains are limited in the information they can convey—Bitcoin doesn’t even know what the price of bitcoin is. This is important because RWAs require instructions from and trust in a centralized entity. Blockchains can also be used to record transactions in a digital receipt. While this technique may help with outside auditing and real time inspection using digital receipts, it still requires outsiders to trust the entity recording these entries. RWAs have been one of the important developments of the current cycle, with $18.9B in value stored in them according to RWA.xyz. There are numerous potential benefits to tokenization - transparency, cost efficiencies, administrative, liquidity, and investor access to name a few. But it’s important to note that these RWAs don’t necessarily operate the same way open, permissionless digital assets do. Judging by our recent conversations with industry participants, however, tokenization is a trend that is here to stay. It is important to separate these tokenization efforts from something like Bitcoin—the former relying on coordination with centralized entities while Bitcoin was designed to explicitly remove centralized entities. Get the full research and subscribe to our weekly insights here:?https://lnkd.in/gg5yEceh

In this week’s research piece, we look at pullback assets have had from their post-election highs, hedge fund influence on ETF flows, and the obstacles being removed to allow banks to custody crypto. The November election sparked widespread optimism about financial markets, driven by hopes of deregulation and economic growth. However, the economic volatility and uncertainty that have accompanied the administration’s economic and geopolitical actions have caused many asset prices to reverse course recently, including bitcoin. Bitcoin has little to do with tariffs and stands to benefit from the rise in geopolitical entropy; we suggest investors ignore the short-term noise and take a long-term view of the asset. As investors have withdrawn significant funds from spot ETFs, $4.6B over the past three weeks, questions have arisen as to the role hedge funds play in ETF fund flows. Hedge funds are the largest identified class of investors with $12B worth of ETFs last quarter, or 11.4% of the collective AUM. Retail (non-filers) is by far and away the largest holder of the ETFs. Hedge funds typically own ETF shares as a hedge to their short futures positions, classified in the CME COT report as “Leveraged Funds.” Hedge funds are engaged in delta neutral strategies like the basis trade (short futures, long ETF shares to pick up the “funding spread”). Short futures positions have been coming in recently as the basis peak in mid-December. Hedge funds have unwound $2.6 billion in notional futures short positions. However, as the following weekly ETF fund flow data shows, this doesn’t fully align with spot ETF flows. Hedge funds unwinding their basis positions is influencing ETF fund flows, but it appears to be just one of several factors at play. One of the most frequently asked questions since the election has been, "When will banks be able to custody crypto?" While there’s no clear timeline, change is underway. The OCC recently published updated guidance regarding banks and a variety of crypto-related activities. SAB 121 has been repealed by the SEC. The FDIC committed to working with the President’s Working Group on Digital Asset Markets and is working to replace the notice that required supervised banks to notify the agency of their crypto activities. As the financial sector continues to adopt digital assets, we anticipate further clarity and guidance from additional regulators. Get the full research and subscribe to our weekly insights here: https://lnkd.in/dFE2JgMz

In this week’s research piece, we look at the recently announced Strategic Bitcoin Reserve and dispel popular misconceptions about stablecoins. Last Thursday evening, President Trump signed an Executive Order creating a Strategic Bitcoin Reserve (SBR) and a digital asset stockpile. The order stipulates that the SBR and the stockpile would be formed from digital assets already controlled by the US government through civil forfeitures from various criminal cases over the years. For bitcoin, these stem from Silk Road and related forfeitures and the hack of Bitfinex. No net purchases of other digital assets would occur, except potentially for bitcoin if it could be done in a budget-neutral way. The digital asset stockpile would consist of other digital assets obtained by civil forfeiture that could be held or earmarked for disposal. The fact this came through an EO rather than a law, like the BITCOIN Act from Senator Lummis, makes it much less permanent. EOs can be easily undone by the next administration, making the next election something of a sword of Damocles hanging over the price of bitcoin. We won’t have to worry about the US government selling its bitcoin stash, but only in the next 4 years. Still, we see the EO as supportive of the broader digital asset industry, and it gives bitcoin a special place within the ecosystem. With stablecoin regulation actively in the works by legislators, issuers like the US-based Circle and Tether, which recently incorporated in El Salvador, are jockeying for position. Given their importance, we dispel some popular misconceptions about stablecoins about their design, stability, and decentralization. Get the full research and subscribe to our weekly insights here: https://lnkd.in/g9TvAiGS

