GOMARKET WEEKLY #31

Weekly Market Analysis with Mike Ermolaev

What's happening in crypto? Every week, our regular guest expert Mike Ermolaev covers the latest trends and news shaping the market.

Bitcoin Struggles Amid Inflation and Geopolitical Tensions

A downswing in Bitcoin's value rounded off an eventful week, hovering between $60,129 and $62,812. U.S. inflation exceeded expectations in September at 2.4%, with a rise in the CPI and core inflation, while the number of Americans filing for unemployment benefits surged to 258,000 last week, the highest level in over a year. Despite Jerome Powell’s indication of potential rate cuts, there is uncertainty that he may change course if inflation persists or other economic indicators worsen. These concerns make investors uneasy, leading to a flight from riskier assets and Bitcoin is bearing the brunt of this selling spree. Also, with the US election season heating up and Israel's military situation growing more volatile by the day, market players are speculating that these factors will affect the market.

Traditionally, October has been a strong month for Bitcoin, with positive price movements in 9 of the past 11 years. In fact, notable gains in October include 39.93% in 2021, 27.7% in 2020, and a massive 47.81% in 2017. However, following an unexpectedly "green" September this year (+7.29%), there are uncertainties over whether this October will follow the historical trend, especially after a -4.28% start this month. 

Source: CoinGlass

Bitcoin Primed for 2024 Growth Despite Weak Q3

Despite a seasonally weak third quarter, Bitcoin remains a top investment choice for 2024, according to the New York Digital Investment Group (NYDIG). With the original cryptocurrency registering a 49.2% gain so far this year, it stands as the best-performing asset class. Bitcoin also demonstrates a relatively independent trajectory, with a 90-day correlation of just 0.46 with traditional stocks, indicating a low level of co-movement. The third quarter saw Bitcoin rise by 2.5%, defying typical seasonal trends, especially as September posted a gain, despite historically being one of Bitcoin’s weakest months.

Fresh signs of a bull run are emerging as U.S. spot ETFs bolster their custodial holdings with a hefty $4.3 billion influx, a strong indication that investor appetite for Bitcoin is on the rise. Also, large-scale sellers like the U.S. government and creditors from the Mt. Gox bankruptcy have completed most of their sales, reducing overhang pressures.

Network activity was generally subdued during Q3, except for the launch of the Babylon staking protocol, which temporarily spiked traffic and fees. Bitcoin's public miners have radically raised the bar, making through new land acquisitions and facility upgrades to keep pace with surging demand. NYDIG analysts expect a significant market rebound after the U.S. elections, particularly if Donald Trump secures a win, as his policies are viewed as more favorable to the crypto industry.

Source: Nydig

HBO Documentary Claims Peter Todd is Bitcoin’s Creator, Sparks Controversy

In the documentary Money Electric: The Bitcoin Mystery aired on Oct. 8 by Home Box Office (HBO), filmmaker Cullen Hoback claims to have uncovered the real identity of Bitcoin's elusive creator, Satoshi Nakamoto, and names Canadian crypto expert and Bitcoin core developer Peter Todd as the person behind the pseudonym. According to Hoback, Todd—who has been involved with Bitcoin since 2010—was responsible for creating Bitcoin and has kept his identity hidden for over 15 years. Hoback also suggests that Todd may have destroyed access to Satoshi's enormous fortune of 1.1 million bitcoins, which would be worth approximately $70 billion today.

Source: Hbo

Despite these intriguing claims, Todd has firmly denied the accusations, calling them "ludicrous." Todd stated the filmmaker was "grasping at straws" with the theory. "Of course, I'm not Satoshi," he declared. He further remarked, "It's ironic that a director who is also known for a documentary on QAnon has resorted to QAnon-style, coincidence-based conspiracy thinking here too." 

While Peter Todd has made significant contributions to Bitcoin, including his work on the Replace-by-Fee (RBF) protocol and his advocacy for privacy in blockchain technologies, he was never seriously considered as Nakamoto prior to these allegations. As the Bitcoin community remains captivated by the mystery, the unanswered question continues to generate both speculation and intrigue, especially with Satoshi's massive, untouched Bitcoin fortune still lurking in the background.

UAE Announces VAT Exemption on All Crypto Transactions, Retroactive to 2018

As part of global regulatory developments, the UAE has announced that all cryptocurrency transactions are now exempt from Value Added Tax (VAT), with the exemption applied retroactively to January 1, 2018.

The VAT exemption, part of broader amendments to the Federal Decree-Law No. 8 of 2017, was outlined in the October 2024 Executive Regulation update by the Federal Tax Authority (FTA). As of November 15, 2024, virtual asset taxation will receive a welcome overhaul, exempting operations such as virtual asset ownership transfers and conversions from VAT. 

