Kvants Insights Newsletter: December 2024

This week was nothing short of eventful with lots of surprises? as Bitcoin dipped to $92K after surpassing $100K unlike the expectations of the broader market, with $672M in ETF outflows reflecting market volatility, while Ethereum ETFs saw $1.66B in December inflows, led by BlackRock. Deutsche Bank is building an Ethereum L2 blockchain to address compliance, El Salvador agreed to limit Bitcoin activities for a $1.4B IMF loan, and Binance.US plans a 2025 comeback. Hut 8’s $100M Bitcoin purchase boosted its reserves to over $1B, and the BIS proposed a hybrid CBDC model prioritizing privacy. Cathie Wood predicted a surge in M&A and $1M Bitcoin under Trump, while $20.3B in crypto ETP inflows over 10 weeks showed rising institutional confidence, despite $2.2B stolen by hackers in 2024. Meanwhile, the Federal Reserve cut interest rates by 25 basis points to 4.25%-4.50%, signaling a cautious approach with plans for only two rate cuts in 2025, as GDP growth for 2024 was revised upward to 2.5%, and inflation forecasts for 2025 were raised to 2.5% headline and 2.8% core, emphasizing ongoing economic resilience and inflationary pressures.

Bitcoin dips to $92K in optimal dip-buying move as PCE boosts crypto

Bitcoin slips to $92K in a potential 'buy-the-dip' opportunity as PCE data supports crypto markets. According to CoinGlass, the total liquidations across the cryptocurrency market over the last 24 hours reached $1.4 billion.Bitcoin reached unprecedented levels this week, briefly surpassing $100,000 and climbing to record highs between $104,000 and $108,000. The rally peaked on Wednesday at $108,270, setting a new all-time high before retreating amid a shift in market sentiment driven by U.S. Federal Reserve policies.? Link

Importance

Bitcoin’s record-breaking surge beyond $100,000, reaching a peak of $108,270, represents a defining milestone in its position as a recognized global asset. This achievement reinforces its growing acceptance and allure among institutional and retail investors. However, the swift correction, driven by U.S. Federal Reserve policy adjustments, underscores the inherent volatility that remains a hallmark of the crypto market, highlighted by over $1 billion in liquidations within a single day. The ripple effects extend across the broader crypto ecosystem, showcasing Bitcoin's role as a bellwether for market sentiment. The absence of the anticipated "Santa rally" further emphasizes the evolving complexities of market dynamics, where traditional seasonal trends may no longer apply. This event underscores the critical balance between optimism and risk management, reflecting the maturing interplay of digital assets with global economic forces.

US Fed rate cut Highlights: FOMC cuts by a 25 basis point, indicates fewer reductions ahead

The Federal Reserve has announced a 25-basis-point reduction in its benchmark interest rate, adjusting it to a target range of 4.25%-4.50%. Officials signaled plans for only two additional rate cuts in 2025, down from the four initially projected in September, reflecting a more cautious approach amid persistent inflation and stronger-than-expected economic performance. The Fed revised its GDP growth forecast for 2024 upward to 2.5% from the 2% previously estimated, citing robust economic activity. However, growth is anticipated to slow to its long-term trend of 1.8% by 2026. Inflation projections were also adjusted, with the 2025 estimate raised to 2.5% from 2.1%, while core inflation is now expected to reach 2.8% in the same year. Link

Importance

The Federal Reserve’s 25-basis-point rate cut, lowering the target range to 4.25%-4.50%, sent shockwaves through financial markets as Chair Jerome Powell’s hawkish remarks indicated a slower pace of rate cuts in 2025. This cautious stance, driven by persistent inflation and stronger-than-expected economic performance, led to a sharp sell-off in risk assets, including Bitcoin, which dropped below $100,000 to touch $92,000. The decline triggered a record $671.9 million single-day outflow from spot Bitcoin ETFs, breaking a 15-day inflow streak. With GDP growth forecasts for 2024 revised upward to 2.5% but inflation estimates for 2025 also increased, the Fed’s challenge of balancing economic growth and inflation control continues to create volatility in the crypto and broader financial markets.