In this week’s research piece, we unpack the Bybit hack and the spotlight it puts on multisig and cold storage custody as well the market dynamics as bitcoin undergoes a short-term sell-off. A little over a week ago, the crypto industry was shaken by the high-profile theft from Bybit. The hack was highly sophisticated and tied to North Korea. It involved malicious smart contracts deployed on Ethereum, the compromise of Safe’s AWS cloud storage, specific targeting of Bybit’s wallet, and inadvertent signing of a malicious transaction. While the industry showed remarkable collaboration in the wake of the event, two industry custody practices were front and center of the conversation—multisig and cold storage. Multisig custody arrangements, which require two or more signatures to move funds, while an improvement in theory, offered little protection in the case of Bybit as all signers still all signed a malicious transaction. Cold storage for custody purposes refers to the method of keeping the private keys controlling cryptocurrencies offline. In the case of Bybit, management referred to the custody arrangement for the stolen ETH as “cold storage” as the private keys were held on Ledger hardware wallets. While the private keys may have been technically offline, almost nothing was “cold” about the rest of their transaction signing processes. Cloud storage, a web hosted signature and resource management system, a series of smart contracts on the Ethereum blockchain—none of these are cold. To call this setup “cold storage” gives a false sense of security to users and is disingenuous to industry participants that employ more robust cold storage techniques. Bitoin’s price struggled before the announcement of a “US Crypto Reserve” on Sunday. Bitcoin was down 15.4% last week as other risk markets struggled against the backdrop of geopolitical drama and the impact of Trump’s economic policies, like tariffs. While the retrenchment has been challenging, these fluctuations are a regular part of the asset’s price cycle. Bitcoin has undergone similar retracements multiple times in the past, often rebounding to new highs after periods of consolidation. At 829 days into the current cycle, bitcoin is unsurprisingly lower than in the previous 3 cycles. The amplitudes of bitcoin’s cycle peaks are likely to decline over time as the asset becomes larger and more mature. This may indicate a more gradual and sustainable growth pattern compared with previous cycles, although bitcoin tends to experience exponential price growth in the later parts of the cycle, which leaves room for more price appreciation in the future. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gpYJv7eJ

In this week’s research piece, we review the impact memecoins are having on the market, counterparty risk and the largest hack in crypto history, and what quarterly filings say about who has been buying bitcoin ETFs. The drama continued to unfold around memecoins, one of this cycle’s notable “narratives.” While the collapse of any one memecoin or even the entire memecoin industry doesn’t directly affect bitcoin, it has implications for the wider digital asset industry as well as bitcoin’s dominance and the sheer number of coins in existence. Memecoins are digital assets created either explicitly as jokes or with no intended use case. Launched in 2013, Dogecoin (DOGE) was the first memecoin. While DOGE’s history has been marked by lack of technical development and security risks, it has some distinguishing characteristics, especially in comparison to today’s memecoins—its own blockchain, an economic policy, and a lack of a premine. Today’s memecoins are issued as a fixed supply token on another network, like Solana. All tokens are granted into existence at launch, allocations are made with some sort of vesting schedule. Tokens allotted for the public are then sold according to a predesignated formula. Whereas the creation of Bitcoin was truly a remarkable innovation, the launch of a memecoin can now happen with just a few clicks of a button. Given the lack of technical innovation, ease of creation, regulatory grey area, and explicit lack of use, it’s not hard to imagine how this goes awry very easily. Self-dealing, insider trading, front running, and pay for play—these are just some of the industry tactics that have been exposed by industry insiders. It is an important reminder that Bitcoin was created as an open technology to level the playing for financial transactions and investment, eliminating gatekeepers. To equivocate memecoins to Bitcoin is disingenuous to the innovations and utility Bitcoin pioneered, aspects that rest of the industry owes homage to, and is ignorant of the practices within the memecoin industry. Switching gears, 13F quarterly securities holder reports were due last week, giving us the latest look at who was buying and selling the spot bitcoin ETFs during Q4 2024. The first sovereign wealth fund, Mubadala Investment Co, bought bitcoin ETFs (IBIT), retail continued to pour money into the ETFs this quarter, but shrunk as a percentage of their ownership, and banks upped their positions. Hedge funds continue to add to their positions during the quarter, driving by the basis trade. Hedge funds have long favored IBIT and FBTC due to their size, liquidity and cost advantages, but this quarterly IBIT really took over. Fund flows into IBIT from hedge funds was a $4.2 billion while FBTC showed net outflows of $39 million. Hedge funds now own 3.7x as much IBIT as FBTC, a metric that was only 1.8x last quarter. Get the full research and subscribe to our weekly insights here: https://lnkd.in/efMQdNVp

