Bitcoin monthly digest: June 2023

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We are pleased to introduce the inaugural issue of our monthly Bitcoin newsletter, an essential resource specifically curated to keep you informed on significant developments within the Bitcoin universe. This newsletter signifies our commitment to provide timely and accurate information, catering to both the savvy macro-oriented investor and the informed enthusiast. Each edition is designed to dissect crucial advancements, shifts in regulatory landscapes, technological breakthroughs, market trends, and other salient moments within the global Bitcoin space. We aim to contextualize the real-world applications and implications of this asset, exploring its transformative potential across various sectors of industry and society. Without further ado, let's dive into this first edition!

• A Bitcoin spot ETF is coming soon?

The anticipation for the approval of a spot bitcoin exchange-traded fund (ETF) has resurged, driven by BlackRock’s entry into the ETF race. Bitcoin ETFs have been sought after for over a decade now, since Cameron and Tyler Winklevoss first proposed one in 2013. A bitcoin ETF would enable a wide range of retail investors in the US to gain exposure to bitcoin without having to directly deal with crypto exchanges or wallets. Moreover, it would also permit traditional investors and skeptics to invest in a regulated Bitcoin product, thus perceived as "safe" to the eyes of the public.

In 2021, the US Securities and Exchange Commission (SEC) approved the first bitcoin futures ETF. Currently, despite no spot bitcoin ETF trading in the US, BlackRock’s recent filing (and that of many other major asset managers...) has stimulated the market with several new spot bitcoin ETF applications submitted. An emphasis on surveillance-sharing agreements is being noticed among applicants. While the SEC had previously rejected a bitcoin ETF application due to the potential for market manipulation, it suggested surveillance-sharing agreements as a deterrent. However, the definition of a "regulated market of significant size" remains ambiguous. It remains to be seen whether the SEC will concur with the notion that Coinbase operates a regulated bitcoin market of significant size.

Overall, while the approval of a financial product such as a Bitcoin spot ETF seems ultimately inevitable, it might be premature to assume it will come by the end of this year.

• Bitcoin rises to prominence in presidential campaigns

Digital assets, in particular Bitcoin, are becoming a prominent talking point in the early stages of the 2024 US presidential election. Florida Governor Ron DeSantis, one of the most noticeable new candidates, has used Bitcoin as an example of President Joe Biden's alleged mistakes. He claims that Biden's administration is attempting to hinder crypto businesses and set up a central bank digital currency (CBDC) to monitor citizens. This stance aligns DeSantis with other pro-crypto candidates but distinguishes him from Donald Trump, who has previously expressed distrust for cryptocurrencies. However, the crypto industry is looking for substantial regulatory measures rather than political rhetoric.

Other Republican candidates, such as biotech entrepreneur Vivek Ramaswamy, claim a better understanding of Bitcoin, seeing it as a decentralized alternative to the US dollar. Meanwhile, Robert F. Kennedy Jr., a Democratic challenger, supports the crypto industry, highlighting the US government's mistake in curbing the sector and driving innovation elsewhere.

The introduction of a Central Bank Digital Currency (CBDC) has become a significant point of contention, despite the Biden administration's current 'study-only' stance. Some Republicans are framing the potential CBDC as a tool for government surveillance and control, warning it could be used to freeze assets, as happened in Canada during the recent trucker protests. While the increasing political discussion surrounding Bitcoin is notable, it's important to underscore that there's still considerable misunderstanding, even among its supporters, as many struggle to distinguish between Bitcoin and other digital assets and keep conflating them.

• Hashrate growth: the network is stronger than even

Bitcoin mining, the activity that supports the Bitcoin network by validating transactions amongst users, saw a lucrative Q2 in 2023, due to a rising hashrate that increased competition. During this period, the industry reached a peak of $184 million in transaction fees, outpacing the total fees earned in all of 2022 and marking one of the most profitable periods in recent memory. This 270% increase over the previous quarter was largely driven by the surging price of Bitcoin and the introduction of complex, non-standard Bitcoin transactions.

The $184 million in transaction fees accounted for only 7.7% of the total $2.4 billion earned by miners during the quarter. The majority of miners' earnings still come from Bitcoin block rewards, which currently stand at 6.25 BTC per block, set to decrease to 3.125 BTC after the next halving event in May 2024.

Miners benefited from favourable conditions in Q2, including the Biden administration's blockage of a proposed energy tax for mining digital assets and reduced inflationary pressures which lowered electricity costs for US-based miners. Despite this, the market remains highly competitive, with Bitcoin's hash rate continuing to reach new highs.

Going forward, the industry faces the challenge of the upcoming halving event, which will substantially reduce block rewards. Miners will need to rely more on transaction fees, requiring adaptations to maintain profitability amidst increasing competition. Additionally, the continuous adoption of more powerful and efficient mining equipment is improving the network's efficiency and adding to the competitive pressure.

That's a wrap for this month! We hope you enjoyed the read. Make sure to get in touch with us by using the "Contact us!" button at the top of this page if you have any questions or comments.