SEC approves first spot Bitcoin and Ethereum combo ETFs from Hashdex and Franklin Templeton

The U.S. Securities and Exchange Commission has approved the listing and trading of crypto index ETFs by Hashdex and Franklin Templeton on the Nasdaq and Cboe BZX Exchange, respectively—a significant development for institutional adoption of digital assets. The Hashdex Nasdaq Crypto Index US ETF and Franklin Crypto Index ETF will allocate holdings to spot bitcoin and spot ether, weighted by market capitalization, reflecting a deliberate strategy to capture the performance of the leading assets in the cryptocurrency market. This approval marks a critical step in bridging traditional finance with the crypto economy.? Link

Importance

The SEC’s approval of crypto index ETFs from Hashdex and Franklin Templeton, listed on the Nasdaq and Cboe BZX Exchange, marks a significant step in integrating digital assets into mainstream finance. By allocating holdings to spot bitcoin and ether based on market capitalization, these ETFs provide a regulated, diversified entry point for investors seeking exposure to the leading cryptocurrencies. This move reflects a growing acceptance of spot-based crypto products and a shift in institutional sentiment toward digital assets as a viable portfolio component. With their market-weighted structure, these ETFs aim to balance risk and growth potential, signaling a maturation in the intersection of traditional finance and the crypto economy.

Bitcoin funding rate signals no signs of ‘late-cycle overheating’ — Analyst

The crypto market’s value dropped 7.5% on Thursday after the Fed Reserve cut the fed funds rate by 25 basis points. The new target range of 4.25%-4.50% met expectations, following which investors moved away from risk-on assets like cryptocurrencies and US equities.? Link

Importance

The absence of "late-cycle overheating" in Bitcoin’s funding rate amidst a 7.5% crypto market decline signals a healthier market dynamic despite the Federal Reserve’s 25-basis-point rate cut. The Fed’s decision to adjust rates to 4.25%-4.50%, while meeting expectations, has prompted investors to retreat from risk-on assets like cryptocurrencies and equities.

Rapidly-growing stablecoin issuer Usual latest to use M^0 infrastructure to launch token

M^0, a stablecoin infrastructure provider, has secured its second major integration, partnering with Usual, a rapidly expanding issuer of fiat-backed stablecoins. This collaboration signifies a strategic move for Usual, diversifying its reserves beyond the tokenized money market fund Hashnote, which was developed by the founders of DRW. Despite being established only four months ago, Usual has experienced exponential growth. On Wednesday, it crossed the $1 billion mark in market capitalization, positioning itself as the seventh-largest stablecoin. Similarly, M^0 (pronounced "M Zero") has achieved significant milestones since its launch earlier this year. Link

Importance

Usual's rapid ascent is particularly noteworthy, as it has reached a $1 billion market capitalization just four months after its launch, securing its place as the seventh-largest stablecoin. This meteoric rise reflects not only growing market demand for transparent and resilient stablecoins but also the shifting priorities of users and issuers toward diversification and risk mitigation. For M^0, this integration showcases the increasing reliance on advanced infrastructure solutions that support scalability and reserve innovation, cementing its role as a critical enabler in the stablecoin space.

Bitcoin ETFs See Record-High Outflows of $672 Million

Bitcoin spot exchange-traded funds (ETFs) experienced a record-breaking net outflow of $671.9 million yesterday, marking the largest single-day withdrawal since their launch in January. The Grayscale Bitcoin Trust (GBTC) led the outflows, losing $208.6 million, followed by the ARK 21Shares Bitcoin ETF with $108.4 million, according to data from Farside Investors. This significant capital withdrawal coincided with a decline in Bitcoin's price, which dropped 9.2% over the past 24 hours to below $93,000, based on CoinMarketCap figures.? Link

Importance

The unprecedented $671.9 million outflow from Bitcoin spot ETFs marks a significant shift in market sentiment, reflecting heightened concerns over Bitcoin's near-term prospects amid broader volatility. Major funds like the Grayscale Bitcoin Trust and ARK 21Shares Bitcoin ETF led the withdrawals, losing $208.6 million and $108.4 million, respectively, as Bitcoin’s price fell 9.2% to under $93,000. This correlation between institutional outflows and spot market declines underscores the growing influence of ETFs on Bitcoin’s price dynamics and raises critical questions about its resilience as an institutional-grade asset in the face of macroeconomic uncertainty.

