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ASIC Chairman Alludes to Holes in Digital Assets Custody Solutions

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Australian Securities & Investments Commission (ASIC) Chairman Joe Longo, speaking at the AFR’s Super & Wealth Summit, made news Monday when he noted that crypto “investors are on their own.” The rest of his quote speaks to the country’s regulatory situation, saying that “ASIC has already provided some guidance on exchange-traded funds linked to crypto-assets — they at least are financial products, and traded on a licensed exchange, so there will be some protections there. But for the most part, for now at least, investors are on their own.” In combination with other parts of his speech, many wondered if it was a critique of the industry’s custody solutions.

“Mr. Longo walks an interesting tight rope, acknowledging the current regulatory components associated with exchange-traded funds linked to digital assets, while other officials speak of the power of blockchain technology. But then he juxtaposes that with the innate risk which investors are taking when dealing directly with crypto. It is an interesting position, but not one which is surprising, given the current state of custody solutions,” said Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges.

“While investors are protected in Australia when buying defined ‘financial products,’ many digital assets are not considered a ‘financial product’ and, thus, investors are not protected in the event of malfeasance. At the same time, Australian Financial Services Minister Jane Hume noted that digital assets weren’t a ‘fad’ and that citizens shouldn’t be ‘fearful of the unknown.’ Taken together, those can be complex messages to parse,” said Gardner.

Longo’s comments, in part, included the following:

“ASIC is [not] here to eliminate risk… But where industry has neglected to take its share of responsibility, ASIC will not hesitate to deploy the powers in our regulatory toolkit – to deter misconduct that causes harm, hold to account individuals and corporations that treat their responsibilities as optional, and drive a culture of better corporate behaviour… By enforcing the law against those who break the rules, we support those who want to do the right thing.”

“From the commentary, we can assume that the ASIC is looking at ways to create compliance measures while not indemnifying investors when exchanges falter. Therein lies the industry opportunity. Custody providers are supposed to fill that role, safeguarding assets in between the time that an investor purchases and is ready to sell. However, custody providers, as well as exchanges’ appropriate use of such providers, have turned out to be woefully inadequate. The market yearns for a secure solution which allows investors to purchase digital assets with confidence. Better custody solutions, used appropriately, would significantly reduce the number of headlines made by hackers,” noted Gardner.

Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Modulus has provided its exchange solution to some of the industry’s most profitable digital asset exchanges, including a well-known multi-billion-dollar cryptocurrency exchange. Over the past twenty years, the company has built technology for the world’s most notable institutions, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.

“Assets sitting in exchange accounts aren’t nearly as secure as assets sitting in cold storage. Custody solutions should be developed with institutional-grade security features, making hacks and other attacks impossible. However, a quick Google search of current top providers will show that they are riddled with security flaws. That’s not custody that investors can believe in. There must be a consequential shift in custody for crypto to flourish to its fullest potential,” opined Gardner.

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Bitcoin Breaks $40,000 Price Levels Amidst Optimism and Regulatory Developments

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Bitcoin on Monday broke $40,000 resistance levels following a 2.9% surge in price to $40,867 per coin.

The world’s largest digital currency has now appreciated by 146% in 2023 as more institutional investors continue to increase their investments in the unregulated cryptocurrency space.

Investors are exhibiting growing confidence in the Federal Reserve’s apparent conclusion of rate hikes amid a cooling inflation backdrop.

This shift in sentiment has redirected attention to the anticipated extent of rate cuts in the coming year, prompting a rally across global markets.

The cryptocurrency industry is currently in anticipation as regulatory decisions, particularly regarding applications for the first US spot Bitcoin exchange-traded funds (ETFs), hang in the balance.

Bloomberg Intelligence anticipates the approval of a batch of these ETFs by the Securities & Exchange Commission (SEC) by January.

“Bitcoin continues to be supported by optimism around SEC approval for an ETF and Fed rate cuts in 2024,” noted Tony Sycamore, a market analyst at IG Australia Pty.

Technical analysis points to $42,330 as the next significant level to monitor in Bitcoin’s upward trajectory.

Despite recent crackdowns in the industry, including legal actions against figures like Sam Bankman-Fried and Binance, Bitcoin has proven resilient.