In this week’s research piece, we look at potential implications as exchanges file for increases in ETF options position limits, what the derivatives market says about trader positioning, and bring up some important philosophical questions for the industry. Last week, the SEC acknowledged receipt for a proposed change in the ETF market structure that could be significant but hasn’t drawn much attention—Nasdaq ISE and NYSE Arca are pushing to increase the position limit on IBIT and GBTC options by 10x, from 25,000 to 250,000 contracts. Increasing position limits on IBIT options likely increases its lead as the preeminent spot bitcoin ETF and makes structured products more appealing. Why have IBIT options been so popular despite their relative newness? In our view, the primary reason is collateral management and margin requirements. What might this increase in options limits mean for bitcoin’s price? It depends on how expanding the volatility (vol) market would be used by traders. For vol sellers like call overwriters, increasing the position limits would suppress volatility. For vol buyers, like out-of-the-money call buyers, this would increase volatility. While data seems to indicate a decline in implied volatility (IV) over time, it has been slight and somewhat resistant to pushing to new lows over the past year. Despite the market volatility that has accompanied the Trump presidency, bitcoin IV has surprisingly trended down. We also see a continued steepening of the term structure after IV compression. This suggests that while traders are less optimistic about short-term price movements amid sideways price action, they continue to anticipate significant price moves further into the future. According to the website Coin Market Cap, there are now over 11 million cryptocurrencies in existence. Coinbase’s CEO Brian Armstrong recently wrote that a staggering ~1m tokens a week were being created. This growth has invoked important philosophical questions about the broader industry. It's crucial to revisit the foundational features that Bitcoin first pioneered. At its core, Bitcoin enables three key attributes: trustlessness, permissionlessness, and censorship resistance. These features are uniquely suited for money and financial applications. In contrast, for most other applications, blockchain’s features introduce friction and unnecessary costs, making it less practical than traditional solutions. Maybe that’s why bitcoin’s dominance continues to rise even as the industry coin count continues to soar. Much of the industry seems to be skipping over any veil of economic or technical innovation and going straight for memecoins. The real question faced by the industry is no longer what can it build with blockchain technology, but what should it build? Get the full research and subscribe to our weekly insights here: https://lnkd.in/g8uV-cPJ

