Pantera's bull market analysis

Cantor's Tether shocker I BTC ETF inflows I Coin Center rebukes Warren

Author

Decential Media
January 19, 2024

Decential Media
A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

  • Cantor’s Tether shocker

  • Pantera’s 2024 outlook

  • BTC ETF inflows

  • Ethereum testnet fork

  • Coin Center rebukes Warren

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The Latest

Cantor says it manages Tether’s assets

Certainty is a strange thing. I was reminded of this earlier this week when the news broke that Cantor Fitzgerald manages “many” of the assets held by the stablecoin Tether. If you’re new here or maybe just hadn’t heard, Tether has been dogged by suspicions for about a decade that the money it claims is in the bank is in fact nonexistent. Questions to this effect led the Commodity Futures Trading Commission to investigate Tether beginning in 2018 (a story I broke for Bloomberg News at the time).

The fact that Harold Lutnick, the CEO of Cantor, would now so easily and publicly share that his firm manages Tether’s assets, saying on Bloomberg TV that “they have the money,” is frankly startling to someone who has followed Tether for a long time. Tether executives have always staunchly refused to say where they did their banking – because let’s just say – they were moving shit around a lot and hijinks ensued. But they seem in good space now and survived the turmoil of 2022 unscathed. But back to what certainty has to do with this.

See, I had an editor at Bloomberg who spiked a story I’d done in 2016 saying that Tether had the money. Bank statements and blockchain records were shared with me that showed the cash and crypto Tether was claiming to hold was real. But this editor didn’t want to believe what I had found. He was certain it was a scam. So he killed the story, which was supposed to run in Businessweek. To be clear, that’s not the kind of editor you want to work for if you care about journalism. (A version of the story did later run on the Bloomberg wire and web site).

Another certainty in crypto recently was the legitimacy and upstanding nature of Sam Bankman-Fried and his exchange FTX. He had regulators ears, and deep pockets, and talked to reporters and threw great parties in the Bahamas and was finally a good guy crypto could claim as their own. The $8.7 billion loss of customer money at FTX was recently recategorized as theft by forensics firm Chainalysis in its annual crime report and SBF was convicted on all fraud charges in December. The only certainty was that from the word go the criminals who ran FTX only meant to steal.

My 15-year-old son is certain of things I know are objectively untrue, but that doesn’t change his mind. My wife, when she was battling ALS, was certain she’d get better, that she’d beat it. She didn’t. Sometimes you need certainty when everything else seems ephemeral and just out of reach. That’s why it’s a strange thing and can lead to enormous blind spots or a quiet resolve that gets us through the darkest times. A lesson I’ve tried to keep in mind from my earliest days as a reporter was to remember that’s it’s okay to say, “I don’t know.” It’s a certainty-free zone and maybe the best way to always try to ask the right questions. – Matthew Leising, editor in chief, Decential Media

Number go up dept.

Pantera puts numbers to a bull test

For a few months now, as prices in the $1.6 trillion cryptocurrency market have been on the rise, I’ve been saying I don’t really see any fundamentals underlying the optimism. Past rallies were fueled by Bitcoin’s breakout moment with the general public (2017) and serious innovations like collateralized lending protocols and non-fungible tokens (2020). A lot of work is being done on infrastructure and chain architecture but I’m not seeing any similar breakout at the moment.

But what do I know? I’m an idiot with a media company. So it was great to see some actual analysis done by Pantera in its annual “The Year Ahead” letter. It doesn’t get much more og than Pantera, creator of the first Bitcoin and then blockchain fund beginning in 2013. The $3.6 billion fund took a look at past crypto bull markets for a pattern and found that there have been two distinct phases in past up markets. The first is that Bitcoin significantly outperforms the wide universe of altcoin — or shitcoins or memcoins or take your pick. When the switch occurs to altcoins pulling in higher returns than BTC we’re in phase two. Check out the chart (courtesy of Pantera) below for the gory details, which are pretty impressive.

