New in Digital Assets: November 2023

For the fourth consecutive month, the crypto market rally continued to gain momentum. This momentum was driven by a combination of factors including increased optimism surrounding the potential approval of a spot bitcoin (BTC) ETF in the United States, the upcoming Bitcoin Halving which is currently being projected to occur in April 2024, and growing consensus that the Federal Reserve may have already implemented its final interest rate hike this cycle. Together, these catalysts have led to a significant shift in market sentiment, with the prevailing consensus suggesting that the most challenging phase of the crypto winter may now be in the rearview mirror.

BTC gained 8.9% in November, closing at $37,732. ETH followed suit, gaining 13.1% on the month and closing at $2,053. It is worth noting that these are the highest closing values for either BTC or ETH since April and May 2022, respectively. The total crypto market capitalisation increased 10.6% for the month to close at $1.39 trillion.

Table: Market Performance - Bitcoin and Ethereum

Graph: Illustrates how CME Bitcoin Futures Activity Rises to Levels Not Seen Since 2021

In 2023, there has been a notable shift in the competitive landscape of BTC futures markets. Most notably, the Chicago Mercantile Exchange (CME) has overtaken Binance, the world’s largest crypto exchange, as the leader in BTC futures volume.1

Impressively, the CME facilitates $4.1 billion of open interest (OI) for BTC futures contracts as of the close of the end of November, compared to $4.0 billion for Binance. This increase in OI is a potential signal of heightened speculation on the future price of BTC. Analysts suggest that this surge may be driven by anticipation surrounding the narratives of an imminent spot BTC ETF listing and the upcoming Bitcoin halving event in the next year, contributing to expectations of increased volatility and price discovery. Moreover, CME’s ascendance in the BTC futures market could be seen as an indication of increased participation in these markets by institutions that are more likely to utilise U.S.-regulated financial platforms to gain exposure to bitcoin and other cryptoassets.

News & Headlines

Binance and the U.S. Department of Justice (DOJ) Reach $4.3 Billion Settlement to Resolve Criminal Allegations

Binance, the world’s largest crypto exchange, has reached a historic settlement with the U.S. Department of Justice (DOJ), with Binance agreeing to pay a $4.3 billion fee—one of the largest for a corporate defendant in the US—in exchange for a termination of the DOJ’s outstanding investigations.2 Among the list of accusations brought by the DOJ against Binance were alleged violations related to the Bank Secrecy Act (BSA), failure to register as a money transmitting business, and violations of multiple sanctions programs.

Additionally, Binance Founder and CEO Changpeng Zhao (CZ) entered a guilty plea in a federal court in Seattle, Washington. As part of the settlement, CZ agreed to pay a personal fine of $50 million for failing to maintain an effective anti-money laundering (AML) program.3 CZ also stepped down as CEO of the exchange. In his stead, Richard Teng, formerly a financial regulator and later Binance’s regional markets head, has assumed the role of CEO. While CZ retains his financial stake in Binance, he will play no role in ongoing operations and may face up to an 18-month prison sentence.

Notably, the settlement is part of coordinated resolutions with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the U.S. Commodity Futures Trading Commission (CFTC). As part of its settlement with FinCEN, Binance is set to make a ‘complete exit’ from the U.S. Additionally, the exchange will appoint a monitor for a five-year term to oversee its sanctions compliance program. During this period, the U.S. Treasury Department will have access to Binance’s records and systems.

BlackRock and Fidelity File for U.S. Listed Spot ETH ETFs

Asset managers BlackRock and Fidelity are advancing plans to introduce spot Ethereum ETFs to U.S. regulated markets, showcasing the rapid rise of institutional interest in the crypto industry.4 Both companies have submitted S-1 applications to the U.S. Securities and Exchange Commission (SEC) for the launch of these ETFs.

This slew of S-1 fillings coincides with the SEC’s impending decision regarding the potential approval of spot BTC ETFs, widely expected to be approved by early January 2024.5 The SEC, previously cautious due to concerns about market manipulation and volatility, has been evaluating spot BTC ETFs for several years. However, rulings in recent court cases such as SEC vs. Ripple Labs and SEC vs. Grayscale Investments, seem to have been enough to push the SEC to reevaluate their stance.6

The SEC Charges Kraken with Operating as an Unregistered Exchange

The second-largest U.S.-based crypto exchange, Kraken, is facing accusations from the SEC for operating as an unregistered securities exchange, broker, dealer, and clearing agency.7

The SEC’s lawsuit also includes a list of specific cryptoassets it claims are unregistered securities including AXS, ALGO, ATOM, MATIC, SOL, and DASH. The allegations in this case are similar to those levied by the SEC against Coinbase and Binance in lawsuits from earlier in 2023.

This development follows a settlement between Kraken and the SEC in February 2023 over its crypto staking program, in which Kraken neither admitted nor denied the SEC’s allegations of offering an unregistered investment product.

JPMorgan Continues to Drive Tokenisation Efforts Across Financial Markets

Onyx, the blockchain division of JPMorgan, joined forces with a consortium of industry startups to develop a proof of concept aimed at showcasing the potential benefits of tokenisation in enhancing the management of financial assets.8 These trials, conducted within the framework of the Monetary Authority of Singapore’s Project Guardian, were specifically tailored to empower fund managers to tokenise their portfolios on selected blockchain platforms. Moreover, wealth managers could seamlessly acquire and rebalance their positions across various interoperable blockchain networks. The blockchain stack selected for this proof-of-concept features Provenance Blockchain, JPMorgan’s proprietary Onyx platform, and Avalanche. Additionally, the cross-chain communication protocol Axelar and the issuance/trading platform Oasis Pro played integral roles in advancing the initiative.

Sam Bankman-Fried Found Guilty on All 7 Counts in FTX Fraud Trial

Sam Bankman-Fried (SBF), the ex-CEO of the now-defunct FTX exchange, was found guilty of seven counts of fraud. His sentencing is scheduled for March 28, 2024, and he could potentially face a maximum sentence of 115 years.9

This case emphasised that FTX’s downfall was not due to any inherent issues with blockchain technology. Instead, it was the result of fraudulent activities, including the misappropriation of customer funds, the fabrication of financial statements for creditors, and the misleading of investors.

Related Funds

EBTC: The Global X 21Shares Bitcoin ETF (EBTC) invests in physical Bitcoin to provide exposure to the price of Bitcoin in Australian dollars.

EETH: The Global X 21Shares Ethereum ETF (EETH) invests in physical Ethereum to provide exposure to the price of Ethereum in Australian dollars.