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Bitget Newsletter 5

Bitget Newsletter 5

Within this weeks newsletter, we dive into the Bitcoin chart to help keep you all up to date with the latest market trends. Additionally, we delve into significant developments like the UK's upcoming launch of their crypto sandbox and its impact on digital asset companies. We also cover the recent challenges major blockchain networks face due to increased inscriptions and the SEC's postponement of its decision on Ethereum ETFs. This newsletter is designed to keep you informed and ahead in the rapidly evolving world of cryptocurrencies.

7263f85c-209e-4f74-beaa-23d3dfdef941 Update

Currently, the market is in a state of uncertainty. If you examine the liquidity map provided below, it's evident that there are two primary areas of focus: $40,000 and $45,250. The key issue now is determining which group will face liquidation first: the bullish traders or the bearish ones.

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Predicting the market's next move is quite challenging due to the abundance of contradictory data available. For example, the current open interest is significantly low, similar to a previous situation when Bitcoin surged from $20,000 to $44,000. On the other hand, the funding rate remains somewhat elevated, indicating a predominance of long positions over short positions. Traditionally, this trend has not been favorable for the markets. So, I would look for this to come down to slightly more reasonable levels before another push-up.

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UK set to launch crypto sandbox

In the midst of this uncertain price action, we saw some positive news come out of the U.K. Beginning on January 8, 2024, the UK will implement the Financial Services and Markets Act of 2023, which will be applicable to entities participating in or seeking to join the Digital Security Sandbox. This development follows an announcement made on a recent Monday.

Entities such as UK-based investment exchanges, recognized central counterparties, central securities depositories, and investment firms are eligible to apply for participation in the sandbox. This initiative aims to cater to those who wish to manage trading platforms and intermediaries serving digital asset companies.

The program is recognized for encouraging the use of digital assets and distributed ledger technology (DLT) by what are termed financial market infrastructures (FMIs) - systems enabling financial transactions. This is seen as a means to enhance efficiency and reduce costs, as noted by government representatives.

The sandbox concept was first introduced earlier in the year, with collaborative efforts from the Financial Conduct Authority (FCA), the Bank of England, and HM Treasury to frame the guidelines.

HM Treasury emphasized in an August report that the process of modifying financial services legislation and regulation should be continuous and might span several years, rather than leading to regulatory stagnation.

Half a dozen blockchains experience outages

The recent surge in inscriptions on blockchain networks has led to significant disruption, causing outages and slowdowns across multiple platforms.

Prominent networks like Arbitrum, Avalanche, Cronos, zkSync, The Open Network, and Celestia have all faced operational challenges. For instance, a considerable increase in inscriptions caused a 78-minute outage on Arbitrum on December 16. Celestia, too, experienced significant stress, evident from a screenshot of its block explorer dated December 18.

To manage these issues, some networks have adopted new strategies. Cronos, for example, implemented an update that introduced dynamic transaction fees to better handle high-traffic periods, especially those caused by the demand for inscriptions.

The root of this trend lies in the realization that Ethereum and other Ethereum Virtual Machine (EVM)-based chains can be used for inscriptions, similar to Bitcoin Ordinals. Shardul Mahadik, a crypto developer, explains that while Bitcoin inscriptions are like writing on the smallest currency denomination, EVM inscriptions are akin to using the notes field in a payment app for data inscription.

Despite the hype, some in the industry remain skeptical. Michael Rinko from Delphi Digital views this trend as irrational, while blockchain investigator ZachXBT has raised concerns about crypto influencers potentially exploiting the situation for personal gain.

According to a report by Cointelegraph on December 18, the amount spent on gas for these inscriptions has reached record highs, with Dune Analytics reporting expenditures of over $6 million on December 18 and a peak of $8.3 million on December 16. This has led to some minters moving to networks like Polygon, known for their lower gas fees.

SEC Delays Decision on Ethereum ETFs

In a recent development, the United States Securities and Exchange Commission (SEC) has postponed its verdict on a series of Ethereum-based Exchange-Traded Funds (ETFs), extending the timeline for a potential approval until May 2024. This delay includes several key ETFs, including the Hashdex Nasdaq Ethereum ETF, Grayscale Ethereum futures ETF, VanEck Ethereum ETF, and the ARK 21Shares Ethereum ETF.

The SEC's decision to seek further public input marks a significant step in the regulatory process, indicating a thorough and cautious approach towards the burgeoning cryptocurrency market. The Hashdex Nasdaq Ethereum ETF, known for its innovative approach of holding both spot Ether and futures contracts, along with the Grayscale Ethereum Futures ETF, have been under the SEC's close scrutiny. Particularly, the Grayscale’s Ethereum Futures ETF is viewed as a potential gateway for converting Grayscale’s Ethereum Trust into a spot Ethereum ETF.

Despite having previously approved Ethereum futures ETFs, the SEC has hesitated to give the green light to spot or mixed-type Ethereum products. This cautious stance is reflective of the agency's broader approach towards the cryptocurrency market, which remains a complex and evolving regulatory landscape.

Interestingly, the market's focus is also partly directed towards the SEC's decision on 13 spot Bitcoin ETFs, which is anticipated as early as January 10, 2024. Analysts from Bloomberg, James Seyffart and Eric Balchunas, estimate a high probability of these Bitcoin ETFs receiving approval, a move that could further bolster the cryptocurrency market.