Positive developments in the May cryptocurrency market

Tomáš Hucík

May started with a positive message as FTX says it has sufficient funds to compensate the victims. 

The bankrupt cryptocurrency exchange FTX of convicted criminal with the worst haircut, Sam Bankman Fried, reports that they have managed to raise over $16 billion. That is significantly more than the $11 billion needed to pay out their clients.  

The company plans to fully compensate all (non-government) creditors. It will even pay them a little more than 100% of their deposits. This comes after the liquidation of the company's remaining assets, mainly investments and cryptocurrencies from Alameda Research and FTX Ventures.  

So the question is whether the exchange really should have gone bankrupt when it has enough assets to pay out. But the truth is that at the time of the crash, clients' cryptocurrencies were indeed missing from FTX accounts, and this "generous" payout was only possible because of the rising price of the cryptocurrencies still left on the balance sheets.

Thus, clients do not get their cryptocurrencies back, but "only" their dollar value at the time of the crash. Still though, good for them. 

Grayscale Bitcoin Trust is finally in the black numbers 

The Grayscale Bitcoin Trust saw its first inflows in 78 days, since the launch of bitcoin ETFs, in the first half of May. This represents a significant turnaround, mainly due to the reduction in fees.

The Grayscale Bitcoin Trust was originally a closed-end trust and already owned bitcoins before the transformation to an ETF. However, by switching to a public ETF, many clients wanted out of it, and so GBTC had to sell its bitcoins. However, this selling pressure is finally slowly but surely wearing off.

Tether reaches record profit of $4.52 billion for Q1 2024

The largest issuer of stablecoins, Tether recorded strong profits, with $3.52 billion coming from gains on its investments in Bitcoin and gold, reflecting the benefits of including these assets in its reserves. 

Another 1 billion USD was generated from holdings of US Treasuries, which are benefiting from the current high-interest rate environment. Tether is a successful company in other aspects too. It has only around 60 employees, which is really unprecedented for such high profits and is a sign of high efficiency. 

GameStop is bouncing back

In the second half of May, the surge in GameStop (GME) shares caused a jump in the value of many meme coins like PEPE, FLOKI, and MOG which rose by as much as 30% after a post from @TheRoaringKitty.

@TheRoardingKitty is one of the most prominent figures around the Gamestop case, where in 2021 a group of retail investors, internet trolls, and enthusiasts played a balanced match against Wall Street investment moguls. This crazy trading battle, which actually really happened, was also the subject of the film Money of the Dumb (2023).

Despite the growth of meme stocks such as GameStop and AMC Entertainment, which temporarily rose by more than 160%, the price of bitcoin remained relatively stable, a stark contrast to 2021, when Bitcoin experienced significant growth alongside memestocks, though its gains were more modest.

This may just suggest that bitcoin is already much more stable and established. ETF holders and funds are not so easily manipulated.

The bitcoin price reacts less volatile to similar events. 2021 vs 2024, when the GME price rose significantly - TradingView

And finally, the biggest news

ETFs based on spot Ether (ETH) took a huge step towards approval on Thursday, May 23, after the U.S. Securities and Exchange Commission (SEC) approved key documents related to them, a major milestone for the second-largest cryptocurrency and, indeed, the entire crypto-sphere.

While the SEC has given the green light to the 19b-4 forms associated with ETFs, the regulator must approve their S-1 filings before investors can buy them. It's a bit reminiscent of a scene from Asterix and Obelix The 12 Tasks of Asterix: The Place That Sends You Mad, but it's clear we'll see ETFs trading on ETH sooner rather than later. 

The approval follows a surprising turnaround by the SEC. Following the approval of spot bitcoin ETFs earlier this year, the SEC didn't seem to be communicating much with ETF issuers. However, that has quickly changed in recent days. Bloomberg analysts changed their outlook for approval from 25% to 75% in a matter of moments, which meant a huge ETH price increase of nearly 20% even before the approval itself.

It seems that political pressures could be behind the ETF approval for ETH. While Donald Trump has let it be known several times recently that he and his Republicans are clearly in favor of cryptos, Democrats have realized that they could quickly lose this part of the electorate.  

That's also why Democrats in Congress are urging colleagues to support the Cryptocurrency Act (Financial Innovation and Technology for the 21st Century Act (FIT21)), a major cryptocurrency market structure bill. 

While it has bipartisan support in the House, its future in the Senate is uncertain. The bill seeks to create a comprehensive framework for digital assets, including consumer protections and measures to prevent illegal use. Industry leaders warn that if it is not passed, cryptocurrency companies could leave the US. It is, in effect, a kind of MICA for the US. 

But for cryptocurrency fans, it is rather good that both sides are trying to approach cryptocurrencies constructively. 

 And how has our portfolio progressed?  

Earlier this month, the price of bitcoin plunged. Bitcoin even briefly dipped below $60,000 per bitcoin. But we weren't that surprised. As I wrote in previous Blog | Probinex articles, we had a stop loss set on our spot positions.

Which is a protective order that will close the position in case the price drops too much. So on some of the positions this order was activated. However, because we had the stop loss set high, at an open profit, the execution of the stop loss turned into a realized profit. 

Our current plan can be divided into two branches

 The first part is to gradually increase the capital allocation to our Altcoin portfolio. These positions have the potential for great returns, but are challenging to manage by selecting the right titles and also need the right levels to enter the position.     

The second part is trading futures on major titles like BTC and ETH in case the market goes further up or sideways.    

In case the market starts going down, we have a position nicely prepared as we have a stock of stablecoins. In such a case, we can release those into the market and use them to buy at lower price levels.    

Since last month Earnio used all the proceeds for rewards and affiliates, this month our portfolio management needed to step up and it did. So we are distributing a good 702,631 PBXs with a dollar value of $118,658 among our clients. The average result is 0.136%.