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Bitcoin ETFs Can Still Come to Life

An ongoing source of frustration for many members of the U.S. cryptocurrency and exchange traded fund (ETF) communities is the lack of a bitcoin ETF. The Securities and Exchange Commission (SEC) has continuously blocked efforts from the ETF community to bring products based on the largest digital currency to market, but some market observers believe a bitcoin ETF can still become a reality.

“I would have thought we were not going to see anything here in 2018 on bitcoin ETPs, but if [the SEC] is out there asking for some comments around the ProShares filing, they are not wasting time, I know that,” said Amplify ETFs CEO Christian Magoon in an interview with WealthManagement.com.

Earlier this year, Amplify introduced the Amplify Transformational Data Sharing ETF (BLOK), an actively managed ETF dedicated to companies with exposure to blockchain technology. BLOK, which is almost four months old, has over $177 million in assets under management, a decent figure for an ETF of that age.

Regulatory Issues

Many ETF issuers expected the launch of bitcoin futures, which debuted on two U.S. exchanges in December, would help facilitate the debut of ETFs related to the cryptocurrency. Following the launch of bitcoin futures on Cboe and CME, a slew of ETF sponsors reapplied to launch bitcoin funds, but were still rebuffed by the SEC.

While the Securities and Exchange Commission (SEC) opened a comment period on bitcoin ETFs in early January, soon thereafter the commission told ETF sponsors to withdraw their applications for funds related to the largest cryptocurrency.

“But, maybe they are getting a little bit more serious. Maybe it’s because the market has cooled off in terms of cryptos. That would be a big coup for ProShares, and, of course, they’re not a stranger to controversy given all of their inverse and leverage products,” said Magoon. “My guess is their user base is pretty hedge fund-y, trader-y, and would probably love bitcoin and exchange traded products (ETPs).”

Recently, the SEC said it is evaluating whether or not to let ProShares, a major issuer of ETFs, list the ProShares Bitcoin ETF and the ProShares Short ETF. ProShares orignally filed plans for those products in September.

Assuming a bitcoin ETF or ETFs come to market in the U.S., that could significantly increase investor adoption of the digital currency because while many investors have signaled interest in digital assets, they are reluctant to buy and hold alt-coins over exchanges and in digital wallets. The ETF wrapper would ameliorate those problems.

Bitcoin

Only 1.3 million Bitcoin are left in circulation on cryptocurrency exchanges!

Christmas is coming, and Bitcoin (BTC) scarcity is at historically low levels. CryptoRank announced in a recent tweet that just 6.3% of the overall Bitcoin supply, or 1.3 million BTC, are kept on cryptocurrency exchanges.

The decreasing amount is nothing new; it’s been steadily declining since the Bitcoin halving in 2020, when the BTC block reward was cut in half. The supply of BTC on exchanges has also decreased gradually over the past year, trending downward. On October 2020, exchange wallets made up 9.5% of the BTC supply, just before the all-time highs at Christmas time, and 7.3% in July 2019. In December 2021, the 6.3 percent figure is a record low.

However, the dominance of Coinbase’s BTC wallet is also falling. The American exchange used to store more bitcoin than all other exchanges combined. Over the past year, its domination has decreased from 50.52% to 40.65%.

Following a spate of good price statistics that tie into the rising price of Bitcoin, the announcement has sparked further excitement among investors. First and foremost, owing to the fact that BTC output is shifting from a “liquid” to an “illiquid” state, monthly BTC production has frozen at 100,000 BTC. In other words, more BTC is stored in cold storage than is being mined.

Additionally, it’s crucial to remember that many retail investors and several firms keep their BTC on exchanges, demonstrating that the “illiquid” BTC category may be even smaller. Instead of keeping their BTC in cold storage, some Bitcoin holders would entrust it to exchanges instead of leaving custody of their keys with them.

Surprisingly, Binance CEO and co-founder Changpeng Zhao has encouraged hot wallets, despite the best efforts of Bitcoiners like Andreas Antonopolous to the contrary: “Not your keys, not your bitcoin.” is part of everyday BTC mantra.

This may lead to the situation in which 1.3 million BTC is “stored” on exchanges, but they are not “circulating,” and they certainly do not contribute to the liquidity problem.

Despite calls for a “Santa Rally” on the back of strong analytics, the bears are not yet out of the woods. A tweet from BullRun Invest using Glassnode data showed that 24.6% of all BTC supply is sitting above $47,000.

According to the report, close to a fourth of the BTC purchased at those prices levels are now underwater. If BTC fails to make progress into the 50s, there may be fewer gifts under the tree tomorrow.

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Banking

U.S. Takes Crypto Crime Seriously with Anti-Money Laundering Reforms

The United States passed into law its Anti-Money Laundering Act of 2020, which takes effect on January 1, 2021. This brings digital currency exchange companies and other digital-asset-related businesses under the scope of regulations of the Bank Secrecy Act (BSA), which requires financial institutions “to actively detect, monitor and report potential money laundering activity.”

“I’m pleased that our anti-money laundering legislation was included as a part of this year’s [National Defense Authorization Act]. This bipartisan legislation protects Americans by depriving criminals and terrorists of the tools they use to finance illicit activity. It is the first serious overhaul of our anti-money laundering system in decades, and it makes sense to include it in the biggest, most important national defense legislation Congress passes each year,” South Dakota Sen. Mike Rounds said in a press release

The massive anti-money laundering reforms are targeting businesses dealing with digital currencies and assets by clearly specifying the definition of a “financial institution” to “‘a business engaged in the exchange of currency, funds, or value that substitutes for currency or funds” and “a licensed sender of money or any other person who engages as a business in the transmission of funds or value that substitutes for currency.” 

The reforms further define a “money transmitting business” to include those who deal with “currency, funds, or value that substitutes for currency.” Now, there are no longer loopholes that digital asset companies can use when dealing with the Financial Crimes Enforcement Network (FinCEN), the agency that enforces the BSA.

Stricter Penalties Enforced

Aside from updating definitions to ensure that digital currency exchange firms and others dealing in digital assets are clearly within the scope of the AML Act of 2020 and the BSA, stricter penalties are now being enforced for crypto criminals

Now, those who have been found guilty of violating the AML Act of 2020 and/or BSA are faced with fines amounting to profits earned while committing the violation and possible jail time. Those guilty of an “egregious” breach are also going to be banned from taking a board member position of any financial institution in the country for 10 years. Furthermore, employees of financial institutions who commit these crimes will be obligated to return to their employer all bonuses received during the time the act was committed. 

FinCEN is being given additional resources, like increasing its manpower, to ensure the enforcement of these reforms. This will further safeguard investors against crypto crimes and nail down digital currency exchange firms and other digital-asset-related businesses that do not comply with BSA regulations.

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Bitcoin

Bitcoin (BTC) Crosses 55k And Is Heading Towards 60k Fast!

Less than two months into 2021, the price of bitcoin has risen 95.4%.

Earlier this week BTC smashed through 50k and is headed towards 60k just as fast. The price is currently trading at 57k as of press time up 60% this month alone. Along with BTC’s meteoric rise quite a few altcoins are going along for the ride.
Some are saying the astonishing rise of BTC’s price to the tremendous demand from buyers looking to hedge against inflation as governments keep spending and central banks keep printing money trying to keep their economies going through the pandemic.
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