“That’s Our 2 Satoshis” — Gensler (sigh)

Jeff Dorman, CFA
Sep 12, 2022

Thats Our 2 Satoshis LogoWhat Happened This Week in the Digital Assets Markets?

Week-over-Week Price Changes (as of Sunday, 09/11/22)
Week over week digital asset price change
Source: TradingView, CNBC, Bloomberg, Messari
 
Before the Big Events Come This Week
Digital assets broadly moved higher last week, but this time, Bitcoin joined the rally as well.  While neither BTC nor ETH has been the story in digital assets the past few weeks (instead, the stories have been bankruptcies, DAO liquidations, governance proposals, blockchain reorgs, and a flurry of news and conferences), it is notable that the ETH/BTC ratio fell sharply last week after rallying for most of the past three months. Bitcoin finally caught a bid for various reasons—most notably, the U.S. dollar retreated after the ECB raised rates 75 bps, and news that Microstrategy (MSTR) is considering yet another BTC purchase financed by selling stock
 
ETH BTC Market TrendSource: FTX
 
However, all of last week’s moves will likely prove meaningless ahead of the big showdown this week. A triple whammy is set to hit the market, which could cause explosive price action:

  1. On September 13th, the Bureau of Labor Statistics will issue the August CPI report
  2. The Ethereum 2.0 merge is likely to be completed sometime around September 14th 
  3. September 19th is likely to be an important day in terms of finally getting some clarity in the Ripple versus SEC case
The most bullish case would be:
 
  1. A decline in the month-over-month CPI reading (which is starting to become expected given how fast commodities, house prices, used cars, and other indicators have moved lower)
  2. A very smooth Ethereum merge with no hiccups (our base case assumption)
  3. A decisive advance in Ripple’s already expected win in the court case against the SEC (toss up) 
The bear case would be the opposite: higher CPI m-o-m, an SEC “win,” and problems with the ETH merge. 
 
It’s notable that the options market does not seem to be fully pricing in the potential fireworks show.
 
BTC ATM Volume ETH ATM Volume
Source: Skew
 
Gensler and His Crusade
Speaking of the SEC, we’ve seen quite a few headlines from Gary Gensler over the past few years, usually striking a similar tone (the following is paraphrased): 
 
“All tokens are securities.”
“The SEC should be the agency that regulates digital assets.”
“The digital assets market needs a ‘cop on the beat’ to keep investors safe.”
 
Typically, these soundbites have led to negative price action. But last week, the market completely ignored Gensler’s latest speech.
 
I recommend reading Matt Levine from Bloomberg’s assessment of the SEC, Gensler, and digital assets. It is probably the most straightforward, unbiased opinion of where the SEC is right, and where they are not.  If you’re short on time, here are my favorites from Levine:
 
Matt Levine Bloomberg’s assessment of the SECunnamed - 2022-09-12T082422.709unnamed - 2022-09-12T085030.291
unnamed - 2022-09-12T085041.327
And That’s Our Two Satoshis! 
Thanks for reading everyone!   
Questions or comments, just let us know.  
 
The Arca Portfolio Management Team
Jeff Dorman, CFA - Chief Investment Officer
Katie Talati - Director of Research
Hassan Bassiri, CFA - Portfolio Manager 
Sasha Fleyshman - Portfolio Manager
Alex Woodard - Research Analyst
Nick Hotz, CFA - Research Analyst
Bodhi Pinker- Research Analyst 
Wes Hansen - Director of Trading & Operations
Kyle Doane - Trader
David Nage - Principal, Venture Investing
Michael Dershewitz - Principal, Venture Investing
Michal Benedykcinski - Research Analyst
Andrew Masotti - Trading Operations
Topher Macpherson - Trading Operations
  
To learn more or talk to us about investing in digital assets and cryptocurrency
call us now at (424) 289-8068.
 

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Disclaimer: This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document.