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Bitcoin Exchange Coinbase to Go Public; What Does It Mean for BTC/USD?

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It is official. Bitcoin exchange Coinbase is going to become a public-traded firm.

The US Securities and Exchange Commission (SEC) released Coinbase’s S-1 filing on Thursday, signaling that it has approved the cryptocurrency trading company’s request to list its shares on Nasdaq seven-month after its initial filing. That made it the first exclusive crypto exchange to have achieved the mettle.

The rumors of Coinbase exploring a public listing opportunity emerged last summer. The company confirmed the news in December 2020, revealing that it had filed an S-1 application with the SEC. Last month, Coinbase announced that it was going to list its Class A shares directly.

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Meanwhile, the publication of Coinbase’s S-1 filing also unearthed its financial performance for the first time in public. It showed that the exchange earned $3.4 billion in total revenue until 2020, with transaction revenues contributing to 96 percent of the overall returns.

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Coinbase earnings revealed for the first time in public. Source: SEC Official Website

The firm also showed that it earned a net income of $322.3 million in 2020. Nevertheless, in 2019, it suffered losses worth $30.4 million.

“We,” Coinbase explained, “expect our operating expenses to increase significantly in the foreseeable future and may not be able to achieve profitability or achieve positive cash flow from operations on a consistent basis, which may cause our business, operating results, and financial condition to be adversely impacted.”

Coinbase did not share a market price for its public market debut. Nevertheless, its shares sold via the Nasdaq Private Markets were valued at $373. That has the US firm a rough valuation of $100 billion.

Institutional Exposure Without Having to Hold Bitcoin

Coinbase’s intentions to go public have opened a portal for institutional investors to gain exposure in the cryptocurrency market without having to purchase cryptocurrencies.

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Speculators will be able to buy or sell Coinbase shares on the stock market like any other public-traded company. The success of their trade would depend on how the exchange does as a business. Therefore, a growth in the cryptocurrency sector, driven by higher valuations in the Bitcoin, Ethereum, and other token markets, would determine Coinbase’s stock bias.

Chris McAlary, CEO of bitcoin ATM operator CoinCloud, noted:

“If [traditional investors are] more comfortable investing in stocks and putting their money behind a company with cash flow, a board of directors and the whole traditional infrastructure, they’ll appreciate the opportunity to bypass crypto volatility and invest in Coinbase stocks instead.”

What Does It Mean for BTC/USD

When the SEC finds a company suitable for the public, the regulator signifies a higher demand for its products and services in the future. Cryptocurrencies are at the central point of Coinbase’s services, which means its public-listing relies on a boom for top digital assets, including Bitcoin and Ethereum.

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Most importantly, Coinbase’s filing appears at a time when corporates and traditional investment vehicles have exposed their treasuries/portfolios to Bitcoin. Their moves took cues from the cryptocurrency’s potential to act as a hedge against future inflation caused by the Federal Reserve’s ultra-dovish and the US government’s expansive stimulus policies.

Bitcoin surged by more than 1,200 percent from its mid-March low of $3,858 amid lower interest rates, infinite bond-buying, and trillions of dollars worth of direct aid to the Americans, cashing on stressed bond yields and a depressed US dollar.

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Bitcoin surges after Coinbase’s S-1 filing go public. Source: BTCUSD on TradingView.com

And now, with a top Bitcoin exchange going public, the cryptocurrency expects to gain more traction from retail and institutional traders alike.

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This ransomware gang moved $6.8 million in Bitcoin amid regulatory overhaul

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Ransomware groups, Darkside and BlackMatter recently moved multi-million dollars worth of Bitcoin upon getting the news of REvil’s servers getting hacked by a global coalition of law enforcement agencies. According to the authorities, 107 BTC, which amounts to $6.8 million were moved earlier today by splitting the amount into several different wallets.

Furthermore, officials revealed that the gangs were already aware of regulators’ oversight and therefore had prepared the mentioned balance to be laundered or cashed out. According to The Record, officials noted that the breakdown of funds into smaller portions is usually used for money laundering operations as the regulators directly transfer the entire amount of confiscated funds instead of splitting them up.

“Basically, since 2AM UTC whoever controlled the wallet started to break the BTC into small chunks… At the time of this writing, the attackers split the funds into 7 wallets of 7-8 BTC and the rest (38BTC) is stored in the following wallet: bc1q9jy4pq5su9slh56gryydwkk0qjnqxvfwzm7xl6”, Omri Segev Moyal, CEO and co-founder of security firm Profero shared this data with The Record.

It is obvious that the Darkside and BlackMatter were next on the regulatory hitlist as Darkside was the ransomware strain developed by REvil associates that were used earlier this year in the infamous Colonial Pipeline incident of May. This attack indirectly led to fuel supply outages across the US East Coast.

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REvil ransomware group’s website went offline

Yesterday, the Reuters’ report about REvil’s servers being hijacked by the regulators went viral and threw other ransomware groups in a fit of panic. A multi-nation operation against cybercrime group, REvil was implemented and took down the group’s “Happy Blog” website, which was formerly used to leak victim data and extort companies.

