Crypto Ecosystem

Could Grayscale’s victory trigger a new bull market for Bitcoin?

, August 31, 2023

In this week’s crypto highlights, we explore the price movements of BTC, DYDX, SOL, and BCH. Additionally, this recap includes other notable industry news items that occurred over the last seven days. Without further ado, let’s dive into the latest market developments.

Noteworthy market events

Grayscale won a lawsuit against the SEC

Grayscale achieved a favorable outcome in its legal battle against the U.S. Securities and Exchange Commission (SEC). The company challenged the regulator’s denial of its application to convert the Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF). U.S. Court of Appeals Circuit Judge Neomi Rao ruled that Grayscale’s petition for review be granted, and the SEC’s order to deny the GBTC listing application be vacated. This ruling doesn’t mandate an immediate approval of Grayscale’s ETF conversion bid. Rather, it calls for another review of the application.

Writing the opinion, U.S. Judge Neomi Rao said that federal agencies are required to “treat like cases alike.” It was also stated in the document that “the denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products.”

This legal victory potentially paves the way for the approval of spot Bitcoin ETFs in the U.S. Before the ruling, Grayscale’s triumph in court was considered a potential catalyst that could help BlackRock and other companies with approval of spot Bitcoin ETF filings. However, some experts stated that the SEC could still appeal the decision. So far, the regulator has said that it’s “reviewing” the court action, and will make a decision on its next steps.Following this news, the GBTC discount continued decreasing, reaching only 17%. At its peak, it neared 50%, meaning GBTC was trading twice below the actual BTC price. CoinGlass stated that the discount could be eliminated next year.

The SEC made its first NFT-related enforcement action

Let’s not stray far from SEC news, as the regulator recently expanded its list of assets labeled unregistered securities. And for the first time, it includes non-fungible tokens (NFTs).

The SEC charged media company Impact Theory over the sale of NFTs, known as Founder’s Keys. The NFTs were classified as securities because Impact Theory’s team assured users of potential profits from these collectibles, and highlighted their substantial worth. It’s important to note that the SEC’s findings do not suggest that all NFTs should be treated as securities.

In response, Impact Theory committed to establishing a fund aimed at compensating individuals who acquired the NFTs, and any remaining NFTs in the company’s possession will be eliminated. Additionally, as outlined in the order, the company will pay over $6.1 million in fines to federal regulatory authorities.

U.S. Treasury and IRS introduced a new set of crypto tax rules

This week, the U.S. government went even further in its crypto engagement, proposing new crypto tax rules. As you might have guessed, the crypto community met the announcement with “boos.”

According to a nearly 300-page document, crypto brokers would need to collect and file information on their customers with the Internal Revenue Service (IRS). Entities in this requirement include centralized and decentralized crypto exchanges, payment processors, and certain wallet providers. 

According to the proposed rules, beginning in 2026, exchanges must send Form 1099s showing gross proceeds from crypto transactions. Subsequently, they will be required to report the customers’ cost basis, or the sum users paid for the assets. This approach aims to prevent scenarios where the IRS sends letters seeking more taxes than people owe. The proposed rules are open for public comment and feedback until October 30. Public hearings are scheduled for November 7-8.

Community reaction

The introduction of these tax rules faced an immediate burst of criticism from the crypto industry, and even some U.S. officials. U.S. Congressman Patrick McHenry urged departments to be more detailed in regulations, stating that “any proposed rule must be narrow, tailored, and clear.” 

Some crypto enthusiasts stated that this could be “disastrous” for DeFi in the U.S., advising crypto developers to “give up” serving U.S. customers. The founder and CEO of the analytical firm Messari, Ryan Selkis, said that the crypto industry might have no future in the U.S., after the proposed rules were published.  

Others noted that platforms like Metamask and Uniswap could be forced to develop new Know Your Customer (KYC) rules for their users to comply with these regulations… if they decide to continue serving U.S. customers.

Now, let’s take a break from regulations news.

Coinbase unveiled a decentralization plan for its L2 network

Developers of Coinbase’s layer 2 (L2) network, Base, shared a roadmap for migrating to a decentralized model that involves several technical upgrades, and the elimination of a single point of failure. In particular, they plan to implement so-called “fraud proofs,” and diversify the client software to ensure censorship resistance. This means Coinbase will no longer be the sole manager of the Base sequencer.

To achieve this, Coinbase will cooperate with Optimism Collective and OP Labs. The timing of the plan has not been disclosed. Following this news, Coinbase announced a strategic partnership with Optimism Collective, where Base has agreed to provide Optimism Collective either 2.5% of its overall sequencer income, or 15% of its net profits, whichever is higher. According to the Optimism Collective, Base will be rewarded for making this promise with up to 118 million OP tokens, or around $175 million, contributed over a six-year period.

