ALTERNATIVE MARKETS UPDATE – MID JANUARY 2024

​The cryptocurrency industry starts in 2024 with a massive win. The SEC approved multiple spot Bitcoin ETFs on Wednesday (10th January 2024). This is a major development of the industry’s adaptation to the broad financial markets and institutional investors in particular. While there were already multiple relevant ways to obtain crypto, e.g. through mutual funds, Bitcoin Futures ETFs, and Grayscale’s Bitcoin Investment Trust, it brings more regulatory clarity to the industry, which is still an important issue and prevents some investors from entering the space. This could also open the door for further crypto ETFs, such as Ethereum ETFs, in the future. However, the SEC clearly stated this approval does not constitute an opinion on cryptocurrencies as a whole or any individual tokens, which remain largely considered investment contracts that fall under the federal securities law.
This development is especially notable, due to the amount of time it took. In 2013, the Winklevoss twins filed for a Spot Bitcoin ETF, which was denied in 2017. Many other ETF providers filed for approval during the following years, which were also declined. In August 2021, the Chair of the SEC mentioned that they would look favourably on ETFs based on Bitcoin Futures instead of spot Bitcoin, largely due to the underlying regulatory clarity futures provide over cryptocurrencies. Following this development, the first Bitcoin Future ETFs were approved in October 2021. Then in 2022, Grayscale Investment filed for a potential conversion of the Bitcoin Trust to an ETF, which the SEC declined. Following this decision, Grayscale sued the SEC for their “arbitrary and capricious” explanation. In August 2023, judges ruled in favour of Grayscale, which led to increasing optimism on spot Bitcoin approvals and the eventual approval in 2024.

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RESEARCH PERSPECTIVE VOL. 219 January 2024 Alternative Markets Update January 2024 The cryptocurrency industry starts in 2024 with a massive win. The SEC approved multiple spot Bitcoin ETFs on Wednesday (10th January 2024). This is a major development of the industry’s adaptation to the broad financial markets and institutional investors in particular. While there were already multiple relevant ways to obtain crypto, e.g. through mutual funds, Bitcoin Futures ETFs, and Grayscale’s Bitcoin Investment Trust, it brings more regulatory clarity to the industry, which is still an important issue and prevents some investors from entering the space. This could also open the door for further crypto ETFs, such as Ethereum ETFs, in the future. However, the SEC clearly stated this approval does not constitute an opinion on cryptocurrencies as a whole or any individual tokens, which remain largely considered investment contracts that fall under the federal securities law. This development is especially notable, due to the amount of time it took. In 2013, the Winklevoss twins filed for a Spot Bitcoin ETF, which was denied in 2017. Many other ETF providers filed for approval during the following years, which were also declined. In August 2021, the Chair of the SEC mentioned that they would look favourably on ETFs based on Bitcoin Futures instead of spot Bitcoin, largely due to the underlying regulatory clarity futures provide over cryptocurrencies. Following this development, the first Bitcoin Future ETFs were approved in October 2021. Then in 2022, Grayscale Investment filed for a potential conversion of the Bitcoin Trust to an ETF, which the SEC declined. Following this decision, Grayscale sued the SEC for their “arbitrary and capricious” explanation. In August 2023, judges ruled in favour of Grayscale, which led to increasing optimism on spot Bitcoin approvals and the eventual approval in 2024. Bitcoin has ended the year 2023 with a strong performance with a 155% gain. It then soared briefly but lost its gain of the initial days in 2024. Bitcoin also continuously rose ahead of the anticipated date of the decision on the ETF approval. After the news was announced, Bitcoin shortly soared beyond $49k and stabilized between $46k and $47k at the time of writing. Figure 1 provides a detailed summary of Bitcoin’s price development in the past month. While it is likely that there might be a soft crash, due to the “sell the news” mentality, the industry will recover and likely soar. One core reason is the need for the ETF provider to amass Bitcoin to offer their Bitcoin ETFs as well as the Halvening (expected to be in April 2024), which historically led to strong bull runs. Figure 1: Bitcoin Price in the Past Month, Source: CoinMarketCap, January 2024 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 19th May 2023, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 61.2 billion. US$ 44.7 billion is mandated in hedge funds and US$ 16.5 billion in private assets and corporate finance (private equity, venture capital, private debt, real estate, fintech). 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