Bitcoin leads these rallies because it’s the most liquid digital coin and the most-common entry point for newbies to crypto. Then in phase two, people get frisky and chase larger but much riskier returns, if I can summarize the Pantera writers Cosmo Jiang, a portfolio manager for liquid strategies, and Erik Lowe, head of content. It’s cool to see something that looks like a great green light indicator in hard and fast numbers.

So where are we now? As to my gut feeling, the numbers aren’t quite there yet. As Pantera said, “So far in this cycle, Bitcoin is up 2.8x and altcoins are up 1.7x.” It’s headed in the right direction, at least. — ML

Quick Bits

Tether reserves

  • Cantor Fitzgerald CEO Howard Lutnick said in an interview with Bloomberg TV that his firm manages “many” of the assets belonging to Tether, the stablecoin that has steadfastly refused to prove the $86 billion it holds is real.

  • “They have the money,” Lutnick said. The Cantor revelation is a first that we know of and should put to rest longstanding questions of Tether’s solvency. It did, after all, make it through the 2022 market upheaval and implosion unscathed.

BTC ETF inflows

  • As of Jan. 17, nearly $2 billion had moved into new spot Bitcoin ETFs, according to Bloomberg Intelligence. About $4.5 billion in volume — ie, buying and selling of the ETF shares — occurred in the first three days of trading. BlackRock’s iSHares IBIT ETF is winning the inflow war so far with $710 million, followed by Fidelity with $524 million.

  • The big loser? Grayscale’s Bitcoin trust, GBTC. It’s seen $1.2 billion in outflows as the wild price difference for the fund’s shares compared with the underlying value of the BTC it holds is making investors want out. Expect that to continue until the discount is wiped out. 

Ethereum testnet forks

  • The Ethereum testnet Goerli suffered a network split after deploying the Dencun upgrade that’s meant to improve data access on the blockchain as well as reduce fees for so-called later-2 applications like Arbitrum. The breach was due to a bug in one of the clients managed by Prysmatic Labs.

  • The testnet work is meant to move Ethereum closer to sharding, which is intended to vastly increase Ethereum’s transaction speed as well as capacity. The bug was patched and the testnet began finalizing a few hours later as expected. If no other issues are encountered the Dencun upgrade will go live on Ethereum’s mainnet on Feb. 7.

And last but not least

Coin Center stymies Sen. Warren

Coin Center just politely but firmly told Senator Elizabeth Warren to shove it. The Massachusetts Democrat had requested Coin Center, a non-profit research, advisory and educational organization dedicated to crypto, disclose any former US military or intelligence officials it employs to make its case with politicians in Washington. “With respect, we have no obligation to answer these questions beyond the public disclosures we make under the law,” Jerry Britto, Coin Center’s executive director, wrote.

Warren, one of the most willfully ignorant politicians in DC about crypto and blockchain technology, escalated her war against the industry in October when she seized on a Wall Street Journal article that said Hamas had used $93 million in crypto to fund its attack against Israel. It took the WSJ two weeks to correct that story because its reporting was deeply flawed, but don’t expect Warren to stop using it as an excuse to outlaw crypto in the US. She is, after all, building “an anti-crypto army.”

Apparently, the crypto industry isn’t allowed to employ former government officials to carry out its lobbying efforts, unlike every other industry under the sun. In Warren’s flawed logic this represents “flexing a not-so secret weapon.” She went on: “This abuse of the revolving door is appalling, revealing that the crypto industry is spending millions to give itself a veneer of legitimacy while fighting tooth and nail to stonewall common sense rules designed to restrict the use of crypto for terror financing – rules that could cut into crypto company profits.”

Britto had no time for this, correctly reminding Warren that the group’s mission to educate politicians about crypto is well within its rights under the Constitution. So good for Coin Center to let the faux populist Senator know that the industry won’t be bullied and won’t engage with bad-faith actors. The desire and need for good crypto regulation in the US is not up for debate. Coin Center, as well as Coinbase and the Blockchain Association — which also received letters from Warren — are undertaking this with gusto. But it’s important to remember who your enemies are, and at every turn Warren has made herself out to be an enemy of this industry. Until she changes her ways, she should be treated with the contempt she deserves. — ML

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.