Hackers Stole $2.2B in 2024, Largely Through Private Key Compromises

In 2024, hackers stole $2.2 billion, with centralized exchanges and private key vulnerabilities becoming prime targets as the year advanced. This represents a 20% increase from the $1.8 billion stolen in 2023 but remains significantly lower than the $3.3 billion and $3.7 billion taken in 2021 and 2022, respectively. The pace of attacks slowed in the second half of the year, after being on track to surpass $3 billion by July. Early in the year, decentralized finance (DeFi) projects bore the brunt of the attacks, but the focus shifted to centralized exchanges in the second and third quarters, which accounted for a significant share of the total losses. Two major incidents, the $305 million hack of DMM Bitcoin in May and the $235 million breach of WazirX in July, alone comprised 30% of the year’s stolen funds. Link

Importance

The $2.2 billion stolen in crypto-related hacks in 2024 underscores the persistent security vulnerabilities within the digital asset ecosystem. Despite a decline from the peak years of 2021 and 2022, the sharp increase in attacks targeting centralized exchanges and private key exploits in the latter half of the year signals a troubling shift in hacker tactics. High-profile incidents like the DMM Bitcoin and WazirX hacks, which together accounted for 30% of the year’s losses, highlight the systemic risks posed by large platforms. This trend calls for immediate action to strengthen security measures, regulatory frameworks, and user awareness to mitigate risks in an increasingly sophisticated threat environment.

Crypto Funds Attract Record $20.3 Billion in Inflows Over 10 Weeks

Crypto exchange-traded products (ETPs) have seen a remarkable $20.3 billion in inflows over the past 10 weeks, representing approximately 45% of all inflows for 2024. Digital asset investment products continue to attract strong interest, with $3.2 billion flowing in last week alone, according to CoinShares data. This marks the 10th consecutive week of positive inflows, bringing the year-to-date total to $44.5 billion—a staggering 1,878% increase compared to the $2.25 billion recorded in 2023. Link

Importance

The surge in inflows into crypto exchange-traded products (ETPs), reaching $44.5 billion year-to-date, highlights the growing institutional and retail confidence in digital assets as a legitimate investment class. With a remarkable 1,878% increase from 2023 and $20.3 billion added in just the last 10 weeks, this trend underscores the expanding role of ETPs in providing regulated and accessible exposure to cryptocurrencies. The 10-week streak of positive inflows demonstrates not only market maturity but also the increasing alignment of traditional finance with blockchain-driven innovation, reinforcing crypto’s position within diversified investment strategies.

Ethereum ETFs surge in December as inflows hit $1.66 billion, dominated by BlackRock's ETHA

Ethereum ETFs have seen a sharp increase in inflows during December, with $1.66 billion in new investments, accounting for 74% of the total $2.24 billion inflows since their launch. BlackRock's iShares Ethereum Trust (ETHA) leads the market, recording a single-day inflow peak of $292 million on December 5, showcasing the firm's significant influence in the crypto ETF landscape. Fidelity's FETH is the second most popular choice, although its inflows often trail behind BlackRock’s. In contrast, other Ethereum ETF providers have experienced comparatively lower investor interest, unlike the more evenly distributed inflows seen across Bitcoin ETF offerings. Link

Importance

The significant rise in Ethereum ETF inflows, with $1.66 billion added in December alone, signals growing institutional and retail interest in regulated exposure to Ethereum. BlackRock’s iShares Ethereum Trust (ETHA) leads the market, attracting a record $292 million in a single day, underscoring the firm’s dominance in the crypto ETF space. Fidelity’s FETH follows as a strong contender, though with lower inflows, while other providers see limited interest. This concentration of inflows highlights investor confidence in established asset managers and underscores Ethereum’s increasing appeal as a critical asset in the evolving cryptocurrency market.

Hut 8 surpasses $1B in Bitcoin holdings after $100M acquisition

Hut 8, one of North America’s leading Bitcoin mining companies, has announced a $100 million Bitcoin acquisition, boosting its holdings to over $1 billion. In a statement on December 19, the company revealed it had purchased 990 Bitcoin at an average price of $101,710 per coin. This move aligns with Hut 8’s strategy to enhance returns by combining cost-efficient Bitcoin mining with strategic market purchases, further solidifying Bitcoin's role as a reserve asset for the company. ?Link

Importance

Hut 8’s $100 million Bitcoin acquisition underscores the growing trend of institutional players treating Bitcoin as a strategic reserve asset. By increasing its holdings to over $1 billion, the company not only reinforces its confidence in Bitcoin’s long-term value but also sets a precedent for other industry players to adopt similar strategies. This dual approach of combining cost-effective mining with market purchases highlights a sophisticated strategy to maximize returns while mitigating risks tied to market volatility. It also reflects a broader shift toward Bitcoin’s acceptance as a viable treasury asset, further cementing its role in institutional portfolios and its relevance in the evolving financial landscape. For investors and market participants, this move signals increasing competition in Bitcoin accumulation and a bullish outlook on its future utility and value.

