Coinbase believes that Genesis' approval to sell its Grayscale Bitcoin Trust (GBTC) shares won't significantly disrupt the crypto market, as most funds are expected to remain within the crypto ecosystem. The approval, granted by a bankruptcy judge on Feb. 14, allows Genesis to liquidate around $1.3 billion worth of GBTC to reimburse creditors. However, concerns linger within the industry about potential downward pressure on Bitcoin's price, given the recent outflows of over $5 billion from GBTC following Grayscale Investments' approval to convert GBTC into a spot Bitcoin exchange-traded fund (ETF) on Jan. 10.
The rules of the bankruptcy plan allow Genesis to either convert GBTC shares into Bitcoin on behalf of creditors or sell the shares outright and distribute the cash. Coinbase anticipates that most of these funds will likely stay within the crypto ecosystem, contributing to a neutral overall effect on the market. The confirmation hearing for the plan is scheduled for Feb. 26. Genesis holds significant shares of GBTC, along with shares of the Grayscale Ethereum Trust (ETHE) and Grayscale Ethereum Classic Trust (ETCG).
Despite expectations for a netting effect in the crypto market due to Genesis' GBTC sales, there is uncertainty about how many creditors will sell their Bitcoin holdings. Coinbase highlighted that the net inflows for Bitcoin ETFs in their first 30 days exceeded those of State Street's SPDR Gold Shares ETF in its first month. The head of derivatives at Bitfinex indicated that the high volume of GBTC share selling in recent weeks was driven by the significant discount offered to GBTC investors.
Venture capital (VC) funding for blockchain and crypto companies experienced a resurgence in the fourth quarter of 2023, totaling $1.9 billion, a 2.5% increase from the previous quarter. This growth, as highlighted in a report by PitchBook, marks the first rise in VC investments in crypto startups since March 2022. The report attributes this renewed interest from financial institutions to the launch of the first spot Bitcoin exchange-traded funds (ETFs) in the United States in January.
PitchBook's report emphasizes that the notable fundraises in the quarter predominantly focused on financial and technological solutions within the crypto space. These included endeavors like tokenizing real-world assets on the blockchain (such as real estate and stocks) and developing decentralized computing infrastructure. Among the prominent fundraises were crypto exchanges Swan Bitcoin and Blockchain.com, securing $165 million and $100 million, respectively. Additionally, Wormhole, an open-source blockchain development platform, attracted a significant investment of $225 million, backed by Coinbase Ventures, Jump Trading, and ParaFi Capital, reaching a valuation of $2.5 billion.
The crypto industry faced challenges in 2022, with market difficulties leading to reduced VC funding for blockchain and crypto sectors. Following a peak of $11 billion and 692 deals in the first four months of 2022, VC investment steadily declined in subsequent quarters. Factors contributing to this decline included the collapse of the Terra ecosystem in May 2022, which resulted in the bankruptcy of cryptocurrency lending firms Three Arrows Capital and Celsius. The FTX collapse in November 2022 also intensified market volatility, while broader global economic factors like increased interest rates and inflation further impacted venture capital investments. However, in 2023, the crypto industry witnessed a turnaround, with increased adoption worldwide and major traditional finance (TradFi) institutions like BlackRock entering the crypto space.
VanEck has agreed to pay a $1.75 million fine to settle charges brought by the United States Securities and Exchange Commission (SEC) related to its 2021 launch of a social media-focused exchange-traded fund (ETF). The SEC's investigation revealed that during the launch of the VanEck Social Sentiment ETF in March 2021, VanEck failed to fully disclose the involvement of a prominent social media influencer in marketing the product. This influencer's compensation was tied to the fund's growth, guaranteeing higher payments as the fund expanded, a detail that was not disclosed by VanEck.
The SEC criticized VanEck for its lack of transparency, particularly its failure to inform the ETF's board about the influencer's role and compensation structure. This undisclosed arrangement had significant implications for the fund's management contract and operations, violating the board's duty to oversee financial aspects during advisory contract discussions. VanEck agreed to a cease and desist order, censure, and the financial penalty without admitting or denying the findings, signaling a resolution to the SEC's charges.
This development follows VanEck's recent decision to terminate its Bitcoin Strategy ETF and reduce fees for its dedicated spot Bitcoin ETF. Despite these setbacks, VanEck remains committed to enhancing its ETF offerings. The company's actions reflect a broader trend of increased regulatory scrutiny in the crypto and ETF spaces, emphasizing the importance of transparency and compliance for firms operating in these markets.
