Highlights of the Week #43
HCM Capital cultivates value through mutual sharing. Your substantial contribution unite us in envisioning of future Bitcoinization world. Subscribe and get the latest updates.
Preview
Last week, BlackRock's IBIT records its first outflows, contrasting with Grayscale's GBTC, which sees its first daily net inflows since conversion. Additionally, Binance founder Changpeng Zhao faces a four-month prison, sentence for violating U.S. money laundering laws. Block's commitment to investing 10% of gross profits into monthly bitcoin purchases, while MicroStrategy unveils "MicroStrategy Orange," a decentralized identity solution on the Bitcoin network. Regulatory actions feature an FBI warning against unregistered crypto money-transmitting services, while South Korea establishes a permanent crypto investigative unit. For more details, continue reading below.
A. Bitcoin Ecosystem
1. BlackRock's IBIT sees first outflows, while Grayscale's GBTC posts first inflows
2. Binance founder CZ sentenced to four months in prison
3. Block to allocates 10% of profits for monthly bitcoin investments
4. MicroStrategy Orange: bitcoin-based decentralized identity solution
B. Regulation
1. FBI warning on crypto money transmitters appears directed at mixers
2. South Korea establishes official crypto investigative unit amid rising crime rates
C. Macroeconomy
1. US Q1 2024 GDP falls short, inflation surges beyond expectations
2. China's GDP surges, yet other indicators signal weakness
D. Bitcoin Tech Development
1. Bull Bitcoin's Fee Multiple help navigating highs and lows with Bitcoin Fees
2. LND #8627 update: default channel settings now reject above-zero inbound forwarding fees
A. Bitcoin Ecosystem
1. BlackRock's IBIT sees first outflows, while Grayscale's GBTC posts first inflows
BlackRock's IBIT, holding the title of the most successful fund with $17.24 billion in assets under management, experienced outflows for the first time on May 1st, with $36.9 million worth of shares liquidated. The fund has seen a halt in inflows since April 24. Despite Federal Reserve Chairman Jerome Powell's dismissal of a rate hike, investors swiftly divested from U.S.-based spot bitcoin exchange-traded funds (ETFs) at an unprecedented rate. The 11 ETFs witnessed a combined net outflow of $563.7 million, marking the largest outflow since their inception on January 11. Despite Federal Reserve Chair Powell's overall dovish approach, which provided support to risk assets including bitcoin, other funds still experienced capital outflows. A dovish stance indicates a central bank preference for prioritizing employment and economic growth over excessive liquidity tightening. Given bitcoin's sensitivity to anticipated shifts in liquidity conditions, it too felt the effects alongside other risk assets. On the other hand, Grayscale's GBTC spot bitcoin exchange-traded fund witnessed its first daily net inflows on May 3rd since its conversion, ending a streak of 78 consecutive days of outflows. Despite cumulative outflows totaling more than $17.5 billion since U.S. spot bitcoin ETFs commenced trading on Jan. 11, GBTC surprisingly generated $63 million worth of inflows on Friday, according to data from Farside Investors and CoinGlass.
Reference: Farside, CoinDesk, The Block, Yahoo Finance
2. Binance founder CZ sentenced to four months in prison
Changpeng Zhao, previously the CEO of Binance, received a four-month prison sentence on Tuesday after pleading guilty to breaching U.S. laws on money laundering at the world's largest cryptocurrency exchange. Once considered one of the most influential figures in the crypto industry, CZ becomes the second major crypto leader to face imprisonment. The sentence, handed down by U.S. District Judge Richard Jones in Seattle, falls short of the three years sought by prosecutors and is below the maximum 1-1/2 years recommended under federal guidelines. "I believe the first step of taking responsibility is to fully recognize the mistakes. Here I failed to implement an adequate anti-money laundering program ... I realize now the seriousness of that mistake." CZ told the judge before being sentenced. CZ "wanted to make a difference in the world," but made mistakes, defense lawyer Mark Bartlett said.
Reference: Reuters
3. Block to allocates 10% of profits for monthly bitcoin investments
Block, formerly known as Square, has announced its commitment to investing 10% of its gross profit from bitcoin products into bitcoin purchases every month. Additionally, the company revealed that its initial bitcoin investment of $220 million has experienced a remarkable growth of approximately 160%, reaching $573 million. In a letter, Dorsey emphasized, "We believe the world needs an open protocol for money, one that’s not owned or controlled by any single entity. We believe bitcoin is the best and only candidate to be that protocol, and to ultimately become the native currency of the internet." During the first quarter, the company's Cash App unit observed a significant 25% year-over-year growth in gross profit. This growth was primarily attributed to increased inflows per active user and a higher monetization rate.
Reference: The Block
4. MicroStrategy Orange: bitcoin-based decentralized identity solution
At Bitcoin For Corporations conference on May 1, MicroStrategy, the largest corporate holder of Bitcoin, introduced "MicroStrategy Orange," a decentralized identity solution on the Bitcoin network. Unveiled by MicroStrategy Executive Chairman Michael Saylor, this solution employs Ordinal-based inscriptions for storing and retrieving information. MicroStrategy Orange, highlighted as open-source and not reliant on sidechains, boasts the capability to handle up to 10,000 decentralized identifiers in a single Bitcoin transaction, according to Saylor. A draft document shared by MicroStrategy on GitHub outlines the solution's goal: to provide trustless, tamper-proof, and durable decentralized identities using solely the public Bitcoin blockchain as a data source. These decentralized identifiers (DIDs) aim to offer pseudonymity, similar to how real-world identities are not directly linked to Bitcoin addresses and transactions. The Orange Service empowers users to issue Decentralized Identifiers (DIDs) to their personnel and deploy applications. Meanwhile, the Orange SDK and Orange Applications offer customization tools for integrating specific services across mobile and desktop devices. Among the applications developed by MicroStrategy is "Orange For Outlook," which seamlessly integrates digital signatures into emails, enhancing sender identity verification for recipients.
