In the last two weeks, the cryptocurrency market has lost almost 50% of its total capitalization. From the November highs where Bitcoin touched the $69,000 mark, the most popular cryptocurrency has come in at $33,000. Stocks related to cryptocurrencies or blockchain technology such as Microstrategy, Riot blockchain or Grayscale had double-digit declines on Wall Street.
The reasons for the declines
The reasons for these heavy declines are varied, but certainly at the base of what appears to be a real collapse, there are geopolitical issues related to tensions between Ukraine and Russia, and more strictly economic issues, especially related to rising inflation, which will probably force the Fed to raise rates in the US very soon.
According to many experts and operators, these declines are precisely related to the risk aversion of investors, who now seem to increasingly equate the cryptocurrency market to the Nasdaq technology market, which also had heavy declines in the last two weeks, and since the beginning of the year its decline is about 13%.
Big funds in the crypto market
Interesting is also the thesis that the entry of large institutional investment funds, thanks to new instruments such as Etf, in the cryptocurrency market could have contributed to the big falls of these days.
The largest ETF traded on the markets, namely BITO of the company ProShares worth 1.1 billion dollars, has attracted many institutional investors who by statute could not invest directly in instruments such as cryptocurrencies that are not fully regulated.
“BITO’s returns have aligned with those of Bitcoin”.
Simeon Hyman, global investment strategist and head of investment strategy at ProShare Advisors LLC, said recently.
“The fund has provided a convenient way for investors to incorporate this emerging digital asset into their portfolios”.
On the other hand, as of September 2021, according to Fidelity Digital Assets, Fidelity Investments Inc.’s digital asset investment firm, noted in one of its reports how by now about a third of U investors already held some form of digital asset.
The SEC doesn’t want to open up to funds tied directly to Bitcoin
According to many experts, the SEC should finally give authorization to funds that invest on the spot cryptocurrency and not on Futures, as requested by many investment funds, most recently Grayscale Investments.
James Seyffart, an ETF analyst at Bloomberg Invest, in recent days revealed a letter dated 29 November from the law firm Davis Polk & Wardwell LLP on behalf of the Grayscale Bitcoin Trust client, submitted to the SEC.
The letter discusses existing Futures-based Bitcoin products, arguing that those products are exposed to “the same risks of fraud and spot market manipulation” that are at the heart of the SEC‘s concerns about Grayscale’s conversion of its flagship fund into an ETF.
“the Commission must treat similarly situated products in a similar manner unless it has a reasonable basis for disparate treatment”
reads the law firm’s lengthy letter to the SEC.
Hearings are scheduled in the coming weeks on whether or not to approve some 20 ETFs tied to the cryptocurrency’s spot value. But it seems difficult for the SEC to give the green light to these new instruments without precise regulation of the cryptocurrency markets, which has been waiting for months to be approved by the US Congress.