Robinhood’s Gallagher Could Lead SEC Under Trump

Meanwhile, Robinhood’s chief legal officer, Dan Gallagher, is emerging as a top contender to lead the U.S. Securities and Exchange Commission (SEC) if Donald Trump wins the 2024 presidential election, Politico reported. Gallagher is seen by many in Washington as a "natural choice", largely due to his background in securities law and extensive connections in both government and finance circles. However, his path to the SEC chairmanship may not be without complications, as the agency is currently weighing a potential lawsuit against Robinhood over its cryptocurrency operations. 

Gallagher has criticized the potential case, calling it “a dog of a case” and arguing that Robinhood, unlike other platforms, is conservative in listing crypto tokens, avoiding risks such as lending and staking. He insists Robinhood is one of the "good guys" in the space and claims that the SEC’s focus should be elsewhere. If Trump does appoint Gallagher, the agency's stance on cryptocurrency could be in for a drastic makeover, a welcome change from the strict rules under Gensler's leadership. Gallagher has publicly disagreed with Gensler’s hardline stance on crypto, stating that, had he been in charge, there would already be tailored rules in place for exchanges and brokers. 

U.S. Court Approves FTX’s $16B Bankruptcy Plan, Distributions Start Late 2024

On October 7, 2024, FTX received court approval for its bankruptcy reorganization plan, allowing it to repay up to $16.5 billion in recovered assets to customers, marking a major step since the company's collapse in 2022. Approved by U.S. Bankruptcy Judge John Dorsey, the plan outlines settlements between FTX, customers, creditors, U.S. government agencies, and international liquidators. Under the plan, 98% of customers with $50,000 or less on the platform will be repaid within 60 days of the plan’s effective date. Customers are expected to receive at least 18% of their account balances as of November 2022. The recovery was bolstered by FTX's efforts to recover missing assets and raise additional funds, including through the sale of its stake in the AI startup Anthropic. Judge Dorsey commended FTX’s recovery efforts, calling it a "model case" for handling a complex Chapter 11 bankruptcy.

However, some expressed frustration that repayments are based on the 2022 values of cryptocurrencies rather than current prices. For example, Bitcoin has surged from $16,000 in November 2022 to over $63,000 in 2024. Customers argue that repayments should reflect the recent price rebound, but FTX maintains that returning their original crypto assets is impossible because most of the funds were misappropriated by Sam Bankman-Fried through Alameda Research. At the time of bankruptcy, FTX held only 0.1% of the Bitcoin customers had deposited. FTX financial advisor Steve Coverick testified that purchasing billions of dollars in cryptocurrency to cover the loss would be prohibitively expensive. Despite these challenges, FTX CEO John Ray III praised the outcome as a victory for creditors and highlighted the team’s work to rebuild financial records and recover assets globally, spanning over 200 jurisdictions.

First-Ever Criminal Charges for Crypto Market Manipulation

In a landmark legal case, federal prosecutors in Boston have brought the first criminal charges for widespread fraud and manipulation in cryptocurrency market manipulation, implicating 18 individuals and organizations, including Gotbit and ZM Quant. These companies and their employees are accused of fraudulent behavior, arranging so-called wash trades (an illegal practice where an entity simultaneously buys and sells assets to create the false appearance of market activity) to give certain cryptocurrencies an artificial boost. In this case, multiple cryptocurrency firms allegedly manipulated the market to attract new investors and push up token prices before selling them at inflated values in a classic pump-and-dump scheme. Authorities have seized over $25 million in assets, and Gotbit’s 26-year-old founder, Alexey Andryunin, has been arrested. Several defendants, including individuals from the U.K. and Portugal, have also been detained, while some have already pleaded guilty.

Especially interesting is the fact that the FBI played a key role in the operation by secretly creating an Ethereum-based token called NexFundAI to expose the fraudulent practices. Working with "cooperating witnesses," the FBI used this token to attract market makers like ZMQuant, CLS Global, and MyTrade, which unknowingly engaged in wash trades to manipulate the token's price. 

Closing Thoughts 

As global markets teeter on unstable ground, the value of Bitcoin dropped, driven down by soaring inflation in the U.S. and global uncertainty. Still, amidst the turbulent third quarter, Bitcoin stood strong and proved its worth, coming out on top as one of the year's strongest assets and leaving investors wondering if the bulls are finally on their way back. Recent regulatory developments in the U.S. and UAE take center stage, along with explosive new claims about Bitcoin's mysterious creator, and FTX's efforts to regroup under bankruptcy protection. Meanwhile, legal authorities are intensifying their focus on crypto market manipulation, bringing increased scrutiny to the industry. Stay tuned as the crypto world continues to evolve, with new developments and opportunities emerging amidst growing regulations and shifting market dynamics.