“The FBI, in conjunction with Cyber Command, the Secret Service and like-minded countries, have truly engaged in significant disruptive actions against these groups,” said Tom Kellermann, an adviser to the U.S. Secret Service on cybercrime investigations and VMWare head of cybersecurity strategy. “REvil was top of the list.”, he added.

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First Bitcoin ETF in Immediate Danger of Hitting Cap on Contracts Held

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The first bitcoin (BTC) futures-backed exchange-traded fund (ETF), ProShares’ BITO, is reportedly already in danger of breaching a limit on the number of futures contracts it is allowed to hold under current Chicago Mercantile Exchange (CME) rules.

BITO already owns nearly 1,900 bitcoin futures contracts expiring in October, according to Bloomberg data. The number is close to CME’s current rule that a single entity cannot own more than 2,000 front-month futures contracts, Bloomberg reported on Thursday, when BITO had only been live for two full days. 

To get around the limit, the ETF has reportedly started buying futures contracts expiring in November in addition to the October contracts it holds, with 1,400 November contracts amassed so far. At the current pace, however, the fund could also soon reach CME’s cap on holdings for next-month contracts of 5,000 contracts, per the report.

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And while the CME has already said it will increase the limits to 4,000 front-month contracts starting in November, this is also likely to be reached soon by BITO, which already has more than USD 1bn under management.

A major issue faced by ProShares’ ETF is that futures contracts tend to trade at a higher premium over spot prices the further away their expiry date is – a phenomenon known as contango in the futures market.

As such, choosing to get around the maximum limits by buying longer-dated contracts will mean the ETF has to get its bitcoin exposure at prices that are increasingly higher than spot. This could result in high costs when contracts are rolled over at expiry that will eventually be paid by the ETFs investors in the form of lower returns.

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According to Bloomberg’s own ETF expert, Eric Balchunas, some of the pressure on the first ETF to be launched could be alleviated by competing ETFs coming to the market over the next few days and weeks. However, the first-mover advantage that BITO has gotten will still be difficult to challenge, he said.

“The unprecedented early volume in BITO makes it like a snowball rolling downhill, as liquidity and assets begets more liquidity and assets,” Balchunas said, adding that it will be “nearly impossible” for other ETFs to steal significant volume from BITO in the short or medium-term.

Commenting on the possibility of the ETF running into the ceiling, some speculated that the extreme popularity of the futures ETF could eventually pressure the US Securities and Exchange Commission (SEC) to allow a “physically” backed spot bitcoin to launch. 

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That scenario was suggested by Zhu Su, CEO of crypto hedge fund Three Arrows Capital, saying that it could lead to the ETF rising to a “hilarious premium,” leading the SEC to “approve a spot ETF because of public outrage.” 

In a tweet, he also shared a comment from Max Boonen, Founder of electronic market maker B2C2, saying that it is “doubtful” that clearing houses will be comfortable with a single entity holding more than 4,000 front-month contracts.

“What happens when BITO surpasses 4k [contracts] as it surely will?”, Boonen asked.

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A similar idea was also suggested by Eric Balchunas, saying in the Bloomberg report that BITO hitting the limits on how many futures contracts it is allowed to hold could pressure the SEC to allow a spot-based bitcoin ETF.

“That certainly would do the trick in slowing down BITO and providing a release valve for futures demand,” the senior ETF analyst said.

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Meanwhile, the second bitcoin ETF to be approved by the SEC, the Valkyrie Bitcoin Strategy ETF with the ticker BTF, is scheduled to go live on the market today, October 22. BTF will also be backed by bitcoin futures contracts traded on the CME rather than by “physical” bitcoins.

BTF should go live on the Nasdaq exchange when the market opens at 09:30 ET (13:30 UTC).

Following the launch of Valkyrie’s fund today, a third bitcoin futures ETF, the VanEck Bitcoin Strategy ETF (XBTF), is set to go live on Monday on the Cboe BZX Exchange, according to a recent SEC filing.

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Second US Bitcoin Futures ETF Launching Today – Here Are the Details

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A new Bitcoin (BTC) futures exchange-traded fund (ETFs) rolls out today.

Valkyrie Investments, an alternative asset management firm, is launching the country’s second Bitcoin futures ETF, according to CEO Leah Wald.

The new product is called the Valkyrie Bitcoin Strategy ETF and will trade on the Nasdaq under the ticker symbol BTF.

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The launch comes on the heels of ProShares’ Bitcoin futures exchange-traded fund, which exploded onto the market on Tuesday with the second-biggest ETF launch of all time.

Like ProShares’ Bitcoin Strategy ETF (BITO), the Valkyrie ETF doesn’t invest directly in BTC but provides price exposure to Bitcoin futures contracts.

Per the ETF’s prospectus,

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“Under normal circumstances, the fund will seek to purchase a number of Bitcoin futures contracts so that the total notional value… of the Bitcoin underlying the futures contracts held by the fund is as close to 100% of the net assets of the fund as possible.”

Bitcoin is trading at $62,793, up nearly 10% on the week but down from its Wednesday all-time high of $67,276, according to CoinGecko.

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