Binance Charts 2025 Comeback, CEO Norman Reed Reflects on Challenges and Plans for Growth

The platform has operated under restricted banking access since June 2023, when SEC civil claims triggered a suspension of dollar deposits. Building on the momentum of anticipated changes to U.S. crypto policy. The interim CEO, Norman Reed said Binance aims to restore its USD services in early 2025,? according to a statement shared with Decrypt. Link

Importance

Binance US’s planned 2025 comeback underscores its resilience in navigating regulatory challenges and its intent to reclaim its position in the U.S. crypto market. The platform’s restricted banking access since June 2023, triggered by SEC civil claims, highlights the growing regulatory scrutiny faced by crypto exchanges in the United States. CEO Norman Reed’s reflections on these challenges and the platform’s focus on restoring USD services signal Binance US’s commitment to compliance and adaptation as it anticipates a more favorable U.S. crypto policy environment.

Cathie Wood foresees startup M&A surge, $1M Bitcoin under Trump

Cathie Wood, founder of ARK Investment Management LLC, anticipates a significant increase in mergers and acquisitions (M&A) activity under Donald Trump’s administration. Speaking in a Bloomberg interview, Wood highlighted that potential changes to Federal Trade Commission (FTC) regulations could lower barriers, fostering an environment more conducive to M&A deals and supporting innovative business strategies. Link

Importance

The anticipated surge in M&A activity, as highlighted by Cathie Wood, carries profound implications for the financial markets and broader economy. Eased regulatory barriers, particularly through changes in FTC policies, could catalyze transformative consolidation across key sectors like technology, healthcare, and financial services. This shift not only enhances market efficiency by fostering synergies and scaling innovation but also reshapes competitive dynamics, potentially leading to greater market concentration in certain industries.

BIS consultative group proposes retail CBDC architecture

A report from the Bank for International Settlements (BIS) highlights that countries such as Jamaica, Nigeria, China, Sweden, the Bahamas, and Peru are advancing their central bank digital currency (CBDC) initiatives at various stages of development. The BIS Consultative Group on Innovation and the Digital Economy has suggested a hybrid CBDC architecture, where central banks would oversee issuance and governance, while commercial banks handle consumer-facing services. The proposed framework adopts a modular design with an emphasis on a token-based model to enhance privacy. Link

Importance

The BIS’s proposal for a hybrid CBDC architecture marks a pivotal step in the global race to modernize financial systems, offering a balance between central bank authority and the efficiency of commercial banks for consumer services. By prioritizing a token-based model with a focus on privacy, the framework addresses one of the most contentious issues in digital currency adoption—public trust in data protection. Its modular design offers flexibility, making it adaptable for diverse economies and potentially setting a global standard. For countries like Jamaica, Nigeria, and China, which are advancing their CBDC programs, this framework provides not just technical guidance but a strategic pathway to revolutionize cross-border payments, financial inclusion, and monetary governance. This is a defining moment that reimagines the role of money in a digital economy.

El Salvador to limit bitcoin activities for $1.4 billion deal with IMF

El Salvador has reached a deal with the IMF to limit various bitcoin-related activities in exchange for a loan of $1.4 billion. Specific requirements of the deal include limiting the public sector’s bitcoin purchases, and the wind-down of public bitcoin wallet Chivo. Link

Importance

El Salvador’s $1.4 billion agreement with the IMF to limit Bitcoin-related activities marks a pivotal moment for its Bitcoin adoption strategy. By restricting public sector Bitcoin purchases and winding down the Chivo wallet, the country signals a shift toward appeasing traditional financial institutions to secure critical funding. This decision highlights the tension between embracing decentralized digital assets and maintaining fiscal stability under the oversight of global lenders. For the crypto industry, it serves as a cautionary tale about the challenges of integrating cryptocurrency into national economies reliant on traditional monetary frameworks

Deutsche Bank builds L2 blockchain on Ethereum: Bloomberg

Deutsche Bank, Germany’s largest lender, is reportedly developing its own layer-2 (L2) blockchain on Ethereum using ZKsync technology to address compliance challenges associated with using public blockchains in regulated finance. Link

Importance

Deutsche Bank’s initiative to develop a layer-2 blockchain on Ethereum using ZKsync technology represents a pivotal step in bridging traditional finance with blockchain innovation. By addressing compliance challenges inherent in using public blockchains, the bank demonstrates the growing appeal of scalable, privacy-preserving solutions in regulated financial markets. This move not only underscores the potential of blockchain to enhance efficiency and transparency in financial systems but also sets a precedent for other institutions to adopt similar technologies.