In last week’s research piece, we look at the events of the week as crypto is front and center in DC, bitcoin’s rising dominance, and the changes underway in the ETF landscape. In Trump’s third week in office, events in Washington DC dominated the crypto news headlines. The events generally supported the digital asset industry with the caveat that specifics in key areas are still elusive, and change will take time to implement. White House AI and Crypto Czar David Sacks brought key legislators together for a joint press conference on digital assets. The briefing outlined the administration and lawmakers’ key initiatives, including a newly introduced stablecoin bill, market structure reform, a comprehensive regulatory framework for digital assets, as well as the evaluation of a bitcoin strategic reserve (BSR). The week featured two key hearings - one addressing the debanking of certain businesses, including crypto companies, and another focused on broader regulatory and banking activities collectively referred to as “Operation Chokepoint 2.0.” While we expect a shift with the new administration, much of what was discussed and disclosed highlighted the role regulators played in stifling crypto activities at banks under the Biden administration. On Tuesday, the head of the SEC’s new Crypto Task Force, Hester Peirce, outlined the group’s key focus areas. Peirce stressed that progress on the list, while non-exhaustive, would take some time. Trump also signed an Executive Order to establish a sovereign wealth fund. The US has never had a national-level investment fund. However, key details such as timing, size, investment strategy, and funding sources remain unknown, though in interviews David Sacks suggested that bitcoin investment has not been ruled out entirely. Bitcoin's dominance, or its share of the total cryptocurrency market cap, continues to climb, recently reaching 65.2%. This cycle has been much more bitcoin-focused with the ETFs and political standing being the driving forces. During the week, news broke that Trump Media & Technology Group, the $6.8 billion company primarily owned by Donald Trump, is preparing to enter the bitcoin ETF market. A press release from the company indicates the company registered trademarks for “Truth.Fi Bitcoin Plus ETF” and “Truth.Fi Bitcoin Plus SMA.” No documents have been filed with the SEC yet, however. Across the digital asset ETF landscape, changes continue, with the advancement of several potential offerings and changes to existing products. The SEC acknowledged the receipt of the Nasdaq request to add “in-kind” redemptions to the IBIT ETF. The SEC also acknowledged the receipt of requests to list and trade Grayscale SOL and LTC ETFs, while Cboe BZX published 19b-4s change of rule requests forms for 4 XRP ETFs. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gJXBt3bV

This week’s research piece, we look at implications for “in-kind” ETF orders as exchanges file for changes with the SEC, plus we look at bitcoin correlation and how its changed over time. Over the past week, exchanges have filed the initial paperwork to allow certain ETFs to add “in-kind” creation and redemption orders. This change, if approved, would allow BTC and ETH to be directly contributed or redeemed for ETF shares – a request that was initially made by the ETF sponsors during the bitcoin ETF approval process, but ultimately denied by the SEC. The change would simplify the operations of the ETFs and have important implications, as well as second-order effects on market participants. Secondary market trading may decline, especially during the critical NAV index calculation windows. In addition, the change should also lead to tighter spreads to NAV, lower tracking error, lower create/redeem costs, and potential tax benefits. SEC approval is required for these changes to happen. We should know by sometime in October (10/11/25 if timelines hold with previous filings). Throughout its history, bitcoin has maintained either zero or very little price correlations with all major asset classes. This conclusion is based on an analysis of Bitcoin’s rolling 90-day daily price correlations since 2011, which, on average, have hovered around zero with every major asset class. Looking at bitcoin’s correlations with US equities tells a multilayered story. First, as mentioned previously, its long-term average correlation is quite low, 0.13 since 2011. However, there appear to be two distinct eras of correlations, before COVID (BC) and after COVID (AC) with February 2020 as the dividing line. In the BC era, bitcoin was uncorrelated to US equities, with an average correlation of 0.00. The AC era, however, has marked higher average correlations with US equities, averaging 0.36 with the most recent measure of 0.44. We would still classify this as a low correlation, but certainly not the “no correlation” of the BC era. What truly matters, however, is bitcoin’s forward-looking correlations - what lies ahead. Here we can only make an informed guess. We anticipate that the influence monetary factors have had on bitcoin and stocks in the AC era to moderate. However, we do not expect bitcoin’s investor base to revert back to retail. If anything, the shift toward professional investors should persist. Given this, we anticipate bitcoin will maintain a stronger correlation with U.S. equities than in the BC era, though likely lower than what has been observed in the AC era. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gbuecPRr