One sentence news

  • Digital Currency Group (DCG) reached an “agreement in principle” with Genesis creditors, with an estimated amount of 70-90% in recovery to satisfy existing liabilities. 
  • Polygon Labs introduced a software toolkit for developing and running layer 2 Ethereum networks based on zero-knowledge (ZK) proof technology.
  • The Friend.tech hype is considered to be waning as the daily trading volume dropped by over 94% from its peak.
  • Balancer suffered a $1 million exploit, after informing its community about the vulnerability.

Bitcoin may still have a downward potential

Just when Bitcoin was about to record its worst price-performing month in 2023, Grayscale won a lawsuit against the SEC, pushing up the BTC price by 5% in minutes. At the time of this writing, August’s price decrease is almost the same as May’s, meaning the passing month can still retake the title of the poorest-performing one this year, despite the recent price jump.

However, the timing of Grayscale’s victory is quite notable. On September 1-4, the SEC will be facing its first deadlines for approving seven spot Bitcoin ETFs, including BlackRock’s. In an August 29 Bloomberg interview, Bloomberg ETF analyst James Seyffart explained that Grayscale’s win “definitely” increases the odds of a successful outcome for the next wave of applicants.

Although the regulator can delay the decision — as it did with ArkInvest a few weeks ago — some experts stated that approving spot Bitcoin ETFs could be the most logical decision for the SEC. Furthermore, approving several ETFs at the same time could potentially make the decision less arbitrary, because a first-mover advantage could become significant in the ETF space. 

Whether it happens in the next few days, or following a potential delay, the U.S. regulator’s theoretical approval for this product could become a major catalyst for Bitcoin’s adoption, and increased demand for the asset.

JPMorgan analysts have indicated that the recent correction in crypto markets might have concluded. However, September is historically one of the worst months for Bitcoin in terms of price performance, with eight price decreases over the last 10 years. Perhaps, Bitcoin has its own September effect.

Notably, the recent Bitcoin price performance resembles the one the asset experienced during its all-time high in 2021 (white lines). If the similarities play out, the BTC price may experience downward movement to $23,500, or even $21,500, in the short term. This also corresponds to the ABC correction pattern we highlighted in our previous crypto highlights

However, Bitcoin price is currently facing two major resistance levels — 200-day and 200-week SMAs, which are located almost at the same levels. This means the above-mentioned bearish view may become reality if the asset fails to sustain above these levels. Considering that the recent price jump was accompanied by lower volume compared to August 17’s flash crash, bears may still dominate the market.

But if the price gains a foothold above said SMAs, this may help bulls explore higher levels, with the 50-day SMA and $30,000 as potential targets. Daily MACD made a bullish crossover, suggesting that upward movement has the potential to continue.

DYDX could migrate to the L1 chain

Wintermute, which is considered one of the largest market makers in crypto, proposed a migration of the DYDX token to the Layer 1 dYdX chain. In addition, Wintermute pitched the adoption of a fourth version of the dYdX protocol. The voting process will take place through September 2. So far, it has received a 100% vote in its favor.

On August 29, DYDX also experienced an unlock of 3.76% of the total token supply. The previous event of this kind resulted in a price decrease of 10% in the following two days. But this time, the price consolidated near the resistance level of $2.22. Moreover, the 200-day SMA coincides with the horizontal resistance area.

In the case of a breakout, bulls may obtain increased momentum, potentially opening the gate to the next major resistance level near $2.70. If failed, the asset may retest the horizontal support area.

Solana announced a partnership with Shopify

On August 23, Solana Pay integrated with Shopify to enhance the platform’s support of crypto payments. At the first stage, only USDC stablecoin is available, with SOL and BONK to be added soon. Although this news caused a local SOL price jump, the asset lost almost all of its daily gains in the next few days. 

The SOL price is struggling to sustain above the $22 support area, indicating that bearish pressure could be relatively strong on higher levels. The asset also approached the psychological level of $20, which earlier acted as a major support area.

Squeezed into a narrow range, the SOL price formed a death cross, and RSI is still trading inside a downtrend. The asset is far from the oversold zone on a daily timeframe, suggesting there could be still room for downward movement.

BCH performance might still be connected to EDX Markets

When Bitcoin Cash was listed on the Wall Street-backed crypto exchange EDX Markets in June, the asset experienced a 300% price rally. And it seems that BCH holders continued looking closely at the platform’s actions. On August 23, EDX Markets announced a partnership with Anchorage for specialized custody services. Shortly after that, there was a 1,500% spike in large BCH transactions, helping the asset experience a slight price recovery.

After Grayscale’s victory, Bitcoin’s little brother with the second name also experienced a local rally, approaching the 50-day SMA. The asset broke the downtrend line on daily RSI, and made a bullish MACD crossover. This suggests that bulls have an opportunity to maintain upward momentum.

BCH miner reserves continued to decrease, hinting that this selling pressure factor could still remain, and potentially affect the asset price in the short term.Tune in next week, and every week, for the latest CEX.IO crypto highlights. For more information, head over to the Exchange to check current prices, or stop by CEX.IO University to continue expanding your crypto knowledge.

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Disclaimer: For information purposes only. Not investment or financial advice. Seek professional advice. Digital assets involve risk. Do your own research.

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