Reference: Cointelegraph
B. Regulation
1. FBI warning on crypto money transmitters appears directed at mixers
Lawyer suggests that the Federal Bureau of Investigation's recent warning about unregistered cryptocurrency money-transmitting services might specifically target smart-contract-driven privacy tools. In an public service announcement, the FBI advised Americans to utilize only registered Cryptocurrency Money Services Businesses adhering to existing Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. The bureau stated it had conducted law enforcement operations against cryptocurrency services lacking proper licensing under federal law, cautioning that users of unlicensed services might face financial disruptions during such actions, especially if their funds are mixed with illegally obtained money. Michael Balcina, Digital Asset Partner at Piper Alderman, remarked that the FBI's announcement appeared to target caution towards users of crypto mixing services. However, he pointed out that the "broad" warning lacked specificity on key nuances. “The sooner fit-for-purpose regulation and clear guidance for cryptocurrency replaces regulation by enforcement, the better the outcomes for consumers will be,” Bacina added.
Reference: Cointelegraph
2. South Korea establishes official crypto investigative unit amid rising crime rates
According to a local report, South Korea is taking measures to upgrade its temporary crypto investigative unit to a permanent establishment in response to increasing incidents of crimes and fraud cases. The nation's Justice Ministry and the Ministry of the Interior and Safety are scheduled to commence discussions in early May regarding the transformation of the Joint Virtual Asset Crime Investigation Unit into an official department, as reported by Segye Ilbo. This transition aims to solidify the unit's standing, as it presently operates as a temporary body under the Seoul Southern District Prosecutor's Office and could potentially be disbanded. The anticipated change is anticipated to enhance efficiency through the appointment of new prosecutors and the allocation of budget resources. Launched in July 2023, the unit comprises approximately 30 experts from seven financial and tax regulatory authorities, serving as South Korea's inaugural investigative body focused on digital asset crimes.
Reference: The Block
C. Macroeconomy
1. US Q1 2024 GDP falls short, inflation surges beyond expectations
The U.S. GDP report for Q1 2024 fell sharply below consensus expectations at just 1.6% annualized, well below the anticipated 2.5%. Concurrently, measures of inflation surpassed expectations, with Core PCE reaching 3.7% against the forecasted 3.4%. While the report doesn't classify as stagflationary in absolute terms, given positive real growth, it does exhibit stagflationary characteristics directionally. Growth rates declined while inflation escalated and remained above-target. Much of the GDP weakness stems from the import/export mix, with robust imports to the U.S. contrasting with weak exports. This trend is likely linked to the prevailing strength of the dollar index, which diminishes the competitiveness of many U.S. exports in the global market.
Reference: Lyn Alden
2. China's GDP surges, yet other indicators signal weakness
In the first quarter of this year, China's economy outpaced expectations, yet various economic indicators pointed towards weaknesses, resulting in a mixed data release. Alongside GDP, the government disclosed statistics on industrial production, retail sales, fixed asset investment, and exports. Of these, fixed asset investment was the sole indicator to accelerate recently, propelled by government incentives promoting investments in new technology and energy. This surge offset a notable decline in property investment. However, the sustainability of technology investment hinges on China's ability to boost exports, a task made challenging by its extensive export footprint. Achieving significant growth may require price incentives, potentially triggering discomfort among trading partners and fostering a protectionist response, thereby introducing obstacles to China's primary source of economic growth.
Reference: Deloitte insights, Reuter
D. Bitcoin Tech Development
1. Bull Bitcoin's Fee Multiple help navigating highs and lows with Bitcoin Fees
Bull Bitcoin Fee Multiple has developed a indicators for both long-term and short-term perspectives. Fundamentally, this indicator divides the current feerate by its moving average, highlighting periods of relatively low or high fees. Navigating Bitcoin fees can be tricky. Knowing when fees are high or low matters, especially for non-time-sensitive operations like coinjoin, utxo consolidation, and Lightning Network channel management. But determining whether fees are low or high is relative, not absolute. For instance, a sudden drop in the feerate from 200 sat/vbyte to 30 sat/vbyte could signal a prime time for UTXO consolidation. Conversely, an increase from 3 sat/vbyte to 30 sat/vbyte might not be ideal for coinjoin. Similar to Bitcoin prices, timing Bitcoin fees is unpredictable. Waiting for fees to drop before acting may lead to missed opportunities if fees keep rising. However, despite sustained high fees, there's usually a moment of relief. Keeping an eye on fees and waiting for a "dip" to consolidate UTXOs or coinjoin can be a good strategy.
Reference: Bull bitcoin.com
2. LND #8627 update: default channel settings now reject above-zero inbound forwarding fees
In the latest update, LND #8627 modifies default settings to reject user-requested changes requiring above-zero inbound forwarding fees. For instance, when Alice attempts to forward a payment through Bob to Carol, Bob can no longer utilize LND's inbound forwarding fees feature to demand additional payment by default. This adjustment ensures compatibility with nodes lacking support for inbound forwarding fees, which is currently the case for most LN nodes. However, Bob can opt for backward incompatibility by configuring the accept-positive-inbound-fees setting in LND. Alternatively, he can maintain backward compatibility by increasing his outbound forwarding fee to Carol and utilizing negative inbound forwarding fees to offer discounts on non-originating payments from Alice.
Reference: Bitcoinops