Optimists argue that these regulatory measures, alongside the potential approval of ETFs, signify the maturation of the crypto industry and the prospect of a broader investor base.

According to Su Yen Chia, co-founder of the Asia Crypto Alliance, recent enforcement actions “have instilled confidence among investors,” noting that Bitcoin is aligning with momentum in traditional finance as expectations of Fed rate hikes fade.

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MicroStrategy Chairman Michael Saylor Bolsters Bitcoin Bet with $593.3 Million Purchase

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Michael SaylorPhotographer: Eva Marie Uzcategui/Bloomberg

Michael Saylor, chairman and co-founder of MicroStrategy Inc., has intensified his commitment to Bitcoin with a substantial investment of $593.3 million, expanding the enterprise-software company’s cryptocurrency holdings.

In a filing on Thursday, MicroStrategy revealed the acquisition of 16,130 Bitcoins in November, elevating its total holdings to approximately $6.5 billion.

This move represents Saylor’s most significant purchase since the acquisition of 19,452 Bitcoins for just over $1 billion in February 2021.

Saylor initiated MicroStrategy’s Bitcoin investments in 2020 and has accelerated these efforts throughout 2023, aligning the company with the cryptocurrency’s resurgence after a challenging period marked by rising interest rates and notable crypto-related incidents.

Stepping down from the CEO position a year ago, Saylor emphasized his focus on advancing MicroStrategy’s dual strategy with a primary emphasis on Bitcoin.

MicroStrategy’s stock has witnessed a remarkable 250% surge this year, surpassing Bitcoin’s 125% rally.

The optimism stems from the anticipation of potential approval for a Bitcoin exchange-traded fund (ETF) in the United States.

Contrary to concerns that an ETF approval might diminish demand for MicroStrategy’s stock, analysts like Matthew J. Maley, Chief Market Strategist at Miller Tabak + Co., suggest that an ETF could enhance interest in the asset class without significant cannibalization.

In conjunction with its Bitcoin investment, MicroStrategy entered into an agreement with Cowen and Company, Canaccord Genuity, and BTIG to offer up to $750 million of common stock.

The initial announcement of this stock offering in August outlined intentions to utilize the proceeds for Bitcoin purchases, working capital, and debt repurchases.

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Coinbase’s November Surge Sparks Investor Enthusiasm Amid Crypto Volatility

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Coinbase Global Inc. has witnessed a 62% surge in its shares this month, capturing the attention of investors amidst the current volatility in the cryptocurrency landscape.

While FTX’s Sam Bankman-Fried faces a fraud conviction, and Binance navigates regulatory scrutiny, traders are flocking to Coinbase, betting on increased business, especially if authorities greenlight Bitcoin-focused exchange-traded funds (ETFs).

This surge, adding $12 billion to Coinbase’s market value in November alone, marks a significant turnaround for the largest US crypto exchange.

The stock has more than tripled in 2023, defying the broader market trends and eclipsing the average analyst price target of approximately $84.

“Coinbase is in a better position today than really any other point as a public company,” notes Needham & Co. analyst John Todaro.

He sees 2022 and 2023 as pivotal years, weeding out weaker players in the industry. “Those who survived are going to come out of that stronger. And Coinbase is one that survived.”

The optimism surrounding Coinbase is fueled by regulatory clarity and the potential approval of US-listed Bitcoin ETFs, expected as early as January, according to Bloomberg Intelligence. Bitcoin’s nearly 130% surge in 2023 adds to this positive outlook.

Investors who bet against Coinbase shares have faced losses of $1.3 billion in the past 30 days, as the company overcame losses reported for seven consecutive quarters.

While competitors face legal challenges, the resolution of Binance’s dispute with the US Department of Justice is seen as a positive for Coinbase.

“A healthy development for the industry is positive for Coinbase, and an abrupt exit of large players is not,” highlights Oppenheimer & Co. analyst Owen Lau. The settlement with Binance is expected to uphold higher compliance standards for crypto exchanges.

Despite this surge, maintaining momentum remains uncertain, with over 40% of Wall Street analysts holding a hold-equivalent rating for Coinbase.

Notably, Cathie Wood’s Ark Investment Management LLC, although reducing its Coinbase holdings, remains the fourth-largest shareholder, emphasizing a cautiously optimistic stance in the crypto space.

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