State Street’s New Digital Asset Strategy

State Street, a leading global custody bank managing $44.3 trillion in assets, has selected Taurus, a specialist in cryptocurrency custody and tokenization, to advance its digital asset services. The partnership comes as the bank prepares to navigate U.S. regulatory challenges, focusing initially on tokenization rather than direct crypto custody.

Initial Focus on Tokenization

The initial phase will concentrate on creating tokenized versions of traditional assets, with the first client expected to be announced shortly after the service goes live. Tokenization allows for benefits such as 24/7 trading and optimized collateral management and aims to bridge the gap in digital asset services while awaiting a more favorable regulatory environment.

Regulatory Challenges and Advocacy

State Street has expressed concerns about the SEC’s proposed Staff Accounting Bulletin 121 (SAB 121), which imposes significant capital requirements on banks holding customer crypto assets. The bank has advocated for changes to SAB 121 to reduce these burdens. Donna Milrod, State Street’s chief product officer and head of Digital Asset Solutions, emphasized that while the focus is currently on tokenization, the goal is to eventually offer digital custody services as well.

Taurus’s Role and Industry Impact

Taurus, based in Switzerland, will support State Street in this endeavor. Co-founder and managing partner Lamine Brahimi highlighted the potential positive impact of this partnership on the U.S. financial markets, which have lagged behind European markets due to current regulatory constraints.

Previous Engagements and Future Prospects

State Street has a history of engagement with blockchain technology, previously collaborating with crypto custody firm Copper. However, Copper has since shifted its focus to its ClearLoop settlement system, underscoring the evolving landscape of digital asset services.

Featured Image: Freepik

Please See Disclaimer

Babylon’s Mainnet Launch Scheduled for August 22

Bitcoin staking platform Babylon, spearheaded by Stanford University professor David Tse, is set to begin the phased launch of its mainnet this week. The project aims to introduce staking functionality to Bitcoin, a feature traditionally absent from the largest cryptocurrency network. The initial phase of the launch will commence on August 22, allowing BTC holders to lock their tokens on the network.

Funding and Support

Babylon secured $70 million in funding from Paradigm earlier this year, underscoring strong investor confidence. The project is backed by over 200 “finality providers,” including notable entities such as Allnodes, Figment, and Galaxy Digital. These providers will approve transactions and ensure the smooth operation of Babylon’s protocol, akin to the role of validators in proof-of-stake blockchains.

Staking Details and Security Measures

During the first phase, users can stake a total of up to 1,000 BTC ($57.9 million) on the Babylon platform. Staking, which involves locking tokens to support network operations and earn rewards, is a common practice in many blockchains but has not been available for Bitcoin until now. Babylon aims to bridge this gap and enhance Bitcoin’s utility.

Project Leadership and Vision

David Tse, known for his research in information theory and previously associated with UC Berkeley, leads Babylon. His expertise brings a promising perspective to scaling Bitcoin’s capabilities.

Market Impact and Future Prospects

Babylon’s introduction of staking could mark a significant shift in Bitcoin’s functionality, adding new dimensions to its ecosystem and potentially attracting more utility and investment in the network.

Featured Image: Freepik

Please See Disclaimer

Bitcoin and the broader cryptocurrency market are experiencing significant losses in August, despite a rebound in global stocks and other asset classes. The largest digital asset has fallen approximately 9% this month, underperforming compared to MSCI Inc.’s world share index, which has gained nearly 1%, and a surge in gold prices to record highs. A Bloomberg global bond gauge has increased by nearly 2% over the same period.

Challenges for Bitcoin and Crypto Market

Analysts point to potential sales of Bitcoin seized by the US government as a key challenge for digital assets. The US government is estimated to hold roughly $12 billion worth of crypto, and recent blockchain data shows that $600 million of confiscated Bitcoin was moved to a Coinbase Global Inc. wallet last week, according to Arkham Intelligence. Khushboo Khullar, a venture partner at Lightning Ventures, attributes the current downward pressure on Bitcoin prices to these potential sales, though she anticipates this impact will be temporary.

Market Volatility and Speculative Sentiment

The top 100 digital assets index saw its steepest drop on August 5 since November 2022, aligning with a broader market retreat amid US growth concerns and unwinding yen carry trades. While expectations for the US economy have stabilized, leading to a near-record high in MSCI’s global share index, crypto market sentiment remains weak. Funding rates for Bitcoin perpetual futures on the Binance exchange—often used by speculators—are at their most negative since 2022, reflecting diminished enthusiasm among fast-money traders.

Political and Policy Uncertainties

Bitcoin’s peak of $73,798 in March was driven by expectations of looser US monetary policy and inflows into dedicated US exchange-traded funds (ETFs). However, interest in these ETFs has cooled in recent months. Additionally, the ongoing US presidential race, with pro-crypto Republican Donald Trump and Democratic opponent Vice President Kamala Harris, has introduced further uncertainty. Harris has yet to outline her stance on digital assets.

As of Monday afternoon in New York, Bitcoin has dipped 2% to around $58,600, with other major tokens such as Ether and Solana also experiencing declines.

