The Weekly Wrap: ECB forum, SEC rejects spot ETF, more defaults and bailouts

1. Annual European Forum on Central Banks 2022 was held in Portugal

The Facts:

• The annual European Forum on Central Banks was held in Sintra, Portugal this week where central bankers across the world gathered to discuss the current global inflationary pressure and the respective countermeasures the central banks are undertaking.
• The ECB is expected to hike rates for the first time in a decade most likely in the 25-50 bps range in July and September while the next CPI inflation print in the U.S. will take place on July 13th, followed by a rate hike decision by the FOMC on July 26-27th.
• Meanwhile, new inflation metrics revealed an inflation drop to 8.2% in Germany in June, Lebanon hit 211% in May, Zimbabwe hit 190% in June and Spain hit 10.2% in June, the highest YoY spike since April 1985.
• Moreover, the unemployment rate, a key Eurozone metric, came in at 6.6%, forecasted at 6.8%.

Why it’s important:

• As investors are concerned about the raging inflation, all eyes are on the ECB with a critical meeting next month.
• A tighter monetary policy might become a financial constraint for weaker economies within the EU as some of them, in particular Italy, face high levels of debt.
• Fed Chair Jerome Powell talked about risks of an economic slowdown induced by tighter monetary policy, yet made clear that letting inflation run rampant is coming with an even higher risk of recession.
• Despite the clear stance from the Fed to lower inflation, the ECB represented by Christine Lagarde did not reveal any specific additional measures, yet affirmed that they will accelerate rate hikes if needed.

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2. Grayscale sues SEC after ETF rejection

The Facts:

• On Wednesday, the SEC rejected Grayscale’s application from October 2021 to turn its Grayscale Bitcoin Trust (GBTC) into a spot ETF.
• The SEC argued that a Bitcoin spot ETF raises concerns about market manipulation, the role of Tether, and the lack of a surveillance-sharing agreement between a "regulated market of significant size" and a regulated exchange.
• Grayscale immediately filed a proceedingtied to the Administrative Procedures Act (APA) with the U.S. Court of Appeals for the District of Columbia Circuit.
• Like Grayscale’s, also Bitwise’s application for a Bitcoin spot ETF was rejected.

Why it’s important:

• As the SEC already approved futures ETFs, it clearly indicates that the underlying market must be seen as reliable.
• Therefore, Grayscale argues, that it is inconsistent to approve an ETF based on Bitcoin futures but not on the underlying asset.
• A spot Bitcoin ETF would offer a low-cost and easily accessible investment vehicle for individuals and institutions while creating real demand for the traded asset.
• Meanwhile, Jacobi Asset Management announced that it launches Europe's first Bitcoin ETF in July on Euronext.

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3. 3AC defaults on loan, FTX drops Celsius yet tries to buy BlockFi at $25m

The Facts:

• 3AC defaulted on a $670 million loan that was issued Monday by Voyager Digital for 3AC’s failure to pay a loan worth 15’250 Bitcoin and 350m USDC.
• Moreover, a British Virgin Islands (BVI) court reportedly ordered 3AC into liquidation earlier this week forcing them to liquidate assets tied to their BVI company.
• Shortly after, the Monetary Authority of Singapore (MAS) today reprimanded 3AC for providing false information by exceeding the assets under management (AUM) threshold.
• With a $2b hole in its balance sheet, according to a source, FTX drops its plans on making a deal with Celsius while Goldman Sachs is seeking $2b to buy distressed assets from the crypto lender.
• After FTX committed $500m in financing to Voyager Digital and agreed to provide CeFi lending company BlockFi with a $250m revolving credit facility, they are now close to finalizing a term sheet to buy BlockFi at $25m down from a $500m valuation, according to sources from CNBC.

Why it’s important:

• As positions still unwind and the dust settles, it becomes more and more clear how contagious the LUNA-UST collapse was.
• Accepting high risk to compensate for the loss, 3AC “borrowed recklessly from just about every institutional lender in the business”.
• With 3AC defaulting on loans of significant size and Celsius likely having a huge hole in their balance sheets, creditors and customers remain highly concerned.
• In order to increase transparency, Nexo, CoinShares, or TrustToken have proof-of-reserves and real-time downloadable auditor reports via Armanino, a top 20 US accounting firm, Kraken provides similar proof-of-reserves audits.

In other news

• Modular data availability-focused blockchain Polygon Avail launches on testnet (via Polygon)
• CoinFLEX serves notice of default to Roger Ver over $47m debt (via CNBC)
• Ethereum’s Gray Glacier upgrade is live (via Twitter)
• Russia approves tax break for digital asset issuers (via Euronews)
• VC firm 776 to lead first fundraising for NFT project Doodles (via Twitter)
• SEC’s Gensler reconfirms that Bitcoin is not a Security (via Decrypt)