A Great Week For Bitcoin

Bitcoin is green on the year, there hasn’t been a major hack, and SBF is on trial…is this heaven?

Nope, but it is 2023, which has already been so much better than the entire second half of 2022.

Bitcoin specifically is booming, with prices up 28% this year, once again breaching $21,000.

Back in Black
As we said, Bitcoin is on one of those runs right now, and people are basking in seeing green again. But is this a real rally, or is it a bull trap ready to trick us and send us back to the mud?

Well, this rally has some promising signs that make us think it could be sustainable:

• Whales have not been moving Bitcoin onto exchanges, signaling they don’t plan to sell anytime soon
• Inflation is cooling, and the market believes interest rates are close to peaking
• Crypto’s global market cap climbed above its 200-day moving average for the first time since August 2021, when it rallied 82% to a new all-time high
• Bitcoin options have flipped bullish
• Trading volume for decentralized exchanges is way up
• For now, it appears that the forced selling is finished

• The Genesis/Gemini/DCG situation still has to be worked out
• We don’t know exactly what the Fed will do with interest rates
• The Mt. Gox reimbursement will likely happen this year, which would result in a massive amount of BTC hitting the markets
• Spot and derivative trading volume for the major centralized exchanges aren’t doing too hot
• Ethereum’s gas fees are still low, indicating that on-chain volume hasn’t fully returned
• The Bitcoin and Ethereum fear and greed indexes are starting to reach "greed" territory, which is typically a sell indicator
• Lastly, unlike the beginning of previous "bull cycles," one can argue that there’s really no big bullish narrative currently brewing – at least from a retail investor perspective

Still, at the end of the day, and despite the recent momentum, nobody knows for sure if Bitcoin and crypto will continue their ascent. Like most things in crypto, it is a nuanced topic.

According to Glassdoor, the Realized Price (the average BTC purchase price for all holders) is $19,700. Before this week, the 2022-23 bear market spent 179 days below the Realized Price, making it the second longest duration across the last four bear cycles.

Now that we are above that level, the next big question arises: Can the price hold, or do investors begin to take profits?

We suggest taking a “wait and see” approach before taking too large of a position.
 

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Disgraced Hedge Fund Three Arrows Capital Back With New Exchange

In June 2022, crypto hedge fund Three Arrows Capital (3AC) went bust, sending the crypto markets into despair. Following the implosion, the fund’s co-founders, Su Zhu and Kyle Davies, published some cryptic tweets and went into hiding. For months, we had no idea where they were or what they were doing. Were they dead? In jail? On a beach? Nobody knew.

But then FTX collapsed, and Su and Kyle realized that this was their opportunity to return. Because what better way to make people forget about your failure than someone else’s bigger failure? They were back, blaming SBF for 3AC’s collapse faster than you could say “fraud”.

But throwing shade on Twitter was not enough for the 3AC boys. They needed more, and they now have it in the form of their new crypto exchange.

The Exchange
Details on the new exchange are scarce, with everything we know coming from a leaked pitch deck:

• The name right now is “GTX”. Yep, one letter after “FTX”. Can’t make this stuff up
• The co-founders of crypto investment firm CoinFLEX, Mark Lamb and Sudhu Arumugam, are part of the founding team. This is the same CoinFLEX that had to halt withdrawals last year and restructure in a Seychelles court. A perfect match for the 3AC boys
• The exchange will focus on the “$20 billion crypto claims market”. Basically, GTX will make it so that people can trade and instantly access liquidity for their bankruptcy claims instead of waiting for the court case to play out. The irony of 3AC, a bankrupt hedge fund, spearheading this effort is not lost on us
• They want to “fill the power vacuum left by FTX”
• They eventually want to expand into other regulated markets
• They are looking to raise $25 million

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SEC Sues Gemini and Genesis

2023 had so far been free from SEC stories, but no longer.

Last week, the SEC emerged once again, this time with a lawsuit alleging that Genesis and Gemini sold unregistered securities.

The Allegations
The SEC’s allegations center on Gemini’s Earn program, which allowed users to generate yield on their crypto.

In the program, users would deposit crypto into Gemini, Gemini would deposit that crypto in Genesis, and Genesis would loan it out for a yield that would be passed back to Gemini.

What seemed like risk-free money though has now created a debacle in which hundreds of thousands of investors are stuck in following Genesis’s post-FTX issues.

Now, the SEC is going one step further in alleging that Gemini Earn was an unregistered security.

Gemini co-founder Tyler Winklevoss is predictably unhappy about the allegations. As he notes in a Twitter thread, Gemini has been in discussions with the SEC about the Earn program for over a year, and they never raised the potential of a lawsuit.

Sounds a lot like the SEC to us.

Now What?
The suit adds to what’s become a horrendous 2023 for Gemini.

The situation with Genesis and DCG has become a crisis, with Gemini openly calling DCG and its CEO Barry Silbert fraudsters. And now they have to defend themselves against the SEC.

For the SEC, this is par for the course, and actually a calculated play. They want to rack up wins against major crypto players, and Gemini and Genesis are both major players and weakened from the events of recent months.

You might remember that Coinbase attempted to productively engage with the SEC around a lending product similar to Gemini’s Earn. In response, the SEC issued a Wells notice (an official way to tell a company that the SEC is going to sue them).

If that case is any indication, then Gemini has been dealt a losing hand, despite Winklevoss’s claim that the suit is a “manufactured parking ticket”. The likely outcome is a settlement so Gemini can turn its attention back to the bigger fish of Genesis and DCG.

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