Featured Image: Freepik

Please See Disclaimer

Bitwise Asset Management, a prominent cryptocurrency ETF provider, has acquired London-based digital asset issuer ETC Group. This acquisition will elevate Bitwise’s assets under management (AUM) to $4.5 billion, according to a company press release. ETC Group, known for its physically-backed Bitcoin fund, contributes approximately $1.1 billion in AUM to the deal.

Strategic Expansion and Global Reach

San Francisco-based Bitwise, which introduced a spot Bitcoin ETF in the U.S. earlier this year, manages seven ETFs with a total AUM of $2.7 billion. Bitwise CEO Hunter Horsley noted that the acquisition will help the company improve its offerings for European investors and expand its global footprint. Horsley emphasized that the acquisition will enable the company to better serve European investors, provide global insights, and expand its product range.

The addition of ETC Group provides Bitwise with access to a European market where crypto-exchange traded products have been established for some time, contrasting with the U.S. market where spot Bitcoin ETFs only recently received regulatory approval in early 2024.

Industry Trends and Recent Deals

The acquisition aligns with a broader trend of consolidation in the ETF industry. Recent deals include Valkyrie Investments selling its ETF business to CoinShares and Ark Investment Management acquiring Rize ETF Limited. Specific terms of the Bitwise-ETC Group deal were not disclosed, but the acquisition will integrate ETC Group’s range of crypto-focused exchange-traded products under the Bitwise brand.

Since its launch on January 11, the Bitwise Bitcoin ETF (BITB) has seen approximately $2 billion in inflows, making it the fourth most popular among the 11 SEC-approved products this year, as reported by U.K. asset manager Farside Investors.

Featured Image: Freepik

Please See Disclaimer

In a significant shift within the crypto ETFs market, BlackRock (NYSE:BLK) has overtaken Grayscale in assets under management for publicly-listed crypto products. This change, noted by James Butterfill, Head of Research at CoinShares, highlights the growing dominance of traditional financial giants in the rapidly evolving cryptocurrency space. The competition between these two titans is reshaping the landscape of crypto ETFs, particularly in the realms of Bitcoin and Ethereum investments.

BlackRock’s Rapid Ascent in Crypto ETFs

BlackRock, known for its extensive range of exchange-traded funds, has swiftly climbed to the top of the crypto ETFs market. Just eight months after the introduction of spot Bitcoin ETFs, BlackRock’s spot Bitcoin and Ethereum ETFs have amassed a staggering $22 billion in AUM. This impressive growth has allowed BlackRock to surpass Grayscale, which now holds $20.7 billion in AUM, including funds for other cryptocurrencies like Solana and Chainlink.

The launch of spot Ethereum ETFs in July played a crucial role in accelerating BlackRock’s rise. Investors have flocked to these new products, drawn by their lower expense ratios and the trusted reputation of BlackRock in the ETF market. In particular, BlackRock’s spot Ethereum ETF saw significant inflows, netting $966 million, while Grayscale’s Ethereum Trust faced persistent outflows, totaling $2.3 billion.

The Competitive Landscape of Crypto ETFs

The competition between BlackRock and Grayscale is most evident in their Bitcoin ETFs. Grayscale’s Bitcoin Trust remains a leader with $18.7 billion in AUM, but BlackRock’s iShares Bitcoin Trust is closing the gap, now holding $17.2 billion. This narrowing margin underscores the shifting preferences of investors, who are increasingly drawn to the lower fees and robust infrastructure offered by established financial institutions like BlackRock.

Grayscale, which was an early pioneer in the crypto ETFs market, is now facing challenges in maintaining its dominance. The company has invested heavily in advertising, promoting its products in airports and New York City subways. Despite these efforts, the higher expense ratios of Grayscale’s products are becoming a deterrent for cost-conscious investors. For instance, while BlackRock’s Ethereum ETF has an expense ratio of 0.25%, Grayscale’s spot Ethereum ETF comes in much higher at 2.5%. Even with the more competitive 0.15% expense ratio offered by Grayscale’s Ethereum Mini Trust, the company is struggling to keep pace with BlackRock’s rapid growth.

The Future of Crypto ETFs

James Butterfill of CoinShares believes that Grayscale’s ability to reclaim its leading position in the crypto ETFs market will be challenging, particularly as investors gravitate towards cheaper and more established alternatives. “Keeping fees high will deter many investors,” Butterfill noted, emphasizing the importance of competitive pricing in the increasingly crowded crypto ETFs space.

The competition between BlackRock and Grayscale is likely to intensify as more traditional financial institutions enter the crypto market. Companies like Fidelity and Invesco are also making significant strides with their own crypto ETFs, offering investors a growing array of choices. As the market for crypto ETFs continues to expand, the battle for AUM will be determined by factors such as fee structures, product offerings, and the ability to innovate within this fast-moving sector.

Conclusion

The rise of BlackRock in the crypto ETFs market marks a pivotal moment in the evolution of cryptocurrency investments. By surpassing Grayscale in AUM, BlackRock has demonstrated the growing influence of established ETF providers in the crypto space. As the competition between these financial giants heats up, the landscape of crypto ETFs will continue to evolve, offering investors more options and potentially driving down costs. For Grayscale, the challenge now lies in adapting to this new environment and finding ways to retain its once-dominant position in the market.

Featured Image: Freepik

Please See Disclaimer