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Market Commentary

June 24th Weekly Market Commentary

Dave Weisberger

Dave Weisberger

June 24, 2024

Words don't matter, ACTIONS do...

As the Biden administration tells the crypto industry it plans to become more supportive, the SEC soldiers on in its fight with the industry & the crypto market continued to slide.

Over the weekend, Mt. Gox announced they would start disburseing roughly $9 billion in Bitcoin next month, spurring another leg downwards, despite potentially larger bullish news on the horizon.

Finally, we look at some of the crazy stories from the world of crypto including a $3 million hack that wasn't a hack and a meme coin controversy involving the infamous "pharma bro".

Weekly Crypto Watch

  • Bitcoin (BTC) $61,188. (down 7.25%)

  • Ether (ETH) $3,296 (down 6.47%)

  • Solana (SOL) $127.1 (down 11.38%)

  • BTC Funding Rate -0.0028%

  • ETH Funding Rate 0.0045

Macro Watch

  • S&P 5480.75 (up 18.75 points)

  • Gold $2,340.2 (up $7.4)

  • Oil $81.38 (up $1.7 )

  • DXY 105.52 (increase of 0.10 points)

In The News

SEC Drops Investigation into Ethereum as a Security While Lawsuits with the Industry Continue

Last week, the SEC dropped its investigation into Ethereum 2.0, as experts claim it signals the SEC realized it wont be able to convince a court Ethereum is a security. It is not, as others have claimed a signal of accommodation from the SEC, but rather a tactical decision. The obvious proof was on Thursday, when the SEC contested Kraken's motion to dismiss their case (which essentially calls them an illegal securities exchange) in oral arguments. At the same time, Consensus is still pursuing their suit vs the SEC...

The reason this story is important, is that there are some in the industry who have received more friendly words from the administration about how they are going to embrace digital assets. These overtures are, quite obviously, aimed at decreasing the intensity of the crypto industries support of the Trump campaign. The actions of this administration, however, continue to be hostile, with more entrepreneurs facing banking issues and the threat of lawsuits. All of this is taking place during a period of broad crypto malaise, with NFTs and small cap coins falling precipitously and large cap coins falling less.

While it is hard to conclude that the recent market losses are due to the threat of the anti-crypto army might be able to convince voters they aren't really anti-crypto, it is likely a contributing factor. Until the election starts to come into focus, unless there is a real change in administration policy, the political situation will weigh on markets. Add to this, relatively hawkish Federal reserve commentary, and the sideways summer thesis continues to be most likely.

From Mt. Gox to Michael Dell, the crosscurrents for Bitcoin continue

Last week, stories of Michael Dell considering Bitcoin as a treasury asset circulated, providing a small measure of relief to the selling, but there was limited followthru. Over the weekend, however, the story broke that Mt. Gox will start distribution of up to $9 Billion in Bitcoin to the original holders. The Mt. Gox news seemed to be the catalyst for Bitcoin to drop to near $60k as hyperbolic stories of a $9 Billion sale triggered a wave of selling.

Unsurprisingly, I think the market is getting this wrong. The fact that a company with over $2 billion in cash is considering Bitcoin, the first year that FASB accounting rule changes make that possible, is a big deal. Remember that over 2000 CFOs have listened to MSTR chairman Michael Saylor and the handful of companies that put Bitcoin on their balance sheet have all seen stock price appreciation. The amount of potential investment, added to the RIAs and Investment managers that can buy the Bitcoin ETF, is likely to fuel the next rally.

At the same time, the fear over Mt. Gox is overblown. Unlike GBTC investors, who bought into that fund during the Bitcoin hype cycle, the original Mt. Gox holders are likely to be more inclined to be "HODLers". That said, considering that many potential Bitcoin buyers are concerned over the lack of available liquidity, MY opinion (NOT investment advice) is that the actual distribution from Mt. Gox will be a "buy the news" event.

The craziness of the crypto market was on display with the DJT coin and Kraken/CertiK stories

Last week, Kraken recovered $3 million in funds "stolen" by "white hat" hackers from a prominent security company called CertiK as part of Kraken's bug bounty program. While no customers were impacted, there were many accusations about the exploited bug. The exploit itself related to deposit & withdrawl mechanisms & Kraken claimed the company could have proven the bug with $4, meaning $3,000,000 was overkill. That money was originally withheld until the bounty was paid, which made the story more interesting for Crypto Twitter... On a serious note, it shows why many investors are somewhat concerned with crypto exchanges and why a proper regulatory framework is important.

The reason regulation to classify crypto as an investment is important is that current laws make it hard to protect client assets. If the worst case happened, and Kraken let an exploit steal all their CASH, the holders of crypto on the exchange should be unaffected (as equity or bondholders in traditional brokerages would be unaffected if their broker went bankrupt).

On the lighter side, the DJT coin story is truly bizarre and could only happen in crypto. For those unfamiliar, someone launched a meme coin called Trump coin with the ticker DJT. Later, Martin Shkreli, the "pharma bro" came out claiming that he helped Barron Trump launch the coin, which currently sports a $127 million market cap. Shkreli then went on a marathon X spaces with Mario Nawfal which had over 8,000 listeners, including yours truly. In it, he claimed Barron had the idea and he just helped him with the tech. He further claimed both Donald and Melania were on board and was peppered with questions from the panel, many of whom disputed it. There continues to be controversy surrounding this, but, the reason I mentioned it as a story is the murky legal status of such coins. Some have claimed this is an "op" to get at DJT and get him in trouble with the SEC, while others call it smart business to monetize his fame. At a minimum, the rules for such assets should be well understood, but they, like much in the crypto industry are not clear at all.

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