In this week’s research piece, we look at the bitcoin ETFs as they turn one, update our analysis on bitcoin drawdowns amidst price volatility, and the community looks to Trumps potential actions as he takes office. The spot bitcoin ETFs hit an important milestone last week, their one-year anniversary. To show just how remarkable the launch of the ETFs has been, we analyze the cumulative fund flows of the bitcoin ETFs against the launch of SPY and GLD. The differences are remarkable - $36.6B of net inflows for spot bitcoin ETFs, $4.8B for GLD, and $1.0B for SPY (present day dollars). We wondered what impact the launch of “digital gold” ETFs, bitcoin-backed, had on real gold ETFs. The following graph shows the cumulative net flows for physically-backed gold ETFs traded in the US beginning a year ahead of the launch of spot bitcoin ETFs. It looks to us that the launch of bitcoin ETFs may have hastened gold ETF outflows, but did not cause them. Bitcoin had a volatile week last week, falling through $90K, the first time it hit this level since the election. The following graph charts bitcoin’s current price cycle since bottoming in November 2022. Since we last wrote about drawdowns, bitcoin underwent a 26.1% drawdown (close to close) following its March 2024 high. Investors should remain aware that drawdowns are a normal feature of market cycles, even during periods of upward momentum. With a strategic bitcoin reserve (SBR) on the table now that Donald Trump has been sworn into office, many have wondered what the US government might do with the bitcoins it already controls, approximately 198.1K bitcoins ($20B). ?Within the past 3 weeks, obstacles have been removed for the return or sale of most of those coins, 164K bitcoins in total or 83% of the US government’s holding. This includes 69,369 bitcoins from the Silk Road hacker “Individual X” as well as 94,643 bitcoins recovered from Bitfinex hacker Ilya Lichtenstein. The government has yet to move coins associated with either case, we’ll just have to wait and see what Trump announces now that the inauguration is behind us. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gKy-m48q

In this week’s research note, we unpack insights from Q4 2024 and look ahead to what’s in store for 2025. Bitcoin rose 47.2% during the quarter, delivering on Q4 seasonality and besting every asset class by a wide margin. The US elections, in which crypto played a significant role, were the main driver to pushing bitcoin through $100K. Bitcoin also rose 119.6% in 2024, notching its second consecutive triple-digit percentage annual gain. Bitcoin continues to outpace every asset class, even as the S&P 500 registered back-to-back +25% gains. Bitcoin ETFs registered $16.5B of net inflows, but the lion’s share of flows is going to BlackRock and Fidelity while some ETFs registered outflows during the quarter. Futures-based ETFs such as the ProShares Bitcoin ETF (BITO) remain relevant despite underperforming the spot ETFs by 10.87% (total return) in 2024 (since the launch of spot ETFs). Corporate investment in bitcoin was a big story in Q4, driven by MicroStrategy. Ironically, most of MSTR’s outperformance vs BTC has come since the spot ETFs launched. Looking ahead to 2025, the Trump administration continues to come into view post-election; however, we would caution on expecting immediate changes. Key officials still need to be named, those that have been named need to go through the confirmation process, and then once confirmed they need to assemble their staff. The US bitcoin strategic reserve is a highly topical item, but how it comes to be (law vs Executive Order) and its implementation (acquisition vs using existing seized coins) matter greatly as a catalyst. ETFs are hitting their one-year mark, and, despite their unbelievable success, they need this type of “seasoning” before major banks and wealth platforms integrate them into their advisor platforms. FTX creditors are set to receive $16B in cash by early March, which could be an important catalyst for the market in Q1. Bitcoin “L2s” will likely be highly topical going forward as investors continue to demonstrate the desire to put “bitcoin capital” to work despite a myriad of technical, legal, and regulatory risks. Get the full research and subscribe to our weekly insights here: https://lnkd.in/gffuRC6i