'Chances of approval have increased'

The race for the first bitcoin ETF shifted to the forefront this week because of a regulatory deadline. The latter had to respond to one of the applications. Its outcome? And the expectations for what's next? You can read that, and more, in this Weekly!

Crypto market

Things are still calm in the crypto market. The price of bitcoin is $29,100 and the price of ether is $1840. For both, this rate is in the middle of the price range it has been in for the past five months.

Last week, America announced new inflation figures. These were close to analysts' expectations. The comprehensive annual figure, the headline CPI, rose to 3.2% from 3.0%. That rise is no reason to panic because it comes from base effects.

Indeed, the latest monthly figure is fine, with prices rising 0.2% in July. Last year's July monthly figure was only even better, at 0%. And that difference explains the rise in the annual figure.

Nick Timiraos, economics reporter for the Wall Street Journal, calculated what the annual CPI figure would be if you extrapolated the monthly figures of the last three or six months to an annual figure. He came up with 1.9% for the last three months and 2.6% for the last six months. He subtitled that with "the summer of disinflation continues". Disinflation is falling inflation.

What does this mean for US central bank policy? According to the Federal Reserve itself, high interest rates are now inhibiting the economy. Three weeks ago, Chairman Jerome Powell spoke about this in the press conference after the interest rate decision. Once inflation is unquestionably under control, the Fed will cut interest rates to a neutral level, where it neither inhibits nor stimulates.

That inflation also appears to be under control in July is encouraging. Forward-looking indicators that paint a picture of how inflation is likely to develop also look good. This is positive for the crypto market. A government stimulating the economy is tailwind for all investments, and especially risk assets.

We see no reason to think that this market cycle will turn out differently from previous ones. And that means that as demand increases, new supply will only be released through higher prices. Just until a new bull market begins. Should history repeat itself and the rhythm remain in place, we expect it during 2024.

News summary

As you know, the race for the first spot bitcoin ETF is in full swing. This week, we reached the first moment when the regulator has to rule on the fate of one of the applications. And so it happened. On Friday, 13 August, the SEC announced it was deferring its decision on ARK Invest's application. It became the postponement already expected by analysts.

The regulator's postponement is accompanied by a demand to the outside world. ARK argues in its application that the bitcoin market is sufficiently resilient against price manipulation, the trading volume on the target exchange (CME) is high enough, and that the surveillance agreement entered into with Coinbase is effective against market abuse. But is that right? To that loaded question, the regulator is keen to get answers from the outside.

Incidentally, the insertion of such a consultation period is nothing special and so is choosing to defer. The question is: will it lead to postponement?

Former SEC lawyer John Reed Stark thinks so. In the context of previous applications, the SEC answered the above questions itself. That led to the conclusion to consign the applications to the dustbin. According to Stark, these issues are still in play. He does not see the SEC's inflexibility changing until a Republican president takes the helm in the White House.

But analysts at Bloomberg think otherwise and work with a 65 per cent success rate. Not before has it been this high. They point out that the SEC's postponement decision says nothing about the final outcome of the application process.

Analysts at asset manager Bernstein agree with Bloomberg's. If ETFs are approved, they predict they will grab around 10 percent of bitcoin's market value within three years. "With interest from leading global asset managers in bitcoin spot ETFs and mechanisms to address regulatory concerns, the likelihood of approval has increased," Bernstein said through Gautam Chhugan.

The next decision point is scheduled for ARK on 11 November. Other applicants will get their first word in early September. Most analysts assume that the SEC will then opt for another postponement.

Other news:

• SEC plans to appeal decision in Ripple case. It concerns the profit Ripple posted a few weeks ago. The regulator wants another look at the ruling that selling XRP to consumers through exchanges was OK. The current ruling "could cause problems in several pending lawsuits", the SEC argues. If the regulator is allowed to appeal, the rest of the lawsuit will have to await its outcome.
• Coinbase launches layer 2 network Base. More than 100 dapps are immediately available for use. In the first week after launch, christened "on-chain summer" by Coinbase, users can obtain NFT artwork to celebrate the opening. At the time of writing, more than $200 million has been transferred to Base, most of it in the form of ETH, USDC and DAI. The number of daily active users has surpassed 100,000. Note: Base does not have its own token!
• Sam Bankman-Fried (SBF) must await trial in jail. The judge lifted his house arrest because SBF tried to influence people about to testify against him. SBF is being held at the Metropolitan Detention Centre in New York. According to the judge, that prison is "on nobody's list of five-star state hotels". There is a lot of support on Twitter for the judge's decision. It is unclear whether the $250 million bail will be cashed in due to SBF's violation.